ACG2071 - Chapter 1: Cost Classification and Estimation

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as ______. A. manufacturing overhead B. indirect labor C. direct labor D. period costs

A. manufacturing overhead

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 3. The wages of employees who assemble computers from components. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

A. Direct labor cost

Within the relevant range of activity, ______ costs remain constant in total. A. fixed B. variable C. neither fixed nor variable D. both fixed and variable

A. fixed

The difference in costs between two alternatives is called a(n) ______ cost. A. incremental B. opportunity C. sunk D. common

A. incremental

An activity base ______. A. is sometimes called a cost driver B. is part of the organization where major operations are planned and carried out C. measures whatever causes costs to vary D. is a measure of whatever causes fixed costs to occur

A. is sometimes called a cost driver C. measures whatever causes costs to vary

Harris Company manufactures and sells a single product. A partially completed schedule of the company's total costs and costs per unit over the relevant range of 61,000 to 101,000 units is given below: Required: 1. Complete the schedule of the company's total costs and costs per unit as given in the relevant tab below.

61000 81000 101000 $201,300 $267,300 $333,300 310000 310000 310000 $511,300 $577,300 $643,300 3.30 3.30 3.30 5.08 3.83 3.07 $8.38 $7.13 $6.37

Product costs ______. A. "attach" to units of product as they are purchased for resale or produced B. are also called inventoriable costs C. include all costs involved in making and selling a product D. are always expensed in the same period in which the related products are produced

A. "attach" to units of product as they are purchased for resale or produced B. are also called inventoriable costs

Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None". 4. Cost of the new color laser printer. A. Differential Cost B. Sunk Cost C. Opportunity Cost D. None

A. Differential Cost

Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None". 6. The cost of maintaining the old machine. A. Differential Cost B. Sunk Cost C. Opportunity Cost D. None

A. Differential Cost

Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None". 8. Cost of electricity to run the X-ray machines. A. Differential Cost B. Sunk Cost C. Opportunity Cost D. None

A. Differential Cost

Within the relevant range of activity ______. A. costs and activity can be approximated by a straight line B. variable costs do not change in total, only per unit C. fixed costs remain constant in total

A. costs and activity can be approximated by a straight line C. fixed costs remain constant in total

Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order. A. direct B. common C. overhead D. indirect

A. direct

A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost. A. direct material B. direct labor C. manufacturing overhead D. indirect material

A. direct material

Which of the following are most likely fixed costs? A. factory insurance B. administrative salaries C. electricity to operate factory machines D. factory rent

A. factory insurance B. administrative salaries D. factory rent

Cost objects include: A. organizational subunits B. customers C. anything for which cost data is desired D. anything for which revenue data is desired

A. organizational subunits B. customers C. anything for which cost data is desired

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 1. depreciation on salesperson's cars A. period cost B. product cost

A. period cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 14. The cost of renting rooms at a Florida resort for the annual sales conference. A. period cost B. product cost

A. period cost

All of a company's depreciation, property taxes, and insurance premiums are considered manufacturing overhead. A. True B. False

B. False

Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None". 1. Cost of the old X-ray machine. A. Differential Cost B. Sunk Cost C. Opportunity Cost D. None

B. Sunk Cost

The contribution approach to constructing income statements ______. A. distinguishes between product and period costs B. aids in decision making C. distinguishes between fixed and variable costs D. is used primarily for external reporting

B. aids in decision making C. distinguishes between fixed and variable costs

Differential cost is: A. the same as opportunity cost. B. also known as incremental cost. C. never relevant to a product decision. D. the difference in cost between two alternatives.

