LearnSmart Chapter 1

Sales revenue minus variable expenses equals _____________ _____________.

-Contribution -Margin

A change in revenues between two alternatives is known as _____________ revenue or incremental revenue.

-Differential

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

-Direct

Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are _____________ materials.

-Direct

In an automobile manufacturing plant, the assembly-line workers are considered to be _____________ ____________.

-Direct Labor

********** Fixed costs that can be cut-back or eliminated without significant damage to a company's long-term goals are __________ fixed cost and __________ fixed costs can not be easily changed or eliminated.

-Discretionary -Committed

Differential costs are also known as _________ costs.

-Incremental

The following info relates to the present and proposed methods. -Revenues: Present: $140,000 Proposed: $190,000 -Variable Costs: Present: $60,000 Proposed: $70,000 -Fixed Costs: Present: $20,000 Proposed: $25,000 Calculate the differential net income or loss from the proposal. a. $35,000 differential net income b. $50,000 differential net income c. $15,000 differential net income d. $40,000 differential net income

a. $35,000 differential net income

A type of indirect cost incurred to benefit more than one cost object is a(n) _______________ cost. a. Common b. Opportunity c. Sunk d. Prime

a. Common

The difference in costs between two alternatives is called a(n) ____________ cost. a. Differential b. Opportunity c. Sunk d. Common

a. Differential

Which of the following are most likely fixed costs? (select all that apply) a. Factory rent b. Administrative salaries c. Electricity to operate factory machines d. Factory insurance

a. Factory rent b. Administrative salaries d. Factory insurance

True or False: Assembly-line workers' wages are period costs. a. False b. True

a. False

What type of cost is never relevant and should be disregarded when making decisions? a. Sunk b. Opportunity c. Marginal d. Incremental

a. Sunk

True or False: A particular cost may be direct or indirect depending on the cost object. a. True b. False

a. True

True or False: Presenting fixed costs on an average per unit basis can be misleading. a. True b. False

a. True

Which of the following are differences between the traditional and contribution format to income statements? (select all that apply) a. The traditional income statement is for internal use, while the contribution format income statement is for external use b. Traditional income statements focus on cost function. Contribution format statements focus on cost behavior. c. Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier

b. Traditional income statements focus on cost function. Contribution format statements focus on cost behavior. c. Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier

Discretionary fixed costs include: (select all that apply) a. factory depreciation b. insurance expense c. advertising d. management training programs

c. advertising d. management training programs

There are two broad classifications of costs: manufacturing costs and _________ costs.

-Nonmanufacturing

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

-Relevant -range

Mixed costs are commonly known as semi-____________ costs.

-Variable

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

-Variable

How individual costs change as the level of activity level increases or decreases is referred to as cost __________.

-behavior

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

-fixed

Product costs are also called ___________ costs.

-inventoriable

The components of prime costs are direct __________ costs and direct __________ costs.

-labor -materials

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

-marginal

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

-product

Fixed and variable costs should only be computed if a(n) __________ shows the relationship to be approximately linear.

-scattergraph

Costs incurred to obtain customers' orders are known as ___________ costs.

-selling

Within the relevant range, _________ costs remain constant on a per unit basis.

-variable

Indirect materials include: a. Nails, glue, and thread b. Factory manager's salary c. Factory rent and insurance d. Laptop computer keyboards

a. Nails, glue, and thread

Which of the following statements are true? (select all that apply) a. Period costs are expensed in the same period in which they incurred b. Nonmanufacturing costs are period costs c. The wages of assembly-line workers are period costs d. Period costs are also called inventoriable costs

a. Period costs are expensed in the same period in which they incurred b. Nonmanufacturing costs are period costs

Which of the following are considered non-manufacturing costs? (select all that apply) a. Sales commissions b. Company president's salary c. Assembly-line worker wages d. Insurance on plant equipment

a. Sales commissions b. Company president's salary

********* Which of the following statements are true? (select all that apply) a. Scattergraphs are a way to diagnose cost behavior b. Scattergraphs should be used after high-low or regression analysis is performed c. When plotting a scattergraph, cost is the independent variable d. Plotting data on a scattergraph is an important diagnostic step

a. Scattergraphs are a way to diagnose cost behavior d. Plotting data on a scattergraph is an important diagnostic step

*********** Which of the following statements are true? (select all that apply) a. The relevant range of activity is approximated by a straight line b. Within the relevant range of activity, fixed costs remain constant in total c. Within the relevant range of activity total variable costs do not change

a. The relevant range of activity is approximated by a straight line b. Within the relevant range of activity, fixed costs remain constant in total

********* The high-low method: (select all that apply) a. Uses only two data points b. Is based on periods where the activity tends to be unusual c. Is difficult to apply and requires a statistical software package d. Generally provides an accurate estimate of true cost behavior during normal periods

a. Uses only two data points b. Is based on periods where the activity tends to be unusual

Administrative costs include: a. executive compensation and public relations costs b. factory maintenance workers' and factory supervisors' salaries c. shipping costs and sales commissions d. sales commissions and factory supervisors' salaries

a. executive compensation and public relations costs

Variable costs vary ____________ within the relevant range of activity. a. in total b. per unit

a. in total

Raw materials: a. include both direct and indirect materials b. consist of unprocessed items only c. include only indirect materials d. include only direct materials

a. include both direct and indirect materials

******** Cost behavior: (select all that apply) a. refers to how a cost will change as activity level changes b. is a detailed analysis technique used to determine whether costs are fixed or variable c. categorizes costs as fixed, mixed and variable d. is the relative proportion of each type of cost in an organization

