Deck 2: Different Costs for Different Purposes

Question 1

Budgeted costs are:

A)the costs incurred this year.
B)competitor's costs.
C)the costs incurred last year.
D)planned or forecasted costs.

Answer 1

D

Question 2

Cost objects may be jobs,products,or customers.

Answer 2

True

Question 3

Products,services,departments,and customers may be cost objects.

Answer 3

True

Question 4

Accountants define a resource sacrificed or forgone to achieve a specific objective.

Question 5

What do managers use their knowledge of to guide decisions,for example about product innovation,quality and customer service?

A)Prices
B)Markets
C)Competitors
D)Costs

Question 6

What is the meaning of the term 'cost object?' Give an example of a cost object that would be used in a manufacturing company,a merchandising company,and a service sector company?
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Question 7

________ is the collection of cost data in some organised way by means of an accounting system.

A)Benchmarking
B)Market research
C)Cost accumulation
D)Budgeting

Question 8

Costs are accounted for in two basic stages: assignment followed by accumulation.

Question 9

An actual cost is the cost incurred (a historical or past cost),as distinguished from a budgeted cost,which is a predicted or forecasted cost (a future cost).

Question 10

A(n)________ cost is the cost incurred.

A)actual
B)budgeted
C)estimated
D)sunk

Question 11

Any item for which a separate measurement of cost is desired is known as:

A)a cost object.
B)an indirect cost.
C)cost allocation.
D)a direct cost.

Question 12

Cost accumulation is the collection of cost data in some organised way by means of an accounting system.

Question 13

The collection of accounting data in some organised way is:

A)cost tracing.
B)conversion costing.
C)cost accumulation.
D)cost assignment.

Question 14

Raw materials that can be traced to a cost object are an example of an indirect cost.

Question 15

In absorption costing,all nonmanufacturing costs are subtracted from gross margin.

Question 16

Quality control costs may be a direct cost of the Manufacturing Department,but an indirect cost of an individual job.

Question 17

Actual costs and budgeted costs are two different terms referring to the same thing.

Question 18

Cost accumulation is the collection of cost data in some organised way by means of an:

A)accounting system.
B)strategy.
C)information system.
D)cost driver.

Question 19

A cost object is always either a product or a service.

Question 20

A cost object is anything for which a measurement of costs is desired.

Question 21

Classifying a cost as ______ is easier if a company's facility (or some part of it)is used exclusively for a specific cost object,such as a specific product or a particular customer.

A)direct
B)indirect
C)variable
D)fixed

Question 22

Costs which are not economically feasible to trace but which are related to a cost object are known as:

A)variable costs.
B)indirect costs.
C)direct costs.
D)fixed costs.

Question 23

What does classifying a cost as either direct or indirect depend upon?

A)Whether an expenditure is avoidable or not in the future
B)Whether the cost can be easily identified with the cost object
C)Whether the cost is expensed in the period in which it is incurred
D)The behaviour of the cost in response to volume changes

Question 24

Which of the following is the general term used to identify both the tracing and the allocation of accumulated costs to a cost object?

A)Cost accumulation
B)Cost tracing
C)Cost assignment
D)Conversion costing

Question 25

Which of the following does NOT affect the direct/indirect classification of a cost?

A)the level of budgeted profit for the next year
B)available technology to gather information about the cost
C)the design of the operation
D)the materiality of the cost in question

Question 26

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

A)direct
B)indirect
C)estimated
D)fixed

Question 27

Classifying a cost as ________ is easier if a company's facility (or some part of it)is used exclusively for a specific cost object,such as a specific product or a particular customer.

A)direct
B)indirect
C)allocated
D)accumulated

Question 28

Which statement is TRUE?

A)All fixed costs are indirect costs.
B)All direct costs are variable costs.
C)All variable costs are direct costs.
D)Because of a cost-benefit trade-off,some direct costs may be treated as indirect costs.

Question 29

________ of a cost object are related to the particular cost object but cannot be traced to it in an economically feasible (cost-effective)way.

A)Direct costs
B)Accumulated costs
C)Indirect costs
D)Projected costs

Question 30

What is cost tracing?

A)The assignment of direct costs to the chosen cost object
B)The process of determining the actual cost of the cost object
C)The process of tracking both direct and indirect costs associated with a cost object
D)A function of cost allocation

Question 31

A cost system determines the cost of a cost object by:

A)assigning and then accumulating costs.
B)assigning costs.
C)accumulating costs.
D)accumulating and then assigning costs.

Question 32

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

A)smaller
B)larger
C)more precise
D)less precise

Question 33

Direct costs of a cost object are related to the particular cost object and can be traced to it in an economically feasible (cost-effective)way.

Question 34

Which of the following are all manufacturing costs that are related to the cost object but cannot be traced to that cost object?

