Garrison Ch. 2 Exercise 1

product variable

Lake Company produces a tote bag that is very popular with college students. The cloth going into the manufacture of the tote bag would be called direct materials and classified as a ____________ cost. In terms of cost behavior, the cloth could also be described as a _________ cost.

product

a __________ cost is also known as an inventoriable cost, since such costs go into the Work In Process inventory account and then into the Finished Goods inventory account before appearing on the income statement as part of the cost of goods sold.

period variable

the tote bags are sold through agents who are paid a commission on each bag sold. these commissions would be classified by Lake Company as a ________ cost. in terms of cost behavior, commissions would be classified as a ________ cost.

prime

taken together, the direct materials cost and the direct labor cost required to produce tote bags would be called ________ cost.

opportunity

the company could have taken the funds that it has invested in production equipment and invested them in interest-bearing securities instead. the interest forgone on the securities would be called __________ cost.

sunk

the company used to produce a smaller tote bag that was not very popular. some three hundred of these smaller bags are stored in one of the company's warehouses. the amount invested in these bags would be called a _______ cost.

conversion

the direct labor cost required to produce the tote bags, combined with the manufacturing overhead cost involved, would be known as _____________ cost.

period

the salary of Lake Company's president would be classified as a ________ cost, since the salary will appear on the income statement as an expense in the time period in which it incurred.

fixed product conversion

costs can often be classified in several ways. for example, Lake Company pays $5,000 rent each month on it's factory building. the rent would be part of manufacturing overhead. in terms of cost behavior, it would be classified as a ________ cost. the rent can also be classified as a _________ cost and as part of __________ cost.

product period fixed

depreciation on the equipment used to produce tote bags would be classified by Lake Company as a ________ cost. However, depreciation on any equipment used by the company is selling and administrative activities would be classified as a _________ cost. in terms of cost behavior, depreciation would probably be classified as a _______ cost.