Cost Classification Overview

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Which of the following is an example of an indirect manufacturing cost?

Supplies

Plant rent (correct)

Power

Direct labor compensation

What term is used to describe costs that can be saved by not adopting a given alternative?

Avoidable costs (correct)

Plant depreciation

Sunk costs

Direct labor costs

Which of the following best describes relevant costs for decision-making?

Future costs and revenues that will be impacted by a decision (correct)

Future costs and revenues that will not be changed by a decision

Sunk costs that can be avoided

Costs of resources already acquired

What are avoidable and unavoidable costs also known as?

Relevant and irrelevant costs Signup and view all the answers

Which of the following is an example of a direct manufacturing labor cost?

Compensation of all manufacturing labor Signup and view all the answers

What do sunk costs represent?

Costs of resources already acquired that are unaffected by choices Signup and view all the answers

What happens to the fixed cost per unit as the activity level goes up?

Decreases Signup and view all the answers

In the short term, what is the nature of some costs?

Fixed Signup and view all the answers

Which type of cost is all cost in the income statement other than cost of goods sold considered as?

Period costs Signup and view all the answers

What do period costs represent according to the text?

Costs treated as expenses of the period incurred Signup and view all the answers

What are direct materials costs according to the text?

All materials that become part of the cost object Signup and view all the answers

In what time period does the classification of costs state that all costs are variable?

Long term Signup and view all the answers

What is the relationship between sales and operating income according to the text?

Small decreases in sales lead to large decreases in operating income. Signup and view all the answers

How does a higher value of operating leverage affect profits?

It indicates higher risk as a given change in sales has a greater impact on profits. Signup and view all the answers

Why do managers examine 'what-if' possibilities and alternatives?

To make better decisions Signup and view all the answers

How do managers make better decisions according to the text?

By analyzing what-if scenarios Signup and view all the answers

Which factor affects the level of operating leverage each firm chooses?

Competitive strategy Signup and view all the answers

What do Procter & Gamble managers wonder about when considering expanding into a foreign market?

Effect on selling price Signup and view all the answers

What was the design of the stage used by U2 during their recent world tour?

164-foot high stage with a spaceship design Signup and view all the answers

What stage configuration did the tour employ to maximize revenue?

In-the-round stage configuration Signup and view all the answers

What did Rolling Stone magazine refer to U2's recent world tour as?

The biggest rock show ever Signup and view all the answers

How did U2's ticket pricing strategy differ from other large outdoor concerts?

Tickets were sold for as little as $30 Signup and view all the answers

What led to companies like US Airways and Global Crossing declaring bankruptcy?

Decline in revenues and high fixed costs Signup and view all the answers

Why did U2 have three separate stages for their global itinerary during the tour?

To leapfrog and cover different locations simultaneously Signup and view all the answers

What was the approximate cost of each stage used by U2 during their world tour?

$40 million dollars Signup and view all the answers

What assumption is required for multi-product CVP analysis?

Constant sales mix between products Signup and view all the answers

Why was the success of U2's world tour not solely dependent on each night's concert performance?

To recoup its high fixed costs Signup and view all the answers

How did U2's revenue generation compare to industry trends during the tour?

Shattered attendance records despite industry slump Signup and view all the answers

What was a critical factor for U2 to make a profit during their world tour?

Selling a large number of tickets Signup and view all the answers

Why is it crucial for capital intensive companies to cover high fixed costs?

To avoid bankruptcy Signup and view all the answers