Chapter 1 A 306

Product costs Blank______.

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

As the level of activity moves outside of the relevant range, fixed costs, Blank______.

Increase or decrease in discrete steps

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

Indirect materials

Using the high-low method, the fixed cost is calculated Blank______.

after the variable cost per unit is calculated using either the high or low level of activity

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

mixed

The high-low method Blank______.

uses only two data points is easy to apply

A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements, Blank______.

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

Based on the following information, calculate net income for Dana's Dress Shop using the traditional format. Sales $360,000 Gross Margin $140,000 Contribution Margin $110,000 Total Selling & Administrative Exp. $60,000

$80,000 (140k-60k)

A company incurred $12,000 of maintenance cost for 6,500 machine hours in June and $14,250 of maintenance costs for 8,000 hours in August. Assuming these are the high and low months of activity, the estimated fixed maintenance costs using the high-low method is $________

2250

Using the high-low method, variable cost has been calculated as $1.20 per unit. At the highest level of activity, total cost is $5,000 for 1,200 units. Therefore, total fixed costs equal $_____

3560

Which of the following are most likely fixed costs?

Factory rent Administrative salaries Factory insurance

Which of the following statements are true?

Period costs are expensed when incurred Period costs do not flow through the inventory accounts.

Which of the following statements are true?

Period costs are expensed when they are incurred Sales commissions are period costs

False (cost must be caused by cost object)

To be traced to a cost object such as a particular product, the cost must be incurred to make the product.

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

True

Indirect labor costs include:

assembly-line supervisor salary, factory security guard wages

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

behavior

Cost behavior ______.

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

The variable cost per unit using the high-low method is calculated as Blank______.

change in cost ÷ change in units (activity)

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(n) ______ cost.

direct material

Selling and administrative costs are ______ costs.

direct or indirect

Costs that remain constant in total are Blank______ costs.

fixed

In a least-squares regression line, the vertical intercept (a) of the line represents the total _______ cost.

fixed

A factory manager's salary is an example of a(n) ______ cost.

indirect

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

indirect

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

indirect materials

The statistic R² Blank______.

is a measure of the goodness of fit

The high-low method Blank______.

is easy to apply uses only two data points

The best fitting line minimizes the sum of the squared errors when using Blank______.

least-square regression

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called Blank______.

least-squares regression

To determine the slope, intercept and R² using Excel, select the Trend/Regression type Blank______.

linear

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

manufacturing overhead

Indirect materials and indirect labor are classified as ______.

manufacturing overhead

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

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

mixed

When making a decision Blank______ should be considered.

only relevant costs and benefits

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

opportunity cost

Direct materials, direct labor, and manufacturing overhead are all ______ costs.

product

When making a decision, the decision maker should consider Blank______.

relevant benefits relevant costselevant costs

Selling costs include ______.

sales commissions advertising sales salaries

Contribution margin is Blank______.

sales revenue minus variable costs

Opportunity costs Blank______.

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

When using Excel, the intercept (a), slope (b) and R² is determined by selecting any data point in the scattergraph plot and selecting Add _______

trendline

The high-low method Blank______.

uses only two data points is based on periods where the activity tends to be unusual

Using the high-low method, the fixed cost is calculated Blank______.

using either the high or low level of activity after the variable cost per unit is calculated

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

variable

When using the high low method, the change in cost divided by the change in units equals Blank______.

variable cost per unit

A non-profit organization is trying to determine the fixed and variable costs of providing meals. During the first six months of the year, the following meals were served and the following costs were incurred. The cost equation using the high-low method is Blank______.

y = $1,450 + $2.50x.

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.

The percentage of the variation in cost that is explained by activity is Blank______.

R^2

The assumption that cost behavior is strictly linear is reasonably valid within the ______ ______ of activity.

Relevant Range

The difference in revenues between two alternatives is called Blank______.

incremental revenue

The slope of the regression line represents the Blank______ cost per unit of activity.

variable

Manufacturing costs include ______.

Direct materials, direct labor, manufacturing overhead

Sales revenue minus variable expenses equals ____ ______.

Contribution margin

On a traditional income statement, cost of goods sold reports the _____ costs attached to the merchandise sold and selling and administrative expenses report all ____ costs that have been incurred.

Product Period

Cost classifications for predicting cost behavior are used on Blank______.

contribution format income statements only

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

indirect materials, manufacturing overhead

Differential cost is:

the difference in cost between two alternatives also known as incremental cost.

The rise-over-run formula for the slope of a straight line is the basis of Blank______.

the high-low method

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

variable

When using the high-low method, the slope of the line equals the ________ cost per unit of activity.

variable