Managerial Accounting Chapter 1 Flashcards Raymond Besser
Fixed Cost
A cost that remains constant, in total, regardless of changes in the level of the activity. Your monthly contract fee for your cell phone may be fixed for the number of monthly minutes in your contract.
Variable Cost
A cost that varies, in total, in direct proportion to changes in the level of activity. Your total texting bill may be based on how many texts you send.
The Activity Base (Cost Driver)
A measure of what causes the incurrence of a variable cost Example- Units produced, Machine Hours, Miles Driven, Labor Hours
Mixed Costs
A mixed cost contains both variable and fixed elements. Consider the example of utility cost.
Which of the following should not be included as part of manufacturing overhead at a company that makes office furniture A. Sheet Steel in a file cabinet made by the company B. Manufacturing equipment depreciation C. Idle time for direct labor D. Taxes on a factory building
A. Sheet Steel in a file cabinet made by the company
The nursing station on the fourth floor of Central Hospital is responsible for the care of orthopedic surgery patients. The costs of prescription drugs administered by the nursing station to patients should be classified as: A. direct patient costs. B. indirect patient costs. C. overhead costs of the nursing station. D. period costs of the hospital.
A. direct patient costs.
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 6. The wages of the company's accountant.
Administrative cost
Administrative Costs
All executive, organizational, and clerical costs. Administrative costs can be either direct or indirect costs.
Indirect labor is a(n): A. Prime cost. B. Conversion cost. C. Period cost. D. Opportunity cost.
B. Conversion cost.
Which of the following costs would be considered a period rather than a product cost in a manufacturing company? A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.
B. Property taxes on corporate headquarters. E. Sales commissions
With the relevant range variable cost per unit will A. Increase as the level of activity increases B. Remain Constant C. Decrease as the level of activity increases D. None of the above
B. Remain Constant
Within the relevant range: A. variable cost per unit decreases as production decreases. B. fixed cost per unit increases as production decreases. C. fixed cost per unit decreases as production decreases. D. variable cost per unit increases as production decreases.
B. fixed cost per unit increases as production decreases.
The costs of the Accounting Department at Central Hospital would be considered by the Surgery Department to be: A. direct costs. B. indirect costs. C. incremental costs. D. opportunity costs.
B. indirect costs.
Discretionary fixed costs: A. have a planning horizon that covers many years. B. may be reduced for short periods of time with minimal damage to the long-run goals of the organization. C. cannot be reduced for even short periods of time without making fundamental changes. D. are most effectively controlled through the effective utilization of facilities and organization.
B. may be reduced for short periods of time with minimal damage to the long-run goals of the organization.
All of the following costs would be found in a company's accounting records except: A. sunk cost. B. opportunity cost. C. indirect costs. D. direct costs.
B. opportunity cost.
Fresh Wreath Corporation manufactures wreaths according to customer specifications and ships them to customers using United Parcel Service (UPS). Which two terms below describe the cost of shipping these wreaths? A. variable cost and product cost B. variable cost and period cost C. fixed cost and product cost D. fixed cost and period cost
B. variable cost and period cost
Each of the following would be a period cost except A. The salary of the company president secretary B. The cost of a general accounting office C. Depreciation of a machine used in manufacturing D. Sales Commissions
C. Depreciation of a machine used in manufacturing
Which of the following companies would have the highest proportion of variable costs in its cost structure? A. Public utility. B. Airline. C. Fast food outlet. D. Architectural firm.
C. Fast food outlet.
22. The salary paid to the maintenance supervisor in a manufacturing plant is an example of: Product Cost Manufacturing Overhead A) No Yes B) Yes No C) Yes Yes D) No No A. Option A B. Option B C. Option C D. Option D
C. Option C
When the activity level declines within the relevant range, what should happen with respect to the following? Fixed cost per unit Variable cost per unit A) No change Increase B) Increase Increase C) Increase No change D) No change No change A. Option A B. Option B C. Option C D. Option D
C. Option C
20. Which of the following would most likely be included as part of manufacturing overhead in the production of a wooden table? A. The amount paid to the individual who stains the table. B. The commission paid to the salesperson who sold the table. C. The cost of glue used in the table. D. The cost of the wood used in the table.
C. The cost of glue used in the table.
Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers
C. The cost of ice cream. D. The cost of napkins for customers
When the level of activity decreases, variable costs will: A. increase per unit. B. increase in total. C. decrease in total. D. decrease per unit.
C. decrease in total.
In a manufacturing company, direct labor costs combined with direct materials costs are known as: A. period costs. B. conversion costs. C. prime costs. D. opportunity costs.
C. prime costs.
Inventoriable costs are also known as: A. variable costs. B. conversion costs. C. product costs. D. fixed costs.
C. product costs.
All of the following would be classified as product costs except: A. property taxes on production equipment. B. insurance on factory machinery. C. salaries of the marketing staff. D. wages of machine operators.
