Chapter 2

Question 1

Do manufacturing / inventoriable / product costs show up on the B/S or I/S

Answer 1

B/S, since they haven’t been sold yet

Question 2

Do period / non-inventoriable costs show up on the B/S or I/S

Answer 2

I/S, since they are expensed

Question 3

Name some period costs

Answer 3

SG&A, income tax on corporate HQ, interest on debt, sales commissions

Question 4

Name some product costs

Answer 4

Raw mats, direct labor, rent on production facility (MoH), insurance on production facility (MoH), employee benefits & wages for production workers

Question 5

what is MoH

Answer 5

manufacturing overhead includes costs not directly traced to products
- lubricants used in machines
- wages for janitors, security in factory

Question 6

what are Conversion Costs, what are Prime Costs…

Answer 6

Conversion: MoH + DL
Prime: DM + DL

Question 7

Outline the flow of product and period costs…

Answer 7

Starts with RM, then you separate IDM and IDL to get MoH; then you get to WIP, then FG inventory and lastly COGS

Question 8

For variable costs, how does total and per-unit cost change as activity increases/decreases…

Answer 8

total cost rises as activity goes up, while per-unit cost remains constant

Question 9

For fixed costs, how does total and per-unit cost change as activity increases/decreases…

Answer 9

total cost remains constant as activity level changes, while per-unit cost falls

Question 10

What should be considered in cost classification decision making

Answer 10

Only relevant information should be considered for decision making. All other costs and benefits can and should be ignored

Question 11

For mixed costs, how does total and per-unit cost change as activity increases/decreases…

Answer 11

Has characteristics of both variables and fixed; as activity increases total cost may rise and per-unit cost may fall

Question 12

Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. What is differential revenue, cost, net diff. amount…

Answer 12

Differential revenue is?
$500

Differential cost is?
$300

Net differential amount?
$200

Would you take the job?
On an accounting basis, yes

Question 13

Opportunity cost

Answer 13

the potential benefit you give up for selecting one alternative over another…

Going to unviersity instead of working would be an opp. cost of $25,000…

Question 14

Sunk cost

Answer 14

cost that has already been incurred and cannot be recouped

When you drop out of school, the tuition paid is a sunk cost