B. also known as incremental cost. D. the difference in cost between two alternatives.

A fixed cost remains fixed ______ within the relevant range of activity. A. per unit B. in total

B. in total

Variable costs vary ______ within the relevant range of activity. A. per unit B. in total

B. in total

Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs. A. direct B. indirect C. administrative

B. indirect

A cost that contains both variable and fixed cost elements is a(n) ______ cost. A. opportunity B. mixed C. sunk D. semi-fixed

B. mixed

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 7. Heat, water, and power consumed in the factory. A. period cost B. product cost

B. product cost

Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None". 7. Benefits from a new DNA analyzer. A. Differential Cost B. Sunk Cost C. Opportunity Cost D. None

C. Opportunity Cost

A type of indirect cost incurred to benefit more than one cost object is a(n) ______ cost. A. sunk B. prime C. common D. opportunity

C. common

Costs that are shared by multiple cost objects in a company are known as ______ costs. A. opportunity B. direct C. common D. marginal

C. common

Costs that can be easily and conveniently traced to a specific product are called ______ costs. A. period B. common C. direct D. indirect

C. direct

In the equation Y = a + bX, a = total ______ cost. A. mixed B. variable C. fixed

C. fixed

Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ______. A. statement of cash flows B. balance sheet C. income statement

C. income statement

Minor items such as nails and glue are usually considered to be ______. A. administrative costs B. selling costs C. indirect materials D. direct materials

C. indirect materials

What type of cost is never relevant and should be disregarded when making decisions? A. incremental B. opportunity C. sunk D. marginal

C. sunk

Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None". 2. The salary of the head of the Radiology Department. A. Differential Cost B. Sunk Cost C. Opportunity Cost D. None

D. None

Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None". 3. The salary of the head of the Laboratory Department. A. Differential Cost B. Sunk Cost C. Opportunity Cost D. None

D. None

Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None". 5. Rent on the space occupied by Radiology. A. Differential Cost B. Sunk Cost C. Opportunity Cost D. None

D. None

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 4. Sales commissions paid to the company's salespeople. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

D. Selling cost

Direct labor and overhead costs incurred to change raw materials into finished products are known as ______ costs. A. prime B. period C. opportunity D. conversion

D. conversion

The contribution approach to constructing income statements distinguishes between ______ costs. A. product and period B. relevant and irrelevant C. prime and conversion D. fixed and variable

D. fixed and variable

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 6. The salary of the company's accountant. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

E. Administrative cost

True or false: Labor costs that can be specifically traced to a product are indirect labor costs.

False

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 14. Executive life insurance

Fixed; Administrative Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 18. Wages of receptionist, executive offices

Fixed; Administrative Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 5. Depreciation, executive autos.

Fixed; Administrative Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 1. Property taxes, factory.

Fixed; Indirect Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 12. Magazine subscriptions, factory lunchroom

Fixed; Indirect Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 4. Supervisor's salary, factory.

Fixed; Indirect Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 7. Insurance, finished goods warehouses.

Fixed; Selling Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 9. Advertising costs

Fixed; Selling Cost

Cherokee Incorporated is a merchandiser that provided the following information: Number of units sold: 11,000 Selling price per unit: $ 16 Variable selling expense per unit: $ 1 Variable administrative expense per unit: $3 Total fixed selling expense: $ 19,000 Total fixed administrative expense: $ 15,000 Beginning merchandise inventory: $ 9,000 Ending merchandise inventory: $ 26,000 Merchandise purchases: $ 88,000 Required: 2. Prepare a contribution format income statement.

Sales: $176,000 Variable expenses: Cost of goods sold: 71,000 Selling expenses: 11,000 Administrative expenses: 33,000 Total: $115,000 Contribution margin: $61,000 Fixed expenses: Selling expenses: $19,000 Administrative expenses: $15,000 Total: 34,000 Net operating income: $27,000

Cherokee Incorporated is a merchandiser that provided the following information: Number of units sold: 11,000 Selling price per unit: $ 16 Variable selling expense per unit: $ 1 Variable administrative expense per unit: $3 Total fixed selling expense: $ 19,000 Total fixed administrative expense: $ 15,000 Beginning merchandise inventory: $ 9,000 Ending merchandise inventory: $ 26,000 Merchandise purchases: $ 88,000 Required: 1. Prepare a traditional income statement.

