Chapter 1 AC 361

Product costs ______.

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

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

We Ship It, Inc. is considering changing its shipping methods, which they believe will attract new customers. The following information relates to the present and proposed methods. Present Proposed Revenues $140,000 $190,000 Variable costs $60,000 $70,000 Fixed costs $20,000 $25,000 The differential net income from the proposal is ______.

$35,000 Reason: A differential cost analysis considers the change in revenues ($50,000) and subtracts the change in both variable ($10,000) and fixed ($5,000) costs.

Cost objects include ______.

anything for which cost data is desired organizational subunits customers

Differential costs ______.

can be fixed or variable

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

decision making

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

marginal

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

Variable costs vary ______ within the relevant range of activity.

total

Common activity bases include ______.

units sold direct labor hours machine hours

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

Conversion

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

Differential

Differential costs are also known as ? costs.

Incremental

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

cost object

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

indirect

A contribution approach income statement ______.

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

Cost behavior patterns such as salaried employees are often called ? costs

step variable

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

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

Raw Materials Finished Goods Work in Process

Cost behavior ______.

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

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

cost structure

Within the relevant range, fixed costs ______.

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

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

indirect

Manufacturing costs include ______.

manufacturing overhead direct labor direct materials

Variable costs ______.

remain constant per unit and vary in total.

Nonmanufacturing costs include ______.

sales commissions company president's salary

Contribution margin is ______.

sales revenue minus variable costs

Which of the following are most likely fixed costs?

Factory rent Factory insurance Administrative salaries

Variable costs remain fixed in total within the relevant range of activity.

False Reason: Within the relevant range of activity, fixed costs remain fixed in total and vary per unit. Variable costs vary in total and remain fixed per unit.

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 & Admin. Exp. of $60,000 = $80,000.

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 of the following statements are true?

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

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

Discretionary

Cost of goods sold for a merchandising company, direct materials and commissions are all examples of ? costs

variable

Within the relevant range ? costs remain constant on a per unit basis.

variable

Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are called ? fixed costs

committed

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

common

Within the relevant range of activity ______.

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

Other names for manufacturing overhead include ______.

indirect manufacturing costs factory overhead factory burden

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

indirect materials manufacturing overhead

Product costs are also called ? costs

inventoriable or manufacturing

Selling costs include ______.

sales salaries advertising sales commissions

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 cost that contains both variable and fixed costs elements is called a(n) ? cost.

mixed