Accounting 102 - Chapter 1 Practice Questions

A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements:

$300 is reported as an expense and $900 is reported as an asset

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

False In general, only the differences between alternatives are relevant in decisions. Those items that are the same under all alternatives and that are not affected by the decision can be ignored.

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

Period costs are expensed in the same period in which they are incurred. Sales commissions are period costs. All selling and administrative expenses are treated as period costs.

A contribution approach income statement:

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

Step-variable costs:

can be adjusted quickly as conditions change may include total salaried employee expense

Cost behavior:

categorizes costs as fixed, mixed and variable refers to how a cost will change as activity level changes Within the relevant range of activity, assumptions made about cost behavior are reasonably valid.

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 __ __.

cost object

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

cost structure

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

decision making All of these are important cost classifications that must be properly identified to make correct decisions.

The difference in costs between two alternatives is called a __ cost.

differential

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

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 __ cost

direct material

Prime costs are:

direct materials and direct labor

Selling and administrative costs are __ costs.

direct or indirect Administrative costs can be either direct or indirect costs. For example, the salary of an accounting manager in charge of accounts receivable collections in the East region is a direct cost of that region, whereas the salary of a chief financial officer who oversees all of a company's regions is an indirect cost with respect to individual regions.

Fixed costs that usually arise from annual spending decisions by management are __ fixed costs.

discretionary

Administrative costs include:

executive compensation and public relations costs

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

fixed

A serious limitation of using a traditional income statement for internal reporting purposes is that it does not distinguish between __ costs.

fixed and variable

A manufacturing cost that cannot be easily traced to a specific cost objective is an __ cost.

indirect

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

indirect

Other names for manufacturing overhead include: indirect manufacturing costs prime manufacturing costs factory overhead factory burden

indirect manufacturing costs factory overhead factory burden

Manufacturing overhead costs include __.

indirect materials, factory supervisors' salaries, and factory depreciation

Product costs are also called __ costs.

inventoriable

An activity base:

is sometimes called a cost driver measures whatever causes costs to vary

Indirect materials and indirect labor are classified as __.

manufacturing overhead

Indirect materials include:

nails, glue, and thread Relatively insignificant materials are treated as indirect because it isn't worth the effort to trace the costs.

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

raw materials work in process finished goods

Order-getting and order-filling are other names for __ costs.

selling

Opportunity costs:

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

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

Marginal cost is:

the cost incurred to produce one more unit of a product

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

true

Mixed costs are also commonly known as semi-__ costs.

variable

In the equation Y = a + bX, b denotes the:

variable cost per unit of activity slope of the line

Within the relevant range of activity, variable costs __.

vary in total remain constant per unit

Units that are partially complete are found in:

work in process

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

they are incurred

Committed fixed costs include:

top management salaries real estate taxes

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.

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

Variable

Which of the following statements are true? Within the relevant range of activity, fixed costs remain constant in total. The relevant range of activity is approximated by a straight line. Within the relevant range of activity, total variable costs do not change.

Within the relevant range of activity, fixed costs remain constant in total. The relevant range of activity is approximated by a straight line.

A type of indirect cost incurred to benefit more than one cost object is a __ cost.

common

Nonmanufacturing costs include:

company president's salary sales commissions

Sales revenue minus variable expenses equals __ __.

contribution margin

Variable costs vary __ within the relevant range of activity.

in total

Differential costs are also known as __ costs.

incremental

Direct materials and direct labor are both __ costs.

manufacturing

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

raw

Within the relevant range, fixed costs:

should not be expressed on a per unit basis when making decisions generally include rent and supervisor salaries remain constant in total, regardless of changes in activity As a general rule, we caution against expressing fixed costs on an average per unit basis in internal reports because it creates the false impression that fixed costs are like variable costs and that total fixed costs actually change as the level of activity changes.