Chapter 1 Learn Smart

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

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

quality cost information reports

-help identify the financial cost of defects -show managers if quality control costs are poorly distributed -give managers an idea of where to focus quality control efforts

when the quality of conformance is low

-total quality cost is high -most of the quality cost is internal and external failure cost

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

False

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

False

True or False: Presenting fixed costs on an average per unit basis makes them look like they are variable costs.

True

the more effective a company's __ activites, the greater the level of __ failure costs

appraisal internal

the more effective a company's __ activities, the greater the level of __ failure costs

appraisal / internal

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

committed

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

any item for which cost data is desired is called an ___ ___

cost object

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

cost structure

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

processes that are out of control are capable of producing

defective products

prime costs are

direct materials and direct labor

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

discretionary

the contribution approach to constructing income statement distinguishes between ___ costs

fixed and variable

a fixed cost remains fixed ___ within the relevant range of activity

in total

differential costs are also known as __ costs

incremental

salaries of factory supervisors and factory maintenance personnel are examples of ___ labor costs

indirect

manufacturing overhead costs include

indirect materials, factory supervisors' salaries, and factory depreciation

costs that result from identifying defects before products are shipped to customers and include the cost of scrap and rework are ___ costs

internal failure

discretionary fixed costs include

management training programs advertising

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

matching

when it comes to quality of conformance, an economy car:

may have the same quality of conformance as a luxury car

there are 2 broad classifications of costs: manufacturing costs and ___ costs

nonmanufacturing

inventoriable costs is another term for __ costs

product

products that meet or exceed their expectations and are free from defects that mar or degrade their performance are said to have a high __ of __.

quality / conformance

small groups of employees that meet regularly to discuss ways to improve quality are referred to as __ ___

quality circles

typical prevention costs include:

quality circles statistical process control

the materials that go into the 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

cost assumptions are reasonably valid within the __ __ of activity

relevant range

the level of activity within which variable and fixed assumptions are valid is known as the ___ ___

relevant range

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

true

common activity bases include:

units sold machine hours direct labor hours

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

variable

Prevention, appraisal, internal failure and external failure costs incurred are detailed on an ___ ___ report

quality cost