Chapter 3

Question 1

Incurred when a resource is used for some purpose.

Answer 1

Cost

Question 2

The meaningful groups into which costs are collected.

Answer 2

Cost Pools

Question 3

A factor that causes or relates to a change in the total cost of an activity.

Answer 3

Cost Driver

Question 4

Any product, service, customer, activity, or organizational unit to which costs are accumulated for some management purpose.

Answer 4

Cost Object

Question 5

A group of related products; useful for preparing profitability reports as part of lean accounting; all the activities required to create customer value for a family of products or services.

Answer 5

Value Stream

Question 6

The process of assigning cost to cost pools or from cost pools to cost objects.

Answer 6

Cost Assignment

Question 7

Name the 2 types of cost assignment.

Answer 7

Direct Tracing

Allocation

Question 8

Direct tracing is a cost assignment method used to assign direct costs / indirect costs.

Answer 8

Direct Costs

Question 9

Allocation is a cost assignment method used to assign direct costs / indirect costs.

Answer 9

Indirect Costs

Question 10

A cost that can be conveniently and economically traced directly to a cost pool or cost object.

Answer 10

Direct Cost

Question 11

The cost driver for a direct cost is …

Answer 11

The number of units of the object

Question 12

A cost that is not conveniently or economically traceable to a specific cost pool or cost object.

Answer 12

Indirect Cost

Question 13

If an airline’s cost object is an airline passenger, the cost of fuel is a direct cost / indirect cost.

Answer 13

Indirect Cost

Question 14

If an airline’s cost object is a flight, the cost of fuel is a direct cost / indirect cost.

Answer 14

Direct Cost

Question 15

The cost drivers used to allocate or assign costs to cost objects.

Answer 15

Allocation Bases

Question 16

The cost of the materials in the product and a reasonable allowance for scrap and detective units (less purchase discounts and including freight and related charges).

Answer 16

Direct Materials Cost

Question 17

The cost of materials used in manufacturing that are not part of the product or are not easily or economically traceable to the finished product; a component of total manufacturing overhead.

Answer 17

Indirect Materials Cost

Question 18

The cost of labor used to manufacture the product or provide the service.

Answer 18

Direct Labor Cost

Question 19

Labor costs associated with production that are not considered direct labor: supervision, quality control, inspection, purchasing and receiving, etc.; a component of total manufacturing overhead.

Answer 19

Indirect Labor Costs

Question 20

The cost pool into which all the indirect costs are commonly combined.

Answer 20

Overhead / Factory Overhead

Question 21

The sum of direct materials and direct labor.

Answer 21

Prime Costs

Question 22

The sum of direct labor and factory overhead.

Answer 22

Conversion Costs

Question 23

Name the 4 types of cost drivers.

Answer 23

Activity-Based
Volume-Based
Structural
Executional

Question 24

The range of the cost driver in which the actual value of the cost driver is expected to fall, and for which the relationship between the cost and the cost driver is assumed to be approximately linear.

Answer 24

Relevant Range

Question 25

Linear approximations of total cost behavior that fall outside of the relevant range can / cannot be used to approximate total cost.

Answer 25

Cannot

Question 26

Total cost is made up of ____ costs and ____ costs.

Answer 26

Variable | Fixed

Question 27

A cost that changes in total, both directionally and proportionally, in response to changes in one or more cost drivers.

Answer 27

Variable Cost

Question 28

The portion of the total cost that, within the relevant range, does not change with a change in the quantity of a designated cost driver.

Answer 28

Fixed Cost

Question 29

True or False Total fixed costs are expected to remain approximately constant within the relevant range.

Answer 29

True

Question 30

True or False Total variable costs are expected to remain approximately constant within the relevant range.

Answer 30

False

Question 31

A cost that includes both variable and fixed cost components.

Answer 31

Mixed Cost

Question 32

A cost that varies with the cost driver, but in discrete steps within the relevant range; also called a semi-fixed cost.

Answer 32

Step Cost

Question 33

Cost drivers involved in strategic plans and decisions that have a long-term effect with regard to issues such as scale, experience, technology, and complexity.

Answer 33

Structural Cost Drivers

Question 34

Cost drivers involved in factors that the firm can manage in the short term to reduce costs such as workforce involvement, design of the production process, and supplier relationships.

