Managerial Accounting Chapter 2

A company with a high ratio of fixed costs: A. is more likely to experience a loss when sales are down than a company with mostly variable costs B. will be able to avoid some of the fixed costs when sales decrease by lowering production C. will not be concerned about fluctuating sales D. is more likely to experience greater profits when sales are up than a company with mostly variable costs.

A, D

A type of indirect cost incurred to benefit more than one cost object is a(n) _____ cost. A. common B. prime C. sunk D. opportunity

A

Direct materials and direct labor are both ______ costs. A. manufacturing B. period C. selling and administrative D. nonmanufacturing

A

Factory materials, such as cleaning supplies, that are not components of finished products are classified as: A. manufacturing overhead B. administrative costs C. period costs D. direct materials

A

If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by: A. 20% B. 1% C. 0.25% D. 9%

A

Manufacturing overhead costs include ______. A. indirect materials, factory supervisors' salaries, and factory depreciation B. direct materials, administrative taxes and insurance, and sales commissions C. direct materials, sales commissions, and factory assembly workers' wages D. administrative taxes and insurance, sales commissions, and factory assembly workers' wages

A

Period costs are always expensed on the income statement in the period in which: A. they are incurred B. the cash for the expense changes hands C. the related goods are sold

A

Nonmanufacturing costs include: A. company president's salary B. sales commissions C. assembly-line worker wages D. insurance on plant equipment

A, B

Prime costs are: A. direct labor B. direct materials C. manufacturing overhead D. selling and administrative expenses

A, B

Other names for manufacturing overhead include: A. factory burden B. indirect manufacturing costs C. factory overhead D. prime manufacturing costs

A, B, C

Prior to being recorded on the income statement, manufacturers' product costs flow through: A. Work in Process B. Finished Goods C. Cost of Goods Sold D. Raw Materials

A, B, D

Selling costs include: A. sales commissions B. sales salaries C. administrative salaries D. advertising

A, B, D

Manufacturing costs include ______. A. direct labor B. direct materials C. administrative costs D. selling costs E. manufacturing overhead

A, B, E

A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of: A. indirect materials B. administrative costs C. manufacturing overhead D. direct materials

A, C

The degree of operating leverage: A. is greatest at sales levels near the break-even point B. increases as sales and profits rise C. is smallest at sales levels near the break-even point D. is not a constant E. decreases as sales and profits rise

A, D, E

A 15% increase in sales resulted in a 40% increase in net income for Company A and a 60% increase in net income for Company B. Based on this, which company has the greater operating leverage? A. Company B B. Company A

A. Company B

A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements: A. $1,200 is reported as an asset B. $300 is reported as a expense and $900 is reported as an asset C. $300 is reported as a expense and $900 is reported as a liability D. $1,200 is reported as a liability E. $1,200 is reported as an expense

B

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as ______. A. period costs B. manufacturing overhead C. indirect labor D. direct materials

B

Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) _______ cost of the customer placing the order. A. overhead B. direct C. common D. indirect

B

Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs. A. Administrative B. Indirect C. Direct

B

Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs. A. administrative B. indirect C. direct

B

Selling and administrative costs are _______ costs. A. always indirect B. direct or indirect C. always direct

B

Cost objects include: A. anything for which revenue data is desired B. anything for which cost data is desired C. customers D. organizational subunits

B, C, D

Cost objects include: A. anything for which revenue data is desired B. customers C. anything for which cost data is desired D. organizational subunits

B, C, D

Costs that are shared by multiple cost objects in a company are known as ______ costs. A. sunk B. marginal C. common D. opportunity

C

Costs that can be easily and conveniently traced to a specific product are called ______ costs. A. indirect B. period C. direct D. common

C

Direct labor and overhead costs incurred to change raw materials into finished products are known as ______ costs. A. opportunity B. prime C. conversion D. period

C

Minor items such as nails and glue are usually considered to be: A.direct materials B. selling costs C. indirect materials D. administrative costs

C

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars. A. total variable expense B. total gross margin C. net operating income D. selling price per unit

C

The measure of how a percentage change in sales affects profits at any given level of sales is the: A. contribution margin ratio B. margin of safety C. degree of operating leverage

C

Which of the following statements are true? A. A direct cost is sometimes referred to as a common cost. B. An individual cost is either direct or indirect, regardless of the cost object. C. A direct cost can be easily and conveniently traced to a specific cost object. D. A regional sales manager's salary would be a direct cost of the regional office in which the sales manager works.

C

To calculate the degree of operating leverage, divide _____________ ______________ by net operating income.

Contribution Margin

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

Cost Object

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

Cost Object

A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost. A. indirect material B. manufacturing overhead C. Direct labor D. direct material

D

Indirect materials and indirect labor are classified as ______. A. nonspecific materials B. nonspecific labor C. period costs D. manufacturing overhead

D

Indirect materials include: A. factory rent and insurance B. laptop computer keyboards C. factory manager's salary D. nails, glue, and thread

D

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 can be easily and conveniently traced to a specific cost object is a(n) _____________ cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are ________________ costs.

Direct Indirect

In an automobile manufacturing plant, the assembly-line workers are classified as ____________ ______________ cost.

Direct Labor

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

False

True or false: Labor costs that can be specifically traced to a product are indirect labor costs.

False

The term "cost structure" refers to the relative proportion of _______________ and ____________ costs in an organization.

Fixed, Variable

If operating leverage is high, a small percentage increase in sales produces a ________________ (higher/lower) percentage increase in net operating income than if operating leverage is low.

Higher (Acts as a multiplier)

The materials that go into the final product are called ______________ materials.

Raw

A manufacturing cost that cannot be easily traced to a specific cost object is a(n) __________ cost.

Indirect

Product costs are also called ____________ costs.

Inventoriable

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating ___________________.

Leverage

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

Matching

Manufacturing costs can be divided into three categories: direct ___________, ____________ labor and manufacturing ______________.

Materials Direct Overhead

The components of prime costs are direct ______________ costs and direct __________ costs.

Materials and Labor

There are two broad classifications of costs: manufacturing costs and __________________ costs.

Mnaufacturing

There are two broad classifications of costs: manufacturing costs and _______________ costs.

Non-manufacturing

Inventoriable costs is another term for ___________ costs.

Product

Direct labor is also called ________________ labor.

Touch

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

True

True or false: The finished product of one company can become raw materials for another company.

True