Which of the following would NOT be considered a period cost? The salary of the

Question

Which of the following would NOT be considered a period cost? The salary of the company president's secretary The cost of a firm's accounting department Depreciation of a machine used in manufacturing D. Sales commissions A firm is trying to decide whether to keep an old machine or buy a new one that will perform similar tasks. Which of the following costs is irrelevant to making this decision? Original cost of the old machine Cost to purchase the new machine Difference in operating costs for the two machines Cost of training workers to use the new machine When direct materials are requisitioned from an on-site warehouse, the cost of these materials is transferred to which account: Finished goods Cost of goods sold Raw materials Work in Process A firm's complete set of budgets and supporting schedules is known as the: Master budget. Administrative budget. Operations budget. Financial budget. As the number of units produced by a manufacturer increases: Total fixed costs per unit increase. Total variable costs stay die same, Fixed costs per unit decrease. Variable costs per unit increase. A firm sells one product with a contribution margin per unit of $20 and a contribution margin ratio of.4. Which of the following is TRUE? For every SI of sales revenue, $.60 is available to cover fixed costs and generate operating income. For every unit sold, $20 must go toward covering variable costs. For every $1 of sales revenue, S.40 is available to cover fixed costs and generate operating income. For every unit sold, $8 must go toward covering variable costs.

Explanation / Answer

Part 1)

Depreciation of a machine used in manufacturing (which is Option C)

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Explanation:

Depreciation of a machine used in manufacturing is a product cost. Depreciation of machine will be treated as a part of factory overhead as the machine is used for manufacturing the product. Any cost incurred with respect to production will be categorized as a product cost.

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Part 2)

Original Cost of the Old Machine (which is Option A)

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Explanation:

The original cost of the old machine will be treated as a sunk cost. In other words, original cost of the old machine is a cost which has already been incurred in the past, and which cannot be influenced by new decisions. This cost will hold no relevance as to the replacement decision and should therefore, be ignored.

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Part 3)

Work in Process (Option D)

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Explanation:

When raw material is requsitioned from an on-site warehouse, it would result in a reduction in the raw material inventory balance. The raw material will be transferred to work in process account as it will get convered into finished goods only after it has completed the production process. Once, the raw material has been completed processed, it will get transferred to finished goods inventory and on the sale of such finished goods, the cost of goods sold account will be adjusted. Therefore, Option A, B and C are incorrect.

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Part 4)

Master Budget (which is Option A)

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Explanation:

A master budget comprises of 2 important budgets which are operating and financial budget. These two budgets comprise of various budgets and supporting schedules such as sales budget, production budget, schedule of expected cash collections, etc. It is only after the preparation of all these primary budgets and schedules, that a master budget can be prepared.

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Part 5)

Fixed Cost Per Unit Decrease (which is Option C)

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Explanation:

Fixed cost remains constant irrespective of the level of production. With an increase in units produced and a constant fixed cost, fixed cost per unit will decrease. Therefore, Option A is incorrect.

Increase in production has no impact on the variable cost. It remains constant irrespective of the level of production. The total variable cost will ,however, increase it is directly linked to the volume of production. Therefore, Option B and Option D are incorrect.

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Part 6)

For every $1 of sales revenue, $.40 is available to cover fixed cost and generate operating income (which is Option C)

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Explanation:

A contribution margin ratio of .4 or 40% indicates that .6 or 60% of the sales revenue goes toward covering variable costs. The company is left with only $.4 per $1 sales revenue to cover its fixed expenses and produce net operating income (if any). In the given case, the company has $8 (20*.4) to meet its fixed expenses and generate income.

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