Answer 34

Executional Cost Drivers

Question 35

The cost of the product transferred to the income statement when inventory is sold.

Answer 35

Cost of Goods Sold

Question 36

Only the costs necessary to complete the product (direct materials, direct labor, and factory overhead).

Answer 36

Product Costs

Question 37

All non-product expenditures for managing the firm and selling the product; also referred to selling, general, and administrative (SG&A) expenses.

Answer 37

Period Costs

Question 38

Name the 3 inventory accounts manufacturing companies use.

Answer 38

Materials Inventory Work-in-Process Inventory Finished Goods Inventory

Question 39

The sum of materials used, labor, and overhead for the period.

Answer 39

Total Manufacturing Cost

Question 40

The cost of goods that were finished and transferred out of the Work-in-Process Inventory account during a given period.

Answer 40

Cost of Goods Manufactured

Question 41

A set of policies and procedures that restrict and guide activities in the processing of financial data with the objective of preventing or detecting errors and fraudulent acts.

Answer 41

Internal Accounting Controls

Question 42

An inventory tracking method that updates the finished goods inventory account for each purchase or sales transaction.

Answer 42

Perpetual Inventory System

Question 43

An inventory tracking method that involves a count of inventory at the end of each accounting period to determine the ending balance in inventory.

Answer 43

Periodic Inventory System

Question 44

Name the 2 roles of cost drivers.

Answer 44

1. Enabling the assignment of costs to cost objects | 2. Explaining cost behavior

Question 45

Name the 2 types of cost drivers a variable cost can have.

Answer 45

Volume-based | Activity-based

Question 46

Total cost of resources consumed divided by the number of units of output.

Answer 46

Unit Cost / Average Cost

Question 47

Name the 4 categories of strategic issues that structural cost drivers address.

Answer 47

Scale Experience Technology Complexity

Question 48

_____-based costs increase with each unit of the volume of output.

Answer 48

Volume

Question 49

The determination of whether a cost is variable depends on....

Answer 49

The nature of the cost object.

Question 50

Name the 3 categories of operational issues that executional cost drivers address.

Answer 50

Workforce Involvement Design of the Production Process Supplier Relationships

Question 51

______ analysis can help the firm assess the long-term consequences of its current or planned commitment to a structural cost driver.

Answer 51

Value-Chain

Question 52

Over a very broad range of output, the relationship between volume of output and costs tends to be ____ .

Answer 52

Nonlinear

Question 53

At low values of the cost driver, costs increase a(n) increasing / decreasing rate.

Answer 53

Decreasing

Question 54

At high values of the cost driver, costs increase at a(n) increasing / decreasing rate.

Answer 54

Increasing

Question 55

True or False The law of diminishing marginal productivity occurs at low levels of the cost driver.

Answer 55

False

Question 56

The law of diminishing marginal productivity is due to..

Answer 56

Inefficiencies when operating near capacity

Question 57

Costs that provide capacity for operations.

Answer 57

Fixed Costs

Question 58

Costs that are consumed during operations.

Answer 58

Variable Costs

Question 59

The first component on a Statement of Cost of Goods Manufactured is _____ .

Answer 59

Beginning Materials Inventory

Question 60

When calculating the Cost of Goods Sold for a manufacturing company, the first component needed is _____ .

Answer 60

Beginning Finished Goods Inventory

Question 61

When calculating the Cost of Goods Sold for a merchandising company, the first component needed is _____ .

Answer 61

Beginning Merchandise Inventory

Question 62

What is the first set of calculations performed when preparing a Statement of Cost of Goods Manufactured?

Answer 62

The change in Materials Inventory to determine the Direct Materials Used

Question 63

On a Statement of Cost of Goods Manufactured, name the 3 components the are totaled to determine the Total Manufacturing Costs Incurred.

Answer 63

Direct Materials Used Direct Labor Manufacturing Overhead

Question 64

What is the last set of calculations performed when preparing a Statement of Cost of Goods Manufactured?

Answer 64

The sum of the Total Manufacturing Costs Incurred and the change in Work-in-Process Inventory to determine the Cost of Goods Manufactured.

Question 65

True or False The change in the Work-in-Process Inventory is included in the Cost of Goods Manufactured calculation.

Answer 65

True