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Managerial Accounting > Chapter 1: Managerial Accounting and Cost Concepts > Flashcards

Chapter 1: Managerial Accounting and Cost Concepts Flashcards

1
Q

Concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators

A

Financial accounting

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2
Q

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

A

Managerial accounting

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3
Q

What are the 5 purposes of cost classifications?

A
  1. Assigning costs to cost objects
  2. Accounting for costs in manufacturing companies
  3. Preparing financial statements
  4. Predicting cost behavior in response to changes in activity
  5. Making decisions
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4
Q

Costs that can be easily and conveniently traced to a unit of product or other cost object

A

Direct cost

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5
Q

Costs that cannot be easily and conveniently traced to a unit of product or other cost object

A

Indirect costs

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6
Q

What costs can be easily traced

A

Direct costs

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7
Q

What costs cannot be easily traced

A

Indirect costs

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8
Q

Indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object

A

Common costs

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9
Q

What 3 things make up manufacturing costs

A
  1. Direct materials
  2. Direct labor
  3. Manufacturing overhead
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10
Q

Raw materials that become an integral part of the product and that can be conveniently traced directly to it

A

Direct materials

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11
Q

Those labor costs that can be easily traced to individual units of products

A

Direct labor

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12
Q

All manufacturing costs except direct material and direct labor. These costs cannot be readily traced to finished products

A

Manufacturing overhead

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13
Q

What is an example of manufacturing overhead

A
  • Depreciation of manufacturing equipment
  • Utility costs
  • Property taxes
  • Insurance premiums incurred to operate a manufacturing facility
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14
Q

What indirect costs are considered manufacturing overhead?

A

Those associated with operating the factory

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15
Q

How is the prime cost found?

A

Direct materials + Direct labor

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16
Q

How is the conversion cost found?

A

Direct labor + Manufacturing overhead

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17
Q

The costs incurred to secure customer orders and get the finished product to the customer

A

Selling costs

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18
Q

Are selling costs direct or indirect?

A

Can be either

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19
Q

The costs associated with the general management of an organization rather than with the manufacturing or selling

A

Administrative costs

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20
Q

Are administrative costs direct or indirect?

A

Can be either

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21
Q

Include all the costs involved in acquiring or making a product

A

Product costs

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22
Q

What do product costs do to a unit of product?

A

“Attach” itself 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

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23
Q

What do manufacturing product costs include?

A
  • Raw materials
  • Work in process
  • Finished goods
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24
Q

Include any materials that go into the final product

A

Raw materials

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25
Q

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

A

Work in process

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26
Q

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

A

Finished goods

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27
Q

Include all selling costs and administrative costs

A

Period costs

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28
Q

A cost that varies, in total, in direct proportion to changes in the level of activity

A

Variable cost

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29
Q

Is a variable cost’s per unit changing or constant?

A

Constant

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30
Q

A cost that remains constant, in total, regardless of changes in the level of the activity

A

Fixed cost

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31
Q

What are the 4 things that add to changes in the Activity Base (Cost Driver)

A
  • Units produced
  • Machine hours
  • Miles driven
  • Labor hours
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32
Q

The difference in cost between any two alternatives

A

Differential cost

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33
Q

What is another name for Differential cost?

A

Incremental cost

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34
Q

A difference in revenue between two alternatives

A

Differential revenue

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35
Q

Are Differential cost and Differential revenue relevant to decisions?

A

Yes, they are always relevant

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36
Q

Are Differential costs fixed or variable?

A

Can be either

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37
Q

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

A

Sunk cost

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38
Q

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

A

Opportunity cost

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39
Q

Cost objects include:

A
  • anything for which cost data is desired
  • customers
  • departments
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40
Q

A manufacturing cost that cannot be easily traced to a specific cost object is a(n) _____ cost

A

indirect

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41
Q

A type of indirect cost incurred to benefit more than one cost object is a(n) _____ cost

A

common

42
Q

Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) _____ cost of the customer placing the order

A

direct

43
Q

Costs that are shared by multiple cost objects in a company are known as _____ costs

A

common

44
Q

In an automobile manufacturing plant, the assembly-line workers are classified as _____ _____ cost

A

direct labor

45
Q

True or False

The finished product of one company can become raw materials for another company

A

True

46
Q

A laptop computer manufacturer would consider the computer’s processor chip to be a(n) _____ cost

A

direct material

47
Q

Indirect materials and indirect labor are classified as:

A

manufacturing overhead

48
Q

Raw materials whose costs cannot be easily traced to finished products are classified as _____

A
  • indirect materials
  • manufacturing overhead
49
Q

Touch labor is another name for _____ labor

A

direct

50
Q

Indirect labor costs include:

A
  • assembly-line supervisor salary
  • factory security guard wages
51
Q

True or False

All of a company’s depreciation, property taxes, and insurance premiums are considered manufacturing overhead

A

False

52
Q

Is factory burden another name for manufacturing overhead?

