Deck 4: Cost Management Systems and Activity-Based Costing

Question 1

What type of users need aggregate cost information about products or services?

A)managers
B)external users
C)factory supervisors
D)internal users

Answer 1

B

Question 2

A cost is a sacrifice of resources for a particular purpose.

Answer 2

True

Question 3

What types of firms need cost accounting?

A)manufacturing firms and service organizations
B)service organizations and nonprofit organizations
C)manufacturing firms and nonprofit organizations
D)manufacturing firms,service organizations,and nonprofit organizations

Answer 3

D

Question 4

Which of the following statements about cost accounting systems is FALSE?

A)The cost accounting system provides the cost data that managers use for decision making.
B)The cost accounting system is the most fundamental component of a cost management system.
C)A cost accounting system that provides accurate information is a key success factor for all types of organizations.
D)The cost accounting system does not provide data for financial reports.

Question 5

A cost management system provides information for strategic management decisions and financial reporting.

Question 6

An example of a strategic management decision is the selection of the product mix that maximizes profits.

Question 7

What is an example of using cost information for operational control?

A)determination of cost of goods sold for the income statement
B)identification of capital assets to acquire for expansion purposes
C)selection of value-chain function to emphasize in corporate mission
D)evaluation of process improvement efforts in a manufacturing process

Question 8

Cost accounting is that part of the cost management system that measures costs for the sole purpose of financial reporting.

Question 9

An example of a strategic management decision is the establishment of a pricing policy for a new product.

Question 10

What is an example of a strategic management decision that uses cost information?

A)calculating the cost of production areas
B)determining the product mix
C)assessing a cost control program in a factory
D)determining the amount of cost of goods sold for financial reporting

Question 11

Investors need more detailed information about products or services than managers.

Question 12

________ is the part of the accounting system that measures costs for the purposes of management decision making and financial reporting.

A)Activity-based costing
B)Activity-based management
C)Cost accounting
D)Cost allocation

Question 13

An example of a strategic management decision is the decision to outsource a particular value-chain function.

Question 14

What is an example of a strategic management decision that uses cost information?

A)determination of cost of goods sold for the income statement
B)identification of value-chain function to outsource
C)evaluation of operational cost control program
D)assessment of process improvement efforts in quality control

Question 15

Cost can be measured by yen,euros,and other currencies.

Question 16

What type of users need detailed cost information about products or services?

A)creditors
B)investors
C)managers
D)government regulators

Question 17

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

Question 18

A cost management system provides ________.

A)measures of inventory value and cost of goods sold for financial reporting
B)cost information for strategic management decisions
C)cost information for operational control
D)all of the above

Question 19

Which statement is FALSE?

A)A cost may be defined as a sacrifice or giving up of resources for a particular purpose.
B)Costs are frequently measured by the monetary units that must be paid for goods and services.
C)Only manufacturing firms need some form of cost accounting.
D)The first step in a cost accounting system is the collection of costs by some category.

Question 20

The process of collecting costs by some natural classification is called ________.

A)cost accounting
B)cost allocation
C)cost accumulation
D)cost application

Question 21

Depreciation expense on assembly equipment is an example of a direct cost for a manufactured product.

Question 22

Customers and company activities are examples of cost objects.

Question 23

Which of the following costs is a direct cost to a manufactured product?

A)depreciation expense on factory equipment used for the product
B)the wages of an assembly worker who works specifically on the product
C)accountants who accumulate the costs of the product
D)a factory supervisor who oversees the production of several different types of products

Question 24

Which of these costs is NOT an indirect production cost for a manufactured chair?

A)rental cost of factory building
B)depreciation expense on factory equipment
C)cost of legal staff to identify legal issues associated with the chair
D)salary of factory supervisor

Question 25

Company activities such as processing orders,billing customers,and moving materials can be cost objects.

Question 26

Where a specific manufactured product is the cost object,the salary of the security guard in the factory would probably be classified as a(n)________.

