Chapter 1

Manufacturing costs include ______.

direct materials, direct labor, manufacturing overhead

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

they are incurred

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

$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 Reason: Gross Margin of $140,000 - Total Selling & Admin. Exp. of $60,000 = $80,000.

Which of the following statements are true?

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

Cost objects include

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

Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order.

Direct

Which of the following are most likely fixed costs?

Factory insurance Factory rent Administrative salaries

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

Indirect costs

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

Product OR Manufacturing, period

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.

True or false: The finished product of one company can become raw materials for another company.

True

Within the relevant range, which type of cost changes in total, in direct proportion to changes in activity level?

Variable

Differential cost is ______.

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

Sales revenue minus variable expenses equals

contribution margin

Any item for which cost data is desired is called a(n

cost object

Any item for which cost data is desired is called a(n)

cost object

Differential costs, opportunity costs and sunk costs are all cost classifications used in ______.

decision making

In an automobile manufacturing plant, the assemble-line workers are classified as __________ ___________ cost.

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

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. (Enter only one word per blank).

direct, indirect

Administrative costs include ______.

executive compensation and public relations costs

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

fixed

Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ______.

income statement

The difference in revenues between two alternatives is called ______.

incremental revenue

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

indirect materials

Direct materials and direct labor are both ______ costs.

manufacturing

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 OR semivariable

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

product

Inventoriable costs is another term for _____________ costs.

product

The materials that go into the final product are called ____________________ materials.

raw

Contribution margin is ______.

sales revenue minus variable costs

Selling costs include ______.

sales salaries advertising sales commissions

Opportunity costs ______.

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

Direct labor is also called __________, labor

touch

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

variable

Indirect labor costs include ______.

-assembly-line supervisor salary -factory security guard wages

Cost behavior ______.

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

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

-manufacturing overhead -indirect materials

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, contribution

Within the relevant range of activity ______.

costs and activity can be approximated by a straight line fixed costs remain constant in total