A

yes

53
Q

Nonmanufacturing costs include:

A
  • company president’s salary
  • sales commissions
54
Q

Minor items such as nails and glue are usually considered to be _____

A

indirect materials

55
Q

Salaries of factory supervisors and factory maintenance personnel are examples of _____ labor costs

A

indirect

56
Q

Other names for manufacturing overhead include _____

A
  • indirect manufacturing costs
  • factory overhead
  • factory burden
57
Q

Selling costs include _____

A
  • sales commissions
  • advertising
  • sales salaries
58
Q

A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements, _____

A

$300 is reported as a expense and $900 is reported as an asset

59
Q

Is conversion cost another name for manufacturing overhead?

A

yes

60
Q

Selling and administrative costs are _____ costs

A

always direct

61
Q

The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized is known as the _____ principle

A

matching

62
Q

Manufacturing overhead costs include _____

A

indirect materials, factory supervisors’ salaries, and factory depreciation

63
Q

Administrative costs include _____

A

executive compensation and public relations costs

64
Q

Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the _____

A

income statement

65
Q

Period costs:

A
  • include all costs that are not product costs
  • are expensed in the period incurred
66
Q

Cost behavior:

A
  • categorizes costs as fixed, mixed and variable
  • refers to how a cost will change as activity level changes
67
Q

Product costs _____

A
  • “attach” to units of product as they are purchased for resale or produced
  • are also called inventoriable costs
68
Q

Cost of goods sold for a merchandising company, direct materials and commissions are all examples of _____ costs

A

variable

69
Q

Variable costs _____

A
  • remain constant per unit
  • vary in total
70
Q

Inventoriable costs is another term for _____ costs

A

product

71
Q

Which type of cost varies, in total, in direct proportion to changes in the level of activity?

A

variable

72
Q

Within the relevant range of activity, _____ costs remain constant in total

A

fixed

73
Q

Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are called _____ fixed costs

A

committed

74
Q

True or False

Variable costs remain fixed in total within the relevant range of activity

A

false

75
Q

Discretionary fixed costs include _____

A
  • management training programs
  • advertising
76
Q

The assumption that cost behavior is strictly linear is reasonably valid within the _____ _____ of activity

A

relevant range

77
Q

Committed fixed costs include _____

A
  • top management salaries
  • real estate taxes
78
Q

As the level of activity moves outside of the relevant range, fixed costs, _____

A

increase or decrease in discrete steps

79
Q

Fixed costs that can be cut-back or eliminated without significant damage to a company’s long-term goals are _____ fixed cost and _____ fixed costs can not be easily changed or eliminated

A

managed & committed

80
Q

Variable costs vary _____ within the relevant range of activity

A

in total

81
Q

A cost that contains both variable and fixed cost elements is a(n) _____ cost

A

mixed

82
Q

As the level of activity moves outside of the relevant range, _____ costs increase or decrease in discrete steps rather than an linear fashion

A

fixed

83
Q

A fixed cost remains fixed _____ within the relevant range of activity

A

in total

84
Q

Differential costs, opportunity costs, and incremental costs are all cost classifications used in:

A

decision making

85
Q

The difference in costs between two alternatives is called a(n) _____ cost

A

incremental

86
Q

Fixed costs that usually arise from annual spending decisions by management are called _____ or managed fixed costs

A

discretionary

87
Q

Differential cost is _____

A
  • the difference in cost between two alternatives
  • also known as incremental cost
88
Q

The revenue obtained from selling one additional unit of product is called _____ revenue

A

marginal

89
Q

Opportunity costs _____

A
  • should be considered in decision making
  • are benefits lost when choosing one option over another
90
Q

An income statement focusing on product and period costs has been prepared using a(n) _____ format, while a(n) _____ format income statement makes a distinction between fixed and variable costs.

A

traditional & contribution

91
Q

A change in revenues between two alternatives is known as _____ revenue or incremental revenue

A

differential

92
Q

The revenue from selling one additional unit is called _____ revenue

A

marginal

93
Q

A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) _____ _____

A

opportunity cost

94
Q

Given: Sales of $360,000, Gross Margin of $140,000, Contribution Margin of $110,000, and Total Selling & Administrative Exp. of $60,000, net income using the traditional income statement format equals _____

A

$80,000

95
Q

Are indirect costs a cost classification associated with decision making?

A

yes

96
Q

The cost of producing one more unit is the _____ cost

A

marginal

97
Q

On a traditional income statement, cost of goods sold reports the _____ costs attached to merchandise sold during the period, while selling and administrative expenses report all _____ costs that have been expensed as incurred

A

product & period

98
Q

The contribution approach to constructing income statements _____

A
  • distinguishes between fixed and variable costs
  • aids in decision making
99
Q

Sales revenue minus all variable expenses equals _____ _____

A

contribution margin

100
Q

The contribution approach to constructing income statements distinguishes between _____ costs

A

fixed and variable

101
Q

Contribution margin is _____

A

sales revenue minus variable costs

102
Q
A

Managerial Accounting (2 decks)

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