A)direct production cost
B)indirect production cost
C)direct nonproduction cost
D)indirect nonproduction cost

Question 27

Where a specific manufactured product is the cost object,minor materials,such as tacks and nails,used to manufacture the product would probably be classified as a(n)________.

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

Question 28

Departments and territories are examples of cost objects.

Question 29

Cost allocation is used to assign direct costs to cost objects.

Question 30

Where a specific manufactured product is the cost object,the hourly wages of assembly workers who work on only that product would be classified as a(n)________.

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

Question 31

A cost accounting system first assigns costs to organizational units and then accumulates these costs within the unit.

Question 32

A cost accounting system typically includes two processes: cost allocation and cost determination.

Question 33

Costs that can be allocated to a cost object are called direct costs.

Question 34

Costs can be classified as direct or indirect with respect to a particular cost object.

Question 35

Accountants can specifically and exclusively identify indirect costs with a given cost object in an economically feasible way.

Question 36

Which statement about indirect costs is FALSE?

A)Today,indirect costs exceed 50% of total costs in many companies.
B)Some indirect costs are variable.
C)Managers can ignore indirect costs and make good operational decisions.
D)Indirect costs include labor costs that cannot be traced to a particular product.

Question 37

Accountants initially collect costs by some natural classification such as activities performed.

Question 38

Cost assignment is attaching costs to one or more cost objects,such as activities and departments.

Question 39

The wages of the janitor in the factory are direct costs for a manufactured product.

Question 40

Cost allocation refers to an ________.

A)actual tracing of indirect costs to a cost object
B)identification of the indirect costs associated with a cost object
C)assignment of indirect costs to a cost object
D)assignment of direct costs to a cost object

Question 41

A cost pool is a group of individual costs that is allocated to cost objects using multiple cost drivers.

Question 42

Which step is NOT used in the allocation of indirect costs to cost objects?

A)Accumulate indirect costs for a period of time in a cost pool.
B)Select an allocation base for each cost pool.
C)Determine the percentage of the cost pool used for each cost object.
D)Measure the units of the cost-allocation base used for each cost object.

Question 43

Which is NOT a purpose of cost allocation?

A)Predict the economic effects of strategic and operational control decisions.
B)Obtain reimbursement.
C)Provide motivation to managers.
D)Identify cost drivers.

Question 44

Direct manufacturing costs are the same as manufacturing overhead costs.

Question 45

Due to the decline in indirect costs in most companies,allocating indirect costs is no longer necessary to determine accurate product costs.

Question 46

Allocation of costs to cost objects may be described as apportion or attribute.

Question 47

A century ago,a large proportion of labor costs were indirect.

Question 48

Which of the following statements is FALSE?

A)An unallocated cost for one company may be a direct cost for another company.
B)The cost of a system for tracing costs to cost objects should be less than its expected benefit.
C)A cost driver is a measure that causes the costs in a cost pool.
D)Because of the rise in direct costs for most companies,allocating direct costs is important in most companies today.

Question 49

There is no universally best cost allocation system.

Question 50

Allocated costs are irrelevant for most decisions when indirect costs represent a larger proportion of product costs than direct costs.

Question 51

Unallocated costs ________.

A)have an identifiable relationship to a cost pool
B)lack an identifiable relationship to a cost pool
C)have an identifiable relationship to a cost object
D)lack an identifiable relationship to a cost object

Question 52

An unallocated cost of one company may be an allocated cost in another company.

Question 53

Physically tracing ________ costs is usually straightforward,but allocating ________ costs is usually more complex.

A)indirect; direct
B)direct; product
C)direct; indirect
D)unallocated; indirect

Question 54

Companies must assign all production-related costs to cost objects for external financial reporting purposes.

Question 55

Square feet is a logical cost driver for allocating depreciation expense of heating equipment to cost objects.

Question 56

Companies must assign all nonproduction costs to cost objects for internal management purposes.

Question 57

In general,more costs are direct when a department is the cost object than when a product or service is the cost object.

