terms accounting reading test 1

Manufacturing costs include all of the following except ________.

administrative

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

direct costs

All of the following are uses of a quality cost report EXCEPT ________.

helps managers see the lost sales arising from customer ill will

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 principle

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

non manufacturing costs

Which of the following is true of the contribution approach?

It separates costs into fixed and variable categories.

________ is an example of an internal failure cost.

Net cost of scrap

________ is always an irrelevant cost.

Sunk cost

The direct materials required to manufacture each unit of product are listed on a ________.

bill of materials

________ is common to both prime cost and conversion cost.

direct labor

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

________ is sometimes called "touch labor."

direct labor

If a firm increases its activity level, ________.

some costs will change, other costs will remain the same

The management of Blue Ocean Company estimates that 50,000 machine-hours will be required to support the production planned for the year. It also estimates $300,000 of total fixed manufacturing overhead cost for the coming year and $4 of variable manufacturing overhead cost per machine-hour. What is the predetermined overhead rate?

$10.00 per machine hour. Estimated total overhead cost = $300,000 + ($4 per MH × 50,000 MHs) = $500,000 Predetermined overhead rate = Estimated total overhead cost of $500,000 ÷ 50,000 MHs = $10 per MH

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

________ is sometimes called inspection costs.

Appraisal costs

_________ is a measure of whether or not a delivered product meets its design specifications.

Conformance quality

Differential costs 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

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

Cost of goods sold and selling and administrative expenses.

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

product costs

A report that details prevention, appraisal, internal failure and external failure costs is called a ________.

quality cost report

In the equation, Y = a + bX, X represents ________.

the level of activity

All the following are necessary to obtain ISO 9000 certification EXCEPT ________.

the quality of output is the best in the industry

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "a" refers to the estimated ________.

total fixed manufacturing overhead cost

Spartan Corporation estimates that it will incur $200,000 of total manufacturing overhead cost at an estimated activity level of 10,000 direct labor-hours. What is the amount of manufacturing overhead that would be applied to a job that required 200 direct labor-hours?

$4,000 Predetermined overhead rate = $200,000 ÷ 10,000 DLHs = $20 per DLH For 200 DLHs, the manufacturing overhead that would be applied is = $20 per DLH × 200 DLHs = $4,000

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.

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.

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 selling a tour package.

Indirect cost

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

Opportunity cost

________ costs support activities whose purpose is to reduce the number of defects.

Prevention

________ is an example of an external failure cost.

Product recalls

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

Sunk cost

Which observation is true of period costs?

They are expensed in the period in which they are incurred.

A normal cost system applies overhead to jobs ________.

by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

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

common cost

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