Cost Accounting Exam 1

inventoriable costs

All costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold.

Operating Leverage

CM/Operating Income

Cost Pool

a grouping of individual indirect cost items

Prime costs

all direct manufacturing costs

Period costs

are all costs in the income statement other than cost of goods sold. Period costs are treated as expenses of the accounting period in which they are incurred because they are expected to not benefit future periods

cost-benefit approach

compares the benefits of an action/purchase to the costs

Which of the following statements about customer value is​ true? A. Creating value for customers is an important part of planning and implementing strategy. B. Customer value is lost with increase in costs of the product. C. Customer value is shown in a​ corporation's balance sheet. D. Customer value is the only focus that helps managers to formulate strategies.

A. Creating value for customers is an important part of planning and implementing strategy. Your answer is correct

Which of the following is true of management accounting​ information? A. It focuses on documenting past business actions of a firm. B. It helps with the coordination of elements of the value chain. C. It is prepared for shareholders. D. It is prepared based on SEC rules and FASB accounting principles.

B. It helps with the coordination of elements of the value chain.

Which of the following is not a primary function of the management​ accountant? A. Uses information to develop and implement business strategy. B. Aids in the decision making to help an organization meet its goals. C. Communicates financial results and position to external parties. D. Provides input into an​ entity's production and marketing decisions

C. Communicates financial results and position to external parties.

Which of the following differentiates marketing from customer​ service? A. Marketing is the process of detailed​ planning, engineering, and testing of products and​ processes, whereas customer service concentrates on existing customers. B. Marketing is the process of processing orders and shipping products or services to​ customers, whereas customer service is the process of providing additional information to customers about the product. C. Marketing is the process of promoting and selling products or services to customers or prospective​ customers, whereas customer service is the process of providing​ after-sales service to customers. D. Marketing is the process of processing orders and shipping products or services to​ customers, whereas customer service is concerned with choosing the right customer for the product.

C. Marketing is the process of promoting and selling products or services to customers or prospective​ customers, whereas customer service is the process of providing​ after-sales service to customers.

Conversion Cost

all manufacturing costs other than direct material costs

cost object

anything for which a cost measurement is desired

Define cost object and give three examples. A. A cost object is anything for which a separate measurement of costs is desired. Examples include a​ product, a​ service, and a customer. B. A cost object is a cost incurred​ (historical or past​ cost), as distinguished from a budgeted​ cost, which is a predicted or forecasted cost​ (a future​ cost). Examples include​ materials, labor, and overhead. C. A cost object is the collection of cost data in some organized way by means of an accounting system. Examples include accumulated​ costs, overhead, and direct labor. D. A cost object is a resource sacrificed or forgone to achieve a specific objective. Examples include direct​ materials, direct​ labor, and advertising.

A. A cost object is anything for which a separate measurement of costs is desired. Examples include a​ product, a​ service, and a customer.

Choose the correct description of variable and fixed costs. A. A variable cost changes in total in proportion to changes in the related level of total activity or​ volume, such as a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time​ period, despite wide changes in the related level of total activity or​ volume, such as a fixed annual leasing cost of a machine. B. A variable cost is related to a particular cost object and can be traced to it in an economically feasible​ way, such as the cost of steel in the manufacturing of a luxury car. A fixed cost is related to a particular cost object but cannot be traced to it in an economically feasible​ way, such as the salary of a plant manager who oversees production of many different types of luxury cars produced at the same plant. C. A variable cost is considered to be a unit​ cost, such as the​ per-attendee-cost of hiring a musical group to perform at an event. A fixed cost is considered to be a total​ cost, such as the total fee paid to the musical group for performing at the event. D. All of the above.

A. A variable cost changes in total in proportion to changes in the related level of total activity or​ volume, such as a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time​ period, despite wide changes in the related level of total activity or​ volume, such as a fixed annual leasing cost of a machine.

Which of the following differentiates confidentiality and credibility under the Standards of Ethical ​Conduct? A. Confidentiality deals with refraining from the usage of critical information for unethical or illegal​ advantage, while credibility ensures disclosing the relevant information that would help the intended​ user's understanding. This is the correct answer. B. Credibility deals with refraining from the usage of critical information for unethical or illegal​ advantage, while confidentiality ensures disclosing the relevant information that would help the​ user's understanding. C. Credibility ensures appropriate level of professional expertise by continually developing knowledge and​ skills, while confidentiality encourages mitigation of actual conflicts of interest. Your answer is not correct. D. Credibility deals with refraining from activities that would prejudice carrying duties​ ethically, while confidentiality deals with communicating information fairly and objectively.

