Ch 2-4

Question 1

Direct cost?

Answer 1

Can be easily and conveniently traced to a specific cost object

Question 2

Indirect cost?

Answer 2

Cannot be easily and conveniently traced to a specific cost object

Question 3

The three manufacturing costs?

Answer 3

Direct materials, direct labor, and manufacturing overhead

Question 4

Non-manufacturing costs?

Answer 4

Selling costs

Administrative costs

Question 5

Direct materials?

Answer 5

Become an integral part of the finished product and whose costs can be conveniently traced to the finished product

Question 6

Direct labor?

Answer 6

Labor costs that can be easily traced to individual units of product

Question 7

Manufacturing overhead?

Answer 7

Indirect materials, indirect labor, maintenance and repairs on production equipment
- costs associated with operating the factory

Question 8

Product costs?

Answer 8

All costs involved in acquiring or making a product. Inventoriable costs
- direct materials direct labor manufacturing overhead

Question 9

Period costs?

Answer 9

All costs that aren’t product costs

- selling and administrative

Question 10

Prime costs?

Answer 10

Direct materials + direct labor

Question 11

Conversion costs?

Answer 11

Direct labor costs + manufacturing overhead costs

Question 12

Variable cost?

Answer 12

Varies in total in direct proportion to changes in the level of activity

Question 13

Activity base?

Answer 13

Measure of whatever causes the incurrence of a variable cost. AKA cost driver

Question 14

Fixed cost?

Answer 14

Remains constant in total regardless of changes in the level of activity

Question 15

Committed fixed costs?

Answer 15

Organizational investments with a multi-year planning horizon that can’t be significantly reduced even for short periods of time without making fundamental changes

Question 16

Discretionary fixed costs?

Answer 16

Arise from annual decisions by management to spend on certain fixed cost items. AKA managed fixed costs

Question 17

Mixed costs?

Answer 17

Contain both variable and fixed cost elements.
Y = a + bx

Y = the total mixed cost
A = total fixed costs
B = variable cost per unit of activity
X = the level of activity

Question 18

High-Low method?

Answer 18

Identify period with the lowest level of activity and the period with highest level of activity.

Cost at high activity level-cost at low activity level/high activity level-low activity level

Variable cost = change in cost/change in activity

Question 19

Traditional format income statement?

Answer 19

For external reporting purposes.
Sales - COGS = gross margin
Gross margin - selling and admin expenses = net operating income

Question 20

Cost of goods sold?

Answer 20

Beginning merchandise inventory + purchases - ending merchandise inventory

Question 21

Contribution format income statement?

Answer 21

Provides managers with an income statement that clearly distinguishes between fixed and variable costs.
- internal planning and decision making tool

Question 22

Contribution margin?

Answer 22

Amount remaining from sales revenues after variable expenses have been deducted.
- contributes towards covering fixed expenses then towards profits for the period

Question 23

What are the 4 inventories in manufacturing companies?

Answer 23

Raw materials
Work in process
Finished goods
COGS

Question 24

Formula for predetermined overhead rate?

Answer 24

Estimated total manufacturing overhead cost/estimated total unite in the allocation base

Question 25

Journal entry for over-applied close?

Answer 25

Debit manufacturing overhead
Credit COGS

• net operating income increases

Question 26

Journal entry for under applied close?

Answer 26

Debit COGS

Credit manufacturing overhead

Question 27

Relevant range?

Answer 27

Range of activity within which the assumption that cost behavior is strictly linear is reasonably valid

Question 28

Job-order costing?

Answer 28

Used when many different products produced each period.
- costs are traced and allocated to jobs and hen costs of the job are divided by the number of units in the job to arrive at an average cost per unit

Question 29

Formula for overhead applied to particular job?

Answer 29

POHR x amount of the allocation base incurred by the job

Question 30

Break-even point?

Answer 30

Fixed/CM per unit

Question 31

Contribution margin ratio?

Answer 31

Total CM/total sales

Question 32

Cost object?

Answer 32

Anything for which cost data are desired