A)Direct material costs
B)Indirect manufacturing costs
C)Direct manufacturing labour costs
D)Period costs

Question 35

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

A)direct costs.
B)fixed costs.
C)indirect costs.
D)variable costs.

Question 36

Which statement is TRUE?

A)All fixed costs are direct costs.
B)A direct cost of one cost object can be an indirect cost of another cost object.
C)A direct cost of one cost object cannot be an indirect cost of another cost object.
D)All variable costs are direct costs.

Question 37

Generally,managers are more confident about the accuracy of ________ costs of cost objects.

A)variable
B)fixed
C)direct
D)indirect

Question 38

A manufacturing plant produces two product lines: football equipment and cricket equipment.Direct costs for the football equipment line are the:

A)salaries of the clerical staff that work in the company administrative offices.
B)utilities paid for the manufacturing plant.
C)beverages provided daily in the plant break room.
D)monthly lease payments for a specialised piece of equipment needed to manufacture the football helmet.

Question 39

What term is used to describe the assignment of direct costs to a particular cost object?

A)Assignment
B)Allocation
C)Accumulation
D)Tracing

Question 40

What is cost allocation?

A)A function of cost tracing
B)The process of determining the actual cost of the cost object
C)The assignment of indirect costs to the chosen cost object
D)The process of tracking both direct and indirect costs associated with a cost object

Question 41

Which of the following is a variable cost for an insurance company?

A)CEO's salary
B)Property taxes
C)Rent
D)Sales commissions

Question 42

The cost of a customised machine only used in the production of a single product would be classified as a direct cost.

Question 43

A 'mixed cost' is:

A)a variable cost.
B)always an indirect cost.
C)a fixed cost.
D)a cost with fixed and variable elements.

Question 44

Indirect costs of a cost object are related to the particular cost object but cannot be traced to it in an economically feasible (cost-effective)way.

Question 45

What is a variable,such as the level of activity or volume,called that causally affects costs over a given time span?

A)Cost accumulator
B)Cost allocation
C)Cost driver
D)Cost manager

Question 46

Why is it possible that a raw material such as glue will be considered as an indirect material for one furniture manufacturer and as a direct material for another furniture manufacturer?
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Question 47

Fixed costs:

A)may include either direct or indirect costs.
B)vary with production or sales volumes.
C)can be adjusted in the short run to meet actual demands.
D)include parts and materials used to manufacture a product.

Question 48

Direct costs of a cost object are related to the particular cost object but cannot be traced to it in an economically feasible (cost-effective)way.

Question 49

At a plant where a union agreement sets annual salaries and conditions,annual labour costs usually:

A)depend on the scheduling of floor workers.
B)are considered a variable cost.
C)are considered a fixed cost.
D)depend on the scheduling of production runs.

Question 50

Misallocated indirect costs may lead to promoting products that are not profitable.

Question 51

Some costs have both fixed and variable elements and are called mixed or ________ costs.

A)allocated
B)estimated
C)accumulated
D)semi-variable

Question 52

The term 'cost allocation' is used to describe the assignment of indirect costs to a particular cost object.

Question 53

The cost driver of a variable cost is the level of activity or volume for which change causes proportionate changes in the ________ cost.

A)variable
B)fixed
C)mixed
D)allocated

Question 54

Inaccurate product costs will mislead managers about the profitability of different products.

Question 55

Harvey Industries produces electronic storage devices,and uses the following three-part classification for its manufacturing costs: direct materials,direct manufacturing labour,and indirect manufacturing costs.Total indirect manufacturing costs for January were $300 million,and were allocated to each product on the basis of direct manufacturing labour costs of each line.Summary data (in millions)for January for the most popular electronic storage device,the Big Bertha,was:

Required:
a.Compute the manufacturing cost per unit for each product produced in January.
b.Suppose production will be reduced to 30 000 units in February.Speculate as to whether the unit costs in February will most likely be higher or lower than unit costs in January;it is not necessary to calculate the exact February unit cost.Briefly explain your reasoning.
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Question 56

What are the differences between direct costs and indirect costs? Give an example of each.
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Question 57

Waugh Products Company has three cost objects that it uses to accumulate costs for its manufacturing
plants. They are:
Cost object #1: The physical buildings and equipment
Cost object #2: The use of buildings and equipment
Cost object #3: The availability and use of manufacturing labour
The following manufacturing overhead cost categories are found in the accounting records:
a.Depreciation on buildings and equipment
b.Lubricants for machines
c.Property insurance
d.Supervisors' salaries
e.Fringe benefits
f.Property taxes
g.Utilities
Required:
Assign each of the above costs to the most appropriate cost object.
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Question 58

Variable costs:

A)include most personnel costs and depreciation on machinery.
B)are always indirect costs.
C)increase in total when the actual level of activity increases.
D)can always be traced directly to the cost object.

