Deck 2: An Introduction to Cost Terms and Purposes

Question 1

A cost is a resource sacrificed or forgone to achieve a specific objective.

Answer 1

True

Question 2

Which of the following would be considered an actual cost of a current period?

A) The $25 of materials in a manufactured chair that is ready to be shipped to the customer
B) The $22 of direct material cost per unit assumed in the actual budget of a manufacturer of chairs
C) The expected cost of materials for a chair as a result of engineering specifications
D) The average of historical material cost data for a chair manufactured in several past accounting periods

Answer 2

The $25 of materials in a manufactured chair that is ready to be shipped to the customer

Question 3

When costs can be traced to a particular cost object in an economically feasible way, the cost is a:

A) direct cost
B) indirect cost
C) allocated cost
D) budgeted cost

Answer 3

direct cost

Question 4

Managers use assigned cost information to make decisions and implement them.

Question 5

A cost system determines the cost of a cost object by ________.

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

Question 6

Which of the following statements about the direct/indirect cost classification is true?

A) Indirect costs are always traced.
B) Indirect costs are always allocated.
C) The design of sales target affects the direct/indirect classification.
D) The direct/indirect classification depends on the cost control measures.

Question 7

An actual cost is the cost incurred-a historical or past cost.

Question 8

Cost tracing is ________.

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

Question 9

Accountants define a cost as the amount of money spent on a resource.

Question 10

Cost allocation is ________.

A) the process of tracking both direct and indirect costs associated with a cost object
B) the process of determining the opportunity cost of a cost object chosen
C) the assignment of indirect costs to the chosen cost object
D) made based on material acquisition document

Question 11

Classifying a cost as either direct or indirect depends upon ________.

A) the behavior of the cost in response to volume changes
B) whether the cost is expensed in the period in which it is incurred
C) whether the cost can be traced to a particular cost object in an economically feasible way
D) whether a cost is fixed or variable

Question 12

All of the following are factors affecting direct versus indirect cost classification except:

A) materiality of the cost
B) cost accuracy
C) information technology's ability to trace costs in an economically feasible way
D) design of operations

Question 13

Budgeted costs are ________.

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

Question 14

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

Question 15

The determination of a cost as either direct or indirect depends upon the ________.

A) accounting standards
B) tax system chosen
C) inventory valuation
D) cost object chosen

Question 16

Which of the following factors affect the direct/indirect classification of a cost?

A) the level of budgeted profit for the next year
B) the estimation of time required to complete the order
C) the ability to execute an order in the most cost-efficient manner
D) the design where a particular area is dedicated to a specific cost object

Question 17

Cost assignment ________.

A) includes future and arbitrary costs
B) associates accumulated costs with certain cost objects
C) is the same as cost accumulation
D) is the difference between budgeted and actual costs

Question 18

Lucas Manufacturing 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 labor
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.

Question 19

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

Question 20

The collection of cost data in an organized way, such as in various categories such as materials, labor, and manufacturing overhead, is called:

A) cost application
B) cost accumulation
C) cost assignment
D) cost reporting

Question 21

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the ________.

A) material used to make the soccer balls
B) labor to shape the leather used to make the soccer ball
C) material used to manufacture the soccer studs
D) property taxes paid on the land and building (plant)

Question 22

A direct cost of one cost object cannot be an indirect cost of another cost object.

Question 23

The broader the cost object definition (i.e., plant versus product), the more confident the manager will be about the accuracy of the direct cost amounts.

Question 24

Which one of the following items is a direct cost?

A) Customer-service costs of a multiproduct firm; Product A is the cost object.
B) Printing costs incurred for payroll check processing; payroll check processing is the cost object.
C) The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object.
D) Utility costs of the administrative offices; the accounting department is the cost object.

Question 25

What are the factors that affect the classification of a cost as direct or indirect?

Question 26

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of a direct cost for the golf equipment line is ________.

A) beverages provided daily in the plant break room for the entire staff
B) monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver
C) salaries of the clerical staff that work in the company administrative offices
D) overheads incurred in producing both golf and soccer equipment

Question 27

Which of the following is a fixed cost with respect to units produced in a factory?

A) monthly rent payment for the building
B) electricity expenses
C) utilities cost of the building
D) direct material costs

Question 28

A cost may be direct for one cost object and indirect for another cost object.

Question 29

The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.

