Chapter 2, Practice Cost Terms (Deck 2.2)

Question 1

A factory safety specialist is what type of cost?

A. Period
B. Product
C. Sunk
D. Opportunity

Answer 1

B. Product

Explanation: A factory safety specialist is in the plant. Anything that is in the plant will be related to making our product. This makes it a product cost.

Question 2

Fixed costs are $100 per person for a concert with 100 attendees. What are the per person costs for 200 attendees?

A. $100 - fixed costs don’t change
B. $200 - attendance has doubled
C. $50 - fixed costs do not change
D. You tell me

Answer 2

C. $50 - fixed costs do not change

Explanation: Our fixed costs were $100 per person but we need to remember that the total dollars do NOT change.
We are not given a total dollars amount, so we would take ($100 per person * 100 attendees). This equals $10,000 (this is our total amount that does NOT change).
If you now have 200 attendees, ($10,000/200 attendees). Equals $50.

Question 3

Prime Costs consist of direct materials.

A. True
B. False

Answer 3

B. False

Prime Costs are direct material AND direct labor BOTH. Not just one.