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Any item for which cost data is desired is called a(n) ____________________  __________________.
Cost Object
   
Costs that can be easily and conveniently traced to a specific product are called ______ costs.
 
A. indirect
B. period
C. direct
D. common
   
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
   
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
   
True or false: A cost may be direct or indirect, depending on the cost object.
 
True
   
Cost objects include:
 
A. anything for which revenue data is desired
B. customers
C. anything for which cost data is desired
D. organizational subunits
   
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
   
There are two broad classifications of costs: manufacturing costs and _______________ costs.
 
Non-manufacturing
   
A manufacturing cost that cannot be easily traced to a specific cost object is a(n) __________ cost.
 
Indirect
   
Manufacturing costs can be divided into three categories: direct ___________, ____________
labor and manufacturing ______________.
 
Materials, Direct, Overhead
   
Costs that are shared by multiple cost objects in a company are known as ______ costs.
 
A. sunk
B. marginal
C. common
D. opportunity
   
The materials that go into the final product are called ______________ materials.
 
Raw
   
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.
   
Any item for which cost data is desired is called a(n) _________________.
 
Cost Object
   
There are two broad classifications of costs: manufacturing costs and __________________ costs.
 
Manufacturing
   
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
   
Direct materials and direct labor are both ______ costs.
 
A. manufacturing
B. period
C. selling and administrative
D. nonmanufacturing
   
True or false: The finished product of one company can become raw materials for another company.
 
True
   
Direct labor is also called ________________ labor.
 
Touch
   
True or false: A cost may be direct or indirect, depending on the cost object.
 
True
   
Cost objects include:
 
A. anything for which revenue data is desired
B. anything for which cost data is desired
C. customers
D. organizational subunits
   
Prime costs are:
 
A. direct labor
B. direct materials
C. manufacturing overhead
D. selling and administrative expenses
   
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
   
Manufacturing costs include ______.
 
A. direct labor
B. direct materials
C. administrative costs
D. selling costs
E. manufacturing overhead
   
In an automobile manufacturing plant, the assembly-line workers are classified as ____________ ______________ cost.
Direct Labor
   
The components of prime costs are direct ______________ costs and direct __________ costs.
 
Materials and Labor
   
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
   
Minor items such as nails and glue are usually considered to be:
 
A.direct materials
B. selling costs
C. indirect materials
D. administrative costs
   
Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.
 
A. administrative
B. indirect
C. direct
   
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
   
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
   
Other names for manufacturing overhead include:
 
A. factory burden
B. indirect manufacturing costs
C. factory overhead
D. prime manufacturing costs
   
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
   
Indirect materials and indirect labor are classified as ______.
 
A. nonspecific materials
B. nonspecific labor
C. period costs
D. manufacturing overhead
   
True or false: All of a company's depreciation, property taxes and insurance premiums are considered manufacturing overhead.
 
False
   
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
   
Selling and administrative costs are _______ costs.
 
A. always indirect
B. direct or indirect
C. always direct
   
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
   
Indirect materials include:
 
A. factory rent and insurance
B. laptop computer keyboards
C. factory manager's salary
D. nails, glue, and thread
   
Inventoriable costs is another term for ___________ costs.
 
Product
   
Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.
 
A. Administrative
B. Indirect
C. Direct
   
Nonmanufacturing costs include:
 
A. company president's salary
B. sales commissions
C. assembly-line worker wages
D. insurance on plant equipment
   
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue
is known as the ______________ principle.
 
Matching
   
Product costs are also called ____________ costs.
 
Inventoriable
   
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
   
True or false: Labor costs that can be specifically traced to a product are indirect labor costs.
 
False
   
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
   
Selling costs include:
 
A. sales commissions
B. sales salaries
C. administrative salaries
D. advertising
   
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 measure of how sensitive net operating income is to a given percentage change in sales dollars is known
as operating ___________________.
 
Leverage
   
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
   
To calculate the degree of operating leverage, divide _____________ ______________ by net operating income.
 
Contribution Margin
   
The term "cost structure" refers to the relative proportion of _______________ and ____________ costs in an organization.
 
