ACC 220 Chap 1

Product Costs

"attach" to units of product as they are purchased for resale or produced, are also inventorial costs.

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

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

Which of the following statements are true?

-Period costs do not flow through the inventory accounts. -Period costs are expensed when incurred.

Which of the following are differences between the traditional and contribution format to income statements?

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

Which of the following are most likely fixed costs?

Administrative salaries Factory rent Factory insurance

The finished product of one company can become raw materials for another company.

True

How individual costs react to changes in activity level is referred to as cost

behavior

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

committed

Any item for which cost data is desired is called a(n)

cost object

cost objects include

customers organizational subunits anything for which cost data is desired

Differential costs, opportunity costs and sunk costs are all cost classifications used in ______.

decision making

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

differential

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

direct

Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order.

direct

Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are

direct

Labor costs that can be easily and conveniently traced to specific products are ______ costs.

direct labor costs

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

direct material

Prime costs include

direct materials and direct labor

Manufacturing costs include ______.

direct materials, direct labor, manufacturing overhead

Selling and administrative costs are ______ costs.

direct or indirect

A cost that can be easily and conveniently traced to a specific cost object is a(n) ---- cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are --- costs.

direct; indirect

Administrative costs include ______.

executive compensation and public relations cost

Within the relevant range of activity, ______ costs remain constant in total.

fixed

Within the relevant range of activity ---.

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

A fixed cost remains fixed ______ within the relevant range of activity.

in total

As the level of activity moves outside of the relevant range, fixed costs, ______.

increase or decrease in discrete steps

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

indirect

Which of the following is not a COST CLASSIFICATION associated with decision making?

indirect costs

Minor items such as nails and glue are usually considered to be ______.

indirect materials

Manufacturing overhead costs include

indirect materials, factory supervisors' salaries, and factory depreciation

Product costs are also called

inventorial costs

Indirect materials and indirect labor are classified as ______.

manufacturing overhead

The revenue from selling one additional unit is called ______ revenue.

marginal

The revenue obtained from selling one additional unit of product is called --- revenue

marginal

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

matching

Manufacturing costs can be divided into three categories: direct ----, ---- labor and manufacturing ----.

materials, direct, overhead

A cost that contains both variable and fixed cost elements is called a(n) --- cost.

mixed

Indirect materials include ______.

nails, glue, and thread

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

opportunity cost

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

prime

Direct materials, direct labor, and manufacturing overhead are all ______ costs.

product

inventoriable costs is another term for --- costs.

product

cost behavior

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

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

relevant range

Contribution margin is ______.

sales revenue minus variable costs

Selling costs include

sales salaries, sales commissions, and advertising

Opportunity costs ______.

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

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

they are incurred

Committed fixed costs include ______.

top management salaries, real estate taxes

Direct labor is also called --- labor.

touch

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.

traditional, contribution margin

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

variable

Within the relevant range, a cost that changes in direct proportion to changes in the activity level is a ______ cost.

variable

The difference in revenues between two alternatives is called ______.

incremental revenue

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

manufacturing overhead

The materials that go into the final product are called -- materials.

raw

Direct materials and direct labor are both ______ costs.

manufacturing

On a traditional income statement, cost of goods sold reports the --- costs attached to merchandise sold during the period, while selling and administrative expenses report all --- costs that have been expensed as incurred.

product, period

indirect labor costs include

factory security guard wages, assembly-line supervisor salary

True or false: Labor costs that can be specifically traced to a product are indirect labor costs.

false

As the level of activity moves outside of the relevant range, --- costs increase or decrease in discrete steps rather than a linear fashion.

fixed

Sales revenue minus all variable expenses equals

contribution margin

All of a company's depreciation, property taxes, and insurance premiums are considered manufacturing overhead.

false