CH 1

Question 1

Direct Costs?

Answer 1

Costs easily + conveniently traced to unit of product or other product

Question 2

Indirect Costs?

Answer 2

Costs that CAN’T easily or conveniently traced to unit of product or other product

Question 3

Common Costs?

Answer 3

type of indirect cost
–> number of indirect costs incurred to support a quantity of cost objects

Question 4

Direct Materials?

Answer 4

Raw materials that are used as “ingredients” of the product
–> can conviently be traced back
ex. radio in a car

Question 5

Direct Labor?

Answer 5

Labor costs of labor that was DIRECTLY used to make a product
Ex. Wages for Assembly Workers in a car plant

Question 6

Manufacturing Overhead? Indirect costs only associated with… ?

Answer 6

ALL manufacturing costs EXCEPT Direct Material/Labor
–> Not readily traced to finished products
–> included INDIRECT materials/labor
–> –> Only indirect costs associated with “operating factory”

Question 7

Manufacturing Overhead Examples?

Answer 7

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

Question 8

Selling Costs?

Answer 8

Costs used to secure the order (get it sold) and deliver the product.
–> can be DIRECT or INDIRECT costs

Question 9

Administrative Costs?

Answer 9

Executive, organizational & clerical costs
–> can be DIRECT or INDIRECT costs

Question 10

“Clerical” Definition?

Answer 10

relating to work in an office, especially routine “documentation” and “administrative tasks”.

Question 11

Product Costs?

Answer 11

All cost involved in MAKING or “ACQUIRING” a PRODUCT

Question 12

3 types of product costs?

Answer 12

Raw materials
–> Work in process
–> Finished Goods Costs

Question 13

Work in process?

Answer 13

Units of product that are PARTIALLY complete
–> require further work

Question 14

Finished Goods Costs?

Answer 14

“Completed” units of products, NOT YET sold

Question 15

Period Costs include what other small costs? (direct, selling costs, etc)

Answer 15

Includes selling costs & administrative costs

Question 16

Product Costs include what other small costs? (direct, selling costs, etc)

Answer 16

Includes Direct Materials, Direct Labor & Manufacturing Overhead

Question 17

Variable Costs?

Answer 17

cost that varies in total in DIRECT proportion to CHANGES to level of activity

Question 18

Fixed Cost? How it reacts to changes in activity?

Answer 18

A cost that stays constant, in total, regardless of CHANGES in the level of the activity.
–> Reacts/varies INVERSELY

Question 19

2 types of fixed costs? their respective defs’?

Answer 19

Committed - Long term, CAN’T be reduced in SHORT-term
Discretionary - CAN be altered in SHORT-term by current managerial decisions

Question 20

Differential/Incremental Costs ? Fixed or Variable? “Relevant” to what?

Answer 20

Difference in cost between TWO alternatives
–> relevant to decisions
–> can be fixed or variable

Question 21

Sunk Costs? Take into count when making decisions and why/why not?

Answer 21

Have ALREADY been charged/incurred and CAN’T be changed (now or in future)
–> no, don’t take it into account (cuz it can’t be changed when choosing alternatives)

Question 22

Cost Object?

Answer 22

Anything for which cost data is desired
–> Includes products, plants, customers, office locations & departments, etc

Question 23

Prime Cost?

Answer 23

SUM of Direct Materials & Direct Labor costs

Question 24

Are MINOR items such as nails and glue (that could be used in a product’s creation) considered Direct Materials?

What are they treated as INSTEAD?

Answer 24

NO because to “insignificant” to do this.

Treated as indirect costs

Question 25

Cost Behavior?

Answer 25

How a cost reacts to changes in the level of activity

Question 26

Examples of Fixed Costs? (5)

Answer 26

Depreciation, insurance, property taxes, rent, supervisor salaries

Question 27

Relevant Range?

Answer 27

Range of activity au-dedans duquel the assumption that cost behavior is strictly linear is valid

Question 28

When are PERIOD costs “expensed”?

Answer 28

In the period INCURRED

Question 29

“Contribution Format” Income Statements focus on what?

Answer 29

Focus on “Cost Behavior”

Question 30

Equation to get “Variable Cost per Unit Produced and Sold”

Answer 30

Total variable manufacturing cost + Variable Selling Expense + Variable Administrative Expense / units produced and sold (in a month)

Question 31

Rows for contribution format (income statement)?

Answer 31

–>Sales
–> Variable expenses
—–> COGS
—–> Variable Selling ex
—–> Variable Administ. ex —–> total vari:
–> Contribution Margin: (Sales - total variable)
–> Fixed expenses
—–> fixed selling
—–> fixed adminis. —–> Total fixed
Net operating income: (contribution margin - fixed)

Question 32

What is “contribution margin”?

Answer 32

Amount remaining from SALES REVENUES after all VARIABLE expenses have been deducted

Question 33

Sales - COGS = ?

Answer 33

Gross Margin/profit.

Question 34

Gross Profit - Vari/fix (operating ex) = ?

Answer 34

Net income