Chapter 1 Managerial Accounting and Cost Concepts

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

Select all that apply: Which of the following statements are true?

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

Select all that apply: 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.

Select all that apply: Differential cost is ______.

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

Opportunity costs ______.

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

Cost objects include ______.

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

Select all that apply: Cost objects include ______.

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

Select all that apply: Manufacturing costs include ______.

-direct labor -manufacturing overhead -direct materials

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 or prime -indirect, common, or overhead

Select all that apply: Selling costs include ______.

-sales salaries -advertising -sales commissions

Select all that apply: Opportunity costs ______.

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

We Ship It, Inc. is considering changing its shipping methods, which they believe will attract new customers. The following information relates to the present and proposed methods.Revenues - $140,000 (Present); $190,000 (Proposed)Variable costs - $60,000 (Present); $70,000 (Proposed)Fixed costs - $20,000 (Present); $25,000 (Proposed)Calculate the differential net income or loss from the proposal.

35,000 differential net income (50,000-10,000-5,000)

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

Direct

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

Indirect

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

Sunk

Sales revenue minus variable expenses equals ____ _____.

contribution margin

Sales revenue minus variable expenses equals _____ _____.

contribution, margin

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

cost object

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

differential

The difference in revenues between two alternatives is called ______.

differential revenue

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

direct

Manufacturing costs can be divided into three categories: _____, _____, _____.

direct materials, direct labor, and manufacturing overhead.

Administrative costs include ______. Multiple choice question.

executive compensation and public relations costs

True or false: Removing expenses that do not differ between alternatives could alter a decision.

false

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

income statement

Differential costs are also known as costs.

incremental

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

marginal

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

marginal

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

opportunity cost

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, period

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

products

Contribution margin is ______.

sales revenue minus variable costs

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

sunk

Marginal cost is ______.

the cost incurred to produce one more unit of a product

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

they are incurred

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

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, contribution