Connect Concept Questions for Chapter 1 - ACCT 2102

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 * $2,500 = $17,500) to complete the work. The relevant range here us 1,201 to 1,400 machine-hours.

A ___________ is a cost that is incurred to support a number of cost objects but cannot be traced to them individually.

Common cost A common cost is a type of indirect costs.

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

Cost of Goods Sold and Selling and Administrative Expenses

A difference in costs between any two alternatives.

Differential cost

A difference in revenues between any two alternatives.

Differential revenue

Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) ___________ of the branch.

Direct cost Remember to consider the cost object. In this case, the cost object is the branch.

__________ is sometimes called "touch labor."

Direct labor Because touch labor workers typically touch the product while it is being made.

Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) _________ of selling a tour package.

Indirect cost This is an indirect cost because the branch manager's salary is incurred as a consequence of running the entire branch - it is not incurred to generate one lead.

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 principles

The potential benefit that is given up when one alternative is selected over another.

Opportunity cost

________ best describes the wages of a sheet metal worker in a fabrication plant.

Product costs This is also known as direct labor.

Differential costs are always _______

Relevant in making business decisions Differential costs are the future costs that differ between alternatives and are always relevant in making business decisions.

A fixed cost is a cost which _______

Remains constant in total with changes in the level of activity Fixed cost does not change with changes in activity level.

If a firm increases its activity level, then _______

Some costs will change, others will remain the same If the activity level increases, total variable costs will increase while total fixed costs will remain constant.

A cost that has already been incurred and that cannot be changed by any decision made now or in the future.

Sunk cost

In the equation, Y = a + bX, X represents _________

The level of activity

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 ($25,000) = Beginning merchandise inventory ($15,000) + Purchases ($20,000) - Ending merchandise inventory ($10,000)

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 If a cost is related to production indirectly, it is manufacturing overhead. Nonmanufacturing costs are those related to selling administration, but not production.

Davidson Company has a product with a selling price per unit of $100, the unit variable cost is $60, and the total monthly fixed costs are $30,000. If the company sells 1,000 units, how much is Davidson's contribution margin per unit?

$40 The contribution margin per unit equals selling price per unit less variable cost per unit ($100 - $60 = 40)

Manufacturing cost include all of the following except

Administrative What is included: - Direct materials - Direct labor - Manufacturing overhead Administrative cost is a nonmanufacturing cost of a manufacturing company.

__________ is common to both prime cost and conversion cost.

Direct labor Direct labor is common to both prime cost and conversion cost. Prime cost is the sum of direct materials cost and direct labor cost. Conversion cost is the sum of direct labor cost and manufacturing overhead cost.

________ is always an irrelevant cost.

Sunk cost Sunk cost cannot be changed by any decision made now or in the future and therefore us irrelevant in decision making.

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 equal _______

$5,000 Total variable cost = $5 * 1,000 = $5,000

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 Note: not all raw materials can include both direct and indirect materials.

Which of the following is true of the contribution approach?

It separates costs into fixed and variable categories The contribution approach separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.

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

Nonmanufacturing costs If a cost is for the factory, it is manufacturing cost. If a cost is for the administrative part of the business, it is nonmanufacturing.

Which observation is true of period costs?

They are expensed in the period in which they are incurred. Period costs are not included as part of the cost of either purchased or manufactured goods; instead, period costs are expensed on the income statement in the period in which they are incurred using the usual rules of accrual accounting.