Chapter 2

Question 1

Resource sacrifice or forgone to achieve a specific object.

Answer 1

Cost

Question 2

Usually measured as the monetary amount that must be paid to acquire goods/services.

Answer 2

Cost

Question 3

A cost the has occurred

Answer 3

Actual cost

Question 4

The cost incurred ( a historical /past cost)

Answer 4

Actual Cost

Question 5

A predicted or forecasted cost (a future cost)

Answer 5

Budgeted cost

Question 6

Putting a price on a particular thing

Answer 6

Cost Object

Question 7

Anything for which a cost measurement is desired.

Answer 7

Cost Object

Question 8

2 stages on how cost system determine the cost of various cost object.

Answer 8

1. Cost Accumulation
2. Cost Assignment

Question 9

The collection of a cost data in an organized way by means of an accounting system.

Answer 9

Cost Accumulation

Question 10

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

Answer 10

Cost Assignment

Question 11

2 ways of gathering the accumulated costs to a costs object

Answer 11

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

Question 12

Can be conveniently and economically traced (tracked) to a cost object.

Answer 12

Direct Costs of a Cost Object

Question 13

Cannot be conveniently or economically traced (tracked) to a cost object.
Instead of being traced, these cost are allocated to a cost object in a rational and systematic manner

Answer 13

Indirect Costs of a Cost Object

Question 14

2 Classification of Cost

Answer 14

1. Direct cost of a cost object
2. Indirect cost of a cost object

Question 15

2 Cost Assignment

Answer 15

1. Cost Tracing
2. Cost Allocation

Question 16

Used to describe the assignment of direct costs to a particular cost object

Answer 16

Cost Tracing

Question 17

Used to describe the assignment of indirect costs to a particular cost object.

Answer 17

Cost Allocation

Question 18

Direct Costs

Answer 18

Direct Materials
Direct Labor

Question 19

Examples of Indirect costs

Answer 19

Electricity, Rent, Property Taxes, Plant Administration Expenses

Question 20

Factors Affecting Direct/ Indirect Cost Classifications

Answer 20

1. The materiality of the cost in question
2. Available information-gathering technology
3. Design of Operations

Question 21

The smaller the amount of a cost - that is , the more immaterial the cost is- the less likely it is economically feasible to trace it to a particular cost object.

Answer 21

The materiality of the cost in question

Question 22

Improvements in information- gathering technology make it possible to consider more and more costs as direct costs.

Answer 22

Available information-gathering technology

Question 23

Classifying a cost as direct is easier if a company’s facility is used exclusively for a specific cost object, such as a specific product or a particular customer.

Answer 23

Design of Operations

Question 24

True/False?
A specific cost may be both a direct cost of one cost object and an indirect cost of another cost object.

Answer 24

True

Question 25

True/False? The direct/ indirect classification depends on the choice of the cost object.

Answer 25

True

Question 26

2 Cost Behavior Patterns

Answer 26

1. Variable Costs 2. Fixed Costs

Question 27

It changes in total in proportion to changes in the related level of activity or volume of output produced.

Answer 27

Variable Costs

Question 28

Remains unchanged in total for a given time period, despite changes in the related level of activity or volume of output produced.

Answer 28

Fixed cost

Question 29

Costs are fixed or variable for a specific activity and/or for a given time period. T/F?

Answer 29

T

Question 30

(Total Dollars) Change in proportion with output (more output= more cost)

Answer 30

Variable Costs

Question 31

(Cost Per Unit) Unchanged in relation to output

Answer 31

Variable Costs

Question 32

(Total Dollars) Unchanged in the relation to output (within the relevant range)

Answer 32

Fixed Costs

Question 33

(Cost per Unit) Change inversely with output (more output= lower cost per unit)

Answer 33

Fixed Costs

Question 34

Have both fixed and variable elements

Answer 34

Mixed/ Semivariable Costs

Question 35

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

Answer 35

Cost Driver

Question 36

Is an event, task or unit of work with a specified purpose

Answer 36

Activity

Question 37

The level of activity/ volume whose change causes proportionate changes in the variable cost.

Answer 37

Cost Driver of Variable Costs

Question 38

Costing systems that identify the cost of each activity such as testing, design/setup.

Answer 38

Activity -based costing systems

Question 39

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.

Answer 39

Relevant Range

Question 40

Fixed costs are considered fixed only within the relevant range. T/F?

