ACCT 208 chapter 1 practice questions

A company purchased a 12 month insurance policy on October 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

What is true about period costs (2 things)?

-Sales commissions are period costs -Period costs are expensed in the same period in which they are incurred

The contribution approach to constructing income statements does what (2 things)?

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

Quality cost information reports:

-give managers an idea of where to focus quality control efforts -show managers if quality control costs are poorly distributed -help identify the financial cost of defects

Companies that use just-in-time systems

-often require suppliers to use sophisticated quality control programs -may require suppliers to certify delivered items are free of defects -receive parts from suppliers at the time needed to fill orders

What is true about period costs?

-period costs do not flow through the inventory accounts -period costs are expensed when incurred

Within the relevant range, fixed costs

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

Opportunity costs

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

Which of the following are differences between the traditional and contribution format to income statements?

-traditional income statements focus on cost 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

What is true about mixed costs?

-when mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit -a mixed cost has a minimum cost of having a service available and ready for use

T/F: All of a company's depreciation, property taxes and insurance premiums are considered manufacturing overhead

False (only indirect costs assoc. with operating the factory are included in manufacturing overhead)

T/F: A cost may be direct or indirect, depending on the cost object

True

T/F: presenting fixed costs on an average per unit basis makes them look like they are variable costs

True

Selling costs include

advertising sales commissions sales salaries

discretionary fixed costs include

advertising management training programs

maintenance and depreciation of test equipment are examples of ___ cost

appraisal

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

behavior

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

common

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

cost structure

which is NOT an example of a typical external failure cost? debugging system errors defective product liability warranty repairs product recalls

debugging system errors (this is an internal failure cost)

which of the following are NOT internal failure costs?

depreciation of test equipment product recalls

a change in revenue between 2 alternatives is known as ___ revenue or incremental revenue

differential

Fantastic Furniture makes custom order couches. The material used to make a couch is a ___ cost of the customer placing an order

direct

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

direct labor

common activity bases include (3)

direct labor hours units sold machine hours

A laptop computer manufacturer would consider the computer's processor chip to be a ___ cost

direct material

Manufacturing costs can be divided into 3 categories:

direct materials, direct labor, and manufacturing overhead

T/F: the term quality costs refers to the cost of the quality of material used to make a product

false

___ costs remain constant in total

fixed

how to calculate net income using the traditional format

gross margin - (total selling & admin expense)

The purpose of statistical process control is to identify processes that are ___ or ___ of control

in or out

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

Salaries of factory supervisors and factory maintenance personnel are examples of ___ labor costs

indirect

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

indirect materials and manufacturing overhead (the cost of relatively insignificant direct materials are treated as indirect materials bc it is not worth the time and cost to directly trace them to products)

Manufacturing overhead costs include

indirect materials, factory supervisors' salaries, and factory depreciation

Costs that result from identifying defects before products are shipped to customers and include the cost of scrap and rework are ___ costs

internal failure

Product costs are also called ___ costs

inventoriable

In the equation Y = a + bX, the X is the

level of activity

Direct materials and direct labor are both __ costs

manufacturing

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

manufacturing overhead

the cost of producing one more unit is the ___ cost

marginal

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

matching

indirect materials include

nails, glue, and thread

cost objects include

organizational subunits customers anything for which cost data is desired

costs incurred in an attempt to lower the number of products manufactured with defects are ___ costs

prevention

Direct materials, direct labor, and manufacturing overhead are all ___ costs

product

Small groups of employees that meet regularly to discuss ways to improve quality are referred to as

quality circles

the materials that go into the final product are called ___ materials

raw

prior to being recorded on the income statement, manufacturers' product costs flow through (3):

raw materials work in progress finished goods

the level of activity within which variable and fixed cost assumptions are valid is known as the ____

relevant range

Non- manufacturing costs include ___ and ___.

sales commissions (selling costs) and company president's salary

contribution margin is

sales revenue minus variable costs

what type of cost is NEVER relevant and should be disregarded when making decisions?

sunk

differential costs is

the difference in cost between 2 alternatives

In the equation Y = a + bX, a is the

the total fixed cost (the vertical intercept of the line)

committed fixed costs include

top management salaries real estate taxes

In the equation Y = a + bX, Y is the

total mixed cost

Direct labor is also called ___ labor

touch

An income statement focusing on product and period costs has been prepared using a ___ format, while a ___ format income statement makes a distinction between fixed and variable costs

traditional, contribution

Within the relevant range, ___ costs remain constant on a per unit basis

variable

___ costs remain constant per unit and vary in total

variable

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

variable cost per unit of activity

Manufacturing costs include ___, ___, and ___.

direct materials, direct labor, and manufacturing overhead