Chapter 1

A contribution approach income statement ______. is prepared primarily for external reporting purposes separates costs into their fixed and variable components reports both gross margin and net income can assist with management decision making

separates costs into fixed and variable component can assist with management decision making

Costs that have already been incurred and can not be changed by decisions made in the current period or in future periods are called _____ costs

sunk

What type of cost is never relevant and should be disregarded when making decisions?

sunk

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

Fixed

Variable costs vary ______ within the relevant range of activity.

In total

In the equation Y = a + bX, a = total ______ cost.

fixed

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

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

$80,000

Cost behavior ______. A. categorizes costs as fixed, mixed and variable B. is a detailed analysis technique used to determine whether costs are fixed or variable C. refers to how a cost will change as activity level changes D. is the relative proportion of each type of cost in an organization

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

Step-variable costs ______. may include total salaried employee expense can be adjusted quickly as conditions change are generally treated as fixed costs

1, 2

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. The traditional income statement is for internal use, while the contribution format income statement is for external use. Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior.

1, 3

Which of the following statements are true? 1. A direct cost can be easily and conveniently traced to a specific cost object. 2. An individual cost is either direct or indirect, regardless of the cost object. 3. A regional sales manager's salary is a direct cost of the regional office in which the sales manager works. 4. A direct cost is sometimes referred to as a common cost.

1, 3

Discretionary fixed costs include ______. 1. advertising 2. factory depreciation 3. management training programs 4. insurance expense

1, 3,

Within the relevant range, fixed costs ______. generally include rent and supervisor salaries per unit become progressively larger as the level of activity increases should not be expressed on a per unit basis when making decisions remain constant in total regardless of changes in activity

1, 3, 4

An activity base ______. 1. is sometimes called a cost driver 2. is a measure of whatever causes fixed costs to occur 3. is part of the organization where major operations are planned and carried out 4. measures whatever causes costs to vary

1, 4,

Which of the following statements are true? 1. Sales commissions are period costs. 2. The wages of assembly-line workers are period costs. 3. Period costs are expensed in the same period in which they are incurred. 4. Period costs are included as part of the cost of goods.

1. 3.

Committed fixed costs include ______. 1. public relations 2. top management salaries 3. real estate taxes 4. research

2, 3

Within the relevant range of activity ______. 1. variable costs do not change in total, only per unit 2. costs and activity can be approximated by a straight line 3. fixed costs remain constant in total

2, 3

Which of the following statements are true? 1. Inventoriable costs are expensed in the period in which they are incurred. 2. Period costs are expensed when incurred. 3. All costs in a merchandising company are period costs. 4. Period costs do not flow through the inventory accounts.

2. Period costs are expensed when incurred. 4. Period costs do not flow through the inventory accounts.

Based on the following information, compute the cost of goods sold for Spengler Merchandising Corporation. Sales $400,000 Purchases $300,000 Beginning inventory $50,000 Ending inventory $90,000 Selling expenses $70,000 Administrative expenses $30,000 Accounts receivable $110,000

260,000

Opportunity costs ______. are uncommon in decision making are part of traditional accounting records are benefits that are given up when selecting one alternative over another should be considered in decision making

3, 4

Which of the following statements are true? The fixed portion of a mixed cost represents the cost incurred for the actual consumption of a service. The equation for a straight-line makes it easy to calculate the total mixed cost for any activity level outside the relevant range. A mixed cost has a minimum cost of having a service available and ready for use. When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit.

3, 4

Common activity bases include ______. 1. scrapped units 2. units sold 3. direct labor hours 4. machine hours

3. 2. 4

Product costs ______. A. "attach" to units of product as they are purchased for resale or produced B. Include all costs involved in making and selling a product C. Are also called inventoriable costs D. Are always expensed in the same period in which the related products are produced.

A , C

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

B, C, D

Costs that are shared by multiple cost objects in a company are known as ______ costs.

Common

Nonmanufacturing costs include ______.

Company president's salary sales commissions

Direct labor and overhead costs incurred to change raw materials into finished products are known as ______ costs

Conversion

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

Cost Object

The relative proportion of each type of cost in an organization is known as the company's ________ ________

Cost Structure

cost objects include

Customers, Organizational Subunits and anything for which cost data is desired.

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

Decision Making

The difference in revenues between two alternatives is called ______.

Differential Revenue

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 ______ materials.

Direct

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

Direct Labor

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

Direct Material

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

Fixed costs that can be cut-back or eliminated without significant damage to a company's long-term goals are _____ fixed cost and _____ fixed costs can not be easily changed or eliminated.

Discretionary, Committed

Other names for manufacturing overhead include ______.

Factory burden factory overhead indirect manufacturing costs

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

False

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

False

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

Indirect

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

Indirect Materials

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

Indirect costs

Direct materials and direct labor are both ______ costs.

Manufacturing

Factory burden is a synonym for _______ ______

Manufacturing Overhead

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

Manufacturing Overhead

Factory materials, such as cleaning supplies, that are not components of finished products are classified as ______.

Manufacturing Overhead

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

Manufacturing Overhead, Indirect Materials

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

The components of prime costs are direct ______ costs and direct _____ costs

Material, Labor

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

Mixed

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

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

Raw

The assumption that cost behavior is strictly linear is reasonably valid within the ______ ______of activity

Relevant range

Cost behavior patterns such as salaried employees are often called ______ _______ costs.

Step variable

Direct labor is also called ______ labor

Touch

True or false: A cost may be direct or indirect, depending on the cost object.

True

True or false: Presenting fixed costs on an average per unit basis makes them look like they are variable costs.

True

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

True

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

Variable

Prior to being recorded on the income statement, manufacturers' product costs flow through ______.

Work in Process Finished Goods Raw Materials

Units that are partially complete are found in ______.

Work in progress

Beginning merchandise inventory + Purchases - Ending merchandise inventory =

cost of goods sold

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

behavior

Differential costs ______.

can be fixed or variable

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

committed

A type of indirect cost incurred to benefit more than one cost object is a(n) ______ cost.

common

Sales revenue minus variable expenses equals ______ ______

contribution margin

The difference in costs between two alternatives is called a(n) ______ cost.

differential

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

The contribution approach to constructing income statements ______. distinguishes between fixed and variable costs aids in decision making distinguishes between product and period costs is used primarily for external reporting

distinguishes between fixed and variable costs aids in decision making

Indirect labor costs include ______.

factory security guard wages, assembly-line supervisor salary

True or false: Removing expenses that do not differ between alternatives could alter a decision.

false

True or false: Variable costs remain fixed in total within the relevant range of activity.

false

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

fixed

The contribution approach to constructing income statements distinguishes between ______ costs.

fixed and variable

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

Manufacturing overhead costs include ______.

indirect materials, factory supervisors' salaries, and factory depreciation

Cost structure ______.

is the relative proportion of each type of cost in an organization

The cost of producing one more unit is the ______ cost.

marginal

A cost than 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

Variable costs ______.

remain constant per unit and vary in total.

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) _____format income statement makes a distinction between fixed and variable costs.

traditional, contribution

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

variable