Question 30

Improvements in information-gathering technologies are making it possible to trace more costs as direct.

Question 31

Which of the following is true of indirect costs?

A) Indirect costs are always considered sunk costs.
B) All indirect costs are included in cost of goods sold.
C) Indirect costs always vary in direct proportion to the level of production.
D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.

Question 32

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

Question 33

Which of the following statements is true?

A) A direct cost of one cost object will always be a direct cost of another cost object.
B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
C) All fixed costs are indirect costs.
D) All direct costs are variable costs.

Question 34

Assigning indirect costs is easier than assigning direct costs.

Question 35

Which of the following is true if the volume of sales increases (within a relevant range)?

A) total fixed cost increases
B) total variable cost decreases
C) total variable cost increases
D) total fixed cost decreases

Question 36

All costs incurred by a company (sacrifice of a resource) are recorded in the accounting system.

Question 37

The cost of natural gas used to heat a production facility that makes three products (A,B, and
C) would be classified as an indirect cost when the cost object is one of the products (either A, B, or
C).

Question 38

Which of the following statements is true of direct costs?

A) A direct cost of one cost object is a true sense of the budgeted costs.
B) All variable costs are direct costs.
C) A direct cost of one cost object can be an indirect cost of another cost object.
D) All fixed costs are direct costs.

Question 39

Indirect manufacturing costs ________.

A) can be traced to the product that created the costs
B) can be easily identified with the cost object
C) generally include the cost of material and the cost of labor
D) may include both variable and fixed costs

Question 40

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

Question 41

Variable costs ________.

A) are always indirect costs
B) increase in total when the actual level of activity increases
C) include most personnel costs and depreciation on machinery
D) are never considered a part of prime cost

Question 42

Which of the following statements is true?

A) There is a cause-and-effect relationship between the cost driver and the amount of cost.
B) Fixed costs have cost drivers over the short run.
C) Over the short run all costs have cost drivers.
D) Volume of production is a cost driver of distribution costs.

Question 43

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

A) rent of the building
B) CEO's salary
C) electricity expenses
D) property taxes

Question 44

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

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

Question 45

Which of the following is true if the production volume decreases?

A) fixed cost per unit increases
B) average cost per unit decreases
C) variable cost per unit increases
D) variable cost per unit decreases

Question 46

The most likely cost driver of direct labor costs is the ________.

A) number of machine setups for the product
B) number of miles driven
C) number of production hours
D) number of machine hours

Question 47

If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________.

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

Question 48

At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually ________.

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

Question 49

Which of the following is a fixed cost for an automobile manufacturing plant?

A) administrative salaries
B) electricity used by assembly-line machines
C) sales commissions
D) tires

Question 50

The East Company manufactures several different products. Unit costs associated with Product ORD105 are as follows:

What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost?

A) 37%
B) 32%
C) 15%
D) 26%

Question 51

The most likely cost driver of distribution costs is the ________.

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

Question 52

Outside the relevant range, variable costs, such as direct material costs ________.

A) will decrease proportionately with changes in sales volumes
B) will remain the same with changes in production volumes
C) will not change proportionately with changes in production volumes
D) will increase proportionately with changes in sales volumes

Question 53

Fixed costs depend on the ________.

A) amount of resources used
B) amount of unchanged costs for a given time period
C) volume of production
D) total number of units sold

Question 54

Rally Synthesis Inc. manufactures and sells 100 bottles per day. Fixed costs are $22,000 and the variable costs for manufacturing 100 bottles are $30,000. Each bottle is sold for $1,200. How would the daily profit be affected if the daily volume of sales drop by 10%?

A) profits are reduced by $9,000
B) profits are reduced by $3,000
C) profits are reduced by $12,000
D) profits are reduced by $59,000

Question 55

A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the ________.

A) average range
B) cost-allocation range
C) cost driver range
D) relevant range

Question 56

Puritan Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCF 130, are as follows:

What are the indirect nonmanufacturing variable costs per unit associated with Product DCF130?

A) $5
B) $29
C) $160
D) $213

Question 57

Which of the following is a cost driver for a company's human resource costs?

A) the number of employees in the company
B) the number of job applications processed
C) the number of units sold
D) the square footage of the office space used by the human resource department

Question 58

The East Company manufactures several different products. Unit costs associated with Product ORD105 are as follows:

What is the percentage of the total variable costs per unit associated with Product ORD105 with respect to total cost?

