OSU Accounting 2000 Exam 3/Final
Review Questions And Answers Well
Defined
Managerial Accounting - correct answers Provides information for managers inside an organization who
direct and control its operations. We look at issues from the perspective of a manufacturer.
Financial Accounting - correct answers Provides information to stockholders, creditors, and others who
are outside the organization.
Manufacturing Costs - correct answers Costs incurred in the production of a product.
Three Manufacturing costs - correct answers 1) Direct Materials
2) Direct Labor
3) Manufacturing Overhead
Direct (Raw) Materials - correct answers Materials used in the production of inventory
Direct Labor - correct answers Labor costs incurred in the production of inventory (ex salaries of those
who make the good)
Manufacturing Overhead - correct answers All other costs incurred in manufacturing a product
Cost Behavior - correct answers A term used to describe how costs react to changes in the volume of
activity.
Three types of costs in cost behavior analysis - correct answers 1. Variable Costs
2. Fixed Costs
, 3. Mixed Costs
Variable Costs - correct answers IN TOTAL change in direct proportion to changes in the volume of
activity. Costs per unit are constant.
(Ex direct materials and direct labor; $30/webcam, stays constant. Cost goes up or down with the
amount of computers produced)
Fixed Costs - correct answers IN TOTAL are constant with the volume, but the cost per unit changes
inversely with the volume of activity. (Ex. typically depreciation, rent, and advertising)
Mixed Costs - correct answers Contain both variable and mixed elements. Neither the unit nor total cost
is constant. (Ex. Typically overhead and utilities)
Cost Behavior Assumptions - correct answers 1) The cost behaviors we have just discussed are assumed
to exist over a RELEVANT RANGE
Relevant range can be defined as the range of activity within which the assumptions made about cost
behaviors by managers are valid
2) The cost behavior patterns we have discussed are assumed to be LINEAR within the relevant range
(the cost behavior pattern will plot as a straight line within the relevant range)
In utilizing cost behavior analysis, managers should use (work with) what kind of costs? - correct answers
Variable costs per unit and total fixed costs. (because both are considered 'constant' at all activity levels,
allowing predictions about future costs).
What is the method used to separate a mixed cost into its fixed and variable components? - correct
answers high-low method
High-Low Method - correct answers 1) choose 2 data points - the high and low ACTIVITY LEVEL (not cost)
2) Calculate the Variable Cost per Unit = Change in Cost per Unit / change in activity level
Review Questions And Answers Well
Defined
Managerial Accounting - correct answers Provides information for managers inside an organization who
direct and control its operations. We look at issues from the perspective of a manufacturer.
Financial Accounting - correct answers Provides information to stockholders, creditors, and others who
are outside the organization.
Manufacturing Costs - correct answers Costs incurred in the production of a product.
Three Manufacturing costs - correct answers 1) Direct Materials
2) Direct Labor
3) Manufacturing Overhead
Direct (Raw) Materials - correct answers Materials used in the production of inventory
Direct Labor - correct answers Labor costs incurred in the production of inventory (ex salaries of those
who make the good)
Manufacturing Overhead - correct answers All other costs incurred in manufacturing a product
Cost Behavior - correct answers A term used to describe how costs react to changes in the volume of
activity.
Three types of costs in cost behavior analysis - correct answers 1. Variable Costs
2. Fixed Costs
, 3. Mixed Costs
Variable Costs - correct answers IN TOTAL change in direct proportion to changes in the volume of
activity. Costs per unit are constant.
(Ex direct materials and direct labor; $30/webcam, stays constant. Cost goes up or down with the
amount of computers produced)
Fixed Costs - correct answers IN TOTAL are constant with the volume, but the cost per unit changes
inversely with the volume of activity. (Ex. typically depreciation, rent, and advertising)
Mixed Costs - correct answers Contain both variable and mixed elements. Neither the unit nor total cost
is constant. (Ex. Typically overhead and utilities)
Cost Behavior Assumptions - correct answers 1) The cost behaviors we have just discussed are assumed
to exist over a RELEVANT RANGE
Relevant range can be defined as the range of activity within which the assumptions made about cost
behaviors by managers are valid
2) The cost behavior patterns we have discussed are assumed to be LINEAR within the relevant range
(the cost behavior pattern will plot as a straight line within the relevant range)
In utilizing cost behavior analysis, managers should use (work with) what kind of costs? - correct answers
Variable costs per unit and total fixed costs. (because both are considered 'constant' at all activity levels,
allowing predictions about future costs).
What is the method used to separate a mixed cost into its fixed and variable components? - correct
answers high-low method
High-Low Method - correct answers 1) choose 2 data points - the high and low ACTIVITY LEVEL (not cost)
2) Calculate the Variable Cost per Unit = Change in Cost per Unit / change in activity level
