Chapter 1 questions from book and notes

fixed costs

costs that remain the same in total, but change on a per unit bases, with changes in production volume

Haack Incorporated is a merchandising company. Last month the company's cost of goods sold was $61,900. The company's beginning merchandise inventory was $17,600 and its ending merchandise inventory was $26,200. What was the total amount of the company's merchandise purchases for the month?

$70,500 Cost of goods sold = Beginning merchandise inventory + Purchases − Ending merchandise inventory $61,900 = $17,600 + Purchases − $26,200 Purchases = $61,900 − $17,600 + $26,200 = $70,500

Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $502,000 or a new model 220 machine costing $443,000 to replace a machine that was purchased 11 years ago for $470,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $443,000 in the new machine, the money could be invested in a project that would return a total of $487,000. In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was:

470000 Sunk cost = Cost of old machine = $470,000

which of the statements are true

Contribution margin and gross margin mean the same thing CM format income statement is used as an internal planning and decision making tool A CM format income statement separates costs into fixed and var categories first deducting VAR expenses from sales to obtain CM

The following costs were incurred in May: Direct materials$46,800Direct labor$36,800Manufacturing overhead$29,200Selling expenses$25,000Administrative expenses$32,800 Conversion costs during the month totaled: Multiple Choice $66,000 $76,000 $170,600 $83,600

Conversion cost = Direct labor + Manufacturing overhead = $36,800 + $29,200 = $66,000

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

Depreciation of factory maintenance equipment. product cost- costs related to goods either purchased for resale or manufactured for resale, also known as inventory costs period costs- any cost not a product cost (ex. advertising, selling, and administrative costs)

Vignana Corporation manufactures and sells hand-painted clay figurines of popular sports heroes. Shown below are some of the costs incurred by Vignana for last year: Cost of clay used in production$ 83,000Wages paid to the workers who paint the figurines$ 90,000Wages paid to the sales manager's secretary$ 42,000Cost of junk mail advertising$ 59,000 What is the total of the direct costs above? $83,000 $132,000 $173,000 $232,000

Direct costs include the cost of clay used in production and the wages paid to the workers who paint the figurines. $83,000 + $90,000 = $173,000

Which of the following statements are true? Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost. The concept of the relevant range does not apply to variable costs. Multiple Choice Only statement I is true. Only statement II is true. Both of the statements are true. Neither of the statements are true.

Neither of the statements are true.

Vignana Corporation manufactures and sells hand-painted clay figurines of popular sports heroes. Shown below are some of the costs incurred by Vignana for last year: Cost of clay used in production$ 63,000 Wages paid to the workers who paint the figurines$ 80,000 Wages paid to the sales manager's secretary$ 32,000 Cost of junk mail advertising$ 49,000 What is the total of the product costs above? $0 $81,000 $143,000 $161,000

Product costs include the cost of clay used in production and the wages paid to the workers who paint the figurines. $63,000 + $80,000 = $143,000

Cost Equation

Total Costs = Fixed Costs + [ Variable Costs per unit x # of units]

costs that remain the same on a per unit basis, but change in total, with changes in production volume

variable costs