A. Confidentiality deals with refraining from the usage of critical information for unethical or illegal​ advantage, while credibility ensures disclosing the relevant information that would help the intended​ user's understanding.

The scenario that says resources should be spent if the expected benefits to the company exceed the expected costs describes​ ________. A. cost-benefit approach B. different costs for different purposes C. behavioral and technical considerations D. balanced scorecard

A. cost-benefit approach

Which item is an indication of credibility under the Standards of Ethical​ Conduct? A. Refrain from using confidential information for unethical or illegal advantage. B. Disclose delays or deficiencies in​ information, timeliness,​ processing, or internal controls in conformance with organization policy​ and/or applicable law. This is the correct answer. C. Maintain an appropriate level of professional expertise by continually developing knowledge and skills. D. Abstain from engaging in or supporting any activity that might discredit the profession.

B. Disclose delays or deficiencies in​ information, timeliness,​ processing, or internal controls in conformance with organization policy​ and/or applicable law. This is the correct answer.

Which of the following issues is addressed by the​ Sarbanes-Oxley legislation? A. environmental damages caused by industries B. disclosure practices of public corporations C. disclosure practices of private companies D. safety aspects of products

B. disclosure practices of public corporations

The value chain is the sequence of business functions in which​ ________. A. value is deducted from the products or services of an organization B. usefulness is added to the products or services of an organization C. producing and delivering the product or service is of prime importance D. products and services are evaluated with respect to their value to the supply chain

B. usefulness is added to the products or services of an organization

What are three different types of inventory that manufacturing companies​ hold? A. Direct​ materials, direct​ labor, and overhead B. Production, retail, and merchandising C. Direct​ materials, work-in-process, and finished goods D. ​Variable, fixed, and overhead

C. Direct​ materials, work-in-process, and finished goods

Why must unit costs often be interpreted with​ caution? A. Units costs are related to a particular cost​ object, but cannot be traced to it in an economically feasible way. The assignment of units costs is much more subjective than the assignment of direct​ costs, and​ therefore, unit cost information should be interpreted with caution. B. Unit costs often fall outside of the relevant range of predicting total cost for an activity at different levels of activity or volume. When costs fall outside of the relevant​ range, the predictive nature of estimating the total cost may be​ impaired, and thus unit costs must be interpreted with caution. C. Unit costs are computed by dividing some amount of total costs by the related number of units. In many​ cases, the total costs include a fixed cost that will not change despite changes in the number of units.​ Therefore, it can be misleading to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels. D. Unit costs include overtime premium and idle time charges. It can be​ erroneous, then, to multiply the unit cost by activity or volume change to predict changes in total costs at different levels of production efficiencies.

C. Unit costs are computed by dividing some amount of total costs by the related number of units. In many​ cases, the total costs include a fixed cost that will not change despite changes in the number of units.​ Therefore, it can be misleading to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels.

Place the five steps in the​ decision-making process in the correct​ order: A​ = Obtain information B​ = Make decisions by choosing among alternatives C​ = Identify the problem and uncertainties D​ = Implement the​ decision, evaluate​ performance, and learn E​ = Make predictions about the future A. A E B D C B. E D A B C C. C D B E A D. C A E B D

D. C A E B D

The Five-Step Decision-Making Process

Identify the problem/uncertainties Obtain information Make predictions about the future Make decisions by choosing among alternatives Implement the decision, evaluate performance and learn.

Value Chain

Research & Development Design of Products & Processes Production Marketing (including Sales) Distribution Customer Service

cost assignment

a general term that encompasses both (1) tracing direct costs to a cost object and (2) allocating indirect costs to a cost object

Customer Relationship Management

a strategy that integrates people and technology in all business functions to deepen relationships with customers, partners, and distributors

cost allocation base

a systematic way to link an indirect cost or group of indirect costs to cost objects

cost driver

a variable, such as the level of activity or volume, that causally affects costs over a given time span

Margin of Safety

difference between budgeted revenues and breakeven revenues

Sensitivity Analysis

is a "what-if" technique managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes.

Value

is the usefulness a customer gains from a company's product or service. The entire customer experience determines the value a customer derives from a product.

Management accounting

measures, analyzes, and reports financial and non-financial information that helps managers make decisions to achieve goals.

Relevant Range

the band or range of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question

Cost-Volume-Profit Analysis

the behavior of total revenues, total costs, and operating income as changes occur in the output level, selling price, variable cost per unit, or fixed costs of a product

cost accumulation

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

Job Costing System

the cost object is a unit or multiple units of a distinct product or service which we call a job. Each job generally uses different amounts of resources.

Process Costing System

the cost object is masses of identical or similar units of a product or service