A) 81%
B) 68%
C) 84%
D) 71%

Question 59

Puritan Apparels is a clothing retailer. Unit costs associated with one of its products, Product AHF 130, are as follows:

What are the direct variable manufacturing costs per unit associated with Product AHF 130?

A) $288
B) $200
C) $245
D) $255

Question 60

Cost behavior refers to ________.

A) how costs react to a change in the level of activity
B) whether a cost is incurred in a manufacturing, merchandising, or service company
C) classifying costs as either perpetual or period costs
D) whether a particular expense is expensed in the same or the following period

Question 61

When 24,000 units are produced, variable costs are $12.00 per unit. Therefore, when 18,000 units are produced ________.

A) variable costs will remain at $12.00 per unit
B) variable costs will total $288,000
C) variable unit costs will increase to $16.00 per unit
D) variable unit costs will decrease to $9.00 per unit

Question 62

In its first year of operation, the Excellent Publishing Company sells 52,000 units and has 1,700 units in stock at year end. The cost of goods sold are $3,100,000. What are the total manufacturing costs for the year if the average unit cost is $8.50?

A) $3,114,450
B) $3,100,000
C) $3,085,550
D) $14,450

Question 63

Describe both variable and fixed costs. Explain why the distinction between variable and fixed costs is important in cost accounting.

Question 64

Fixed cost per unit falls with an increase in production volume.

Question 65

Wood used to manufacture chairs is considered a direct variable cost when the cost object is the chair.

Question 66

Cost drivers casually affect total costs of a cost object over a given time span.

Question 67

Wonderful Products Manufacturing Corp. provided the following information for last month:

If sales reduce to half of the amount in the next month, what is the projected operating income?

A) $2,000
B) $9,000
C) $18,000
D) $3,500

Question 68

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

Question 69

A lease for a store calls for a base monthly rent of $1,500 up to $10,000 of sales with a possible additional monthly cost of 2% of sales over $10,000. The rent is a fixed cost for the month for a relevant range of zero to $10,000 sales.

Question 70

A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level
of total activity or volume of output produced.

Question 71

Ridez Manufacturing currently produces 4,000 bicycles per month. The following per unit data apply for sales to regular customers:

The plant has capacity for 6,000 bicycles and is considering expanding production to 5,000 bicycles. What is the per unit cost of producing 5,000 bicycles?

A) $91.80 per unit
B) $111.25 per unit
C) $69.80 per unit
D) $86.20 per unit

Question 72

Rapid Cabinet Makers Inc. provided the following information for last month:

If sales reduce to half the amount in the next month, what is the projected operating income?

A) $1,000
B) $6,000
C) $4,500
D) $18,500

Question 73

A unit cost is computed by ________.

A) multiplying total cost by the number of units produced
B) dividing total cost by the number of units produced
C) dividing variable cost by the number of units produced
D) dividing fixed cost by the number of units produced

Question 74

Variable costs per unit vary with the level of production or sales volume.

Question 75

Atlas Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently Atlas produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?

A) Total manufacturing costs will increase and unit manufacturing costs will stay the same.
B) Total manufacturing costs will increase and unit manufacturing costs will decrease.
C) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
D) Total manufacturing costs will increase and unit manufacturing costs will also increase.

Question 76

Swansea Manufacturing currently produces 3,000 tires per month. The following per unit data for 3,000 tires apply for sales to regular customers:

The plant has capacity for 5,000 tires and is considering expanding production to 4,000 tires. What is the total cost of producing 4,000 tires?

A) $364,000
B) $344,000
C) $209,000
D) $288,000

Question 77

When 25,000 units are produced, fixed costs are $21.00 per unit. Therefore, when 20,000 units are produced, fixed costs will ________.

A) increase to $26.25 per unit
B) remain at $21.00 per unit
C) decrease to $16.80 per unit
D) total $420,000

Question 78

Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.
Required:
a.Classify each of the following costs as either direct or indirect with respect to each patient.
b.Classify each of the following costs as either fixed or variable with respect to hospital costs per day.

Question 79

A fixed cost is fixed only in relation to a given wide range of total activity or volume and only for a given
time span, usually a particular budget period.

Question 80

Which of the following companies is part of the service sector of our economy?

A) Macy's
B) KPMG
C) Apple Inc.
D) Amazon.com