Sales: $176,000 Cost of goods sold: 71,000 Gross margin: 105,000 Selling and administrative expenses: Selling expenses: $30,000 Administrative expenses: $48,000 Total: 78,000 Net operating income: $27,000

Harris Company manufactures and sells a single product. A partially completed schedule of the company's total costs and costs per unit over the relevant range of 61,000 to 101,000 units is given below: Required: 2. Assume that the company produces and sells 91,000 units during the year at a selling price of $8.13 per unit. Prepare a contribution format income statement for the year.

Sales: $739,830 Variable expenses: $300,300 Contribution margin: $439,530 Fixed expenses: $310,000 Net operating income: $129,530

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 3. If 8,000 units are produced and sold, what is the variable cost per unit produced and sold? (Round your answer to 2 decimal places.)

Variable cost per unit sold = $14.55 DM+DL+VMO+SC+VAE

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 10. Microchips used in producing calculators

Variable; Direct Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 17. Yarn used in sweater production

Variable; Direct Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 2. Boxes used for packaging detergent produced by the company.

Variable; Direct Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 6. Wages of workers assembling computers.

Variable; Direct Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 13. Thread in a garment factory

Variable; Indirect Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 15. Ink used in textbook production

Variable; Indirect Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 16. Fringe benefits, materials handling workers

Variable; Indirect Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 8. Lubricants for production equipment.

Variable; Indirect Manufacturing Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 11. Shipping costs on merchandise sold.

Variable; Selling Cost

Listed below are costs found in various organizations. Required: For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product. 3. Salespersons' commissions.

Variable; Selling Cost

How individual costs react to changes in activity level is referred to as cost ________. (Enter only one word per blank.)

behavior

Sales revenue minus all variable expenses equals _______ ________. (Enter only one word per blank.)

contribution margin

Direct labor and overhead costs incurred to change raw materials into finished products are known as _______ costs. (Enter only one word per blank.)

conversion

Any item for which cost data is desired is called a(n) ________ _______. (Enter only one word per blank.)

cost object

Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are _________ materials. (Enter only one word per blank).

direct

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. (Enter only one word per blank).

direct or prime; indirect, common, or overhead

Manufacturing costs can be divided into three categories: direct ________, ________ labor and manufacturing _________. (Enter only one word per blank).

materials or material; direct or touch; overhead or burden

A cost that contains both variable and fixed cost elements is called a(n) ______ cost. (Enter only one word per blank.)

mixed, semivariable , or semi-variable

A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) _______ _______. (Enter only one word per blank.)

opportunity cost

The assumption that cost behavior is strictly linear is reasonably valid within the _______ _______ of activity. (Enter only one word per blank.)

relevant range

Costs that have already been incurred and can not be changed by decisions made in the current period or in future periods are called ________ costs. (Enter only one word per blank.)

sunk or sunken

Direct labor is also called ______ labor. (Enter only one word per blank.)

tough

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. (Enter only one word per blank).

traditional or GAAP; contribution

Differential costs are also known as ______ costs. (Enter only one word per blank.)

incremental, relevant, or decremental

A manufacturing cost that cannot be easily traced to a specific cost object is a(n) ______ cost. (Enter only one word per blank).

indirect, common, overhead, or shared

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.62. Required: 1. Fill in the following table with your estimates of the company's total cost and average cost per cup of coffee at the indicated levels of activity.

700 800 900 $1100 $1100 $1100 434 496 558 $1534 $1596 $1658 $2.191 $1.955 $1.842

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 12. The wages of the receptionist in the administrative offices. A. period cost B. product cost

A. period cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 13. Cost of leasing the corporate jet used by the company's executives. A. period cost B. product cost

A. period cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 4. Salaries of personnel who work in the finished goods warehouse. A. period cost B. product cost

A. period cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) A. period cost B. product cost

A. period cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 9. Advertising costs. A. period cost B. product cost

A. period cost

Period costs are always expensed on the income statement in the period in which ______. A. they are incurred B. the related goods are sold C. the cash for the expense changes hands

A. they are incurred

In the equation Y= a + bX, Y is the ______. A. total mixed cost B. total fixed cost C. variable cost per unit of activity D. level of activity

A. total mixed cost

Which type of cost changes in total, in direct proportion to changes in activity level? A. variable B. fixed C. differential D. opportunity

A. variable

Within the relevant range, a cost that changes in direct proportion to changes in the activity level is a ______ cost. A. variable B. fixed C. mixed

A. variable

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 8. If 12,500 units are produced, what is the average fixed manufacturing cost per unit produced? (Round your answer to 2 decimal places.)