Answer 40

T

Question 41

Cost may be classified as:

Answer 41

1. Direct/ Indirect 2. Variable/ Fixed

Question 42

Multiple classifications give rise to important cost combinations:

Answer 42

1. Direct and Variable 2. Direct and Fixed 3. Indirect and Variable 4. Indirect and Fixed

Question 43

Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for many decisions. T/ F?

Answer 43

T

Question 44

Also called an average cost Calculated by dividing the total cost by the related number of units produced.

Answer 44

Unit Cost

Question 45

Formula of Unit Cost

Answer 45

Total manufacturing cost/ No. of units manufactured= unit cost

Question 46

Different Types of Firms

Answer 46

1. Manufacturing- sector companies 2. Merchandising- sector companies 3. Service-sector companies

Question 47

Purchase materials and components and convert them into various finished goodsm

Answer 47

Manufacturing- sector companies

Question 48

Purchase and then sell tangible products without changing their basic form.

Answer 48

Merchandising- sector companies

Question 49

Provide services ( intangible products) like legal advice/ audits

Answer 49

Service-sector companies

Question 50

Types of Inventory

Answer 50

1. Direct Materials Inventory 2. Work- In- Process (or progress) Inventory 3. Finished Goods Inventory

Question 51

Resources in-stock and available for use.

Answer 51

Direct Materials (Inventory)

Question 52

Goods partially worked on but not yet completed, often abbreviated as WIP

Answer 52

Work-In- Process Inventory

Question 53

Goods completed but not yet sold.

Answer 53

Finished Goods Inventory

Question 54

Merchandising-sector companies hold only one type of inventory: merchandise inventory. True/ False?

Answer 54

True

Question 55

Commonly Used Classifications of Manufacturing Costs

Answer 55

1. Direct Materials 2. Direct Labor 3. Indirect Manufacturing

Question 56

Also known as inventoriable costs.

Answer 56

1. Direct Materials 2. Direct Labor 3. Indirect Manufacturing

Question 57

Acquisition costs of all material that will become part of the cost object.

Answer 57

Direct Materials

Question 58

Compensation of all manufacturing labor that can be traced to the cost object.

Answer 58

Direct Labor

Question 59

All manufacturing costs that are related to the cost object but cannot be traced to that cost object in an economically feasible way.

Answer 59

Indirect Manufacturing

Question 60

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

Answer 60

Inventoriable costs

Question 61

True/False? All manufacturing costs are inventoriable costs

Answer 61

True

Question 62

Are all cost in the income statement other than cost of goods sold. They are treated as expenses of the accounting period in which they are incurred.

Answer 62

Period Costs

Question 63

The cost of goods manufactured and the costs of goods sold section of the income statement are accounting representations of the actual flow of costs through a production system. T/F?

Answer 63

True

Question 64

Other Cost Considerations

Answer 64

1. Prime Cost 2. Conversion Cost 3. Overtime Premium 4. Idle Time

Question 65

A term referring to all direct manufacturing costs ( materials and labor)

Answer 65

Prime Cost

Question 66

A term referring to direct labor and indirect manufacturing costs.

Answer 66

Conversion Cost

Question 67

Considered as part of indirect overhead costs. The wage rate paid to workers in excess of their straight- time wage rates.

Answer 67

Overtime Premium

Question 68

It refers to wages paid for unproductive time caused by lack of orders, machine or computer breakdown, work delays, poor scheduling.

Answer 68

Idle Time

Question 69

It includes employer payments for employee benefits such as SSS, insurance and pension.

Answer 69

Payroll Fringe Costs

Question 70

The sum of the costs assigned to a product for a specific purpose.

Answer 70

Product Cost

Question 71

Making decisions about pricing, promoting products, maximizing profits.

Answer 71

Pricing and Product- Mix Decisions

Question 72

Very specific definitions of allowable cost for "cost plus profit" contracts.

Answer 72

Reimbursement under government contracts

Question 73

Used for services and development contracts

Answer 73

Cost-plus agreement

Question 74

GAAP- driven product costs only

Answer 74

Preparing FS for external reporting under GAAP

Question 75

A Framework for Cost Accounting and Cost Management (3 features of cost& management accounting - help managers make decisions)

Answer 75

1. Calculating the cost of products, services and other cost object 2. Obtaining information for planning and control and performance evaluation 3. Analyzing the relevant information for making decisions.