ACTG 213 CH1

Step-variable costs ___.

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

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

-Contribution format statements make it easier to predict how decisions affect the future -Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior.

Which of the following is not a COST CLASSIFICATION associated with decision making?

Indirect costs

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

True

Presenting fixed costs on an average per unit basis makes them look like they are variable costs.

True

The finished product of one company can become raw materials for another company.

True

True or false: Presenting fixed costs on an average per unit basis makes them look like they are variable costs.

True

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

behavior

Differential costs ___.

can be fixed or variable

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

direct

Selling and admin costs are _ cost

direct (or indirect)

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

direct labor

Labor costs that can be easily traced

direct labor

A laptop computer manufacturer would consider the computer's processor chip to b a(n) _ cost

direct material

Manufacturing costs can be divided into three categories: direct ___, ___ labor and manufacturing ___.

materical; direct; overhead

A cost that contains both variable and fixed cost elements is a(n) ______ cost.

mixed

A cost that contains both variable and fixed cost elements is a(n) ______ cost.

mixed (semivariable/semi-variable)

A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) ___ ___.

opportunity cost

The sum of direct materials and direct labor is called _ cost.

prime

Most likely fixed costs?

-admin salaries -factory rent

Most likely fixed costs?

-administration salaries -factory rent -factory insurance

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

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

-finished good -raw materials -work in process

Within the relevant range, fixed costs _.

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

Period costs _.

-include all costs that aren't product costs -are expensed in the period incurred

Beginning merchandise inventory + Purchases - Ending merchandise inventory =

Cost of goods sold

The following information is for S&P Enterprises for the month of September: *graph* Total fixed cost for the month

F M O/H + F Selling Expense + F Administrative Expense

All of a company

False

True or false: Labor costs that can be specifically traced to a product are indirect labor costs

False

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

cost structure

Differential costs, opportunity costs, and incremental costs are all cost classifications used in ___.

decision making

A fixed cost remains fixed ___ within the relevant range of activity

in total

A fixed cost remains fixed ___ within the relevant range of activity.

in total

Variable costs vary ___ within the relevant range of activity.

in total

Manufacturing overhead costs include ___.

indirect materials, factory supervisors' salaries, and factory depreciation

Cost structure _.

is the relative proportion of each type of cost in an organization

The cost of producing one more unit is the ___ cost.

marginal

Differential costs are also known as ___ costs

relevant (incremental/decremental/marginal)

The assumption that cost behavior is strictly linear is reasonable valid within the ___ ___ of activity.

relevant range

Contribution margin is ___

sales revenue - variable costs

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

variable

A company purchased a 12 month insurance policy on Oct 1 for $1200. On December 31 annual financial statements, _.

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

Prime costs include

direct materials and direct labor

Direct material, direct labor, manufacturing overhead are all _ costs.

product

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

total mixed cost

Product costs also

-are also called inventoriable costs -attach to units of product as they are purchased for resale or produced

Indirect labor costs include:

-assembly-line supervisor salary -factory security guard wages

A cost that can be easily and conveniently traced to a specific cost object is a(n) _ cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are _ costs.

-direct/prime -indirect/common/overhead

Admin cost include:

-executive compensation -public relations costs

Indirect materials include _.

-nails -glue -thread

Committed fixed costs include _.

-real estate taxes -top management salaries

Cost behavior _

-refers to how a cost will change as activity level changes -categories costs as fixed, mixed, and variable

Non manufacturing costs include

-sales commission -company president's salary

A contribution approach income statement _

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

Direct labor and overhead costs incurred to change raw materials into finished products are known as _ costs.

conversion

The difference in costs between two alternatives is called a(n) ___ cost.

incremental (also called a differential cost)

Indirect materials and indirect labor are classified as:

manufacturing overhead

Manufacturing overhead costs include:

-indirect materials -factory supervisors' salaries -factory depreciation

An activity base _.

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

Common activity bases include _.

-machine hours -direct labor hours -units sold

Discretionary fixed costs include _.

-management training programs -advertising

Opportunity costs ___.

-should be considered in decision making -are benefits lost when choosing one option over another

Within the relevant range of activity _.

-the assumption that cost behavior is strictly linear is reasonably valid -fixed costs remain constant in total and vary per unit

Which of the following statements are true?

-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.

... The differential net income from the proposal is ___.

35000 (A differential cost analysis considers the change in revenues (50000) and subtracts the change in both variable (10000) and fixed (5000) costs.)

Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are called ___ fixed costs.

committed

Costs that are shared by multiple cost objects in a company are known as _ costs

common

Sales revenue minus all variable expenses equals ___ ___.

contribution margin

Direct labor and overhead costs incurred to change raw materials into finished products are known as ___ costs.

conversion

Prime costs include _.

direct materials and direct labor

In an automobile manufacturing plant, the assembly-line workers are classified as ___ ___ cost.

direct; labor

Fixed costs that can be cut-back or eliminated without significant damage to a company's long-term goals are ___ fixed cost and ___ fixed costs can not be easily changed or eliminated.

discretionary; committed

As the level of activity moves outside of the relevant range, ___ costs increase or decrease in discrete steps rather than an linear fashion.

fixed

In the equation Y= a + bX, a+ total ___ cost.

fixed

Minor items such as nails and glue are usually considered to be ______.

indirect materials

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as ______.

manufacturing overhead

Manufacturing costs include _:

manufacturing overhead direct materials direct labor

Factory burden is a synonym for

manufacturing overhead (indirect manufacturing cost, factory overhead)

The revenue from selling one additional unit is called ___ revenue.

marginal

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

matching

On a traditional income statement, cost of goods sold reports the ___ costs attached to merchandise to merchandise sold during the period, while selling and administrative expenses report all ___ costs that have been expensed as incurred.

product (/manufacturing); period

Variable costs

remain constant per unit and vary in total

Cost behavior patterns such as employees are often called _-_ costs

step-variable

What type of cost is never relevant and should be disregarded when making decisions?

sunk

A(n) _ __ is anything for which cost data are desired - including products, customers, plants, office locations, and departments.

cost object

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

fixed

The contribution approach to constructing income statements distinguishes between _ costs.

fixed and variable

As the level of activity move outside of the relevant range, fixed costs, _

increase or decrease in discrete steps

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

sunk (sunken)

Marginal cost is ___.

the cost incurred to produce one more unit of a product

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

they are incurred

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

traditional (/GAAP); contribution (/contribution margin)

Cost of goods sold for merchandising company, direct materials and commissions are all examples of ___ costs.

variable

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

variable

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

variable