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Questions and Answers
A cost incurred is called an ______.
A cost incurred is called an ______.
Actual cost
Comparing budgeted costs to actual costs helps managers to improve _______.
Comparing budgeted costs to actual costs helps managers to improve _______.
Control
Planned or forecasted costs are called _____ _______.
Planned or forecasted costs are called _____ _______.
Budgeted costs
______ __________ encompass allocating indirect costs to a cost object.
______ __________ encompass allocating indirect costs to a cost object.
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A cost system determines the cost of a cost object by _______.
A cost system determines the cost of a cost object by _______.
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A cost object is anything in which a cost measurement is desired.
A cost object is anything in which a cost measurement is desired.
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Costs are accounted for in two basic stages: assignment followed by accumulation.
Costs are accounted for in two basic stages: assignment followed by accumulation.
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An actual cost is the most incurred-a historical or past cost.
An actual cost is the most incurred-a historical or past cost.
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Accountants define a cost as a resource to be sacrificed to achieve a specific objective.
Accountants define a cost as a resource to be sacrificed to achieve a specific objective.
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A cost is a resource sacrificed or forgone to achieve a specific objective.
A cost is a resource sacrificed or forgone to achieve a specific objective.
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Managers use accumulation data to make decisions and implement them.
Managers use accumulation data to make decisions and implement them.
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Assign the following manufacturing overhead cost categories to the most appropriate cost objects.
Assign the following manufacturing overhead cost categories to the most appropriate cost objects.
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The design of the operation affects the direct/indirect classification of a cost.
The design of the operation affects the direct/indirect classification of a cost.
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_____ _____ is the general term used to identify both the tracing and the allocation of accumulated costs to a cost object.
_____ _____ is the general term used to identify both the tracing and the allocation of accumulated costs to a cost object.
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______ ______ is the collection of cost data in some organized way by means of an accounting system.
______ ______ is the collection of cost data in some organized way by means of an accounting system.
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Indirect costs are always allocated with regard to cost classification.
Indirect costs are always allocated with regard to cost classification.
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______ _______ is the assignment of direct costs to the chosen cost object.
______ _______ is the assignment of direct costs to the chosen cost object.
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_____ _______ is the assignment of indirect costs to the chosen cost object.
_____ _______ is the assignment of indirect costs to the chosen cost object.
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The determination of a cost as either direct or indirect depends upon the ______ ______ _______.
The determination of a cost as either direct or indirect depends upon the ______ ______ _______.
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Classifying a cost as either direct or indirect depends upon _______.
Classifying a cost as either direct or indirect depends upon _______.
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An example of direct costs for the gold equipment line is:
An example of direct costs for the gold equipment line is:
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An example of indirect cost for the soccer equipment line is the _________.
An example of indirect cost for the soccer equipment line is the _________.
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Printing costs incurred for payroll check processing; payroll check processing is the cost object.
Printing costs incurred for payroll check processing; payroll check processing is the cost object.
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______ ______ costs may include both variable and fixed costs.
______ ______ costs may include both variable and fixed costs.
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Indirect costs cannot be traced to a particular cost object in an economically feasible way.
Indirect costs cannot be traced to a particular cost object in an economically feasible way.
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Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
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A direct cost of one object can be an indirect cost of another cost object.
A direct cost of one object can be an indirect cost of another cost object.
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A cost may be direct for one cost object and indirect for another cost object.
A cost may be direct for one cost object and indirect for another cost object.
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Assigning indirect costs is easier than assigning direct costs.
Assigning indirect costs is easier than assigning direct costs.
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Improvements in information gathering technologies are making it possible to trace more costs as direct.
Improvements in information gathering technologies are making it possible to trace more costs as direct.
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The smaller the amount of a cost, the more likely it is economically feasible to trace it to a particular cost object.
The smaller the amount of a cost, the more likely it is economically feasible to trace it to a particular cost object.
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A direct cost of one cost object can be an indirect cost of another cost object.
A direct cost of one cost object can be an indirect cost of another cost object.
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The cost of electricity used in the production of multiple products would be classified as an indirect cost.
The cost of electricity used in the production of multiple products would be classified as an indirect cost.
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If volume of sales increases, ________ _______ increase.
If volume of sales increases, ________ _______ increase.
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Monthly rent payment would be considered a _____ ______.
Monthly rent payment would be considered a _____ ______.
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____ ______ refers to how costs react to a change in the level of activity.