Average fixed manufacturing cost per unit = $3.20 (Average fixed manufacturing overhead per unit*units used to calculate fixed cost per unit)/units produced

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 7. If 8,000 units are produced, what is the average fixed manufacturing cost per unit produced?

Average fixed manufacturing cost per unit = $5.00 (Average fixed manufacturing overhead per unit*units used to calculate fixed cost per unit)/units produced

Which of the following statements are true? A. Inventoriable costs are expensed in the period in which they are incurred. B. Period costs are expensed when incurred. C. All costs in a merchandising company are period costs. D. Period costs do not flow through the inventory accounts.

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

Which of the following are differences between the traditional and contribution format to income statements? A. The traditional income statement is for internal use, while the contribution format income statement is for external use. B. Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. C. Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier.

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

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.62. Required: 2. Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases? A. increase B. decrease C. remain the same

B. decrease

Manufacturing costs include ______. A. selling costs B. direct materials C. direct labor D. administrative costs E. manufacturing overhead

B. direct materials C. direct labor E. manufacturing overhead

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 1. The cost of a hard drive installed in a computer. A. direct labor cost B. direct materials cost C. manufacturing overhead cost D. selling cost E. administrative cost

B. direct materials cost

Manufacturing overhead costs include ______. A. direct materials, sales commissions, and factory assembly workers' wages B. indirect materials, factory supervisors' salaries, and factory depreciation C. administrative taxes and insurance, sales commissions, and factory assembly workers' wages D. direct materials, administrative taxes and insurance, and sales commissions

B. indirect materials, factory supervisors' salaries, and factory depreciation

Cost behavior ______. A. is the relative proportion of each type of cost in an organization B. is a detailed analysis technique used to determine whether costs are fixed or variable C. categorizes costs as fixed, mixed and variable D. refers to how a cost will change as activity level changes

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

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 10. Workers' compensation insurance for factory employees. A. period cost B. product cost

B. product cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 11. Depreciation on chairs and tables in the factory lunchroom. A. period cost B. product cost

B. product cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 15. The cost of packaging the company's product. A. period cost B. product cost

B. product cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 2. Rent on equipment used in the factory. A. period cost B. product cost

B. product cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 3. Lubricants used for machine maintenance. A. period cost B. product cost

B. product cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 5. Soap and paper towels used by factory workers at the end of a shift. A. period cost B. product cost

B. product cost

Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 6. Factory supervisors' salaries. A. period cost B. product cost

B. product cost

Opportunity costs ______. A. are part of traditional accounting records B. should be considered in decision making C. are uncommon in decision making D. are benefits that are given up when selecting one alternative over another

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

Common activity bases include ______. A. scrapped units B. units sold C. machine hours D. direct labor hours

B. units sold C. machine hours D. direct labor hours

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 5. The salary of the assembly shop's supervisor. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

C. Manufacturing overhead cost

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 7. Depreciation on equipment used to test assembled computers before release to customers. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

C. Manufacturing overhead cost

Cost structure ______. A. refers to how a cost will change as activity level changes B. is a detailed analysis technique used to determine whether costs are fixed or variable C. is the relative proportion of each type of cost in an organization

C. is the relative proportion of each type of cost in an organization

Contribution margin is ______. A. all revenues minus all costs B. sales revenue minus fixed costs C. sales revenue minus variable costs D. sales revenue minus cost of goods sold

