ACCT 200 Ch. 1

Which of the following is NOT a period cost? A. Depreciation of factory maintenance equipment. B. Salary of a clerk who handles customer billing. C. Insurance on a company showroom where customers can view new products. D. Cost of a seminar concerning tax law updates that was attended by the company's controller.

A

The salary paid to the president of a company would be classified on the income statement as a(n):

Administrative expense.

Which of the following is an example of a period cost in a company that makes clothing? A. Fabric used to produce men's pants. B. Advertising cost for a new line of clothing. C. Factory supervisor's salary. D. Monthly depreciation on production equipment.

B

The relative proportion of variable, fixed, and mixed costs in a company is known as the company's:

Cost Structure.

Rotonga Manufacturing Company leases a vehicle to deliver its finished products to customers. Which of the following terms correctly describes the monthly lease payments made on the delivery vehicle?

Direct Cost - No; Fixed Cost - Yes

A cost that differs from one month to another is known as a sunk cost.

False

When operations are interrupted or cut back, committed fixed costs are cut in the short term because the costs of restoring them later are likely to be far less than the short-run savings that are realized.

False

A contribution format income statement separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.

True

A direct cost is a cost that can be easily traced to the particular cost object under consideration.

True

Advertising is not considered a product cost even if it promotes a specific product.

True

Although the traditional format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs.

True

Committed fixed costs remain largely unchanged in the short run.

True

In a traditional format income statement, the gross margin is sales minus cost of goods sold.

True

Selling and administrative expenses are period costs under generally accepted accounting principles.

True

The cost of napkins put on each person's tray at a fast food restaurant is a variable cost with respect to how many persons are served.

True

The following costs are all examples of committed fixed costs: depreciation on buildings, salaries of highly trained engineers, real estate taxes, and insurance expenses.

True

The relevant range is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid.

True

An example of a committed fixed cost is:

a long-term equipment lease

Depreciation on a personal computer used in the marketing department of a manufacturing company would be classified as:

a period cost that is fixed with respect to the company's output.

Direct costs:

can be easily traced to a particular cost object.