ENGLISH FOR ACCOUNTING Mid-Exam Time allowed: 1 hour Student name: ID: 1. Read and fill in the blanks with the most suitable words and terms: costs, fixed, fees, variable, classifying, the costs, variable costs, CVP analysis. As the CVP assumptions make clear, an important feature of (1).........is distinguishing fixed from variable costs. Always keep in mind, however, that whether a cost is (2)......... or (3) depends on the period time for a decision. The shorter the time horizon, the higher the percentage of total costs considered as fixed. Suppose an American Airlines plane will depart from its gate in the next hour and currently has 20 seats unsold. A potential passenger arrives with a transferable ticket from a competing airline. What are the (4)............. to American of placing one more passenger in an otherwise empty seat? Variable costs (such as one more meal) would be in this decision situation (such as crew costs and baggage- negligible. Virtually all (5). handling costs) are fixed. Alternatively, suppose American must decide whether to include another city in its routes. This decision may have a one-year planning horizon. Many more costs, including would be regarded as crew (6), baggage-handling costs, and airport (7) (8) and fewer costs (for example, corporate-office costs) would be regarded as (9)....in this decision. Always consider the relevant range, the length of the time horizon, costs as variable or fixed. and the specific decision situation when (10)..... 2. True or False Questions 3 4 5 6 7 8 10 No. 1 Question The manufacturing overhead budget lists all costs of production other than selling and administrative expenses. 2 Only variable manufacturing overhead costs are included in the manufacturing overhead budget. Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget. Conversion cost equals product cost less direct labor cost. Product costs are recorded as expenses in the period in which the related products are sold. Manufacturing salaries and wages incurred in the factory are period costs. Depreciation on office equipment would be included in product costs. Total variable cost is expected to remain unchanged as activity changes within the relevant range. The contribution margin is the amount remaining from sales revenues after variable expenses have been deducted. In a contribution format income statement, the gross margin minus selling and administrative expenses equals net operating income. True False