____ ______ refers to how costs react to a change in the level of activity.
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If the production volume decreases ________.
If the production volume decreases ________.
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At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually are considered a ______ ______.
At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually are considered a ______ ______.
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_______ _________ increase in total when the actual level of activity increases.
_______ _________ increase in total when the actual level of activity increases.
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How would the daily profit be affected if the daily volume of sales drops by 10%?
How would the daily profit be affected if the daily volume of sales drops by 10%?
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Fixed costs depend on the ______.
Fixed costs depend on the ______.
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An example of a fixed cost for an automobile manufacturing plant is__________.
An example of a fixed cost for an automobile manufacturing plant is__________.
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If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is __________.
If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is __________.
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The most likely cost driver of distribution costs is the ________.
The most likely cost driver of distribution costs is the ________.
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The most likely cost driver of direct labor costs is the ______.
The most likely cost driver of direct labor costs is the ______.
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A band of normal activity or volume in which specific cost volume relationships are maintained is referred to as the _______ ______.
A band of normal activity or volume in which specific cost volume relationships are maintained is referred to as the _______ ______.
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Within the relevant range, if there is a change in the level of the cost driver, then ______.
Within the relevant range, if there is a change in the level of the cost driver, then ______.
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Outside the relevant range, variable costs, such as direct material costs _________.
Outside the relevant range, variable costs, such as direct material costs _________.
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Fixed cost per unit reduces with an increase in production volume.
Fixed cost per unit reduces with an increase in production volume.
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Variable costs per unit vary with the level of production or sales volume.
Variable costs per unit vary with the level of production or sales volume.
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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 outbound produced.
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 outbound produced.
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_____ _____ is computed by dividing total cost by the number of units produced.
_____ _____ is computed by dividing total cost by the number of units produced.
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In making product mix and pricing decisions, managers should focus on ________ ________.
In making product mix and pricing decisions, managers should focus on ________ ________.
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When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will _______.
When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will _______.
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When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ______.
When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ______.
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The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?
The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?
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Xian manufacturing produces a unique valve and has the capacity to produce 50,000 valves annually. Currently, Xian 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?
Xian manufacturing produces a unique valve and has the capacity to produce 50,000 valves annually. Currently, Xian 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?
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Study Notes
Cost Concepts
- Actual costs are incurred costs; the term indicates expenses that have already occurred.
- Planned or forecasted expenses are referred to as budgeted costs, which aid in financial projections.
- Cost assignment involves allocating indirect costs to specific cost objects for better financial tracking.
- A cost system functions by accumulating relevant costs and then assigning them to cost objects.
Cost Classification
- A cost object is any item for which cost measurements are necessary.
- Costs are primarily accounted for in two stages: accumulation is first, followed by assignment.
- Costs can be classified as either direct—easily traced to a cost object—or indirect, which cannot be traced easily.
Cost Assignment and Behavior
- Cost tracing refers to the assignment of direct costs, while cost allocation deals with indirect costs.
- A cost's classification as direct or indirect depends on the chosen cost object and the traceability of the costs involved.
- Indirect manufacturing costs can be both variable and fixed, affecting overall budgeting strategies.
Cost Drivers and Relevant Range
- Relevant range is defined as a band of normal activity where specific cost-volume relationships are consistent.
- Under changes in the cost driver within the relevant range, total fixed costs remain unchanged, while total variable costs adjust.
Fixed and Variable Costs
- Fixed costs do not change in total despite fluctuations in production volume; an increase in production reduces fixed cost per unit.
- Variable costs increase total expenditures when activity levels rise, remaining constant on a per-unit basis regardless of production volume.
Profit and Cost Analysis
- The relationship between sales volume and profit reflects that a decrease in sales can lead to a significant drop in overall profitability.
- Managers must understand total costs when making product mix and pricing decisions to ensure informed strategic choices.
Cost Calculations
- Unit costs are calculated by dividing total costs by the quantity of units produced, helping to determine per-item pricing strategies.
- Variations in production levels lead to changes in fixed costs per unit and maintain constant variable costs per unit.
Decision-Making Implications
- The role of technology in information gathering is increasingly allowing for more costs to be directly traced, enhancing accuracy in financial management.
- Understanding how costs react to changes in activity levels is crucial for effective budgeting and resource allocation.
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Description
Test your knowledge of cost management concepts with these flashcards from Chapter 2. Learn about actual costs, budgeted costs, control, and cost assignment. Perfect for students and professionals looking to enhance their understanding of financial management.
