Cost Management Chapter 2 Flashcards

Questions and Answers

A cost incurred is called an ______.

Actual cost

Comparing budgeted costs to actual costs helps managers to improve _______.

Control

Planned or forecasted costs are called _ ___.

Budgeted costs

____ encompass allocating indirect costs to a cost object.

Cost assignment Signup and view all the answers

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

Accumulating and then assigning costs Signup and view all the answers

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

True Signup and view all the answers

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

False Signup and view all the answers

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

True Signup and view all the answers

Accountants define a cost as a resource to be sacrificed to achieve a specific objective.

True Signup and view all the answers

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

True Signup and view all the answers

Managers use accumulation data to make decisions and implement them.

True Signup and view all the answers

Assign the following manufacturing overhead cost categories to the most appropriate cost objects.

Cost Object 1 = A, C, and F Cost Object 2 = B and G Cost Object 3 = D and E Signup and view all the answers

The design of the operation affects the direct/indirect classification of a cost.

True Signup and view all the answers

_ _ is the general term used to identify both the tracing and the allocation of accumulated costs to a cost object.

Cost assignment Signup and view all the answers

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

Cost accumulation Signup and view all the answers

Indirect costs are always allocated with regard to cost classification.

True Signup and view all the answers

_ is the assignment of direct costs to the chosen cost object.

Cost tracing Signup and view all the answers

_ ___ is the assignment of indirect costs to the chosen cost object.

Cost allocation Signup and view all the answers

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

Cost object chosen Signup and view all the answers

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

whether the cost can be easily traced with the cost object Signup and view all the answers

An example of direct costs for the gold equipment line is:

Monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver. Signup and view all the answers

An example of indirect cost for the soccer equipment line is the _________.

Salary paid to a plant supervisor Signup and view all the answers

Printing costs incurred for payroll check processing; payroll check processing is the cost object.

True Signup and view all the answers

costs may include both variable and fixed costs.

Indirect manufacturing costs Signup and view all the answers

Indirect costs cannot be traced to a particular cost object in an economically feasible way.

True Signup and view all the answers

Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.

True Signup and view all the answers

A direct cost of one object can be an indirect cost of another cost object.

True Signup and view all the answers

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

True Signup and view all the answers

Assigning indirect costs is easier than assigning direct costs.

False Signup and view all the answers

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

True Signup and view all the answers

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

False Signup and view all the answers

A direct cost of one cost object can be an indirect cost of another cost object.

True Signup and view all the answers

The cost of electricity used in the production of multiple products would be classified as an indirect cost.

True Signup and view all the answers

If volume of sales increases, __ _ increase.

Variable costs Signup and view all the answers

Monthly rent payment would be considered a _ __.

Fixed cost Signup and view all the answers

__ refers to how costs react to a change in the level of activity.

Cost behavior Signup and view all the answers

If the production volume decreases ________.

Fixed cost per unit increases Signup and view all the answers

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

Fixed cost Signup and view all the answers

_ ___ increase in total when the actual level of activity increases.

Variable Costs Signup and view all the answers

How would the daily profit be affected if the daily volume of sales drops by 10%?

Profits are reduced by $4,000 Signup and view all the answers

Fixed costs depend on the ______.

Amount of resources acquired Signup and view all the answers

An example of a fixed cost for an automobile manufacturing plant is__________.

Administrative salaries Signup and view all the answers

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

considered to be a direct variable cost Signup and view all the answers

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

Number of miles driven Signup and view all the answers

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

Number of production hours Signup and view all the answers

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

Relevant range Signup and view all the answers

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

False Signup and view all the answers

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

False Signup and view all the answers

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

True Signup and view all the answers

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

False Signup and view all the answers

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.

True Signup and view all the answers

_ _ is computed by dividing total cost by the number of units produced.

Unit cost Signup and view all the answers

In making product mix and pricing decisions, managers should focus on .

Total costs Signup and view all the answers

When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will _______.

increase by $20 Signup and view all the answers

When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ______.

False Signup and view all the answers

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?

$98,000 Signup and view all the answers

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?

Total manufacturing costs will increase and unit manufacturing costs will decrease. Signup and view all the answers

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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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.

Cost Management Chapter 2 Flashcards

Questions and Answers

A cost incurred is called an ______.

Comparing budgeted costs to actual costs helps managers to improve _______.

Planned or forecasted costs are called _____ _______.

______ __________ encompass allocating indirect costs to a cost object.

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

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

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

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

Accountants define a cost as a resource to be sacrificed to achieve a specific objective.

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

Managers use accumulation data to make decisions and implement them.

Assign the following manufacturing overhead cost categories to the most appropriate cost objects.

The design of the operation affects the direct/indirect classification of a cost.

_____ _____ is the general term used to identify both the tracing and the allocation of accumulated costs to a cost object.

______ ______ is the collection of cost data in some organized way by means of an accounting system.

Indirect costs are always allocated with regard to cost classification.

______ _______ is the assignment of direct costs to the chosen cost object.

_____ _______ is the assignment of indirect costs to the chosen cost object.

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

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

An example of direct costs for the gold equipment line is:

An example of indirect cost for the soccer equipment line is the _________.

Printing costs incurred for payroll check processing; payroll check processing is the cost object.

______ ______ costs may include both variable and fixed costs.

Indirect costs cannot be traced to a particular cost object in an economically feasible way.

Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.

A direct cost of one object can be an indirect cost of another cost object.

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

Assigning indirect costs is easier than assigning direct costs.

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

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

A direct cost of one cost object can be an indirect cost of another cost object.

The cost of electricity used in the production of multiple products would be classified as an indirect cost.

If volume of sales increases, ________ _______ increase.

Monthly rent payment would be considered a _____ ______.

____ ______ refers to how costs react to a change in the level of activity.

If the production volume decreases ________.

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

_______ _________ increase in total when the actual level of activity increases.

How would the daily profit be affected if the daily volume of sales drops by 10%?

Fixed costs depend on the ______.

An example of a fixed cost for an automobile manufacturing plant 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 __________.

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

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

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

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

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

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

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

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.

_____ _____ is computed by dividing total cost by the number of units produced.

In making product mix and pricing decisions, managers should focus on ________ ________.

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, variable costs are $8 per unit. Therefore, when 10,000 units are produced ______.

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?

Study Notes

Cost Concepts

Cost Classification

Cost Assignment and Behavior

Cost Drivers and Relevant Range

Fixed and Variable Costs

Profit and Cost Analysis

Cost Calculations

Decision-Making Implications

Studying That Suits You

Description

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Planned or forecasted costs are called _ ___.

____ encompass allocating indirect 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.

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

_ is the assignment of direct costs to the chosen cost object.

_ ___ is the assignment of indirect costs to the chosen cost object.

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

costs may include both variable and fixed costs.

If volume of sales increases, __ _ increase.

Monthly rent payment would be considered a _ __.

__ refers to how costs react to a change in the level of activity.

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

_ ___ increase in total when the actual level of activity increases.

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

_ _ is computed by dividing total cost by the number of units produced.

In making product mix and pricing decisions, managers should focus on .