Chapter 1 LearnSmart - ACCT 2020

Cost objects include ______.

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

Variable cost

A cost that changes in direct proportion to changes in the activity level

Which of the following are most likely fixed costs?

Factory rent Administrative salaries Factory insurance

contribution margin is

Sales - Variable Costs

Differential cost is:

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

Product costs:

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

incremental costs

are the same as differential costs; they are the difference in cost between two alternatives. Any cost that changes is relevant to decision making.

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

behavior

common cost

benefits more than one product and cannot be traced to a specific product.

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

decision making

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

direct

Selling and administrative costs are _______ costs.

direct or indirect

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

fixed

marginal costs

is the cost of producing one more unit of product. Any additional cost from producing another unit is a relevant cost.

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

net income = gross margin - total selling and administrative expenses = 140000 - 60000 = 80000

There are two broad classifications of costs: manufacturing costs and

non manufacturing costs

cost behavior

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

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

relevant range

Opportunity costs

should always be considered in decision making.

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

indirect costs

A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements:

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

Which of the following statements are true? (Check all that apply) - The wages of assembly-line workers are period costs - Sales commissions are period costs - Period costs are expensed in the same period in which they are incurred - Period costs are included as part of the cost of goods

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

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

cost object

A cost that can be easily and conveniently traced to a specific cost object is a(n)

direct cost

mixed costs

do change with changes in activity level. Because of the fixed component the change in cost is not in direct proportion to the change in activity level.

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

matching

Inventoriable costs is another term for

product costs

cost assumptions are reasonably valid within the _________ of activity

relevant range

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

sunk costs

opportunity cost

the potential benefit given up when one alternative is chosen 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.

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

differential costs

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

direct

product cost:

direct materials + direct labor + fixed manufacturing overhead + variable manufacturing over head

A manufacturing cost that cannot be easily traced to a specific cost object is a(n)

indirect cost

costs that cannot be easily and conveniently traced to that specific cost object are

indirect cost

Manufacturing costs can be divided into three categories: direct _________, direct ___________ and manufacturing ___________.

materials, labor and overhead

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

mixed (semi variable) cost

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

they are incurred

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

traditional or GAAP contribution

Mixed costs are also commonly known as semi- ____ costs

variable

Sales revenue minus variable expenses equals

contribution margin

sunk cost

has already been incurred and cannot be changed.

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

income statement

Nonmanufacturing costs include:

sales commissions company president's salary

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

variable

fixed costs

remain constant in total within the relevant range of activity. Fixed cost per unit changes with changes in the activity level.

Direct materials and direct labor are both ______ costs.

manufacturing