Fixed, Variable
   
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%
   
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
   
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
   
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
   
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
 
______ includes factory costs such as cleaning supplies, taxes, insurance, and janitor wages.
a Manufacturing overhead
   
Materials that become an important component of the finished product and their cost can be easily and conveniently traced to the finished
product are Direct materials. (Enter only one word per blank).
   
Costs that are shared by multiple cost objects in a company are known as ___ costs.
Common
   
Sales revenue minus variable expenses is _______ _______.
contribution margin
   
Within the __________ __________of activity, cost assumptions are reasonably valid.
relevant range
   
___ costs vary in total, in direct proportion to changes in activity level.
Variable
   
A cost that can be easily and conveniently traced to a specific cost object is a(n) direct cost of that cost object,
whereas costs that cannot be easily and conveniently traced to that specific cost object are indirect costs.
(Enter only one word per blank).
   
Salaries of factory supervisors and factory maintenance personnel are examples of labor costs.
Indirect
   
Labor costs that can be easily and conveniently traced to specific products are defined as:
Direct labor costs
   
Which of the following are most likely fixed costs (check all that apply)?
Factory insurance
Administrative salaries
Factory rent
   
Indirect materials include:
nails, glue, and thread
   
Mixed costs are also commonly known as semi- ___________ costs
variable
   
Within the relevant range of activity, variable costs (check all that apply):
vary in total remain constant per unit
   
Costs that can be easily and conveniently traced to a specific product are called ___ costs.
Direct
   
The relative proportion of each type of cost in an organization is known as the company's _____ _______
Cost structure
   
Any item for which cost data is desired is called a(n) cost object. (Enter only one word per blank.)
   
Costs that have already been incurred and cannot be changed by decisions made in the current
period or in future periods are called sunk costs. (Enter only one word per blank.)
   
Marginal cost is:
The cost incurred to produce one more unit of a product.
   
The financial statement that organizes costs by their behavior instead of by their function is the:
contribution format income statemen
   
A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of (check all that apply):
indirect materials
manufacturing overhead
   
Direct materials and direct labor are both:
manufacturing costs
   
Using the high-low method, the fixed cost is calculated (check all that apply)
using either the high or low level of activity
after the variable cost is calculated
   
The revenue obtained from selling one additional unit of product is called ____________ revenue.
Marginal
   
When using the high low method, the change in cost divided by the change in units is:
the variable cost per unit
   
Which of the following statements are true (check all that apply)?
Direct labor and indirect labor are product costs.
Advertising and sales commissions are period costs.
   
A change in revenues between two alternatives is known as _____________ revenue or incremental revenue.
differential
   
In the equation Y = a + bX, Y is the:
total mixed cost
   
Preventing, detecting, and dealing with defects causes ___ costs.
quality
   
Which of the following statements are true?
scattergraphs are a way to diagnose cost behavior
plotting data on a scattergraph is an important diagnostic step
   
What method is based on the rise-over-run formula for the slope of a straight line?
high low method
   
Differential costs are also known as _________ costs.
Incremental
   
A potential benefit that is forfeited or lost when one decision is chosen over another is called a _____ _____.
opportunity cost.
   
A fixed cost remains fixed _____ within the relevant range of activity
in total
   
______________ fixed costs cannot easily be changed and often lock a company into a multi-year decision.
Committed
   
When using the high-low method, the slope of the line equals the _________ cost per unit of activity.
variable
   
Cost behavior is considered linear whenever:
a straight line approximates the relationship between cost and activity
   
Which of the following are differences between the traditional and contribution approach to income statements (check all that apply)?
Traditional income statements focus on cost function. Contribution approach statements focus on cost behavior.
Compared to traditional statements, contribution approach statements provide management with a tool to make decision making easier.
   
When using account analysis, an account is classified as either fixed or variable based on:
the analyst's prior knowledge of how the cost behaves
   
__________ costs are incurred in an attempt to lower the number of products manufactured with defects.
Prevention
   
Costs associated with the general management of an organization are called _____________ costs.
administrative
   
Direct labor and overhead costs incurred to change raw materials into finished products are known as costs.
conversion
   
An activity base (check all that apply):
measures whatever causes costs to vary.
is sometimes called a cost driver.
   
