Questions 1-1 What are the three major types of product costs in a manufacturing company? 1-2 Define the following: (a) direct materials, (b) indirect materials. (c) direct labor, (d) indirect labor, and (e) manufacturing overhead. 1-3 Explain the difference between a product cost and a period cost. Distinguish between (a) a variable cost. (b) a fixed cost, and (c) a mixed cost. 1-5 What effect does an increase in the activity level have on- Page 47 a. Average fixed costs per unit? 1-4 b. Variable costs per unit? c. Total fixed costs? d. Total variable costs? 1-6 1-7 1-8 1-9 1-10 1-11 1-12 1-13 1-14 Define the following terms: (a) cost behavior and (b) relevant range. What is meant by an activity base when dealing with variable costs? Give several examples of activity bases. Managers often assume a strictly linear relationship between cost and the level of activity. Under what conditions would this be a valid or invalid assumption? Distinguish between discretionary fixed costs and committed fixed costs. Does the concept of the relevant range apply to fixed costs? Explain. What is the difference between a traditional format income statement and a contribution format income statement? What is the contribution margin? Define the following terms: differential cost, sunk cost, and opportunity cost. Only variable costs can be differential costs. Do you agree? Explain. Activ