C. salaries of the marketing staff.
Stott Company requires one full-time dock hand for every 500 packages loaded daily. The wages for these dock hands would be: A. variable. B. mixed. C. step-variable. D. curvilinear.
C. step-variable.
26. If the level of activity increases within the relevant range: A. variable cost per unit and total fixed costs also increase. B. fixed cost per unit and total variable cost also increase. C. total cost will increase and fixed cost per unit will decrease. D. variable cost per unit and total cost also increase.
C. total cost will increase and fixed cost per unit will decrease.
Selling Costs
Costs necessary to secure the order and deliver the product. Selling costs can be either direct or indirect costs.
Direct costs
Costs that can be easily and conveniently traced to a unit of product or other cost object. Examples: direct material and direct labor
Indirect costs
Costs that cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead
Which of the following costs would not be included as part of manufacturing overhead A. Depreciation of production equipment B. Lubricants for production of equipment C. Direct labor overtime premium D. Insurance on sales vehicles
D. Insurance on sales vehicles
The term "relevant range" means the range of activity over which: A. Relevant costs are incurred B. Costs may fluctuate C. Production may vary D. The assumptions about fixed and variable cost behavior are reasonable valid
D. The assumptions about fixed and variable cost behavior are reasonable valid
Last month, when 10,000 units of a product were manufactured the cost per unit was $60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and the cost behavior patterns remain unchanged the: A. Total variable cost will remain unchanged B. Fixed costs will increase in total C. Variable cost per unit will increase D. Total Cost per Unit will decrease
D. Total Cost per Unit will decrease
An example of a discretionary fixed cost would be: A. taxes on the factory. B. depreciation on manufacturing equipment. C. insurance. D. research and development.
D. research and development.
Differential Cost and Revenue-Costs and revenues that differ among alternatives Example-Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month.
Differential revenue is: $2,000 - $1,500 = $500 Differential cost is: $300
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Lab Test by Outside Contractor 2. A Particular Department
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Lab Test by Outside Contractor 2. Cost Object- A Particular Patient
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Prescription Drugs 2. Cost Object- A Particular Patient
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- The Salary of the Head of Pediatrics 2. Cost Object- The Pediatric Department
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- The Wages of Pediatric Nurses 2. Cost Object- The Pediatric Department
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost-Catered Food Served to Patients 2. Cost Object- A Particular Patient
Direct Cost
What is a Conversion Cost
Direct Labor and Manufacturing Overhead
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 1. The cost of a hard drive installed in a computer.
Direct Materials Cost
What is a Prime Cost
Direct Materials and Direct Labor
What are the three Manufacturing Costs
Direct Materials, Direct Labor, and Manufacturing Overhead
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 3. The wages of employees who assemble computers from components.
Direct labor cost
A direct cost is a cost that cannot be easily traced to the particular cost object under consideration.
False
A fixed cost remains constant if expressed on a unit basis.
False
All costs incurred in a merchandising firm are considered to be period costs
False
Conversion cost equals product cost less direct labor cost.
False
Conversion cost is the sum of direct labor cost and direct materials cost.
False
Depreciation on office equipment would be included in product costs.
False
Direct material costs are generally fixed costs.
False
Manufacturing salaries and wages incurred in the factory are period costs.
False
Property taxes and insurance premiums paid on a factory building are examples of period costs.
False
Selling and administrative expenses are product costs under GAAP
False
Total variable cost is expected to remain unchanged as activity changes within the relevant range.
False
Fixed Cost Per Unit
However, if expressed on a per unit basis, the average fixed cost per unit varies inversely with changes in activity. The average fixed cost per cell phone call made decreases as more calls are made.
Variable Cost Per Unit
However, variable cost per unit is constant. The cost per text sent may be constant at 5 cents per text message.
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Heating The Hospital 2. Cost Object- The Pediatric Department
Indirect Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Hospital Champlain Salary 2. Cost Object- A Particular Patient
Indirect Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- The Salary of the Head of Pediatrics 2. Cost Object- A Particular Pediatric Patient
Indirect Cost
Fixed Cost Committed
Long-term, cannot be significantly reduced in the short term Examples Depreciation on Buildings Equipment Real Estate Taxes
Manufacturing Overhead
Manufacturing costs that cannot be easily traced directly to specific units produced. Examples: Indirect materials and indirect labor
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 5. The wages of the assembly shop's supervisor.
Manufacturing overhead cost
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 7. Depreciation on equipment used to test assembled computers before release to customers.
Manufacturing overhead cost
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 2. The cost of advertising in the Puget Sound Computer User newspaper.
Marketing and selling cost
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 4. Sales commissions paid to the company's salespeople.
Marketing and selling cost
Indirect Materials
Materials used to support the production process. Examples: lubricants and cleaning supplies used in the automobile assembly plant.
