Indirect costs, such as
manufacturing overhead, are always fixed costs. True False
costs arise from annual decisions by management to spend in certain fixed cost
areas. True False
if operations are interrupted or cut back, committed fixed costs remain largely
unchanged in the short term because the costs of restoring them later are
likely to be far greater than any short-run savings that might be realized.
Committed fixed costs
are fixed costs that are not controllable. True False
A mixed cost is partially variable and
2 of 73
income statements are prepared primarily for external reporting purposes. True
In a contribution
format income statement, sales minus cost of goods sold equals the gross
margin. True False
a traditional format income statement for a merchandising company, the cost of
goods sold reports the product costs attached to the merchandise sold during
the contribution format income statement is useful for external reporting
purposes, it has serious limitations when used for internal purposes because it
does not distinguish between fixed and variable costs.
a contribution format income statement for a merchandising company, cost of
goods sold is a variable cost that gets included in the “Variable
expenses” portion of the income statement.
The traditional format
income statement is used as an internal planning and decision-making tool. Its
emphasis on cost behavior aids cost-volume-profit analysis, management
performance appraisals, and budgeting.
following would typically be considered indirect costs of manufacturing a
particular Boeing 747 to be delivered to Singapore Airlines: electricity to run
production equipment, the factory manager’s salary, and the cost of the General
Electric jet engines installed on the aircraft.
following costs should be considered direct costs of providing delivery room
services to a particular mother and her baby: the costs of drugs administered
in the operating room, the attending physician’s fees, and a portion of the
liability insurance carried by the hospital to cover the delivery room.
The following costs
should be considered by a law firm to be indirect costs of defending a
particular client in court: rent on the law firm’s offices, the law firm’s receptionist’s
wages, the costs of heating the law firm’s offices, and the depreciation on the
personal computer in the office of the attorney who has been assigned the
In any decision making
situation, sunk costs are irrelevant and should be ignored. True False