manangerial accounting ch.1

Based on the following information, calculate net income for Dana's Dress Shop using the traditional format. Sales $360,000 Gross Margin $140,000 Contribution Margin $110,000 Total Selling & Administrative Exp. $60,000

$80,000 Reason: Gross Margin of $140,000 - Total Selling & Admin. Exp. of $60,000 = $80,000.

Which of the following are most likely fixed costs?

-Factory insurance -Administrative salaries -Factory rent

Which of the following statements are true rehatding period costs?

-Period costs do not flow through the inventory accounts. -Period costs are expensed when incurred. -Sales commissions are period costs.

Which of the following are differences between the traditional and contribution format to income statements?

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

Cost behavior ______.

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

Nonmanufacturing costs include ______.

-company president's salary -sales commissions

Cost objects include ______.

-customers -anything for which cost data is desired -organizational subunits

Sales revenue minus variable expenses equals

contribution margin

How individual costs react to changes in activity level

cost behavior

Any item for which cost data is desired is called a(n)

cost object

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

differential

Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order.

direct

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

direct costs

Manufacturing costs can be divided into three categories:

direct materials, direct labor(touch), and manufacturing overhead (burden)

Within the relevant range of activity, ______ costs remain constant in total.

fixed

A manufacturing cost that cannot be easily traced to a specific cost object is a(n) ______ cost.

indirect

administrstive costs are:

indirect or direct

The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized is known as the

matching principle

A cost that contains both variable and fixed cost elements is a(n) ______ cost.

mixed

Inventoriable costs is another term for ___ costs.

product (manufacturing)

The assumption that cost behavior is strictly linear is reasonably valid within the _______ of activity.

relevant range

Contribution margin is ______.

sales revenue minus variable costs

cost that has already been incurred and that cannot be changed by any decision made now or in the future. Because sunk costs cannot be changed by any decision, they are not differential costs. And because only differential costs are relevant in a decision, sunk costs should always be ignored.

sunk cost

Within the relevant range, which type of cost changes in total, in direct proportion to changes in activity level?

variable cost

A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements, ______.

$300 is reported as a expense and $900 is reported as an asset (1,200 / 12 months= $100 --> $100 * 3 months (october-december)= $300)

The following information is for S&P Enterprises for the month of July: Direct materials $76,000 Direct labor $40,000 Variable manufacturing overhead $25,000 Fixed manufacturing overhead $30,000 Variable selling expense $12,000 Fixed selling expense $15,000 Variable administrative expense $6,000 Fixed administrative expense $18,000 Total fixed cost for the month of July was ______.

$63,000 Reason: $30,000 + $15,000 + $18,000 = $63,000 (ADD up all FIXED costs)

An income statement focusing on product and period costs has been prepared using a(n)________ format, while a(n)________ format income statement makes a distinction between fixed and variable costs.

-traditional or GAAP -contribution

A cost that can be easily and conveniently traced to a specific cost object is a(n) ____cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are______ costs.

-direct -indirect

Within the relevant range of activity ______.

-fixed costs remain constant in total costs -activity can be approximated by a straight line

On a traditional income statement, cost of goods sold reports the costs _______attached to merchandise sold during the period, while selling and administrative expenses report all ________costs that have been expensed as incurred.

-product or manufacturing -period

The difference in revenues between two alternatives is called ______.

incremental revenue Reason: This is also called differential revenue.