Discretionary Fixed Cost
May be altered in the short term by current managerial decisions Examples- Advertising, Research and Development
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 1. Depreciation on Salesperson Car
Period Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 12. The wages of the receptionist in the administrative offices
Period Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 13. The Cost of leasing the corporate jet used by company's executives
Period Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 14. The cost of renting rooms at a Florida resort for the annual sales conference
Period Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 4. Salaries of Personnel who work in the finished goods warehouse
Period Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 8. Materials Used for boxing products for shipments overseas
Period Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 9. Advertising Costs
Period Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 10. Workers Compensation Insurance for Factory Employees
Product Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 11. Depreciation on chairs and tables in the factory lunchroom
Product Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 15. The cost of packaging the company product
Product Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 2. Rent on Equipment used in a factory
Product Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 3. Lubricants used for machine maintenance
Product Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 5. Soap and Paper Towels Used by Factory Workers at The end of the shift
Product Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 6. Factory Supervisors Salaries
Product Cost
Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. 7. Heat Water and Power Consumed at a factory
Product Cost
Direct Materials
Raw materials that become an integral part of the product and that can be conveniently traced directly to it. Example: -A radio installed in an automobile
Sunk Costs
Sunk costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions. Example: Suppose you had purchased gold for $1,100 an ounce, but now it is selling for $950 an ounce. Should you wait for the gold to reach $1,100 an ounce before selling it? You may say, "Yes" even though the $1,100 purchase is a sunk cost.
Opportunity Cost
The potential benefit that is given up when one alternative is selected over another. These costs are not usually entered into the accounting records of an organization, but must be explicitly considered in all decisions. What are the opportunity costs you incur to attend this class?
Fixed Costs and the Relevant Range
The relevant range of activity pertains to fixed cost as well as variable costs. For example, assume office space is available at a rental rate of $30,000 per year in increments of 1,000 square feet. Fixed costs would increase in a step fashion at a rate of $30,000 for each additional 1,000 square feet.
Prime Costs
The sum of direct materials cost and direct labor cost
Direct Labor
Those labor costs that can be easily traced to individual units of product Example: Wages paid to automobile assembly workers
Arden Company reported the following costs and expenses for the most recent month: Direct materials $ 80,000 Direct labor $ 42,000 Manufacturing overhead $ 19,000 Selling expenses $ 22,000 Administrative expenses $ 35,000 What is the total amount of conversion costs?
Total Amount of Conversion Costs- $61,000
Arden Company reported the following costs and expenses for the most recent month: Direct materials $ 80,000 Direct labor $ 42,000 Manufacturing overhead $ 19,000 Selling expenses $ 22,000 Administrative expenses $ 35,000 What is the total amount of period costs?
Total Amount of Period Costs-$57,000
Arden Company reported the following costs and expenses for the most recent month: Direct materials $ 80,000 Direct labor $ 42,000 Manufacturing overhead $ 19,000 Selling expenses $ 22,000 Administrative expenses $ 35,000 What is the total amount of prime costs?
Total Amount of Prime Costs-$122,000
Arden Company reported the following costs and expenses for the most recent month: Direct materials $ 80,000 Direct labor $ 42,000 Manufacturing overhead $ 19,000 Selling expenses $ 22,000 Administrative expenses $ 35,000 What is the total amount of product costs?
Total Amount of Product Cost - $141,000
Depreciation on manufacturing equipment is a product cost.
True
Direct labor is a part of prime cost, but not conversion cost.
True
Direct material costs are generally variable costs
True
Product costs are recorded as expenses in the period in which the related products are sold.
True
Property taxes and insurance premiums paid on a factory building are examples of manufacturing overhead
True
Rent on a factory building used in the production process would be classified as a product cost and as a fixed cost.
True
Selling costs can be either direct or indirect costs. True or False
True
Thread that is used in the production of mattresses is an indirect material that is therefore classified as manufacturing overhead.
True
Indirect Labor
Wages paid to employees who are not directly involved in production work. Examples: maintenance workers, janitors, and security guards.
Mixed Costs - An Example-If your fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour, and your monthly activity level is 2,000 kilowatt hours, what is the amount of your utility bill?
Y = a + bX Y = $40 + ($0.03 × 2,000) Y=$100
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions? a. $ 2,000 b. $ 4,000 c. $10,000 d. $12,000
a. $ 2,000
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission? a. $0.08 per unit b. $0.10 per unit c. $0.12 per unit d. $0.125 per unit
b. $0.10 per unit $4,000 ÷ 40,000 units = $0.10 per unit
Period costs
include all selling costs and administrative costs.
Product costs
include direct materials, direct labor, and manufacturing overhead.
Cost behavior
refers to how a cost will react to changes in the level of activity. The most common classifications are: Variable costs. Fixed costs. Mixed costs.