ACG Chapter 1

Which of the following are sometimes called inspection costs

appraisal costs

Which of the following statements are true

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

Selling costs include

-advertising -sales commissions -sales salaries

A contribution approach income statement:

-can assist with management decision making -separate costs into their fixed and variable components

cost behavior

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

other names for manufacturing overhead include

-factory overhead -factory burden -indirect manufacturing overhead

an activity base

-is sometimes called a cost driver -measures whatever causes costs to vary

Step variable costs

-may include total salaried employee expense -can be adjusted quickly as conditions change

Cost objects include ____

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

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

Within the relevant range of activity, variable costs

-remain constant per unit -vary in total

A factory supervisor's wages are classified as

Indirect labor- Yes; Fixed manufacturing overhead- Yes

Common activity bases include

machine hours direct labor hours units sold

DM $82,000 DL $51,000 VMOH $32,000 FMOH $30,000 V selling $16,000 F selling $15,000 V admin $9,000 F admin $18,000 Total conversion cost for the month was

$113,000 DL+VMOH+FMOH

DM $76,000 DL $40,000 VMOH $25,000 FMOH $30,000 V selling $12,000 F selling $15,000 V admin $6,000 F admin $18,000 total prime cost for the month is

$116,000 DM+DL

DM $7.10 DL $3.95 VMOH $1.75 FMOH $105,300 Sales commissions $1.00 Var admin $.50 Fix selling and admin $36,450 The incremental manufacturing cost that the company will incur if it increases production from 9,000 to 9,001 units is closest to (assume that the increase is within the relevant range)

$12.80 DM $7.10 + DL $3.95 + VMOH $1.75= incremental manufacturing cost $12.80

DM $76,000 DL $40,000 VMOH $25,000 FMOH $30,000 V selling $12,000 F selling $15,000 V admin $6,000 F admin $18,000 Total variable manufacturing cost for the month is

$141,000 DM+DM+VMOH

In a small manufacturing facility, one welder is needed for every 200 hours of machine-hours or fewer in a month. The welder is paid a monthly salary of $2,500. If the total monthly requirement is 1,300 machine-hours, the total salaried employee expense is ________.

$17,500 The company would need 7 welders (7 x $2,500 = $17,500) to complete the work. the relevant range is 1,201 to 1,400 machine hours

DM $82,000 DL $51,000 VMOH $32,000 FMOH $30,000 V selling $16,000 F selling $15,000 V admin $9,000 F admin $18,000 total product cost for the month of September was

$195,000 DM + DL + VMOH +FMOH

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 Cost of goods sold= beginning merch inventory + purchases - ending merch inventory COGS= $15,000 + $20,000 - $10,000= $25,000

Based on the following information, compute the cost of goods sold for Spengler Merchandising Corporation. Sales $400,000 Purchases $300,000 Beginning inventory $50,000 Ending inventory $90,000 Selling expenses $70,000 Administrative expenses $30,000 Accounts receivable $110,000

$260,000 Beg inv + purch - end inv

A company purchased a 12 month insurance policy on October 1st at a cost of $1,200. On the December 31st annual financial statements

$300 is reported as an expense and $900 is reported as an asset

Present: Revenue $140,000 VC $60,000 FC $20,000 Proposed: revenue $190,000 VC $70,000 FC $25,000 Calculate the differential net income or loss from the proposal

$35,000 differential net income

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 Sales- variable expenses= CM $100,000- variable cost of goods sold of $40,000- variable selling expenses of $15,000 - variable admin expense of $5,000

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 total variable cost= $5 x 1,000= $5,000

DM $76,000 DL $40,000 VMOH $25,000 FMOH $30,000 V selling $12,000 F selling $15,000 V admin $6,000 F admin $18,000 Total period cost for the month of July was

$51,000 (all selling and admin expenses)

DM $5.20 DL $3.75 VMOH $1.65 FMOH $2.60 Fix selling $.50 Fix admin $.40 Sales commission $1.50 V admin $.50 If 6,000 units are produced, the total amount of direct manufacturing cost incurred is closest to

$53,700 DM $5.20 + DL $3.75= Direct Manuf cost per unit of $8.95 $8.95 x 6,000= $53,700 total direct manufacturing cost

DM $76,000 DL $40,000 VMOH $25,000 FMOH $30,000 V selling $12,000 F selling $15,000 V admin $6,000 F admin $18,000 Total fixed costs for the month is

$63,000 FMOH+ fixed selling + fixed admin

A dress manufacturer would consider the cost of relatively inexpensive items like thread to be a part of ___

- manufacturing overhead -indirect materials

Within the relevant range, fixed costs:

-should not be expressed on a per unit basis when making decisions -generally include rent and supervisor salaries -remain constant in total regardless of changes in activity

