Managerial Accounting: Chapter 1

controllable

A/an ___________________________(controllable/uncontrollable) cost can be influenced by the manager being evaluated.

uncontrollable

A/an _____________________________(controllable/uncontrollable) cost CANNOT be influenced by the manager being evaluated.

discretionary

Advertising, research, public relations, management development programs, and internships for students are examples of ____________________(committed/discretionary) fixed costs.

selling

Advertising, shipping, sales travel, sales commissions, sales salaries, and costs of finished goods warehouses are examples of ____________________________(selling/administrative) costs.

Cost of Goods Sold

Beginning Merchandise Inventory + Purchases - Ending Merchandise Inventory =

product

Costs involved in MAKING a product are __________________(product/period) costs.

period

Costs involved in SELLING a product are _____________(product/period) costs.

variable

Costs of goods sold, direct materials, direct labor, indirect materials, supplies, power, commissions, and shipping costs are examples of _______________(fixed/variable) costs.

fixed

Depreciation, insurance, property taxes, rent, and supervisory salaries are examples of ____________(fixed/variable) costs

Conversion Cost

Direct Labor + Manufacturing Overhead =

Product Cost

Direct Materials + Direct Labor + Manufacturing Overhead =

Variable Manufacturing Cost

Direct Materials + Direct Labor + Variable Manufacturing Overhead =

Prime Cost

Direct Materials + Direct Labor =

activity bases

Direct labor-hours, machine-hours, units produced, and units sold are examples of _______________ _____________.

administrative

Executive compensation, general accounting, legal counsel, secretarial, and public relations are examples of ____________________(selling/administrative) costs.

fixed

Factory insurance, administration salaries, and factory rent are example of ______________ costs.

Total Fixed Cost

Fixed Manufacturing Overhead + Fixed Selling Expense + Fixed Administrative Expense

Net Operating Income

Gross Margin - Selling and Administrative Expenses =

manufacturing overhead

Indirect manufacturing costs, factory overhead, and factory burden are names for _______________________ _________________.

committed fixed

Investments in facilities and equipment, real estate taxes, insurance premiums, and salaries of top management are examples of ____________(committed/discretionary) fixed costs.

product; period

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.

income statement

Product costs flow through the inventory accounts until the goods are sold, at which they are matched against sales on the __________________ ___________________.

costs, benefits

Relevant _________ and relevant _________________ should be considered when making decisions.

Gross Margin

Sales - Cost of Goods Sold =

period

Sales commissions, advertising, executive salaries, public relations, and the rental costs of administrative offices are examples of ___________________(product/period) costs.

Period Cost

Selling Expense + Administrative Expense =

False; A common cost is a type of INDIRECT cost

T/F: A common cost is a type of direct cost.

False; A non-value-added cost does NOT provide benefit to the company's stakeholders.

T/F: A non-value-added cost provides benefit to the company's stakeholders.

False; A value-added cost INCREASES the value of products and services provided to the company's stakeholders.

T/F: A value-added cost decreases the value of products and services provided to the company's stakeholders.

True

T/F: All selling and administrative expenses are treated as period costs.

False; All selling and administrative expenses are treated as PERIOD costs

T/F: All selling and administrative expenses are treated as product costs.

True

T/F: Contribution income statements are prepared for internal management purposes.

True

T/F: Contribution income statements use cost classification for predicting costs behavior (variable and fixed costs) to better inform decisions affecting the future.

True

T/F: Differential costs are always relevant costs.

True

T/F: Differential revenue is an example of a relevant benefit.

product

T/F: Direct material, direct labor, and manufacturing overhead are all _______________(period/product/variable/conversion) costs.

False; Direct materials and direct labor are direct costs. Manufacturing overhead is an indirect cost.

T/F: Direct materials, direct labor, and manufacturing overhead are all direct costs.

True

T/F: Electricity is a variable cost.

False; Average fixed cost per unit decreases as the activity level rises and increases as the activity level falls.

T/F: Fixed cost per unit remains constant.

True; Since indirect materials and indirect labor CANNOT be easily and conveniently traced, they are included in manufacturing overhead.

T/F: Indirect materials and indirect labor are included in manufacturing overhead.

True

T/F: Period costs are always expenses on the income statement in the period in which they are incurred.

True

T/F: Period costs are expensed when incurred.

True

T/F: Period costs are expenses on the income statement in the period in which they are incurred using the rules of accrual accounting.

False; PRODUCT costs do flow through the inventory accounts on the balance sheet and they are included in the cost of goods sold in the income statement.

T/F: Period costs flow through the inventory accounts on the balance sheet and they are included in the cost of goods sold in the income statement.

