Upgrade to remove ads
Only $35.99/year

Chapter 1 Connect Videos

Terms in this set (68)

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.
indirect cost
2. A ___________ is a cost that is incurred to support a number of cost objects but cannot be traced to them individually.
common cost
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.
direct cost
Cost objects are
Anything for which cost data are desired- this includes products, customers, jobs, and organizational subunits.
Direct cost (as the name implies):
is a cost that can be easily and conveniently traced to a specified cost object.
An indirect cost is:
a cost that cannot be easily and conveniently traced to a specified cost object.
Common cost (which is a type of indirect cost):
Is a cost incurred to support a number of cost objects but cannot be traced to them individually.
Manufacturing cost is divided into two direct cost categories known as:
direct material and direct labor
Manufacturing cost is made up of one indirect cost category known as:
manufacturing overhead
Manufacturing cost consist of what three cost categories?
Direct labor, direct materials, and manufacturing overhead
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
Raw materials can refer to:
any materials that are used in the final product.
Raw materials can include:
both direct and indirect materials
Direct materials are:
materials that become an integral part of the finished product and whose cost can be conveniently traced to the finished product.
Indirect materials are:
raw materials, whose costs cannot be easily or conveniently traced to finished products.
Direct labor consist of:
labor costs that can easily traced to individual units of a product
__________________ is sometimes called "touch labor"
Direct labor
Indirect labor is part of which manufacturing cost category?
It is part of manufacturing overhead
Indirected labor include labor costs of:
supervisors, materials handlers, and night security guards.
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
Manufacturing overhead costs are indirect costs because:
they cannot be readily traced to specific products.
Property taxes associated with a company's administrative facility are considered ______________
manufacturing costs
Non manufacturing costs are often divided into two categories:
Selling costs and Administrative costs
Selling costs include:
all costs that are incurred to secure customer orders, and get the finished product to the customer
Administrative costs include:
all costs associated with the general management of an organization (rather than with manufacturing or selling.)
How should the wages of a sheet metal worker in a fabrication plant be classified?
Product cost
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
(Review) Costs are classified as either:
manufacturing or non-manufacturing costs
Another way to look at cost is to evaluate wither they are:
product costs or period costs
Product costs are initially assigned to:
an inventory account on the balance sheet
Matching Principle
requires that expenses be recorded when incurred in earning revenue
Period costs are (simply):
All the costs that are not product costs
All selling and administrative expenses are treated as:
Period costs
Period costs are expensed:
on the income statement in the period in which they are incurred using the usual rules of accrual accounting
Product costs include all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Thus:
Direct labor consists of labor costs that can be easily traced to individual units of product, such as the wages of a sheet metal worker in a fabrication plant.
If a firm increases its activity level,
some costs will change, others will remain the same.
Cost behavior refers to:
how a cost reacts to changes in the level of activity.
As the activity level rises and falls:
a particular cost might rise and fall as well or it might remain constant
costs are often categorized as:
variable, fixed, or mixed
The relative proportion of each type of cost (i.e, variable, fixed, & mixed) in an organization is known as :
Cost Structure
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 equals ________.
5,000 ($5 x 1,000 units)
A variable cost varies:
in total, in direct proportion to changes in the level of activity.
An activity base (or cost driver):
is a measure of whatever causes the incurrence of a variable cost.
common activity bases include:
machine hours, direct labor hours, units produced, and units sold
A fixed cost is a cost which:
remains constant in total with changes in the level of activity
Fixed costs:
mostly remains constant in total, regardless of changes in the level of activity
Examples of fixed costs are:
straight-line depreciation, insurance, rent, and administrative salaries
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 ________.
17500 (7 x $2500 -$17500)
A mixed cost contains:
both variable and fixed cost elements.
Mixed costs are also known as:
Semi-variable costs
In the equation, Y = a + bX, X represents ________.
the relationship between a mixed cost and the level of activity
Differential costs are always ______________.
relevant costs
A future cost that differs between any two alternatives is known as :
Differential cost
Future revenue that differs between any two alternatives is known as:
Differential revenue
A sunk cost is :
a cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Sunk cost should always be:
ignored when making decisions
Which of the following is always an irrelevant cost?

Differential cost
Sunk cost
Opportunity cost
Sunk cost
Because only differential costs are relevant in a decision -
sunk costs should always be ignored
Opportunity cost is:
The potential benefit given up when one alternative is selected over another
(True or False) Opportunity costs are not usually found in accounting records.
True
(True or False) An opportunity cost cannot be changed by any decision made now or in the future.
False
(T or F) Opportunity costs are costs that must be explicitly considered in every decision a manager makes.
T
The income statement of a company can-
tell you the revenues and expenses over a particular time period
The traditional income statement uses which of the following cost categories?
Cost of goods sold and selling and administrative expenses
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

Cost of goods sold = Beginning merchandise inventory + Purchases - Ending merchandise inventory
Cost of goods sold = $15,000 + $20,000 − $10,000 = $25,000
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
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?
$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
The contribution approach:
separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.
Other sets by this creator