Ch. 1 Managerial Accounting and Cost Concepts
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
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?
Administrative salaries Factory rent Factory insurance
Which of the following statements are true?
Period costs do not flow through the inventory accounts. Period costs are expensed when incurred.
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.
Product costs ___
are also called inventoriable costs "attach" to units of product as they are purchased for resale or produced
Opportunity costs ___
are benefits that are given up when selecting one alternative over another should be considered in decision making
How individual costs react to changes in activity level is referred to as cost ___
behavior
How individual costs react to changes in activity level is referred to as cost ____
behavior
Cost behavior ____
categorizes costs as fixed, mixed and variable refers to how a cost will change as activity level changes
Sales revenue minus variable expenses equals _____ _____
contribution margin
Any item for which cost data is desired is called a(n) ____ ____
cost object
Within the relevant range of activity ___
costs and activity can be approximated by a straight line fixed costs remain constant in total
Cost objects include
customers organizational subunits anything for which cost data is desired
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
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
Manufacturing costs include ___
direct materials manufacturing overhead direct labor
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
Administrative costs include ____
executive compensation and public relations costs
Within the relevant range of activity, ______ costs remain constant in total
fixed
Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ___
income statement
Differential costs are also known as _____ costs.
incremental
A manufacturing cost that cannot be easily traced to a specific cost object is a(n) ____ cost
indirect
Which of the following is not a COST CLASSIFICATION associated with decision making?
indirect costs
Direct materials and direct labor are both ______ costs
manufacturing
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized is known as the _____ principle.
matching
Manufacturing costs can be divided into three categories: direct ____ , _____ labor and manufacturing ____
materials, direct, overhead
A cost that contains both variable and fixed cost elements is a(n) ______ cost
mixed
A cost that contains both variable and fixed costs elements is called a(n) ____ cost
mixed
A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) _____ ____
opportunity cost
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 assumption that cost behavior is strictly linear is reasonably valid within the _____ _____ of activity
relevant range
he assumption that cost behavior is strictly linear is reasonably valid within the ____ ____ of activity
relevant range
Nonmanufacturing costs include ___
sales commissions company president's salary
Selling costs include ______
sales commissions sales salaries advertising
Contribution margin is __
sales revenue minus variable costs
Period costs are always expensed on the income statement in the period in which ____
they are incurred
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, contribution
Which type of cost changes in total, in direct proportion to changes in activity level?
variable
Within the relevant range, a cost that changes in direct proportion to changes in the activity level is a ______ cost
variable
