Chapter 2: An Introduction to Cost Terms and Purposes

Question 1

What is a cost?

Answer 1

Sacrificed resource to ahieve a specific objective.

Question 2

What is an actual cost?

Answer 2

A cost that has ocurred.

Question 3

What is a budgeted cost?

Answer 3

A predicted cost.

Question 4

What is a cost object?

Answer 4

Anything that someone wishes to assign a cost.

Question 5

What is cost accumulation?

Answer 5

Collection of cost data in an organized manner.

Question 6

What is cost assignment?

Answer 6

Gathering costs to a cost object whether:

Tracing costs with a direct relationship to the cost object, or

Allocating costs with an indirect relationship to a cost object

Question 7

What are direct costs?

Answer 7

Costs that can be easily traced to a cost object in an economical way.

Question 8

What are indirect costs?

Answer 8

Costs cannot be easily traced and are therefore allocated to a cost object.

Question 9

What are the factors that affect whether a cost is classified as direct or indirect?

Answer 9

• Cost materiality
• Availabilty of technology to easily gather cost data
• Operational design that clearly segregate operations

Question 10

What are variable costs?

Answer 10

These costs change in total in proportion to changes in the related level of activity or volume. (more output = more cost)

Per unit these cost remain unchanged in relation to output.

Question 11

What are fixed costs?

Answer 11

These costs remain unchanged in total regardless of changes in the related level of activity or volume.

Per unit, these costs change inversely with output (more output lower cost per unit).

Question 12

What is a cost driver?

Answer 12

The cause of changes in costs over a given time span.

Question 13

What is the relevant range?

Answer 13

Normal activity level in which there is a specific relationship between the level of activity and a given cost.

Question 14

Why should unit costs be used at the manager’s risk?

Answer 14

Unit costs include fixed costs that change with different levels of output, so this information should be used in conjunction with givel output level for a fair comparison.

Question 15

What are inventoriable costs?

Answer 15

Product costs that are capitalized as assets until they are sold and transferred to Cost of Goods Sold.

Question 16

What are period costs?

Answer 16

These costs have no future value and are expensed in the period incurred.

Question 17

What are the steps of the flow of inventoriable costs?

Answer 17

1. Determine cost of materials used
2. Add direct labor and manufacturing overhead costs to get total costs incurred during the period and add beginning work-in-process
3. Subtract ending inventory of work-in-process to get cost of goods manufactured
4. Add cost of goods manufactured to beginning finished goods and subtract ending inventory of finished goods to get cost of goods sold

Question 18

What are prime costs?

Answer 18

All direct manufacturing costs (materials and labor).

Question 19

What are conversion costs?

Answer 19

Direct labor and indirect manufacturing costs.