Unit 1 Chapter 2

Question 1

Manufacturing costs

Answer 1

Direct material
Direct labour
Manufacturing overheads

Question 2

Direct material

Answer 2

materials that become an integral part of the finished product and that can be physically and conveniently traced to it

Question 3

Direct labour

Answer 3

labour costs that can easily (i.e., physically and conveniently) be traced to individual units of product.
Also called TOUCH LABOUR

Question 4

Manufacturing overheads

Answer 4

all costs of manufacturing except direct materials and direct labour.

Question 5

Conversion cost

Answer 5

Manufacturing overhead combined with direct labour
Incurred in the conversion of materials into finished products.

Question 6

Prime cost

Answer 6

Direct labour combined with direct materials

Question 7

Non-manufacturing costs

Answer 7

Marketing or selling costs
Administrative costs

Question 8

Marketing or selling costs

Answer 8

all costs necessary to secure customer orders and get the finished product or service into the hands of the customer
Advertising, shipping, etc

Question 9

Administrative costs

Answer 9

all executive, organizational and clerical costs associated with the general management of an organization rather than with manufacturing, marketing or selling
Public relations, general accounting, etc

Question 10

Product costs

Answer 10

all the costs that are involved in acquiring or making
a product.
Absorption costing
Direct materials, direct labour and manufacturing overheads

Question 11

Period costs

Answer 11

all the costs that are not included in product costs
Selling and administrative expenses

Question 12

Cost classifications of financial statements

Answer 12

Raw materials
Work-in-progress
Finished goods

Question 13

Flow of direct costs

Answer 13

Raw materials purchases are recorded in the Raw Materials inventory account.
When raw materials are used in production, their costs are transferred to the Work in Progress inventory account as direct materials used in production.

Question 14

Flow of direct labour and manufacturing overheads

Answer 14

added directly to Work in Progress.
All manufacturing costs are then transferred to the Finished Goods account as cost of goods manufactured

Question 15

differences between services and manufacturing

Answer 15

Services cannot be stored as inventory
Service outputs are often specially customized for a client (heterogeneous)
In services, the customer is usually present in the delivery process

Question 16

cost behaviour

Answer 16

how a cost will react or respond to changes in the level of business activity.

Question 17

Variable cost

Answer 17

a cost that varies, in total, in direct proportion to changes in the level of activity.
Cost of goods sold, direct material and labour, indirect materials, shipping costs, etc

Question 18

Activity base

Answer 18

a measure of whatever causes the incurrence of costs, sometimes also referred to as a
cost driver

Question 19

Fixed cost

Answer 19

a cost that remains constant, in total, regardless of changes in the level of activity.
Advertising, salaries, insurance, etc
costs fixed within some relevant range

Question 20

Relevant range

Answer 20

the range of activity within which the assumptions about variable and fixed costs are valid.

Question 21

cost object

Answer 21

anything for which cost data are desired

Question 22

Direct cost

Answer 22

a cost that can be easily and conveniently traced to the particular cost object under consideration
Meat, vegetables and chef when preparing a plate of food

Question 23

Indirect cost

Answer 23

a cost that cannot easily and conveniently be traced to the particular cost object under consideration.
Spices, rent and electricity when preparing a plate of food

Question 24

Differential cost

Answer 24

A difference in costs between any two alternatives
Incremental cost (cost increases) and decremental cost (cost decreases)

Question 25

Differential revenue

Answer 25

A difference in revenues between any two alternatives

Question 26

Opportunity cost

Answer 26

the potential benefit that is given up when one alternative is selected over another

Question 27

Sunk cost

Answer 27

a cost that has already been incurred and that cannot be changed by any decision made now or in the future