ACCT 202: Chapter 1

The following information is for S&P Enterprises for the month of July: Direct materials --- $76,000 Direct labor --- $40,000 Variable manufacturing overhead --- $25,000 Fixed manufacturing overhead --- $30,000 Variable selling expense --- $12,000 Fixed selling expense --- $15,000 Variable administrative expense --- $6,000 Fixed administrative expense --- $18,000 Total fixed cost for the month of July was ______.

$63,000 Why: $30,000 + $15,000 + $18,000 = $63,000

Based on the following information, calculate net income for Dana's Dress Shop using the traditional format. Sales $360,000 Gross Margin $140,000 Contribution Margin $110,000 Total Selling & Administrative Exp. $60,000

$80,000

Nonmanufacturing costs include ______.

- company president's salary - sales commissions

Opportunity costs ______.

- should be considered in decision making - are benefits that are given up when selecting one alternative over another

Committed fixed costs include ______.

- top management salaries - real estate taxes

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

Variable

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

behavior

Administrative costs include ______.

executive compensation and public relations costs

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

false

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

indirect

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

indirect materials

Indirect materials and indirect labor are classified as ______.

manufacturing overhead

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.

matching

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

product

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

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

relevant range

Contribution margin is ______.

sales revenue minus variable costs

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

they are incurred

An income statement focusing on product and period costs has been prepared using a(n) ________ format, while a(n) ________.

traditional; contribution

True or False: The finished product of one company can become raw materials for another company.

true

The following information is for S&P Enterprises for the month of September: Direct materials --- $82,000 Direct labor --- $51,000 Variable manufacturing overhead --- $32,000 Fixed manufacturing overhead --- $30,000 Variable selling expense --- $16,000 Fixed selling expense --- $15,000 Variable administrative expense --- $9,000 Fixed administrative expense --- $18,000 Total fixed cost for the month of September was $______.

63,000

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

Indirect costs

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

committed

Sales revenue minus variable expenses equals ______ ______.

contribution margin

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

cost object

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

decision making

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

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

direct labor

n an automobile manufacturing plant, the assembly-line workers are classified as ______ ______ cost.

direct labor

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

direct material

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

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

false

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

fixed

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

in total

Variable costs vary ______ within the relevant range of activity.

in total

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

variable

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

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

manufacturing overhead

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

mixed

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

mixed

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

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

raw or direct

Which of the following are most likely fixed costs?

- Administrative salaries - Factory insurance - Factory rent

Prime costs include ______.

- direct labor - direct materials

Manufacturing costs include ______.

- manufacturing overhead - direct materials - direct labor

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

- Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier. - Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior.

Cost objects include ______.

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

Product costs ______.

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

Cost behavior ______.

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

Which of the following statements are true?

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

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.

matching

Within the relevant range of activity ______.

- costs and activity can be approximated by a straight line - fixed costs remain constant in total

Manufacturing costs can be divided into three categories: direct ______, ______labor and manufacturing ______.

direct materials; direct labor; manufacturing overhead

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

indirect

A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of ______.

- manufacturing overhead - indirect materials

Differential cost is ______.

- the difference in cost between two alternatives - also known as incremental cost

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

prime

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

direct

Differential costs are also known as _______ costs.

incremental

Manufacturing overhead costs include ______.

indirect materials, factory supervisors' salaries, and factory depreciation