accounting 202 learnsmart chapter 1

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

decision making

as the level of activity moves outside of the relevant range, fixed costs

increase or decrease in discrete steps

direct materials and direct labor are both

manufacturing costs

a company purchased a 12 month insurance policy on oct 1 at a cost of $1200. on the december 31 annual financial statements:

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

discretionary fixed costs include:

-advertising -management training programs

the contribution approach to constructing income statements

-aids in decision making -distinguishes between fixed and variable costs

differential cost is

-aka incremental costs -the difference in cost between two alternatives

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

cost objects include:

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

manufacturing costs include

-direct labor -direct materials -manufacturing overhead

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

-discretionary -committed

other names for manufacturing overhead include:

-factory overhead -indirect manufacturing costs -factory burden

indirect labor costs include

-factory security guard wages -assembly-line supervisor salary

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

behavior

sales revenue minus variable expenses equals

contribution margin

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

cost structure

selling and administrative costs are

direct or indirect costs

fixed costs that usually arise from annual spending decisions by management are _____ fixed costs

discretionary

the contribution approach to constructing income statements distinguished between ________ costs

fixed and variable

a fixed cost remains fixed ____ within the relevant range of activity

in total

what is not a cost classification associated with decision making?

indirect costs

manufacturing overhead costs include

indirect materials, factory supervisors' salaries, and factory depreciation

the revenue from selling one additional unit is called

marginal revenue

the accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is known as the _______ principle

matching

A cost that contains both variable and fixed elements

mixed cost

a potential benefit that is forfeited or lost when one decision is chosen over another is called

opportunity cost

materials that go into the final product

raw materials

cost assumptions are reasonable valid within the ________ ______ of activity

relevant range

contribution margin is

sales revenue minus variable costs

contribution margin is:

sales revenue minus variable costs

mixed costs are commonly known as ________ costs

semi-variable

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

sunk

should never be considered when making a decision

sunk costs

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

they are incurred

direct labor is also called

touch labor

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

variable

units that are partially complete are found in

work in process

two broad classifications of costs

-manufacturing costs -nonmanufacturing costs

an activity base

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

an activity base:

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

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

-raw materials -finished goods -work in progress

within the relevant range activity, variable costs

-remain constant per unit -vary in total

opportunity costs:

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

within the relevant range, fixed costs

-should not be expressed on a per unit basis when making decisions -remain constant in total regardless of changes in activity -generally include rent and supervisor salaries

committed fixed costs include

-top management salaries -real estate taxes

what are differences between the traditional and contribution format to income statements

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

common activity bases include:

-units sold -direct labor hours -machine hours

manufacturing costs can be divided into 3 categories:

-direct materials -direct labor -manufacturing overhead

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

-indirect materials -manufacturing overhead