Managerial Accounting Chapter 2

Managerial Accounting and Cost Concepts

1. ______ includes factory costs such as cleaning supplies, taxes, insurance, and janitor wages.
2. Costs that are shared by multiple cost objects in a company are known as ___ costs.
3. Within the ______ of activity, cost assumptions are reasonably valid.
4. ___ costs vary in total, in direct proportion to changes in activity level.
5. Salaries of factory supervisors and factory maintenance personnel are examples of labor costs.
6. Labor costs that can be easily and conveniently traced to specific products are defined as
   selling costs
   manufacturing overhead costs
   a direct labor costs
   indirect labor costs
7. Which of the following are most likely fixed costs (check all that apply)?
   Factory insurance
   Administrative salaries
   Factory rent
   Electricity to operate factory machines
8. Indirect materials include:
   factory rent and insurance
   nails, glue, and thread
   Relatively insignificant materials are treated as indirect because it isn’t worth the effort to trace
   the costs.
   setup labor
   laptop computer keyboards
9. Mixed costs are also commonly known as ______ costs.
10. Within the relevant range of activity, variable costs_____.
    vary in total
    remain constant per unit
    remain constant in total
    vary per unit
11. Costs that can be easily and conveniently traced to a specific product are called ___ costs.
12. The relative proportion of each type of cost in an organization is known as the company’s____.
13. Any item for which cost data is desired is called____.
14. 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.
15. Marginal cost is:
    the cost that can be traced to a specific product.
    a the cost incurred to produce one more unit of a product.
    what is given up by selecting one alternative over another.
    another name for the fixed cost per unit.
16. The financial statement that organizes costs by their behavior instead of by their function is the:
    balance sheet
    traditional income statement
    a contribution format income statement
    statement of cash flows
17. A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of
    administrative costs
    a indirect materials
    direct materials
    a manufacturing overhead
18. Direct materials and direct labor are both:
    selling and administrative costs
    nonmanufacturing costs
    period costs
    a manufacturing costs
19. Using the high-low method, the fixed cost is calculated (check all that apply):
    using either the high or low level of activity
    by adding the total cost to the variable cost
    before the variable cost is calculated
    a after the variable cost is calculated
20. The revenue obtained from selling one additional unit of product is called ____ revenue.
21. When using the high low method, the change in cost divided by the change in units is:
    total cost
    total variable cost
    the fixed cost per unit
    tota I fixed cost
    a the variable cost per unit
22. Which of the following statements are true (check all that apply)?
    Direct labor and indirect labor are product costs.
    Indirect labor is part of manufacturing overhead.
    Factory cleaning and maintenance are period costs.
    Sales commissions and shipping costs are product costs.
    a Advertising and sales commissions are period costs.
23. A change in revenues between two alternatives is known as ____ revenue or incremental
    revenue.
24. In the equation Y=a+bX, Y is the:
    total mixed cost
    variable cost per unit of activity
    level of activity
    to ta I fixed cost
25. Preventing, detecting and dealing with defects causes ___ costs.
26. Which of the following statements are true (check all that apply)?
    Plotting data on a scattergraph is an important diagnostic step. ]
    a Scattergraphs are a way to diagnose cost behavior. ]
    When plotting a scattergraph, cost is the independent variable.
    Scattergraphs should be used after high-low or regression analysis is performed.
27. ___ is based on the rise-over-run formula for the slope of a straight line.
    Least-squares regression
    a The high-low method
    A scattergraph
28. Differential costs are also known as ____costs.
29. A potential benefit that is forfeited or lost when one decision is chosen over another is called _____.
30. A fixed cost remains fixed ___ within the relevant range of activity.
31. _____fixed costs cannot easily be changed and often lock a company into a multi-year decision.
32. When using the high-low method, the slope of the line equals the ____ per unit of activity.
33. Cost behavior is considered linear whenever:
    the relationship between cost and activity cannot be represented by a line
    a a straight line approximates the relationship between cost and activity
    a straight line approximates the difference between cost and activity
    the difference between cost and activity is zero
34. 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.
    The traditional income statement is for internal use, while the contribution approach income
    statement is for external use.
35. 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
    the equation Y = a + bX
    engineering estimates of production methods
    scattergraphs
36. ___ costs are incurred in an attempt to lower the number of products manufactured with defects.
    Prevention
    Appraisal
    Internal failure
37. Costs associated with the general management of an organization are called _____ costs.
38. Direct labor and overhead costs incurred to change raw materials into finished products are known
    as ____ costs.
39. An activity base (check all that apply):
    is a measure of whatever causes fixed costs to occur
    a measures whatever causes costs to vary ]
    is part of the organization where major operations are planned and carried out
    a is sometimes called a cost driver
40. Period costs are expensed on the income statement:
    never; they do not appear on the income statement
    a in the period in which they occur )
    in the period in which the related goods are sold
41. Which of the following statements are true (check all that apply)?
    Product costs are also called inventoriable costs.
    Product costs are always expensed in the same period in which the related products are
    produced.
    a Product costs “attach” to units of product as they are purchased for resale or produced. ]
    Product costs include all costs involved in making and selling a product.
42. Products that meet or exceed their expectations and are free from defects that mar or degrade their
    performance are said to have a high ______.
43. Which of the following is not a COST CLASSIFICATION associated with decision making?
    Sunk costs
    Opportunity costs
    Indirect costs
    Differential costs
44. We Ship It, Inc. is considering changing its shipping methods, which they believe will attract new
    customers. The followinf]; information relat es 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.
45. lnventoriable costs is another term for ____costs.
46. Differential cost is (check all that apply):
    the difference in cost between two alternatives
    the same as opportunity cost
    never relevant to a product decision
    lfl also known as incremental cost
47. ___ costs are incurred to identify defective products before they are shipped to customers.
48. When a company recalls a defective product, _____ cost is incurred.
49. 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 contribution approach
    the engineering approach
    high-low
50. The high-low method (check all that apply):
    is based on periods where the activity tends to be unusual
    generally provides an accurate estimate of true cost behavior during normal periods
    is difficult to apply and requires a statistical software package
51. Manufacturing costs can be divided into three categories: direct materials, direct ____ and ______.
52. 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 _____ cost report.
53. The components of prime costs are (select all that apply):
    manufacturing overhead
    a direct labor
    selling and administrative expenses
    a direct materials
54. Variable costs vary ___ within the relevant range of activity.
55. 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.
56. Costs incurred to obtain customers’ orders are known as ____ costs.
57. Which of the following are considered nonmanufacturing costs (check all that apply)?
    Assembly-line worker wages
    Company president’s salary
    Sales commissions
    Insurance on plant equipment

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