Connect (Prologue, Chapter 1, Appendix 5A) Homework Questions

Which of the following is true of the contribution approach? -It is mainly used for external reporting purposes. -It separates costs into fixed and variable categories. -It is not useful for merchandising companies. -It calculates gross margin by deducting cost of goods sold from sales.

It separates costs into fixed and variable categories.

Which of the following is not a business management perspective that goes beyond the numbers to enable intelligent planning, controlling and decision making? -Enterprise risk management perspective -Lean production perspective -Corporate social responsibility perspective -Leadership perspective

Lean production perspective

Which of the following methods do managers use to estimate the fixed and variables components of mixed costs by analyzing past records of cost and activity data? -Scattergraph -Account analysis -Least-squares regression

Least-squares regression

Items such as indirect materials, indirect labor, maintenance and repairs on production equipment, depreciation, and insurance on manufacturing facilities are included in ____. -Nonmanufacturing costs -Manufacturing overhead costs -Direct costs

Manufacturing costs

All of the following are pillars of managerial accounting except ____ -Controlling -Decision making -Planning -Maximizing profit

Maximizing profit

Direct Labor-Hours Maintenance Cost Incurred January 5,000 $ 2,900 February 4,000 2,500 March 7,000 3,200 April 8,000 3,400 May 3,000 2,100 June 9,000 4,000 July 6,000 3,100 August 2,000 1,900 Using the high-low method, what is the variable cost? -$2 per direct-labor hour -$2.31 per direct-labor hour -$0.30 per direct-labor hour -$3.33 per direct-labor hour

$0.30 per direct-labor hour (Variable cost = Change in cost/ Change in activity) (Variable cost = ($4,000 - $1,900)/(9,000 direct labor-hours - 2,000 direct labor-hours) = $0.30 per direct-labor-hour)

____ is sometimes called "touch labor." -Direct labor -Indirect labor -Overhead labor

Direct labor

Manufacturing costs include all of the following categories except ____. -Administrative costs -Direct labor -Direct materials -Manufacturing overhead

Administrative costs

Which of the following statements about the opportunity costs is not correct? -An opportunity cost is the potential benefit that is given up when one alternative is selected over another. -An opportunity cost cannot be changed by any decision made now or in the future. -Opportunity costs are not usually found in accounting records. -Opportunity costs are costs that must be explicitly considered in every decision a manager makes.

An opportunity cost cannot be changed by any decision made now or in the future.

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 salaries employee expense is ____. -$12,500 -$16,250 -$17,500 -$15,000

$17,500 (The company would need 7 welders (7*$2,500 = $17,500) to complete the work. The relevant range here is 1,201 to 1,400 machine-hours.)

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 -$15,000 -$10,000 -$20,000

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

Davidson Company has sales of $100,000, variable cost of goods sold of $40,000, variable selling expenses of $15,000, variable administrative expenses of $5,000, fixed selling expenses of $7,000, and fixed administrative expenses of $9,000. What is Davidson's contribution margin? -$84,000 -$45,000 -$40,000 -$8,000

$40,000 (Contribution margin = Sales revenues- All variable expenses) (Contribution margin = $100,000 - ($40,000 + $15,000 + $5,000) = $100,000 - $60,000 = $40,000)

Cyber Devices manufactures PCTV products that enable people to watch television content on their computers. it sells its product to retailers for $50. A turner component that goes into each of these devices costs $5 to acquire. The total variable cost at an activity level of 1,000 units equals ____. -$50,000 -$5 -$1,000 -$5,000

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

Match the term and definition. 1. 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. 2. A ____ is a cost that is incurred to support a number of cost objects but cannot be traced to them individually. 3. 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.

1. Indirect cost 2. Common cost 3. Direct cost

Match the term and the definition. 1. Emphasizes decisions affecting the future. 2. Emphasizes relevance. 3. Emphasizes financial consequences of past activities. 4. Not required to follow GAAP. 5. Emphasizes objectivity.

1. Managerial accounting 2. Managerial accounting 3. Financial accounting 4. Managerial accounting 5. Financial accounting

The traditional income statement uses which of the following cost categories? -Variable expenses and fixed expenses. -Cost of goods sold and fixed expenses. -Operating expenses and selling and administrative expenses. -Cost of goods sold and selling and administrative expenses.

Cost of goods sold and selling and administrative expenses.

Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called ____. -Raw materials -Direct materials -Indirect materials

Direct materials

Property taxes associated with a company's administrative facility are considered ____. -Nonmanufacturing costs -Manufacturing costs -Selling costs

Nonmanufacturing costs

Differential costs are always ____. -Irrelevant in making business decisions -Relevant in making business decisions -A sunk cost

Relevant in making business decisions

A fixed cost is a cost which ____. -Varies in total with changed in the level of activity -Remains constant per unit with changes in the level of activity -Varies inversely in total with changes in the level of activity -Remains constant in total with changes in the level of activity

Remains constant in total with changes in the level of activity

Planning involves _______ -Hiring employees -Setting goals and objective -Analyzing financial statements -Coordinating company activities

Setting goals and objectives

If a firm increases its activity level, ____. -Costs will remain the same -All costs will rise -Some costs will change, other costs will remain the same

Some costs will change, other costs will remain the same

Which of the following is always an irrelevant cost? -Differential cost -Sunk cost -Opportunity cost

Sunk cost

In the equation, Y = a + bX, X represents ____. -The total mixed cost -The level of activity -The total fixed cost -The variable cost per unit of activity

The level of activity