Differential costs is

-the difference in cost between two alternatives -also known as incremental cost

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

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

sales revenue minus variable expenses equals

CM

The cost of electricity for running production equipment is classified as: A) Conversion- yes; period cost- no B) conversion- yes; period cost-yes C)conversion- no; period- yes D) Conversion- no; Period cost- no

Choice A (conversion yes; period cost no)

conversion cost

DL + MOH

Prime cost

DM + DL

Variable manufacturing cost

DM + DL + VMOH

Total fixed cost

FMOH + fixed selling expense + fixed admin expense

A report that details prevention, appraisal, internal failure, and external failure costs is called a

Quality cost report

Which statement is not correct

a company can reduce its total quality cost by focusing less of its efforts on prevention and appraisal

Manufacturing costs include all of the following categories except

administrative costs

Which of the following statements about opportunity cost is not correct

an opportunity cost cannot be changed by any decision make now or in the future

Fixed costs that cannot be easily changed and often lock a company into a multi-year decisions are ____ fixed costs

committed

costs that are shared by multiple cost objects in a company are known as ___ costs

common

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

common cost

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

conversion

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

cost of goods sold and selling and administrative expenses

The relative proportion of each type of cost in an organization is known as the company's ____ ____

cost structure

Differential costs, opportunity costs and sunk costs are all cost classifications used in

decision making

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

Adventure holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a ____ of the branch

direct cost

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

direct labor

___ is sometimes called "touch labor"

direct labor

A laptop computer manufacturer would consider the computer's processor chip to be a ___ cost

direct material

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

Prime costs consists of

direct materials and direct labor

A cost that can be easily and conveniently traced to a specific cost object is a _____ cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are _____ costs

direct or prime indirect or common

Fixed costs that usually arise from annual spending decisions by management are _____ fixed costs

discretionary

Indirect labor costs include

factory security guard wages, assembly-line supervisor salary

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

false

True or false: variable costs remain fixed in total within the relevant range of activity

false

true or false: all of a company's depreciation, property taxes and insurance premiums are considered manufacturing overhead

false

true or false: labor costs that can be specifically traced to a product are indirect labor costs

false

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

gross margin of $140,000- total selling and admin of $60,000= $80,000

Which of the following is not a benefit of a quality cost report

helps managers see the lost sales arising from customer ill will ** it does... - help managers see the financial significance of defects - identify the relative importance of quality problems faced by their company -helps managers see the distribution of their quality costs

A fixed costs remains fixed ___ within the relevant range of activity

in total

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

income statement

as the level of activity moves outside of the relevant range, fixed costs

increase or decrease in discrete steps

Salaries of factory supervisors and factory maintenance personnel are examples of _____ labor costs

indirect

Adventure holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a ____ of selling a tour package

indirect cost

Minor items such as nails and glue are usually considered to be

indirect materials

Manufacturing overhead costs include

indirect materials, factory supervisors' salaries, and factory depreciation

Which of the following is true of the contribution approach?

it separates costs into fixed and variable categories

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

manufacturing overhead

items such as indirect materials, indirect labor, maintenance and repairs on production equipment, depreciation, and insurance on manufacturing facilities are included in ___

manufacturing overhead costs

The revenue from selling one additional unit is called ____ revenue

marginal

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

Which of the following is an example of an internal failure cost?

net cost of scrap

there are two broad classifications of costs: manufacturing costs and ___ costs

non manufacturing

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

non manufacturing costs

A potential benefit that is forfeited or lost when one decision is chosen over another is called an

opportunity cost

which of the following costs supports activities whose purpose is to reduce the number of defects?

prevention costs

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

product cost

Which of the following is an example of an external failure cost?

product recalls

Which of the following is a measure of whether or not a delivered product meets its design specifications?

quality of conformance

the materials that go into a final product are called ____ materials

raw

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

raw materials work in process finished goods

Differential costs are always

relevant in making business decisions

cost assumptions are reasonably valid within the ___ ___ of activity

relevant range

A fixed cost is a cost which

remains constant in total with changes in the level of activity

nonmanufacturing costs include

sales commissions, company president's salary

period cost

selling expense + admin expense

If a firm increases its activity level, ___

some costs will change, other costs will remain the same

Conversion cost

sum of direct labor cost and manufacturing overhead cost

Which of the following is always an irrelevant cost

sunk cost

In the equation Y= a + bX, X represents

the level of activity

All of the following are necessary to obtain ISO 9000 certification except ____

the quality of output is the best in the industry ** what is necessary is... - a quality control system is in use -the system is backed up with detailed documentation of quality control procedures -the intended level of quality is achieved on a sustained, consistent basis

In the equation Y=bX, Y is the

total mixed cost

true or false: presenting fixed costs on an average per unit basis makes them look like they are variable costs

true

A cost that changes in direct proportion to changes in the activity level is a ___ cost

variable

mixed costs are also commonly known as semi-______ costs

variable