smartbook ch.1

Which of the following statements are true? □a particular cost is either direct or indirect, regardless of the cost object □a regional sales manager's salary would be a direct cost of the regional office in which the sales manager works □a direct cost can be easily and conveniently traced to a specific cost object □a direct cost is sometimes referred to as a common cost

- a regional sales manager's salary would be a direct cost of the regional office in which the sales manager works - a direct cost can be easily and conveniently traced to a specific cost object

differential revenue

A change in revenues between two alternatives is known as _________ revenue or incremental revenue.

$300 is reported as a expense and $900 is reported as an asset

A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements,

direct material reason: The computer processor chip can be easily and conveniently traced to the laptop, making it a direct material cost.

A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost

indirect cost

A manufacturing cost that cannot be easily traced to a specific cost object is a(n) _______ cost

opportunity cost

A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) ______ _____

Cost Object

A(n) is anything for which cost data are desired—including products, customers, plants, office locations, and departments.

executive compensation and public relations costs

Administrative costs include _______

real estate taxes top management salaries

Committed fixed costs include:

sales revenue minus variable costs

Contribution margin is ______

categorizes costs as fixed, mixed and variable refers to how a cost will change as activity level changes

Cost behavior:

- customers - organizational subunits / departments - anything for which cost data is desired

Cost objects include

direct costs

Costs that can be easily and conveniently traced to a specific product are called Blank______ costs.

fixed

Costs that remain constant in total and vary per unit are ______ costs

decision making

Differential costs, opportunity costs and incremental costs are all cost classifications used in ________

manufacturing

Direct materials and direct labor are both ______ costs

manufacturing overhead

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as ______

committed

Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are called ______ fixed costs

80,000 Reason: Gross Margin of $140,000 - Total Selling & Admin. Exp. of $60,000 = $80,000.

Given: Sales of $360,000, Gross Margin of $140,000, Contribution Margin of $110,000, and Total Selling & Administrative Exp. of $60,000, net income using the traditional income statement format equals

behavior

How a cost react to changes in activity level is referred to as cost _________

direct labor or touch labor

In an automobile manufacturing plant, the assembly-line workers are classified as _______ _______ cost

product or manufacturing

Inventoriable costs is another term for _______ costs.

direct and indirect reason: Manufacturing overhead is a indirect cost. Direct labor and direct materials are direct costs.

Manufacturing costs include ______ costs.

direct materials, direct labor, manufacturing overhead

Manufacturing costs include _______

indirect materials, factory supervisors' salaries, and factory depreciation

Manufacturing overhead costs include ________

company president's salary sales commissions

Non-manufacturing costs include:

gross margin is reported cost of goods sold includes both fixed and variable costs

On a traditional format income statement _____. gross margin is reported selling and administrative expenses are reported in product costs contribution margin is reported cost of goods sold includes both fixed and variable costs

- are benefits lost when choosing one option over another - should be considered in decision making

Opportunity costs:

they are incurred

Period costs are always expensed on the income statement in the period in which:

- are expensed in the period incurred - include all costs that are not product costs

Period costs:

direct materials direct labor

Prime costs include _____

income statement

Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ______

"attach" to units of product as they are produced or purchased for resale are also called inventoriable costs

Product costs:

indirect

Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.

contribution margin

Sales revenue minus variable expenses equals

sales commissions sales salaries advertising

Selling costs include:

False: Only indirect costs associated with operating the factory are included in manufacturing overhead. Costs associated with non-manufacturing operations are not included.

T or F All of a company's depreciation, property taxes, and insurance premiums are considered manufacturing overhead.

true

T or F - The finished product of one company can become raw materials for another company.

matching

The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized is known as the ____________ principle

relevant range

The assumption that cost behavior is strictly linear is reasonably valid within the _____ _____ of activity

incremental revenue Reason: This is also called differential revenue.

The difference in revenues between two alternatives is called _____

prime

The sum of direct materials and direct labor is called ______ cost.

prime

The sum of direct materials and direct labor is called _______ cost.

raw

The term _______ materials refers to any materials used in the final product

raw materials

The term _________ materials refers to any materials used in the final product.

direct

Touch labor is another name for ______ labor.

-Contribution format statements make it easier to predict how decisions affect the future. -Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior.

Which of the following are differences between the traditional and contribution format to income statements? - The traditional income statement is for internal use, while the contribution format income statement is for external use. - Contribution format statements make it easier to predict how decisions affect the future. -Traditional income statements focus on cost classifications. -Contribution format statements focus on cost behavior.

Factory insurance Administrative salaries Factory rent

Which of the following are most likely fixed costs? - Factory insurance - Administrative salaries - Factory rent - Electricity to operate factory machines

indirect costs

Which of the following is not a COST CLASSIFICATION associated with decision making? Sunk costs Differential costs Opportunity costs Indirect costs

Variable cost

Which type of cost changes in total, in direct proportion to changes in activity level?

the assumption that cost behavior is strictly linear is reasonably valid fixed costs remain constant in total and vary per unit

Within the relevant range of activity:

indirect Explanation: An indirect cost is a cost that cannot be directly traced to a specific product or unit, and since the manager's salary is not directly tied to the production of a single tool type, it is classified as indirect

a factory produces a variety of tools. The factory manager's salary is a(n) ______ cost of a particular type of tool.

traditional, contribution

an income statement focusing on product and period costs has been prepared using a(n) _________ format, while a(n) _________ format income statement makes a distinction between fixed and variable costs.

factory security guard wages assembly-line supervisor salary

indirect labor costs include: - factory security guard wages - assembly-line supervisor salary - administrative assistant salary - Administrative salaries are non-manufacturing costs. assembly-line worker wages

variable

ost of goods sold for a merchandising company, direct materials and commissions are all examples of ______ costs.