Question 59

Which of the following is a 'mixed cost'?

A)Direct materials
B)Manager's salary
C)Monthly rent payment
D)Monthly telephone bill

Question 60

Indirect costs of a cost object are related to the particular cost object and can be traced to it in an economically feasible (cost-effective)way.

Question 61

Fixed costs have no cost driver in the short run,but may have a cost driver in the long run.

Question 62

Whitecliffs Manufacturers wants to estimate costs for each product it produces at its Geelong plant.The Geelong plant produces three products,and runs two flexible assembly lines.Each assembly line can produce all three products.
Required:
a.Classify each of the following costs as either direct or indirect for each product.
b.Classify each of the following costs as either fixed or variable with respect to the number of units produced of each product.

Question 63

The MOST likely cost driver of distribution costs is the:

A)number of parts within the product.
B)number of production hours.
C)number of products manufactured.
D)number of miles driven.

Question 64

A decision maker cannot adjust capacity over the short run.

Question 65

Within the relevant range,if there is a change in the level of the cost driver,then:

A)total fixed costs will change and total variable costs will remain the same
B)total fixed costs and total variable costs will remain the same
C)total fixed costs and total variable costs will change
D)total fixed costs will remain the same and total variable costs will change

Question 66

Match the list of representative cost drivers in the right column to the list of functions in the left column.
$\begin{array}{|l|l|l|l|} \hline & \text { Function } & & \text { Representative Cost Driver } \\\hline \text { 1. } & \text { Purchasing } & \text { A. } & \text { Number of employees } \\\hline \text { 2. } & \text { Billing } & \text { B. } & \text { Number of shipments } \\\hline \text { 3. } & \text { Shipping } & \text { C. } & \text { Number of customers } \\\hline \text { 4. } & \text { Computer Support } & \text { D. } & \text { Number of invoices } \\\hline \text { 5. } & \text { Personnel } & \text { E. } & \text { Number of desktop computers } \\\hline \text { 6. } & \text { Customer Service } & \text { F. } & \text { Number of purchase orders }\\\hline \end{array}$
Required:
Match each business function with its representative cost driver.
$\begin{array}{|l|l|l|}\hline& \text { Function } & \text { Insert letter of appropriate driver (A through F) } \\\hline \text { 1. } & \text { Purchasing } & \\\hline \text { 2. } & \text { Billing } & \\\hline 3 . & \text { Shipping } & \\\hline 4 . & \text { Computer Support } & \\\hline 5 . & \text { Personnel } & \\\hline 6 . & \text { Customer Service } & \\\hline\end{array}$

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Question 67

A variable cost changes per unit in proportion to changes in the related level of total activity or volume.

Question 68

Surveys of practice repeatedly show that identifying a cost as variable or fixed provides valuable information for making management decisions and is an important input when evaluating performance.

Question 69

________ is the band 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.

A)Cost behaviour
B)Relevant range
C)Cost allocation
D)Performance evaluation

Question 70

What are costing systems that identify the cost of each activity,such as testing,design,or set-up called?

A)Activity-based costing systems
B)Periodic systems
C)Product systems
D)Hybrid systems

Question 71

Costs are defined as variable or fixed with respect to a specific activity and for a given time period.

Question 72

Which of the following is a fixed cost for a motor car manufacturing plant?

A)Windows for each car produced
B)Administrative salaries
C)Sales commissions
D)Electricity used by assembly-line machines

Question 73

Costs that are fixed in the short run have no cost driver in the short run but may have a cost driver in the _______ run.

A)short
B)long
C)indefinite
D)cost driver

Question 74

Unlike variable costs,fixed costs of resources (such as for line supervision)cannot be quickly and easily changed to match the resources needed or used.

Question 75

If each furnace requires a hose that costs $30 and 3000 furnaces are produced for the month,the total cost for hoses is:

A)considered to be an indirect fixed cost.
B)considered to be a direct variable cost.
C)considered to be an indirect variable cost.
D)considered to be a direct fixed cost.

Question 76

Combs,Inc. ,reports the following information for September sales:

Required:
If sales double in October,what is the projected operating profit?

Question 77

Fixed costs vary with the level of production or sales volume.

Question 78

The MOST likely cost driver of direct material costs is the:

A)number of products manufactured.
B)number of production hours.
C)number of parts within the product.
D)number of miles driven.

Question 79

What term is used to refer to a band of normal activity or volume in which specific cost-volume relationships are maintained?

A)Relevant range
B)Cost-allocation range
C)Cost driver range
D)Average range

Question 80

Costing systems record the cost of resources acquired,such as materials,labour and equipment,and track how those resources are used to produce and sell products or services.