Period costs are expensed on the income statement:
in the period in which they occur
   
Which of the following statements are true (check all that apply)?
Product costs are also called inventoriable costs.
Product costs "attach" to units of product as they are purchased for resale or produced.
   
Products that meet or exceed their expectations and are free from defects that mar or degrade their performance are said to have a high ___________of_________.
quality, conformance
   
Which of the following is not a COST CLASSIFICATION associated with decision making?
Indirect costs
   
We Ship It, Inc. is considering changing its shipping methods, which they believe will attract new customers. The following information relates to the present and proposed methods.
Present           Proposed
Revenues       $140,000         $190,000
Variable costs           $60,000           $70,000 
Fixed costs    $20,000           $25,000
 
Calculate the differential net income or loss from the proposal.
 
$35,000 differential net income
   
lnventoriable costs is another term for _____ costs. (Enter only one word per blank.)
product
   
Differential cost is (check all that apply):
the difference in cost between two alternatives
also known as incremental cost
   
___ costs are incurred to identify defective products before they are shipped to customers.
Appraisal
   
When a company recalls a defective product, a(n) _____  ________ cost is incurred.
external failure
   
A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called:
least-squares regression
   
The high-low method (check all that apply):
is based on periods where the activity tends to be unusual
uses only two data points
   
Manufacturing costs can be divided into three categories: direct materials, direct labor and manufacturing overhead
(Enter only one word per blank).
   
A report that is constructed to provide an estimate of the financial consequences that a company incurs due to the
current level of defects is called a(n) quality cost report.
   
The components of prime costs are (select all that apply):
direct labor
direct materials
 
Variable costs vary ___ within the relevant range of activity.
in total
 
A non-profit organization is trying to determine the fixed and variable costs of providing meals.
During the first six months of the year, the following meals were served and the following costs were incurred.
 
Month             Meals              Costs
January          1,500               $5,200
February        1,700               $5,700
March             1,200               $4,100
April                1,100               $4,200
May                 1,150               $4,250
June                1,650               $5,550
 
The cost equation using the high-low method is:
 
y = $1,450 + $2.50x.
   
Costs incurred to obtain customers' orders are known as ________ costs. (Enter only one word per blank.)
Selling
   
Which of the following are considered nonmanufacturing costs (check all that apply)?
Company president's salary
Sales commissions
   
 
Cost objects include ______.
 
anything for which cost data is desired customers
   
Fantastic Furniture makes custom order couches. The material used to
make a couch is a(n) ______ cost of the customer placing the order.
direct
   
A manufacturing cost that cannot be easily traced to a specific cost
object is a(n)
indirect
   
A type of indirect cost incurred to benefit more than one cost object is
a(n) ______ cost.
common
   
Which of the following statements are true?
 
A direct cost can be easily and conveniently traced to a specific cost object.
A regional sales manager's salary is a direct cost of the regional office in which the sales manager works.
   
Any item for which cost data is desired is called a(n)
 
cost object
   
Costs that can be easily and conveniently traced to a specific product are called ______ costs.
 
direct
   
Manufacturing costs include ______.
 
manufacturing overhead
direct labor
direct materials
   
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 or prime
indirect, common or overhead
   
The materials that go into the final product are called_______materials
 
raw
   
Costs that are shared by multiple cost objects in a company are known as ______ costs.
 
common
   
A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.
 
direct
   
A cost may be direct or indirect, depending on the cost object
 
true
   
Manufacturing costs can be divided into three categories: direct____, _________labor and manufacturing ________________
 
materials
direct or touch
overhead or burden
   
Labor costs that can be easily and conveniently traced to specific products are ______ costs.
 
direct labor
   
True or false: The finished product of one company can become raw materials for another company.
 
true
   
The components of prime costs are direct________ and direct _____ costs
 
material
labor
   
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
   
Factory materials, such as cleaning supplies, that are not components of finished products are classified as ______.
 
manufacturing overhead
   
Direct labor is also called______ labor
 
touch
   
Prime costs include ______.
 
direct labor
direct materials
   
Indirect materials include ______.
 
nails, glue, and thread
   
Manufacturing overhead costs include ______.
 
indirect materials, factory supervisors' salaries, and factory depreciation
   
Other names for manufacturing overhead include ______.
 
factory overhead
factory burden
indirect manufacturing costs
   
Direct labor and overhead costs incurred to change raw materials into finished products are known as_______costs
 
conversion
   
Selling and administrative costs are ______ costs.
 
direct or indirect
   
Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.
 
indirect
   
True or false: All of a company's depreciation, property taxes and insurance premiums are considered manufacturing overhead.
 
