MANAGERIAL ACCOUNTING CHAPTER 2

common costs

A cost that is incurred to support a number of cost objects but that cannot be traced to them individually

Which of the following statements are true? A direct cost is sometimes referred to as a common cost A direct cost can easily be traced to a specific cost object A regional sales manager's salary would be a direct cost of the regional office in which the manager works A particular cost is direct or indirect regardless of the cost object

A direct cost can easily be traced to a specific cost object A regional sales manager's salary would be a direct cost of the regional office in which the manager works

activity base

A measure of whatever causes the incurrence of a variable cost. For example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is the activity base that explains the total cost of X-ray film.

account analysis

A method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves.

Differential cost is : AKA incremental cost never relevant to a product decision the difference in cost of two alternatives same as opportunity cost

AKA incremental cost the difference in cost of two alternatives

Which of the following are most likely fixed costs? Administrative salaries Factory rent Electricity to operate factory machines Factory insurance

Administrative salaries Factory rent Factory insurance

selling cost

All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer

product costs

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead

administrative costs

All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling

Which of the following would not be classified as manufacturing overhead? Wages of supervisor of the machining shop Depreciation of the equipment in the machining shop Property taxes relating to the building that houses the machining shop All of the above would be classified as manufacturing overhead

All of the above would be classified as manufacturing overhead

contribution approach

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes

cost object

Anything for which cost data are desired. Examples of cost objects are products, customers, jobs, and parts of the organization such as departments or divisions

Hadron Company incurred $40,000 to ship 19,000 pounds and $34,000 to ship 16,000 pounds. If the company ships 18,000 pounds, what is its expected shipping expense? A) $37,000 B) $37,895 C) $38,000 D) $38,250

C) $38,000

An analysis of a particular cost incurred in a factory revealed that the cost averages $0.40 per machine-hour at an activity level of 20,000 machine hours and increases to an average of $0.50 per machine-hour at an activity level of 16,000 machine hours. Assuming that this activity is within the relevant range, what is the total expected cost if the activity level is 17,300 machine hours? A) $1,600 B) $6,960 C) $8,000 D) $9,000

C) $8,000

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity...

Choose the periods with the highest & lowest level of activity & their associated costs

period costs

Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued

Given the cost formula Y = $30,000 + $5X, what is the expected total cost at an activity level of 16,000 units? A) $30,000 B) $46,000 C) $80,000 D) $110,000

D) $110,000

committed fixed costs

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.

Which of the following are considered non-manufacturing costs? Sales commissions Company president's salary Insurance on plant equipment Assembly-line workers wages

Sales commissions Company president's salary

Which of the following statements are true? Sales commissions are period costs Period costs are included as part of the COGS The wages of assembly-line workers are period costs Period costs are expensed in the same period in which they are incurred

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

indirect materials

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it

Which of the following would not be classified as a product cost? The cost of air-conditioning the factory foreman's office Depreciation on the machinery in the factory The cost of shipping units of product to one of the company's customers All of the above would be classified as product costs

The cost of shipping units of product to one of the company's customers

Which one of the following costs would not be considered an indirect cost of serving a particular customer at a delicatessen? The salary of the manager The cost of the tables and chairs used to furnish the restaurant The cost of the bread used to make the sub sandwich that is ordered The cost of lighting and heating the restaurant

The cost of the bread used to make the sub sandwich that is ordered

discretionary fixed costs

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research

differential cost

a difference in cost between two alternatives AKA incremental cost

Indirect labor costs include: assembly-line supervisor salary factory security guard wages assembly-line worker wages administrative assistant salary

assembly-line supervisor salary factory security guard wages

A contribution format income statement: reports gross margin and net income can assist management with decision making is prepared primarily for external reporting purposes separates costs into fixed and variable components

can assist management with decision making separates costs into fixed and variable components

A type of indirect cost incurred to benefit more than one cost object is a _______ cost. prime opportunity sunk common

common

Costs that are shared by multiple cost objects in a company are known as _______ costs. administrative common sunk opportunity

common

The financial statement that organizes costs by their behavior instead of by their function is the: contribution format income statement traditional format income statement statement of cash flows balance sheet

contribution format income statement

Sales revenue minus variable expenses equals _______ _______.

contribution margin

The difference in revenues between two alternatives is called: net profit marginal revenue differential revenue differential cost

differential revenue

Manufacturing costs include: selling costs direct labor direct materials manufacturing overhead administrative costs

direct labor direct materials manufacturing overhead

Conversion cost

direct labor + manufacturing overhead

A laptop computer manufacturer would consider the computer's processor chip to be: indirect material cost manufacturing overhead cost direct labor cost direct material cost

direct material cost

prime cost

direct materials + direct labor

Fixed costs that ususally arise from annual spending decisions by management are _______ fixed costs.

discretionary

Administrative costs include: sales commissions and factory's supervisors salaries executive compensation & public relations costs shipping costs & sales commissions factory maintenance workers' wages & factory supervisors salaries

executive compensation & public relations costs

Salaries of factory supervisors & factory maintenance workers are examples of _______ costs.

indirect

Factory costs such as cleaning supplies, taxes insurance, and janitor wages are classified as: indirect labor period costs direct materials manufacturing overhead

manufacturing overhead

Indirect materials & labor are considered: nonspecific materials nonspecific labor manufacturing overhead period costs

manufacturing overhead

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

marginal

Indirect materials include: factory rent & insurance nails, glue & thread factory manager's salary laptop computer keyboards

nails, glue & thread

Which of the following statements are true? period costs are expensed in the same period in which they are incurred sales commissions are period costs period costs are included as part of cost of goods the wages of assembly-line workers are period costs

period costs are expensed in the same period in which they are incurred sales commissions are period costs

Costs expensed on the income statement when incurred are _______ costs and _______ costs become part of inventory on a balance sheet

period, product

Inventoriable costs is another term for _______ costs.

product

The level of activity in which variable & fixed cost assumptions are valid is known as the _______ _______.

relevant range

contribution margin

sales - all variable expenses

gross margin

sales - total COGS

contribution margin is: sales revenue - fixed cost all revenues - all costs sales revenue - cost of goods sold sales revenue - variable cost

sales revenue - variable cost

Costs incurred to obtain customer's orders are known as _______ costs.

selling

Costs that have already been incurred & cannot be changed by decisions made in the current period or in future periods are called _______ costs.

sunk

indirect labor

the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products

When using the high-low method, the change in cost divided by the change in units equals: total cost the variable cost per unit the fixed cost per unit total variable cost total fixed cost

the variable cost per unit

Fixed costs remain constant in _______ over the _______ range of activity

total, relavent

A _______ cost changes in direct proportion to changes in the activity level. fixed variable mixed

variable

Which type of cost changes in total, in direct proportion to changes in activity level opportunity variable fixed differential

variable

Within the relevant range: both total variable costs and total fixed costs will remain constant. both total variable costs and total fixed costs fluctuate. fixed costs per unit will remain constant and variable costs per unit will fluctuate. variable costs per unit will remain constant and fixed costs per unit will fluctuate.

variable costs per unit will remain constant and fixed costs per unit will fluctuate.