Chapter 1

Question 1

Activity base

Answer 1

A measure of whatever causes the incurrence of a variable cost

Question 2

Administrative costs

Answer 2

ALL executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing

Question 3

Committed fixed costs

Answer 3

investments in facilities, equipment, and basic organizational structure that can’t be significantly reduced even for short periods of time without making fundamental changes

Question 4

Contribution margin

Answer 4

the amount remaining from sales revenues after all variable expenses

Question 5

Conversion cost

Answer 5

direct labor cost plus manufacturing overhead cost

Question 6

fixed cost

Answer 6

a cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. if a fixed costs is expressed on a per unit basis, it varies inversely with the level of activity.

Question 7

Finished goods

Answer 7

unit of product that have been completed but not yet sold to customers

Question 8

indirect cost

Answer 8

a cost that cannot be easily and conveniently traced to a specified cost object

Question 9

direct cost

Answer 9

a cost that can be easily and conveniently traced to a specified cost object

Question 10

direct labor

Answer 10

factory labor costs that can be easily traced to individual units of product (touch labor)

Question 11

direct materials

Answer 11

materials that become an integral part of a finished product and whose costs can be conveniently traced to it

Question 12

indirect labor

Answer 12

the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products

Question 13

indirect materials

Answer 13

small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it

Question 14

inventoriable costs

Answer 14

product costs

Question 15

manufacturing overhead

Answer 15

all manufacturing costs except direct materials and direct labor

Question 16

mixed cost

Answer 16

a cost that contains both variable and fixed cost elements

Question 17

opportunity cost

Answer 17

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

Question 18

period costs

Answer 18

costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued

Question 19

prime cost

Answer 19

direct materials cost plus direct labor cost

Question 20

product costs

Answer 20

all costs that are involved in acquiring or making a product. in the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. also see inventoriable costs

Question 21

raw material

Answer 21

any materials that go into final product

Question 22

sunk cost

Answer 22

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

Question 23

variable cost

Answer 23

a cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit

Question 24

work in process

Answer 24

units of product that are only partially complete and will require further work before they are ready for sale to the customer

Question 25

selling cost

Answer 25

all costs that are incurred to secure customer orders and get the finished product or service into hands of the customer

Question 26

relevant range

Answer 26

the range of activity within which assumptions about variable and fixed cost behavior are valid

Question 27

relevant benefit

Answer 27

a benefit that should be considered when making decisions

Question 28

relevant cost

Answer 28

a cost that should be considered when making decisions

Question 29

Common cost

Answer 29

a cost that is incurred to support a number of cost objects but that cannot be traced to them individually.

Question 30

contribution approach

Answer 30

an income statement format that organizes cost by their behavior. costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes

Question 31

cost behavior

Answer 31

the way in which a cost reacts to changes in the level of activity

Question 32

cost object

Answer 32

anything for which cost data are desired

Question 33

cost structure

Answer 33

the relative proportion of fixed, variable, and mixed costs in an organization

Question 34

differential revenue

Answer 34

future revenue that differs between any two alternatives

Question 35

discretionary fixed costs

Answer 35

those fixed cost that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research

Question 36

incremental cost

Answer 36

an increase in cost between two alternatives