Ch1. Managerial Accounting & Cost Concepts

Differential cost is

Also known as incremental cost The difference in cost between two alternatives.

Indirect labor costs include:

Assembly-line supervisor salary Factory security guard wages

A contribution approach income statement:

Can assist management with decision making Separates costs into fixed and variable components

Nonmanufacturing costs include:

Company president's salary Sales commissions

Sales revenue minus variable expenses equals _____ _____.

Contribution margin

Costs that can be easily and conveniently traced to a specific product are called _____ costs.

Direct

Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are _____ materials.

Direct

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

Direct Labor

The following information is for S&P Enterprises for the month of September: Direct Materials - $82,000 Direct Labor - $51,000 Variable Manufacturing Overhead - $32,000 Fixed Manufacturing Overhead - $30,000 Variable Selling Expense - $16,000 Fixed Selling Expense - $15,000 Variable Administrative Expense - $9,000 Fixed Administrative Expense - $18,000 Total conversion cost for the month of September was:

Direct Materials + Direct labor + Variable & Fixed Manufacturing Overhead= 82,000+ 51,000 + 32,000 + 30,000 = 195,000

Manufacturing costs can be divided into three categories:

Direct materials Direct labor Manufacturing overhead

Administrative costs include:

Executive compensation Public relations costs

Which of the following are most likely fixed costs?

Factory rent Administrative salaries Factory insurance

Fantastic furniture makes custom order furniture. The factory manager's salary is a(n) _____ cost of producing a couch.

Indirect

Manufacturing Overhead costs include _____.

Indirect materials, factory supervisors' salaries, and factory depreciation

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

Manufacturing overhead

The revenue obtained from selling one additional unit of product is called _____ revenue.

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 includes:

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

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

Opportunity cost

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

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

Product

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

Relevant range

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

Selling

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

Slope of the line Variable cost per unit of activity

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

Sunk

Within the relevant range of activity costs, 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

Cost Behavior:

refers to how a cost reacts to changes in the level of activity categorizes costs are fixed, mixed and variable (within the relevant range of activity, assumptions made about cost behavior are reasonably valid.)