True

T/F: Selling and administration costs can be both direct or indirect costs.

True

T/F: Selling and administrative costs are nonmanufacturing costs.

False; Selling costs can be direct or indirect costs.

T/F: Selling costs are direct costs.

True

T/F: The finished product of one company can become raw materials for another company.

True

T/F: Total fixed cost is NOT affected by changes in the activity level within the relevant range.

True

T/F: Total variable cost increases and decreases in proportion to changes in the activity level.

False; Traditional income statements are prepared primarily for EXTERNAL reporting purposes.

T/F: Traditional income statements are prepared primarily for internal reporting purposes.

False; Traditional income statements focus on COST CLASSIFICATIONS. Contribution format statements focus on COST BEHAVIOR.

T/F: Traditional income statements focus on cost behavior. Contribution format statements focus on cost behavior.

True

T/F: Traditional income statements organizes costs into two categories: costs of goods sold and selling and administrative expenses.

True

T/F: Traditional income statements rely on cost classification for preparing financial statements (product and period costs) to depict the financial consequences of past transactions.

True

T/F: Variable cost per unit remains constant.

product

The cost of goods sold reports the _______________(product/period) costs attached to the merchandise sold during the period.

period

The selling and administrative expenses report all ______________(product/period) costs that have been expenses as incurred.

1. selling costs 2. administrative costs

What are the 2 types of nonmanufacturing costs?

1. differential costs 2. opportunity costs 3. sunk costs

What are the 3 cost classifications associated with decision making?

1. direct materials 2. direct labor 3. manufacturing overhead

What are the 3 types of manufacturing costs?

1. Direct costs vs. Indirect costs 2. Manufacturing costs vs. Nonmanufacturing costs 3. Product costs vs. Period costs 4. Variable costs vs. Fixed costs vs. Mixed costs 5. Relevant costs vs. Irrelevant costs

What are the 5 cost classifications?

variable

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

administrative

__________________ costs include executive compensation and public relations costs.

indirect cost

a cost that CANNOT be easily and conveniently traced to a specified cost object

direct cost

a cost that can be easily and conveniently traced to a specified cost object

mixed cost

a cost that contains both variable and fixed cost elements

sunk cost

a cost that has already been incurred and that CANNOT be changed by any decision made now or in the future

common cost

a cost that is incurred to support a number of cost objects but CANNOT be traced to them individually

fixed cost

a cost that remains constant, in total, regardless of changes in the level of activity

decremental cost

a decrease in cost from one alternative to another

differential cost

a future cost that differs between any two alternatives

activity base

a measure of whatever causes the incurrence of a variable cost

administrative costs

all costs associated with general management of an organization rather than with manufacturing or selling

product costs

all costs involved in acquiring or making a product

selling costs

all costs that are incurred to secure customer orders and get the finished product to the customer

period costs

all the costs that are not product costs

matching principle

an accrual concept that states that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized

incremental cost

an increase in cost from one alternative to another

discretionary fixed costs

annual decisions by management to spend on certain fixed cost items

cost object

anything for which cost data are desired, including products, customers, plants, office locations, and departments

finished goods

completed units of product that have not yet been sold to customers

marginal cost

cost involved in producing one more unit of product

indirect labor

employees such as janitors, supervisors, materials handlers, maintenance workers, and night security guards that play an essential role in running a manufacturing facility; however, the cost of compensating these people CANNOT be easily or conveniently traced to specific units of product

differential revenue

future revenue that differs between any two alternatives

cost behavior

how a cost reacts to changes in the level of activity

manufacturing overhead

includes all manufacturing costs except direct materials and direct labor

direct labor

labor costs that can easily traced to individual units of product

raw materials

materials that go into the final product

committed fixed costs

organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes

opportunity cost

potential benefit that is given up when one alternative is selected over another

inventoriable costs

product costs assigned to inventories

managerial accounting

providing information to managers within an organization so that they can formulate plans, control operations, and make decisions

direct materials

raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finish product

indirect materials

raw materials whose costs CANNOT be easily or conveniently traced to finished products

financial accounting

reporting financial information to external parties, such as stockholders, creditors, and regulators

marginal revenue

revenue that can be obtained from selling one more unit of product

contribution margin

the amount remaining from sales revenues after all variable expenses have been deducted

relevant range

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

cost structure

the relative proportion of each type of cost in an organization

conversion cost

the sum of direct labor and manufacturing overhead

prime cost

the sum of direct materials cost and direct labor cost

work in process

units of product that are only partially complete and will require further work before they are ready for sale to the customer

variable cost

varies, in total, in direct proportion to changes in the level of activity