Chapter One

Question 1

Basic characteristics of managerial accounting

Answer 1

1. used for internal users
2. emphasis on future events
3. Does not follow GAAP
4. emphasis on segments of a company
5. No mandatory reporting required

Question 2

Describe the difference between direct and indirect costs

Answer 2

Direct costs can be easily traced back to product or cost object. Indirect costs cannot be easily traced back.

Question 3

Direct labor

Answer 3

Labor costs that can be easily traced back to a product. Hands-on assembly line workers. If they touched the product, they are apart of direct labor.

Question 4

Direct materials

Answer 4

materials that are an integral part of a finished product and can be easily traced back. non replaceable parts of a product.

Question 5

Manufacturing overhead

Answer 5

all product costs not considered direct labor or direct materials.

Question 6

Prime cost =

Answer 6

direct materials + direct labor

Question 7

Conversion costs =

Answer 7

direct labor + manufacturing overhead

Question 8

Selling costs

Answer 8

Costs necessary to secure the order and delivery of a product

Question 9

Administrative costs

Answer 9

costs specific to executive, organizational, and clerical costs. Administrative costs can be direct or indirect.

Question 10

Product cost include

Answer 10

Direct labor, direct materials and manufacturing overhead. Reported as inventory on balance sheet

Question 11

Period costs include

Answer 11

selling and administrative costs, reported as an expense on income statement.

Question 12

Variable costs

Answer 12

as activity increases, TOTAL variable cost increases but per unit remains the same. Ex: direct labor costs, direct material costs may change however the cost per unit does not.

Question 13

Fixed costs

Answer 13

As activity increases, a TOTAL fixed cost remains the same. Ex: Rent, depreciation, advertising, salary.