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
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
3
Q
What are the 5 purposes of cost classifications?
A
- Assigning costs to cost objects
- Accounting for costs in manufacturing companies
- Preparing financial statements
- Predicting cost behavior in response to changes in activity
- Making decisions
4
Q
Costs that can be easily and conveniently traced to a unit of product or other cost object
A
Direct cost
5
Q
Costs that cannot be easily and conveniently traced to a unit of product or other cost object
A
Indirect costs
6
Q
What costs can be easily traced
A
Direct costs
7
Q
What costs cannot be easily traced
A
Indirect costs
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
9
Q
What 3 things make up manufacturing costs
A
- Direct materials
- Direct labor
- Manufacturing overhead
10
Q
Raw materials that become an integral part of the product and that can be conveniently traced directly to it
A
Direct materials
11
Q
Those labor costs that can be easily traced to individual units of products
A
Direct labor
12
Q
All manufacturing costs except direct material and direct labor. These costs cannot be readily traced to finished products
A
Manufacturing overhead
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
14
Q
What indirect costs are considered manufacturing overhead?
A
Those associated with operating the factory
15
Q
How is the prime cost found?
A
Direct materials + Direct labor
16
Q
How is the conversion cost found?
A
Direct labor + Manufacturing overhead
17
Q
The costs incurred to secure customer orders and get the finished product to the customer
A
Selling costs
18
Q
Are selling costs direct or indirect?
A
Can be either
19
Q
The costs associated with the general management of an organization rather than with the manufacturing or selling
A
Administrative costs
20
Q
Are administrative costs direct or indirect?
A
Can be either
21
Q
Include all the costs involved in acquiring or making a product
A
Product costs
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
23
Q
What do manufacturing product costs include?
A
- Raw materials
- Work in process
- Finished goods
24
Q
Include any materials that go into the final product
A
Raw materials
25
Consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer
Work in process
26
Consist of completed units of product that have not yet been sold to customers
Finished goods
27
Include all selling costs and administrative costs
Period costs
28
A cost that varies, in total, in direct proportion to changes in the level of activity
Variable cost
29
Is a variable cost's per unit changing or constant?
Constant
30
A cost that remains constant, in total, regardless of changes in the level of the activity
Fixed cost
31
What are the 4 things that add to changes in the Activity Base (Cost Driver)
- Units produced
- Machine hours
- Miles driven
- Labor hours
32
The difference in cost between any two alternatives
Differential cost
33
What is another name for Differential cost?
Incremental cost
34
A difference in revenue between two alternatives
Differential revenue
35
Are Differential cost and Differential revenue relevant to decisions?
Yes, they are always relevant
36
Are Differential costs fixed or variable?
Can be either
37
A cost that has already been incurred and cannot be changed by any decision now or in the future
Sunk cost
38
The potential benefit that is given up when one alternative is selected over another
Opportunity cost
39
Cost objects include:
- anything for which cost data is desired
- customers
- departments
40
A manufacturing cost that cannot be easily traced to a specific cost object is a(n) _____ cost
indirect
41
A type of indirect cost incurred to benefit more than one cost object is a(n) _____ cost
common
42
Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) _____ cost of the customer placing the order
direct
43
Costs that are shared by multiple cost objects in a company are known as _____ costs
common
44
In an automobile manufacturing plant, the assembly-line workers are classified as _____ _____ cost
direct labor
45
# True or False
The finished product of one company can become raw materials for another company
True
46
A laptop computer manufacturer would consider the computer's processor chip to be a(n) _____ cost
direct material
47
Indirect materials and indirect labor are classified as:
manufacturing overhead
48
Raw materials whose costs cannot be easily traced to finished products are classified as _____
- indirect materials
- manufacturing overhead
49
Touch labor is another name for _____ labor
direct
50
Indirect labor costs include:
- assembly-line supervisor salary
- factory security guard wages
51
# True or False
All of a company's depreciation, property taxes, and insurance premiums are considered manufacturing overhead
False
52
Is factory burden another name for manufacturing overhead?
yes
53
Nonmanufacturing costs include:
- company president's salary
- sales commissions
54
Minor items such as nails and glue are usually considered to be _____
indirect materials
55
Salaries of factory supervisors and factory maintenance personnel are examples of _____ labor costs
indirect
56
Other names for manufacturing overhead include _____
- indirect manufacturing costs
- factory overhead
- factory burden
57
Selling costs include _____
- sales commissions
- advertising
- sales salaries
58
A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements, _____
$300 is reported as a expense and $900 is reported as an asset
59
Is conversion cost another name for manufacturing overhead?
yes
60
Selling and administrative costs are _____ costs
always direct
61
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
matching
62
Manufacturing overhead costs include _____
indirect materials, factory supervisors' salaries, and factory depreciation
63
Administrative costs include _____
executive compensation and public relations costs
64
Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the _____
income statement
65
Period costs:
- include all costs that are not product costs
- are expensed in the period incurred
66
Cost behavior:
- categorizes costs as fixed, mixed and variable
- refers to how a cost will change as activity level changes
67
Product costs _____
- "attach" to units of product as they are purchased for resale or produced
- are also called inventoriable costs
68
Cost of goods sold for a merchandising company, direct materials and commissions are all examples of _____ costs
variable
69
Variable costs _____
- remain constant per unit
- vary in total
70
Inventoriable costs is another term for _____ costs
product
71
Which type of cost varies, in total, in direct proportion to changes in the level of activity?
variable
72
Within the relevant range of activity, _____ costs remain constant in total
fixed
73
Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are called _____ fixed costs
committed
74
# True or False
Variable costs remain fixed in total within the relevant range of activity
false
75
Discretionary fixed costs include _____
- management training programs
- advertising
76
The assumption that cost behavior is strictly linear is reasonably valid within the _____ _____ of activity
relevant range
77
Committed fixed costs include _____
- top management salaries
- real estate taxes
78
As the level of activity moves outside of the relevant range, fixed costs, _____
increase or decrease in discrete steps
79
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
managed & committed
80
Variable costs vary _____ within the relevant range of activity
in total
81
A cost that contains both variable and fixed cost elements is a(n) _____ cost
mixed
82
As the level of activity moves outside of the relevant range, _____ costs increase or decrease in discrete steps rather than an linear fashion
fixed
83
A fixed cost remains fixed _____ within the relevant range of activity
in total
84
Differential costs, opportunity costs, and incremental costs are all cost classifications used in:
decision making
85
The difference in costs between two alternatives is called a(n) _____ cost
incremental
86
Fixed costs that usually arise from annual spending decisions by management are called _____ or managed fixed costs
discretionary
87
Differential cost is _____
- the difference in cost between two alternatives
- also known as incremental cost
88
The revenue obtained from selling one additional unit of product is called _____ revenue
marginal
89
Opportunity costs _____
- should be considered in decision making
- are benefits lost when choosing one option over another
90
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.
traditional & contribution
91
A change in revenues between two alternatives is known as _____ revenue or incremental revenue
differential
92
The revenue from selling one additional unit is called _____ revenue
marginal
93
A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) _____ _____
opportunity cost
94
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 _____
$80,000
95
Are indirect costs a cost classification associated with decision making?
yes
96
The cost of producing one more unit is the _____ cost
marginal
97
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
product & period
98
The contribution approach to constructing income statements _____
- distinguishes between fixed and variable costs
- aids in decision making
99
Sales revenue minus all variable expenses equals _____ _____
contribution margin
100
The contribution approach to constructing income statements distinguishes between _____ costs
fixed and variable
101
Contribution margin is _____
sales revenue minus variable costs
102