False
   
Factory burden is a synonym for_______________
 
manufacturing overhead
   
Nonmanufacturing costs include ______.
 
sales commissions
company president's salary
   
Indirect labor costs include ______.
 
assembly-line supervisor salary
factory security guard wages
   
A company purchased a 12 month insurance policy on October 1 for $1,200.
On the December 31 annual financial statements, ______.
 
$300 is reported as a expense and $900 is reported as an asset
   
Direct materials, direct labor, and manufacturing overhead are all ______ costs.
 
product
   
Selling costs include ______.
 
sales salaries
advertising
sales commissions
   
True or false: Labor costs that can be specifically traced to a product are indirect labor costs.
 
False
   
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is
known as the___________principle
 
matching
   
Units that are partially complete are found in ______.
 
Work in Process
   
Product costs are also called____________costs
 
inventoriable or manufacturing
   
Which of the following statements are true?
 
Period costs are expensed when incurred.
Period costs do not flow through the inventory accounts.
   
Prior to being recorded on the income statement, manufacturers' product costs flow through ______.
 
Work in Process
Finished Goods
Raw Materials
   
Differential costs, opportunity costs and sunk costs are all cost classifications used in ______.
 
decision making
   
Period costs are always expensed on the income statement in the period in which ______.
 
they are incurred
   
Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.
 
indirect
   
Differential costs are also known as_________costs
 
incremental
   
The cost of producing one more unit is the ______ cost.
 
marginal
   
Which of the following is not a COST CLASSIFICATION associated with decision making?
 
Indirect costs
   
Differential costs ______.
 
can be fixed or variable
   
The difference in revenues between two alternatives is called ______.
 
differential revenue
   
Opportunity costs ______.
 
are benefits that are given up when selecting one alternative over another should be considered in decision making
   
The revenue obtained from selling one additional unit of product is called______________revenue
 
marginal
   
Costs that have already been incurred and can not be changed by decisions made in the current period or in future periods are
called______________costs
 
sunk
   
Differential costs, opportunity costs and sunk costs are all cost classifications used in ______.
 
decision making
   
Removing expenses that do not differ between alternatives could alter a decision.
 
False
   
A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n)
 
opportunity cost
   
Based on the following information, calculate net income for Dana's Dress Shop using the traditional format.
 
Sales                                                   $360,000
Gross Margin                                      $140,000
Contribution Margin                            $110,000
Total Selling & Administrative Exp.     $60,000
 
$80,000
 
Gross Margin of $140,000 - Total Selling & Admin. Exp. of $60,000 = $80,000.
   
Beginning merchandise inventory + Purchases - Ending merchandise inventory =
 
cost of goods sold
   
Which of the following are differences between the traditional and contribution format to income statements?
 
Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior.
Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier.
   
The contribution approach to constructing income statements distinguishes between ______ costs.
 
fixed and variable
   
Contribution margin is ______.
 
sales revenue minus variable costs
   
Based on the following information, compute the cost of goods sold for Spengler Merchandising Corporation.
 
Sales                                       $400,000
Purchases                               $300,000
Beginning inventory                $50,000
Ending inventory                     $90,000
Selling expenses                    $70,000
Administrative expenses        $30,000
Accounts receivable               $110,000
 
$260,000
 
50,000 + 300,000 - 90,000 = 260,000
   
A contribution approach income statement ______.
 
separates costs into their fixed and variable components can assist with management decision making
   
Removing expenses that do not differ between alternatives could alter a decision.
 
False

Homework  1.1 1.2  2.1 2.2  3.1 3.2  4.1 4.2 5.1 5.2  6.1 6.2  7.1  7.2  8.1  8.2  9.1   9.2  10.1  10.2  11.1  11.2  12.1 12.2  13.1  13.2  14.1  14.2  15.1   15.2
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