Chapter 1 HW & Quiz Review Flashcards
In account analysis, an account is classified as either variable or fixed based on an analyst’s prior knowledge of how the cost in the account behaves. True or False?
True
Contribution format income statements are prepared primarily for external reporting purposes. True or False?
False
A direct cost is a cost that can be easily traced to the particular cost object under consideration. True or False?
True
Variable costs per unit are not affected by changes in activity. True or False?
True.
A contribution format income statement separates costs into fixed an variable categories, first deducting variable expenses from sales to obtain the contribution margin. True or False?
True.
In a traditional format income statement, the gross margin is sales minus cost of goods sold. True or False?
True
In a contribution format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period. True or False?
False
Depreciation on equipment a company uses in its selling an administrative activities would be classified as a period cost. True or False?
True.
The potential benefit that is given up when one alternative is selected over another is called a sunk cost. True or False?
False.
As activity decreases within the relevant range, fixed costs remain constant on a per unit basis. True or False?
FAlse
A merchandising company typically will have a high proportion of which type of cost in its cost structure?
A) Step-Variable
B) Variable
C) Mixed
D) Fixed
Variable
Contribution margin is:
A) Sales less variable production expense.
B) Sales less cost of goods sold.
C) Sales less variable production, variable selling, and variable administrative expenses.
D) Sales less all variable and fixed expenses.
C) Sales less variable production, variable selling, and variable administrative expenses.
Differential costs can:
A) Be either fixed or variable.
B) Only be fixed costs.
C) Only be variable costs.
D) Be sunk costs.
Be either fixed or variable.
Factory overhead is typically a(n):
A) Variable cost.
B) Fixed cost.
C) Irrelevant cost.
D) Mixed cost.
Mixed cost.
In the standard cost formula Y= a + bX, what does the “X” represent?
A) Total cost
B) Variable cost per unit.
C) The level of activity.
D) Total fixed cost.
The level of activity.
Which costs will change with a decrease in activity within the relevant range?
A) Unit variable cost and unit fixed cost.
B) Unit fixed costs and total variable cost.
C) United fixed cost and total fixed cost.
D) Total fixed costs and total variable cost.
Unit fixed costs and total variable cost.
For an automobile manufacturer, the cost of a driver’s side air bag purchased from a supplier and installed in every automobile would best be described as:
A) Fixed Cost
B) Variable Cost
C) Mixed Cost
D) Step-Variable Cost
Variable Cost
In the standard cost formula Y= a + bX, what does the “Y” represent?
A) Total Cost
B) Variable Cost per Unit
C) Total Variable Cost
D) Total Fixed Cost
Total Cost
Direct labor cost is classified as:
Conversion Cost Prime Cost A) Yes Yes B) No No C) No Yes D) Yes No
Yes; Yes
Manufacturing overhead includes:
A) All direct material, direct labor, and administrative costs.
B) All manufacturing costs except direct labor and direct materials.
C) All manufacturing costs except direct labor.
D) All selling and administrative costs.
All manufacturing costs except direct labor and direct materials.
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs.
Required:
For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.
1) The costs of a hard drive installed in a computer:
Direct materials cost.
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs.
Required:
For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.
2) The cost of advertising in the Puget Sound Computer User newspaper.
Selling cost.
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs.
Required:
For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.
3) The wages of employees who assemble computers from components.
Direct labor cost.
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs.
Required:
For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.
4) Sales commissions paid to the company’s salespeople.
Selling cost
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs.
Required:
For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.
5) The salary of the assembly shop’s supervisor.
Manufacturing overhead cost.
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs.
Required:
For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.
6) The salary of the company’s accountant.
Administrative cost.
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that the company incurs.
Required:
For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.
7) Depreciation on equipment used to test assembled computers before release to customers.
Manufacturing overhead cost.
Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank.
1) Depreciation on a salespersons’ cars.
2) Rent on equipment used in the factory.
3) Lubricants used for machine maintenance.
4) Salaries of personnel who work in the finished goods warehouse.
5) Soap and paper towels used by factory workers at the end of a shift.
6) Factory supervisors’ salaries.
7) Heat, water, and power consumed in the factory.
8) Materials used for boxing products for shipment overseas. (Units are not normally boxed).
9) Advertising costs.
10) Workers’ compensation insurance for factory employees.
11) Depreciation on chairs and tables in the factory lunchroom.
12) The wages of the receptionist in the administrative offices.
13) Cost of leasing the corporate jet used by the company’s executives.
14) The cost of renting rooms at a Florida resort for the annual sales conference.
15) The cost of packaging the company’s product.
1) Period
2) Product
3) Product
4) Period
5) Product
6) Product
7) Product
8) Period
9) Period
10) Product
11) Product
12) Period
13) Period
14) Period
15) Product
Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $2,200 and the variable cost per cup of coffee served is $0.39.
- Fill in the following table with your estimates of the company’s total cost and average cost per cup of coffee at the indicated levels of activity.
Cups of Coffee Served in a Week
2,200 2,300 2,400
Fixed Cost $2,200 $2,200 $2,200
Variable Cost 858 897 936
Total Cost $3,058 $3,097 $3,136
Avg. Cost Per Cup $1.390 $1.347 $1.037
Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $2,200 and the variable cost per cup of coffee served is $0.39.
- Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?
Decrease
Northeast Hospital’s Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital’s management to buy a new DNA analyzer.
Required:
Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select “None”.
1) Cost of the old X-ray machine.
2) The salary of the head of the Radiology Department
3) The salary of the head of the Laboratory Department
4) Cost of the new color laser printer.
5) Rent on the space occupied by Radiology
6) The cost of maintaining the old machine.
7) Benefits from a new DNA analyzer.
8) Cost of electricity to run the X-ray machines.
1) Sunk Cost
2) None
3) None
4) Differential Cost
5) None
6) Differential Cost
7) Opportunity Cost
8) Differential Cost
