Controlling Costs & Profit

Question 1

Product Costs

Answer 1

Costs closely associated with the product. I.e. wood to make a table

Question 2

Period Costs

Answer 2

Costs that aren’t closely related to the product. I.e. Advertising costs

Question 3

What do product and period costs record as on the income statement?

Answer 3

Expenses

Question 4

3 types of product costs

Answer 4

Direct Materials, Direct Labor, Manufacturing OOverhead

Question 5

What happens when inventory is sold?

Answer 5

It is transferred from an asset on the balance sheet to cost of goods sold expense on the income statement

Question 6

CVP analysis

Answer 6

Cost-Volume Profit

Question 7

CVP equation

Answer 7

Profit = revenue - fixed costs - variable costs

Question 8

Break even point equation

Answer 8

0 = fixed cost / (price per unit - variable costs)

Question 9

How should you report period costs on an income statement?

Answer 9

Administrative expense

Question 10

Variable Cost Ratio Equation

Answer 10

Variable cost per unit/ price per unit

Question 11

Why is the concept of relevant range important?

Answer 11

outside the relevant range the variable cost per unit can change

Question 12

What is Predetermined overhead rate

Answer 12

estimated overhead costs/ estimated activity