Managerial Accounting Chapter 1

Direct labor is sometimes called

Touch labor

The ________ requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.

Matching Principle

Audio Corporation purchased $20,000 of DVDs during the current year. The company had DVD inventory of $15,000 at the beginning of the year. An end of the year audit revealed that the company had DVD inventory of $10,000. The amount that would be reported as cost of goods sold in the income statement for the current year is ________.

25,000. The FORMULA IS Cost of goods sold = Beginning merchandise inventory + Purchases − Ending merchandise inventory Cost of goods sold = $15,000 + $20,000 − $10,000 = $25,000

Davidson Company has sales of $100,000, variable cost of goods sold of $40,000, variable selling expenses of $15,000, variable administrative expenses of $5,000, fixed selling expenses of $7,000, and fixed administrative expenses of $9,000. What is Davidson's contribution margin?

40,000 Formula Contribution margin = Sales revenues − All variable expenses Contribution margin = $100,000 − ($40,000 + $15,000 + $5,000)) = $100,000 − $60,000 = $40,000

Manufacturing costs include all of the following categories except ________. multiple choiceadministrative costs Correctdirect labordirect materialsmanufacturing overhead

Administrative

Which of the following statements about opportunity costs is not correct?

An opportunity cost cannot be changed by any decision made now or in the future. Correct

The traditional income statement uses which of the following cost categories?

Cost of goods sold and selling and administrative expenses.

Which of the following is common to both prime cost and conversion cost?

Direct Labor

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $2,400 and the variable cost per cup of coffee served is $0.54. Required: 1. Fill in the following table with your estimates of the company's total cost and average cost per cup of coffee at the indicated levels of activity. 2. Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?

FORMULA Explanation 1. Average cost per cup of coffee served = Total cost ÷ Cups of coffee served in a week 2. The average cost of a cup of coffee decreases as the number of cups of coffee served increases because the fixed cost is spread over more cups of coffee.

Which of the following is true of the contribution approach?

It separates costs into fixed and variable categories.

Property taxes associated with a company's administrative facility are considered ________.

Nonmanufacturing Costs

How should the wages of a sheet metal worker in a fabrication plant be classified?

Product Costs

Differential costs are always ________.

Relevant in making business decisions

A fixed cost is a cost which ________.

Remains constant in total with changes in the level of activity

If a firm increases its activity level, ________.

Some costs will change, others will remain the same

Which of the following is always an irrelevant cost?

Sunk cost

In the equation, Y = a + bX, X represents ________.

The level of activity

Cyber Devices manufactures PCTV products that enable people to watch television content on their computers. It sells its product to retailers for $50. A tuner component that goes into each of these devices costs $5 to acquire. The total variable cost at an activity level of 1,000 units equals ________.

5,000.00 FORMULA Total variable cost = $5 × 1,000 = $5,000.

Required information Skip to question [The following information applies to the questions displayed below.] Kubin Company's relevant range of production is 10,000 to 12,000 units. When it produces and sells 11,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials$ 7.10Direct labor$ 4.10Variable manufacturing overhead$ 1.60Fixed manufacturing overhead$ 5.10Fixed selling expense$ 3.60Fixed administrative expense$ 2.60Sales commissions$ 1.10Variable administrative expense$ 0.60 Required: 1. Assume the cost object is units of production: a. What is the total direct manufacturing cost incurred to make 11,000 units? b. What is the total indirect manufacturing cost incurred to make 11,000 units? 2. Assume the cost object is the Manufacturing Department and that its total output is 11,000 units. a. How much total manufacturing cost is directly traceable to the Manufacturing Department? b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department? 3. Assume the cost object is the company's various sales representatives. Furthermore, assume that the company spent $28,600 of its total fixed selling expense on advertising and the remainder of the total fixed selling expense comprised the fixed portion of the company's sales representatives' compensation. a. When the company sells 11,000 units, what is the total direct selling expense that can be readily traced to individual sales representatives? b. When the company sells 11,000 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

1b. Note: The average fixed manufacturing overhead cost per unit of $5.10 is valid for only one level of activity—11,000 units produced. 2b. None of the manufacturing costs should be treated as indirect costs when the cost object is the Manufacturing Department. 3a. The first step in calculating the total direct selling expense is to determine the fixed portion of the sales representatives' compensation as follows: Fixed selling expense per unit (a)$ 3.60 Number of units sold (b)11,000 Total fixed selling expense (a) × (b) $ 39,600Total fixed selling expense (a) $ 39,600Advertising expenditures (b) $ 28,600Total fixed portion of the sales representatives' compensation (a) − (b) $ 11,000 3b. The total indirect selling expense that cannot be traced to individual sales representatives is $28,600. The advertising expenditures cannot be traced to specific sales representatives.

We will discuss the differences between direct and indirect costs. A direct cost is a cost that can be easily and conveniently traced to a cost object. An indirect cost is a cost that cannot be easily and conveniently traced to a cost object. A common cost is a type of an indirect cost. A particular cost may be direct or indirect, depending on the cost object.

Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) INDIRECT_________ of selling a tour __A COMMON_________ is a cost that is incurred to support a number of cost objects but cannot be traced to them individually.Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) ___DIRECT______ of the branch.

Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called ________.

Direct Materials

Kubin Company's relevant range of production is 10,000 to 12,000 units. When it produces and sells 11,000 units, its average costs per unit are as follows: Average Cost per UnitDirect materials$ 7.10Direct labor$ 4.10Variable manufacturing overhead$ 1.60Fixed manufacturing overhead$ 5.10Fixed selling expense$ 3.60Fixed administrative expense$ 2.60Sales commissions$ 1.10Variable administrative expense$ 0.60

Explanation 1. Direct materials$ 7.10Direct labor4.10Variable manufacturing overhead1.60Variable manufacturing cost per unit$ 12.80 Variable manufacturing cost per unit (a)$ 12.80 Number of units produced (b)11,000 Total variable manufacturing cost (a) × (b) $ 140,800Average fixed manufacturing overhead per unit (c)$ 5.10 Number of units produced (d)11,000 Total fixed manufacturing cost (c) × (d) $ 56,100Total product cost 196,900 Note: The average fixed manufacturing overhead cost per unit of $5.10 is valid for only one level of activity—11,000 units produced. 2. Sales commissions$ 1.10Variable administrative expense0.60Variable selling and administrative per unit$ 1.70 Variable selling and administrative per unit (a)$ 1.70 Number of units sold (b)11,000 Total variable selling and administrative expense (a) × (b) $ 18,700Average fixed selling and administrative expense per unit ($3.60 fixed selling + $2.60 fixed administrative) (c)$ 6.20 Number of units sold (d)11,000 Total fixed selling and administrative expense (c) × (d) 68,200Total period cost $ 86,900 Note: The average fixed selling and administrative expense per unit of $6.20 is valid for only one level of activity—11,000 units sold. 3. Direct materials$ 7.10Direct labor4.10Variable manufacturing overhead1.60Variable manufacturing cost per unit$ 12.80 Variable manufacturing cost per unit (a)$ 12.80 Number of units produced (b)12,000 Total variable manufacturing cost (a) × (b) $ 153,600Total fixed manufacturing cost (see requirement 1) 56,100Total product cost $ 209,700 4. Sales commissions$ 1.10Variable administrative expense0.60Variable selling and administrative per unit$ 1.70 Variable selling and administrative per unit (a)$ 1.70 Number of units sold (b)10,000 Total variable selling and administrative expense (a) × (b) $ 17,000Total fixed selling and administrative expense (see requirement 2) 68,200Total period cost $ 85,200