chapter 2

Question 1

cost

Answer 1

a resource sacrificed or forgone to achieve a specific objective.

Question 2

actual costs

Answer 2

incurred costs (historical costs)

Question 3

budgeted costs

Answer 3

predicted or forecasted costs

Question 4

cost object

Answer 4

anything for which a separate measurement of costs is desired.

Question 5

cost accumulation

Answer 5

collection of cost data in some organised way through an accounting system.

Question 6

cost assignment

Answer 6

a general term that encompasses both tracing accumulated costs to a cost object and allocating costs to a cost object. this can also occur simultaneously.

Question 7

direct costs

Answer 7

costs that are related to a particular cost object and that can be traced to it in an economically feasible (cost-effective) way.

Question 8

indirect costs

Answer 8

costs that are related to a particular cost object and that cannot be traced to it in an economically feasible way. they’re allocated to the cost object using a cost-allocation method.

Question 9

cost tracing

Answer 9

assigning direct costs to the chosen cost object.

Question 10

cost allocation

Answer 10

assigning indirect costs to the chosen cost object.

Question 11

value-added activities

Answer 11

activities that customers perceive as adding value to the products or services they purchase.

Question 12

cost driver/cost generator/cost determinant

Answer 12

any factor that affects total costs.

Question 13

cost management

Answer 13

set of actions that managers take to satisfy customers while continuously reducing and controlling costs. therefore, changes in a cost driver may not automatically lead to changes in overall costs.

Question 14

variable costs

Answer 14

costs that change in proportion to changes in the related level of total activity or volume.

Question 15

fixed costs

Answer 15

costs that do not change in total despite changes in the related level of total activity or volume.

Question 16

relevant range

Answer 16

range of the cost driver in which a specific relationship between cost and the level of activity or volume is valid.

Question 17

service-sector companies

Answer 17

provide services or intangible products to their customers. they do not hold any stock of tangible products. the operating-cost line items will include costs from all areas of the value chain.

Question 18

merchandising-sector companies

Answer 18

provide tangible products they have previously purchased in the same basic form from suppliers. merchandise purchased but not sold is held as stock. the sector includes retailing, distributing, or wholesaling.

Question 19

manufacturing-sector companies

Answer 19

provide tangible products that have been converted to a different form from that of the products purchased from suppliers. their stock includes direct materials, work-in-process stock, and finished goods stock.

Question 20

direct material costs

Answer 20

acquisition costs of all materials that eventually become part of the cost object and that can be traced to the cost object in an economically feasible way.

Question 21

direct manufacturing labour costs

Answer 21

include the compensation of all manufacturing labour that is specifically identified with the cost object and that can be traced to the cost object in an economically feasible way.

Question 22

indirect manufacturing costs/manufacturing overhead costs/factory overhead costs

Answer 22

all manufacturing costs considered to be part of the cost object, but that cannot be individually traced to that cost object in an economically feasible way.

Question 23

capitalised costs

Answer 23

first recorded as an asset of the accounting period when they are incurred. they’re presumed to provide future benefits and are written off to those periods assumed to benefit from their incurrence.

Question 24

revenue costs

Answer 24

recorded as expenses of the accounting period when they are incurred.

Question 25

operating costs

Answer 25

all costs associated with generating revenue, other than cost of goods sold.

Question 26

stock-related costs/inventoriable costs

Answer 26

those costs associated with the purchase of goods for resale or costs associated with the acquisition and conversion of materials and all other manufacturing inputs into goods for sale. becomes part of COGS in the period in which the stock item is sold.

Question 27

period costs

Answer 27

all costs in the income statement other than COGS. these costs are treated as expenses in the period in which they are incurred rather than being inventoried because managers expect these costs to increase revenues in only that period and not in future periods. for manufacturing-sector companies, all non-manufacturing costs in the income statement are period costs.

Question 28

absorption costing

Answer 28

method in which all manufacturing costs are inventoriable.

Question 29

variable costing

Answer 29

costing in which only variable manufacturing costs are inventoriable. fixed manufacturing costs under variable costing are treated as period costs.

Question 30

prime costs

Answer 30

all direct manufacturing costs. as information-gathering technology improves, companies may add other direct-cost categories.

Question 31

conversion costs

Answer 31

all manufacturing costs other than direct material costs. these costs are for transforming direct materials into finished goods.

Question 32

product cost

Answer 32

the sum of the costs assigned to a product for a specific purpose.