C. sales revenue minus variable costs

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 13. If the selling price is $23.00 per unit, what is the contribution margin per unit? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Contribution margin per unit = $8.45 Selling price per unit - (DM+DL+VMO+SC+VAE)

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. A. $50,000 B. $160,000 C. $190,000 D. $80,000

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

The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 2. The cost of advertising in the Puget Sound Computer User newspaper. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

D. Selling cost

Factory materials, such as cleaning supplies, that are not components of finished products are classified as ______. A. period costs B. administrative costs C. direct materials D. manufacturing overhead

D. manufacturing overhead

Indirect materials include ______. A. factory rent and insurance B. laptop computer keyboards C. factory manager's salary D. nails, glue, and thread

D. nails, glue, and thread

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 15. What incremental manufacturing cost will Martinez incur if it increases production from 10,000 to 10,001 units? (Round your answer to 2 decimal places.)

Incremental cost per unit produced = $12.90 DM+DL+VMO

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 14. If 12,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production? (Do not round intermediate calculations.)

Total direct manufacturing cost = $138,000 (DM+DL)*units produced Total indirect manufacturing cost = $56,800 (Variable overhead per unit*units produced)+(Average fixed manufacturing overhead per unit*units used to calculate fixed cost per unit)

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 10. If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

Total fixed manufacturing cost = $40,000 Average fixed manufacturing overhead per unit*units used to calculate fixed cost per unit

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 9. If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

Total fixed manufacturing cost = $40,000 Average fixed manufacturing overhead per unit*units used to calculate fixed cost per unit

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 11. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis? (Round your "per unit" answer to 2 decimal places.)

Total manufacturing overhead cost = $51,200 (Variable overhead per unit*units produced)+(Average fixed manufacturing overhead per unit*units used to calculate fixed cost per unit) Manufacturing overhead per unit = $6.40 [(Variable overhead per unit*units produced)+(Average fixed manufacturing overhead per unit*units used to calculate fixed cost per unit)]/units produced

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 12. If 12,500 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis? (Round your "per unit" answer to 2 decimal places.)

Total manufacturing overhead cost = $57,500 (Variable overhead per unit*units produced)+(FMO per unit*units used to calculate fixed cost per unit) Manufacturing overhead per unit = $4.60 [(Variable overhead per unit*units produced)+(FMO per unit*units used to calculate fixed cost per unit)]/units produced

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 2. For financial accounting purposes, what is the total amount of period costs incurred to sell 10,000 units? (Do not round intermediate calculations.)

Total period cost = $77,500 [(SC+VAE)*units sold]+[(FSE+FAE)*units sold]

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units? (Do not round intermediate calculations.)

Total product cost = $169,000 (DM+DL+VMO+FMO)*units produced

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 5. If 8,000 units are produced and sold, what is the total amount of variable costs related to the units produced and sold? (Do not round intermediate calculations.)

Total variable cost = $116,400 (DM+DL+VMO+SC+VAE)*units sold

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 6. If 12,500 units are produced and sold, what is the total amount of variable costs related to the units produced and sold? (Do not round intermediate calculations.)

Total variable cost = $181,875 (DM+DL+VMO+SC+VAE)*units sold

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Direct materials: $ 7.00 Direct labor: $ 4.50 Variable manufacturing overhead: $ 1.40 Fixed manufacturing overhead: $ 4.00 Fixed selling expense: $ 4.00 Fixed administrative expense: $ 2.10 Sales commissions: $ 1.10 Variable administrative expense: $ 0.55 4. If 12,500 units are produced and sold, what is the variable cost per unit produced and sold? (Round your answer to 2 decimal places.)

Variable cost per unit sold = $14.55 DM+DL+VMO+SC+VAE

The relative proportion of each type of cost in an organization is known as the company's _______ _______. (Enter only one word per blank.)

cost structure

In an automobile manufacturing plant, the assembly-line workers are classified as _______ ________ cost. (Enter only one word per blank.)

direct or touch; labor or labour

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. (Enter only one word per blank.)

product or manufacturing; period