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

Opportunity costs: (select all that apply) a. should be considered in decision making b. are benefits that are given up when selecting one alternative over another c. are uncommon in decision making d. are part of traditional accounting records

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

The fixed portion of mixed cost represents: a. the minimum cost of having a service available for use b. the maximum cost to be incurred from providing a service c. the cost incurred for actual consumption of a service

a. the minimum cost of having a service available for use

Using the high-low method, the fixed cost is calculated: (select all that apply) a. using either the high or low level of activity b. by adding the total cost to the variable cost c. before the variable cost is calculated d. after the variable cost is calculated

a. using either the high or low level of activity d. after the variable cost is calculated

*********** In the equation Y = a + bX, b denotes the: (select all that apply) a. variable cost per unit of activity b. fixed cost per unit of activity c. Level of activity d. slope of the line

a. variable cost per unit of activity d. slope of the line

******* Based on the following information, compute the cost of goods sold for Spengler Merchandising Corp.: -Sales: $400,000 -Purchases: $300,000 -Beg. Inventory: $50,000 -End. Inventory: $90,000 -Selling expenses: $70,000 -Administrative expenses: $30,000 -Accounts receivable: $110,000 a. $370,000 b. $260,000 c. $340,000 d. $140,000

b. $260,000 Beginning inventory + purchases - ending inventory = cost of goods sold

Cost objects include: (select all that apply) a. Anything for which revenue data is desired b. Customers c. Organizational subunits d. Anything for which cost data is desired

b. Customers c. Organizational subunits d. Anything for which cost data is desired

True or False: Labor costs that can be specifically traced to a product are indirect labor costs. a. True b. False

b. False

An activity base: (select all that apply) a. Is a measure of whatever causes fixed costs to occur b. Is sometimes called a cost driver c. Measures whatever causes costs to vary d. Is part of the organization where major operations are planned and carried out

b. Is sometimes called a cost driver c. Measures whatever causes costs to vary

******** Which of the following statements are true? (select all that apply) a. All costs in a merchandising company are period costs b. Period costs are expensed when incurred. c. Inventorial costs are expensed in the period in which they are incurred d. Product costs are also called inventoriable costs

b. Period costs are expensed when incurred. d. Product costs are also called inventoriable costs

Which statements regarding the high-low method are true? (select all that apply) a. When applying this method, use the data points with the high and lowest level of cost b. The high-low method should only be used if a scattergraph plot indicates a linear relationship between cost and activity c. It only uses two data points d. It is superior to least-squares regression

b. The high-low method should only be used if a scattergraph plot indicates a linear relationship between cost and activity c. It only uses two data points

The variable cost per unit using the high-low method is calculated as: a. Y = a + bX b. change in cost divided by change in activity c. change in activity divided by change in cost d. total cost minus total fixed cost

b. change in cost divided by change in activity

When using the high-low method, if the high or low levels do not match the high or low levels of activity: a. skip that period and move to the next highest or lowest level where costs and activity match b. choose the periods with the highest and lowest level of activity and their associated costs c. choose the periods with the high and lowest level of costs and their associated activities

b. choose the periods with the highest and lowest level of activity and their associated costs

A contribution format income statement: (select all that apply) a. is prepared primarily for external reporting purposes b. separates costs into their fixed and variable components c. can assists with management decision making d. reports both gross margin and net income

b. separates costs into their fixed and variable components c. can assists with management decision making

Manufacturing overhead costs include: a. administrative taxes and insurance, sales commissions, and factory assembly workers' wages b. direct materials, sales commissions, and factory assembly workers' wages c. indirect materials, factory supervisors' salaries, and factory taxes and insurance d. direct materials, administrative taxes and insurance, and sales commissions

c. indirect materials, factory supervisors' salaries, and factory taxes and insurance

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called: a. the engineering approach b. the contribution approach c. least-squares regression d. high-low

c. least-squares regression

The cost of producing one more unit is the _________ cost. a. opportunity b. differential c. marginal d. sunk

c. marginal

Committed fixed costs include: (select all that apply) a. research b. public relations c. real estate taxes d. top management salaries

c. real estate taxes d. top management salaries

When using account analysis, an account is classified as either fixed or variable based on: a. the equation Y = a + bX b. scattergraphs c. the analyst's prior knowledge of how the cost behaves d. engineering estimates of production methods

c. the analyst's prior knowledge of how the cost behaves

In the equation Y = a + bX, Y is the: a. level of activity b. total fixed cost c. total mixed cost d. variable cost per unit of activity

c. total mixed cost

A ___________ cost changes in direct proportion to changes in the activity level. a. mixed b. fixed c. variable

c. variable

Direct labor and overhead costs incurred to change raw materials into finished products are known as ________ costs. a. prime b. period c. opportunity d. conversion

d. conversion

Direct materials and direct labor are both: a. selling and administrative costs b. nonmanufacturing costs c. period costs d. manufacturing costs

d. manufacturing costs