Ch 2

Question 1

A cost is:

Answer 1

a sacrificed or forgone resource to achieve a specific objective

Question 2

An Actual cost is:

Answer 2

a cost that has occurred

Question 3

Budgeted cost is

Answer 3

a predicted cost

Question 4

Cost object is

Answer 4

anything for which a cost measurement is desired (ex. product, R&D project, departments)

Question 5

Cost accumulation is

Answer 5

the collection of cost data in an organized way by means of an accounting system

Question 6

Cost assignment is

Answer 6

a general term that encompasses the gathering of accumulated costs to a cost object

Question 7

two ways of gathering of accumulated costs to a cost object:

Answer 7

1. Tracing costs with a direct relationship to the cost object (direct cost)
2. Allocating accumulated costs with an indirect relationship to a cost object (indirect cost)

Question 8

factors affecting the direct/indirect cost classification:

Answer 8

• The materiality of the cost in question (the smaller the cost, the less likely it will be economically feasible to trace the cost)
• The available information-gathering technology (technology makes it possible to consider more and more costs as direct)
• Design of operations (if parts of a facility are dedicated to a particular cost object such as a specific product or a particular customer, we are generally able to classify more costs as direct)

Question 9

A specific cost may be a direct cost for one cost object and an indirect cost for another.
T or F ?

Answer 9

True

Question 10

Costs are fixed or variable for a specific activity but not for a given time period.
T or F?

Answer 10

False
Costs are fixed or variable for a specific activity and/or for a given time period.

Question 11

Variable costs are constant on a per-unit basis.
T or F?

Answer 11

True

Question 12

Fixed costs per unit do not change with the level of production
T or F?

Answer 12

False
Fixed costs per !!unit!! change inversely with the level of production. As more units are produced, the same fixed cost is spread over more and more units, reducing the cost per unit.

Question 13

Mixed costs have

Answer 13

both variable and fixed elements

Question 14

A cost driver is

Answer 14

a variable, such as the level of activity or volume, that causally affects costs over a given time span

Question 15

Relevant range is

Answer 15

the band or range of normal activity level (or volume) in which there is a specific relationship between the level of activity (or volume) and the cost in question
Fixed costs are considered fixed only within the relevant range.

Question 16

Costs may be classified as

Answer 16

• Direct/Indirect
• Variable/Fixed.

Question 17

Three different sectors of economy

Answer 17

1. Manufacturing
2. Merchandise
3. Service sector

Question 18

merchants dont change products basic form
true or false?

Answer 18

True

Question 19

Types of inventory manufacturing

Answer 19

1. direct materials
2. Work-in-progress
3. Finished goods

Question 20

Merchandising-sector companies hold tree types of inventory:
True or False

Answer 20

Merchandising-sector companies hold only one type of inventory: Merchandise Inventory

Question 21

Inventoriable costs are

Answer 21

all costs of a product that are considered assets in a company’s balance sheet when the costs are incurred and that are expensed as cost of goods sold only when the product is sold.

Question 22

For manufacturing companies, all manufacturing costs are inventoriable costs.
T or F?

Answer 22

True

Question 23

Period costs are

Answer 23

all costs in the income statement other than cost of goods sold. They are treated as expenses of the accounting period in which they are incurred because managers expect these costs to increase revenues in only that period and not in future periods.

Question 24

Inventoriable costs go straight to the income statement
T or F?

Answer 24

False
Inventoriable costs go through the balance sheet accounts of direct materials,WIP and finished goods inventory before entering the CGS in the income statement.

Question 25

Prime costs are referring to

Answer 25

all direct manufacturing costs (materials and labor).

Question 26

Conversion costs are referring to

Answer 26

to direct labor and indirect manufacturing costs.

Question 27

Direct manufacturing labor costs are a part of both prime costs and conversion costs.
T or F?

Answer 27

True

Question 28

Do product cost vary for different purposes?

Answer 28

yes