Question 58

Most cost allocation bases are not cost drivers.

Question 59

Unallocated costs ________.

A)are not recorded in the cost accounting system
B)are not allocated to cost objects
C)are direct costs for service firms
D)are indirect costs for merchandising firms

Question 60

Which purpose of cost allocation usually dominates most business situations?

A)to justify costs or obtain reimbursement
B)to compute income and asset valuations for financial reporting
C)to give feedback for performance evaluation
D)to predict the economic effects of strategic and operational control decisions

Question 61

Period costs include selling and administrative expenses.

Question 62

McBain Company,a manufacturer of windows,has prepared the following list of accounts and their balances:
The company also made the following purchases of raw materials:
There was no beginning or ending inventories.
Required:
Calculate the following:

A)Direct materials used
B)Direct labor
C)Indirect production costs

Question 63

For a merchandising firm,insurance expense on the factory building is a product cost.

Question 64

A manufacturing company has identified several costs.Indicate whether each of the following costs is an Inventoriable cost(I)or a Period cost(P):
________ 1.depreciation on factory equipment
________ 2.depreciation on treasurer's desk
________ 3.direct materials
________ 4.factory supplies
________ 5.indirect labor
________ 6.repairs expensefactory
________ 7.office supplies
________ 8.advertising expense
________ 9.depreciation on office equipment
________10.direct labor
________11.factory supervisor's salary
________12.factory utilities
________13.indirect materials
________14.officer salaries
________15.sales commissions

Question 65

A period cost is ________.

A)associated with production value-chain functions
B)associated with nonproduction value-chain functions
C)reported as an inventoriable cost
D)reported as a product cost

Question 66

For a manufacturing firm,product costs first appear on the income statement and then on the balance sheet.

Question 67

Manufactured goods fully completed but not sold are called ________.

A)merchandise inventory
B)direct materials inventory
C)finished goods inventory
D)work in process inventory

Question 68

For both merchandising and manufacturing firms,selling and administrative costs are period costs.

Question 69

In a manufacturing company,________.

A)inventoriable costs only become an expense when the company sells the inventory
B)inventoriable costs become an expense as soon as the company finishes manufacturing the product
C)there is only one inventory account
D)merchandise inventory is reported on the balance sheet and income statement

Question 70

In a manufacturing company,product costs appear on either the balance sheet or income statement,but not both.

Question 71

When work in process inventory ________,finished goods inventory ________.

A)increases; decreases
B)decreases; increases
C)increases; increases
D)increases; decreases

Question 72

Period costs become expenses during a future period.

Question 73

Which of the following is NOT a period expense in a manufacturing firm?

A)selling expense
B)administrative expenses
C)R&D expenses
D)cost of goods sold

Question 74

In a merchandising company,________.

A)selling and administrative costs are period costs
B)insurance expense on the corporate building is a product cost
C)work in process inventory may be present
D)finished goods inventory may be present

Question 75

When looking at a manufactured product,an example of an inventoriable cost is ________.

A)depreciation expense on office equipment
B)insurance expense on vehicles used by sales staff
C)wages of plant security guard
D)clerical salaries in corporate office

Question 76

In a manufacturing company,unsold,partially complete products are called work-in-process inventory.

Question 77

The computation for Cost of Goods Manufactured on the income statement is ________.(Assume there are no work-in-process inventories.)

A)direct materials used plus direct production costs
B)direct materials used plus direct labor plus indirect production costs
C)direct materials used plus direct labor
D)direct materials used plus direct labor plus direct production costs

Question 78

Which is NOT an example of indirect production costs?

A)factory supplies
B)depreciation expense on factory building
C)depreciation expense on office equipment
D)wages of material handlers in factory

Question 79

A merchandising company has raw materials inventory.

Question 80

When determining the product cost of a manufactured product,________.

A)direct material costs include minor items such as tacks or glue
B)direct labor costs may not include employee benefits
C)indirect production costs may include selling costs
D)there may be no direct labor costs