Chapter 1:

Question 1

Is concerned with reporting financial information to external parties. (Stockholders, creditors, & regulators).

Answer 1

Financial Accounting

Question 2

is concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions.

Answer 2

Managerial Accounting

Question 3

five types of cost classifications

Answer 3

(1) for assigning costs to cost objects,
(2) for manufacturing companies,
(3) for preparing financial statements,
(4) for predicting cost behavior, and
(5) for making decisions.

Question 4

What are Manufacturing Costs?

Answer 4

1. Direct Materials
2. Direct Labor
3. Manufacturing Overhead

Question 5

The materials that go into the final product

Answer 5

Raw materials

Question 6

refers to raw materials that become an integral part of the finished
product and whose costs can be conveniently traced to the finished product.

Answer 6

Direct materials

Question 7

consists of labor costs that can be easily traced to individual units of product. Is sometimes called “touch labor”.

Answer 7

Direct Labor

Question 8

is the sum of direct materials cost and direct labor cost.

Answer 8

Prime Costs

Question 9

the third manufacturing cost category, includes all manufacturing costs except direct materials and direct labor. For example, manufacturing overhead includes a portion of raw materials known as indirect materials, as well as indirect labor.

Answer 9

Manufacturing Overhead

Question 10

refers to employees, such as janitors, supervisors, materials handlers, maintenance workers, and night security guards, that play an essential role in running a manufacturing facility; however, the cost of compensating these people cannot be easily or conveniently traced to specific units of product.

Answer 10

Indirect Labor

Question 11

refers to the sum of direct labor and manufacturing over-
head.

Answer 11

Conversion Cost

Question 12

Nonmanufacturing costs are often divided into two categories:

Answer 12

1.) Selling Costs
2.) Administrative Costs

Question 13

include all costs associated with the general management of
an organization rather than with manufacturing or selling.

Answer 13

Administrative costs

Question 14

include all costs that are incurred to secure customer orders and get the finished product to the customer.

Answer 14

Selling Costs

Question 15

is based on the accrual concept that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.

Answer 15

Matching Principle

Question 16

include all costs involved in acquir-
ing or making a product. It “attach” to a unit of product as it is purchased or manufactured and they stay attached to each unit of product as long as it remains in
inventory awaiting sale.

Answer 16

Product Costs

Question 17

are initially assigned to inventories, they are also known as inventoriable costs.

Answer 17

Product Costs

Question 18

A manufacturer’s product costs flow through three inventory accounts on the balance sheet

Answer 18

1.) Raw Materials
2.) Work in Process
3.) Finished Goods

Question 19

consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer.

Answer 19

work in process

Question 20

consist of completed units of product that have not yet been sold to customers.

Answer 20

Finished Goods

Question 21

All selling and administrative
expenses are treated as

Answer 21

Period Costs

Question 22

varies, in total, in direct proportion to changes in the level of activity.

Answer 22

Variable Costs

Question 23

is a measure of whatever causes the incurrence of a variable cost.

Answer 23

Activity base

Question 24

activity base is sometimes referred to as a ______

Answer 24

Cost Driver

Question 25

often can be fixed instead of variable for a variety of reasons.

Answer 25

Direct Labor Costs

Question 26

are all the costs that are not product costs.

Answer 26

Period Costs

Question 26

is a cost that remains constant, in total, regardless of changes in the level of activity. Manufacturing overhead usually includes various fixed costs such as depreciation, insurance, property taxes, rent, and supervisory salaries.

Answer 26

Fixed Costs

Question 27

fixed costs can be viewed as either ___________

Answer 27

Committed or Discretionary

Question 28

represent organizational investments with a multiyear planning horizon that can’t be significantly reduced even for short periods of time without making fundamental changes.

Answer 28

Committed Fixed Costs

Question 29

often referred to as "managed fixed costs" usually arise from annual decisions by management to spend on certain fixed cost items.

Answer 29

Discretionary Fixed Costs

Question 30

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

Answer 30

relevant range

Question 31

Management accountants ordinarily assume that costs are strictly linear; that is, the relation between cost on the one hand and activity on the other can be represented by a straight line within a narrow band of activity known as the

Answer 31

Relevant Range

Question 32

contains both variable and fixed cost elements.

Answer 32

Mixed Costs

Question 33

Also known as semivariable costs

Answer 33

Mixed Costs

Question 34

Y = a + bX Y = ?

Answer 34

The total mixed cost

Question 35

Y = a + bX X = ?

Answer 35

The level of activity

Question 36

Y = a + bX a = ?

Answer 36

The total fixed cost (the vertical intercept of the line)

Question 37

Y = a + bX b = ?

Answer 37

The variable cost per unit of activity (the slope of the line)

Question 38

Direct materials + Direct labor + Manufacturing overhead = ?

Answer 38

Product cost

Question 39

Selling expense + Administrative expense = ?

Answer 39

Period Costs

Question 40

Direct materials + Direct labor + Variable manufacturing

Answer 40

Variable manufacturing cost

Question 41

Direct materials + Direct labor

Answer 41

Prime Costs

Question 42

Direct labor + Manufacturing overhead = ?

Answer 42

Conversion Costs

Question 43

Fixed manufacturing + Fixed selling + Fixed administrative overhead expense expense

Answer 43

Total Fixed Costs

Question 44

Anything for which cost data are desired. Examples of cost objects are products, customers, geographic regions, and parts of the organization such as departments or divisions.

Answer 44

Cost Object

Question 45

The way in which a cost reacts to changes in the level of activity.

Answer 45

Cost Behavior

Question 46

The amount remaining from sales revenues after all variable expenses have been deducted.

Answer 46

Contribution Margin

Question 47

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.

Answer 47

Contribution approach

Question 48

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

Answer 48

Common Costs

Question 49

All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.

Answer 49

Administrative Costs

Question 50

The relative proportion of fixed, variable, and mixed costs in an organization.

Answer 50

Cost structure

Question 51

A future cost that differs between any two alternatives.

Answer 51

Differential Costs

Question 52

Future revenue that differs between any two alternatives.

Answer 52

Differential revenue

Question 53

A cost that can be easily and conveniently traced to a specified cost object.

Answer 53

Direct Cost

Question 54

Factory labor costs that can be easily traced to individual units of product. Also called touch labor.

Answer 54

Direct Labor

Question 55

An increase in cost between two alternatives.

Answer 55

Incremental Cost

Question 56

A cost that cannot be easily and conveniently traced to a specified cost object.

Answer 56

Indirect Cost

Question 57

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.

Answer 57

Indirect materials

Question 58

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

Answer 58

Opportunity Cost

Question 59

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

Answer 59

Sunk Cost