Chapter 2

Question 1

Cost that is charged against revenue in an accounting period.

Answer 1

expense

Question 2

Past, present, or future cash outflow.

Answer 2

outlay cost

Question 3

Forgone benefit from the best (forgone) alternative course of action.

Answer 3

opportunity cost

Question 4

Excess of operating revenues over the operating costs necessary to generate those revenues.

Answer 4

operating profit

Question 5

Expense assigned to products sold during a period.

Answer 5

cost of goods sold

Question 6

Costs assigned to the manufacture of products and recognized for financial reporting when
sold.

Answer 6

product costs

Question 7

Costs recognized for financial reporting when incurred.

Answer 7

period costs

Question 8

Product costs that can be feasibly identified with units of production.

Answer 8

direct manufacturing costs

Question 9

All product costs except direct costs.

Answer 9

indirect manufacturing costs

Question 10

Materials that can be identified directly with the product at reasonable cost.

Answer 10

direct materials

Question 11

Labor that can be identified directly with the product at reasonable cost.

Answer 11

direct labor

Question 12

All production costs except direct labor and direct materials.

Answer 12

manufacturing overhead

Question 13

Sum of direct materials and direct labor.

Answer 13

prime costs

Question 14

Sum of direct labor and manufacturing overhead.

Answer 14

conversion costs

Question 15

Costs required to obtain customer orders and provide customers with finished products,
including advertising, sales commissions, and shipping costs.

Answer 15

marketing costs

Question 16

Costs required to manage the organization and provide staff support, including executive
salaries, costs of data processing, and legal costs.

Answer 16

administrative costs

Question 17

Process of assigning indirect costs to products, services, people, business units, etc.

Answer 17

cost allocation

Question 18

Any end to which a cost is assigned; examples include a product, a department, or a product
line.

Answer 18

cost object

Question 19

Collection of costs to be assigned to the cost objects.

Answer 19

cost pool

Question 20

Method used to assign costs in the cost pool to the cost objects.

Answer 20

cost allocation rule

Question 21

Diagram or flowchart illustrating the cost allocation process.

Answer 21

cost flow diagram

Question 22

Any cost that can be directly (unambiguously) related to a cost object at reasonable cost.

Answer 22

direct cost

Question 23

Any cost that cannot be directly related to a cost object.

Answer 23

indirect cost

Question 24

Product in the production process but not yet complete.

Answer 24

work in process

Question 25

Product fully completed, but not yet sold.

Answer 25

finished goods

Question 26

Costs added to inventory accounts.

Answer 26

inventoriable costs

Question 27

Costs that are unchanged as volume changes within the relevant range of activity.

Answer 27

fixed costs

Question 28

Costs that change in direct proportion with a change in volume within the relevant range of activity.

Answer 28

variable costs

Question 29

Activity levels within which a given total fixed cost or unit variable cost will be unchanged.

Answer 29

relevant range

Question 30

Cost that has both fixed and variable components; also called mixed cost

Answer 30

semivariable cost

Question 31

Cost that increases with volume in steps; also called semifixed cost.

Answer 31

step cost

Question 32

Sum of all costs of manufacturing and selling a unit or product (includes both fixed and variable costs).

Answer 32

full cost

Question 33

All variable and fixed manufacturing costs; used to compute a product’s inventory value under GAAP.

Answer 33

full absorption cost

Question 34

Revenue – Cost of goods sold on income statements. Per unit, the gross margin equals Sales price – Full absorption cost per unit.

Answer 34

gross margin

Question 35

Sales price – Variable costs per unit.

Answer 35

contribution margin