Managerial Accounting Chapters 1-4

Formula for Prime Cost

=direct material+direct labor

Formula for Product Cost

=direct materials+direct labor+manufacturing overhead

Formula for Period Cost

=selling expenses+administrative expenses

Direct Materials are generally fixed costs. True or false?

False

Examples of Period Costs

all selling costs and administrative costs

Discretionary Fixed Cost

arise from annual decisions made by management to spend on fixed cost items.

Fixed Cost

A cost that remains constant, in total, regardless of changes in the level of the activity. Your monthly contract fee for your cell phone may be fixed for the number of monthly minutes in your contract.

Variable Cost

A cost that varies, in total, in direct proportion to changes in the level of activity. Your total texting bill may be based on how many texts you send.

Departmental overhead rates are generally preferred to plant-wide overhead rates when: A. the activities of the various departments in the plant are not homogeneous B. the activities of the various departments in the plant are homogeneous C. most of the overhead costs are fixed D. all departments in the plant are heavily automated

A. the activities of the various departments in the plant are not homogeneous

Administrative Costs

All executive, organizational, and clerical costs. Administrative costs can be either direct or indirect costs.

Which of the following costs, if expressed on a per unit basis, would be expected to decrease as the level of production and sales increases? A. Sales commissions B. Fixed Manufacturing Overhead C. Variable Manufacturing Overhead D. Direct Materials

B. Fixed Manufacturing Overhead

Which of the following costs would be considered a period rather than a product cost in a manufacturing company? A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.

B. Property Taxes on Corporate Headquarters E. Sales Commissions

Indirect Labor is an: A. prime cost B. conversion cost C. period cost D. opportunity cost

B. conversion cost Indirect labor is a part of manufacturing overhead. CC=manufacturing overhead+direct labor

Discretionary Fixed Costs: A. have a planning horizon that covers many years B. may be reduced for short periods of time within minimal damage to the long-run goals of the organization C. cannot be reduced for even short periods of time without making fundamental changes D. are most effectively controlled through the effective utilization of facilities and organization

B. may be reduced for short periods of time with minimal damage to the long-run goals of the organization

All of the following would be found in a company's accounting records except: A. sunk cost B. opportunity cost C. indirect cost D. direct cost

B. opportunity cost

Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.

C. The cost of ice cream D. The cost of napkins for customers

When the level of activity decreases, variable costs will: A. increase per unit B. increase in total C. decrease in total D. decrease per unit

C. decrease in total

Which of the following costs would be considered a period rather than a product cost? A. cost of wood to produce a classroom desk B. depreciation of a machine used to make a desk C. salaries for a salesman D. salaries for an assembly worker

C. salaries for a salesman

Which of the following is a conversion cost? A. direct materials B. selling cost C. variable manufacturing overhead D. administrative cost

C. variable manufacturing overhead

Selling Costs

Costs necessary to secure the order and deliver the product. Selling costs can be either direct or indirect costs.

Direct Costs

Costs that can be easily and conveniently traced to a unit of product or other cost object. Examples include: direct material and direct labor

Indirect Costs

Costs that cannot be easily and conveniently traced to a unit of product or other cost object. Examples include: manufacturing overhead

Given the cost formula , Y=$7000+$1.80X, total cost for an activity level of 4,000 units would be: A. $7,000 B. $200 C. $7,200 D. $14,200

D. $14,200 Y=mixed cost 7,000= total fixed cost 1.80= variable cost per unit of activity X= activity level Y=7,000+1.80(4,000)=14,200

An example of a discretionary fixed cost would be: A. Taxes on the factory B. Depreciation on Manufacturing Equipment C. Insurance D. Research and Development

D. Research and Development

Formula for Conversion Cost

Direct Labor+Manufacturing Overhead...or... Total Manufacturing Cost-Direct Materials

Direct labor is a part of prime cost, but not conversion cost. True or false?

False

The cost categories that appear on a job cost sheet include selling expense, manufacturing expense, and administrative expense. True or false?

False

When the predetermined overhead rate is based on direct labor-hours, the amount of overhead applied to a job is directly proportionate to the estimated amount of direct labor-hours for the job. True or false?

False

Does a variable cost on a per unit basis react proportionately to a change in a cost driver within the relevant range? True or false?

False; key words "per unit"

Fixed Cost per Unit

If expressed on a per unit basis, the average fixed cost per unit varies inversely with changes in activity. The average fixed cost per cell phone call made decreases as more calls are made.

Common Costs

Indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object.

Manufacturing Overhead

Manufacturing costs that cannot be easily traced directly to specific units produced.

Direct Materials

Raw materials that become an integral part of the product and that can be conveniently traced directly to it.

Direct Labor

Those labor costs that can be easily traced to individual units of product.

Product costs are recorded as expenses in the period in which the related products are sold. True or false?

True

The formula for computing the predetermined overhead rate is: estimated total manufacturing overhead/estimated total amount of the allocation base. True or false?

True

Variable Cost per Unit

Variable cost per unit is constant. The cost per text sent may be constant at 5 cents per text message.

Examples of Product Costs

direct materials, direct labor, and manufacturing overhead.

Opportunity Cost

the potential benefit that is given up when one alternative is selected over another