SmartBook 1

Prior to being recorded on the income statement, manufacturers' product costs flow through

Raw Materials Work in Process Finished Goods

A type of indirect cost incurred to benefit more than one cost object is a(n) ______ cost.

common

Contribution margin is ______.

sales revenue minus variable costs

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

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

The contribution approach to constructing income statements ______.

- aids in decision making - distinguishes between fixed and variable costs

Opportunity costs ______.

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

Cost objects include ______.

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

The components of prime costs are

- direct labor cost - direct material cost

Nonmanufacturing costs include

- sales commissions - company president's salary

Sales revenue minus variable expenses equals

contribution margin

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

Factory burden is a synonym for

factory/manufacturing overhead

True or false: All of a company's depreciation, property taxes and insurance premiums are considered manufacturing overhead.

false

Raw materials are anything that go into a __________product

finished

Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ______.

income statement

Only _______ costs associated with operating the factory are included in manufacturing overhead

indirect

Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.

indirect

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

matching

The components of prime costs are direct _______ costs and direct _____ costs

material, labor

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

product

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 period

The materials that go into the final product are called _____ materials

raw

The materials that go into the final product are called _________

raw materials

What type of cost is never relevant and should be disregarded when making decisions?

sunk costs

Period costs are always expensed on the income statement in the period in which ______.

they are incurred

Direct labor is also called

touch labor

Units that are partially complete are found in ______.

work in progress

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

Which of the following statements are true?

- A regional sales manager's salary is a direct cost of the regional office in which the sales manager works. - A direct cost can be easily and conveniently traced to a specific cost object.

Which of the following statements are true? pt 3

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

Which of the following statements are true? pt 2

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

Indirect labor costs include

-factory security guard wages -assembly-line supervisor salary

Other names for manufacturing overhead include ______.

-indirect manufacturing costs -factory overhead -factory burden

Costs that are shared by multiple cost objects in a company are known as ______ costs.

common

Direct labor and overhead costs incurred to change raw materials into finished products are known as ______ costs

conversion

Direct labor and overhead costs incurred to change raw materials into finished products are known as ______ costs.

conversion

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

cost object

Beginning merchandise inventory + Purchases - Ending merchandise inventory =

cost of goods sold

The difference in costs between two alternatives is called a(n) ______ cost.

differential

The difference in revenues between two alternatives is called ______.

differential revenue

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

direct

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

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

A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.

direct material

prime costs include _______ _______

direct materials direct labor

Manufacturing costs include ______.

direct materials, direct labor, manufacturing overhead

Selling and administrative costs are ______ costs.

direct or indirect

True or false: Removing expenses that do not differ between alternatives could alter a decision.

false

The contribution approach to constructing income statements distinguishes between ______ costs.

fixed and variable

Which of the following is not a COST CLASSIFICATION associated with decision making?

indirect costs

Minor items such as nails and glue are usually considered to be ______. administrative costs

indirect materials

Manufacturing overhead costs include ______.

indirect materials, factory supervisors' salaries, and factory depreciation

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

managerial

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as ______.

manufacturing overhead

Factory materials, such as cleaning supplies, that are not components of finished products are classified as ______.

manufacturing overhead

Indirect materials include ______.

nails, glue, thread

A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n)

opportunity cost

Costs that have already been incurred and can not be changed by decisions made in the current period or in future periods are called

sunk costs

Selling costs include ______.

Sales Salaries, Advertising, Sales Commissions

True or false: A cost may be direct or indirect, depending on the cost object.

True

Nonmanufacturing costs include _____

sales commissions company president's salary

True or false: The finished product of one company can become raw materials for another company.

true

Manufacturing costs can be divided into three categories:

- direct materials - direct labor -manufacturing overhead