Questions and Answers
What is a characteristic of variable costs?
Which of the following is considered a direct cost in construction?
Indirect costs are generally allocated based on which of the following?
Which of the following items is NOT classified as a variable cost?
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What defines a direct cost in manufacturing?
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Which of the following best describes a primary distinction between direct and indirect costs?
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Which of the following would typically be categorized as an indirect cost?
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What is a common example of a variable cost for a manufacturing company?
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What is the primary consideration when timing the purchase of capital equipment?
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Which of the following strategies might an enterprise consider for installing equipment?
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What is a significant factor in deciding whether to lease or purchase equipment?
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What is meant by 'reproduction costs' in the context of capital equipment?
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What is a potential downside of purchasing equipment too late in the fiscal period?
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What financial management tool can assist enterprises in evaluating equipment costs?
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Which method allows for working out kinks in equipment operation before full production?
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Why might an enterprise prefer to finance equipment rather than purchase outright?
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What factors influence workers' compensation rates?
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How are contributions to a medical and life insurance program typically calculated?
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In constructing unit labor costs, what is added to cover paid time off (PTO)?
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How are wages typically managed for construction crafts that work for multiple employers?
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What is the primary focus of overhead in the context provided?
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Why might workers' compensation rates differ for the same trade in two different states?
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What type of benefits are typically included in paid time off (PTO)?
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Which of the following best describes how overhead is discussed in the provided content?
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Which of the following resources does NOT become a cost when it is invested or consumed in an activity?
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What does the term 'Lifecycle' in cost dimensions refer to?
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Which stage is NOT typically included in the Asset Life Cycle?
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In the context of resource consumption, which of these is classified as a consumable resource?
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Which of the following does NOT represent a cost associated with facility production?
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What is implied at the end of each lifecycle according to the cost dimensions?
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Which of the following best describes the relationship between resources and costs in project management?
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Which of the following is NOT considered a typical component of resource costs in project management?
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What is the primary function of price in the context of economics?
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How is overhead generally managed in operational activities?
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Which statement accurately describes productivity?
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Which components are included in the calculation of price?
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What is a characteristic of overhead costs?
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What is a common method to improve productivity?
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How is productivity typically measured?
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What role does contingency play in the price formation process?
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Study Notes
Cost Considerations in Activity and Asset Management
- Essential facilities for production include tooling, electricity, taxes, and maintenance.
- Additional costs encompass office supplies, communication, travel, and security.
- Resources required for activities consist of consumables that can be strategic investments such as time, money, manpower, and physical assets.
- Resources become a cost upon investment or consumption in a project.
Cost Dimensions
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Lifecycle:
- Refers to the phases during the lifespan of an asset or project, encompassing a beginning and an end.
- Asset Life Cycles include ideation, evaluation, research, development of solutions, and selection of optimal assets.
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Variable Costs:
- Costs linked to production volume such as raw materials, utilities, royalties, packaging, marketing, and chemicals.
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Direct vs. Indirect Costs:
- Direct Costs: Necessary expenses directly tied to completing work, like equipment, materials, and labor in construction and manufacturing.
- Indirect Costs: Support costs related to multiple activities/assets, allocated based on direct cost elements such as labor hours or material costs.
Purchasing Considerations
- Two strategies for capital equipment acquisition:
- Buy/install equipment when volume justifies expenditure to ensure cash flow for debt service.
- Purchase/install before need arises, allowing for training and integration into production.
- Financial analyses are essential for assessing lease versus purchase options.
Valuation Aspects
- Reproduction Costs: Price to reproduce an identical item at a specified date.
- Workers Compensation: Rates vary by state, trade, and contractor experience.
- Insurance Contributions: Costs calculated hourly, weekly, or monthly, added to labor costs.
- Paid Time Off (PTO): Employee benefits include sick time, vacation, and holidays, requiring adjustments to unit labor costs.
Overhead and Profit
- Overhead: Costs not directly attributed to specific work, requiring allocation or classification as business expenses.
- Price: Money requested or given for a product, incorporating direct and indirect costs, overhead, profit, and contingencies. It serves to ration supply among buyers.
- Productivity: Measures labor efficiency relative to output and input, improved by increasing output or decreasing input for a given outcome.
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