Ch 2 An Intro to Cost Terms and Purposes
C) planned or forecasted costs
Budgeted costs are ________. A) the costs incurred this year B) the costs incurred last year C) planned or forecasted costs D) competitor's costs
A) $255,000
Buildz Manufacturing currently produces 1,000 tables per month. The following per unit data for 1,000 tables apply for sales to regular customers: Direct materials $50 Direct manufacturing labor 10 Variable manufacturing overhead 15 Fixed manufacturing overhead 30 Total manufacturing costs $105 The plant has capacity for 3,000 tables and is considering expanding production to 3,000 tables. What is the total cost of producing 3,000 tables? A) $255,000 B) $225,000 C) $175,000 D) $235,000
B) control
Comparing budgeted costs to actual costs helps managers to improve ________. A) coordination B) control C) implementation D) planning
D) relevant range
A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the ________. A) average range B) cost-allocation range C) cost driver range D) relevant range
B) monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver
A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of direct costs for the golf equipment line is ________. A) beverages provided daily in the plant break room B) monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver C) salaries of the clerical staff that work in the company administrative offices D) overheads incurred in producing both golf and soccer equipment
D) salary paid to plant supervisor
A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the ________. A) material used to make the soccer balls B) labor to shape the leather used to make the soccer ball C) material used to manufacture the soccer studs D) salary paid to plant supervisor
A) is the cost incurred
An actual cost is ________. A) is the cost incurred B) is a predicted or forecasted cost C) is anything for which a cost measurement is desired D) is the collection of cost data in some organized way by means of an accounting system
A) direct materials in stock and awaiting use in the manufacturing process
Direct materials inventory would normally include ________. A) direct materials in stock and awaiting use in the manufacturing process B) goods partially worked on but not yet fully completed C) goods fully completed but not yet sold D) products in their original form intended to be sold without changing their basic form
D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
For a manufacturing company, direct material costs may be included in ________. A) direct materials inventory only B) merchandise inventory only C) both work-in-process inventory and finished goods inventory D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
C) $2,000
Genosis Metals provided the following information for last month: Sales $20,000 Variable costs 8,000 Fixed costs 4,000 Operating income $8,000 If sales reduce to half the amount in the next month, what is the projected operating income? A) $0 B) $4,000 C) $2,000 D) $6,000
A) indirect manufacturing costs
Manufacturing overhead costs are also referred to as ________. A) indirect manufacturing costs B) prime costs C) direct manufacturing costs D) direct material
B) indirect material costs such as lubricants
Manufacturing overhead costs in an automobile manufacturing plant most likely include ________. A) labor costs of the painting department B) indirect material costs such as lubricants C) leather seat costs D) tyre costs
C) will not change proportionately with changes in production volumes
Outside the relevant range, variable costs, such as direct material costs ________. A) will decrease proportionately with changes in sales volumes B) will remain the same with changes in production volumes C) will not change proportionately with changes in production volumes D) will increase proportionately with changes in sales volumes
B) increase in total when the actual level of activity increases
Variable costs ________. A) are always indirect costs B) increase in total when the actual level of activity increases C) include most personnel costs and depreciation on machinery D) are never considered a part of prime cost
A) increase to $20 per unit
When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will ________. A) increase to $20 per unit B) remain at $16 per unit C) decrease to $10 per unit D) total $160,000
C) Arrow Electronics
Which of the following companies is part of the merchandising sector of our economy? A) Jaguar B) Hewlett Packard C) Arrow Electronics D) Michael Toback Accounting Firm
B) Ernst & Young
Which of the following companies is part of the service sector of our economy? A) Target B) Ernst & Young C) Nokia D) Amazon.com
True
T/F A cost driver is a variable, such as the level of activity or volume that causally affects costs over a given time span.
A) only merchandise inventory
Target reports ________. A) only merchandise inventory B) only finished goods inventory C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts D) no inventory accounts
C) $85.00
Buildz Manufacturing currently produces 1,000 tables per month. The following per unit data for 1,000 tables apply for sales to regular customers: Direct materials $50 Direct manufacturing labor 10 Variable manufacturing overhead 15 Fixed manufacturing overhead 30 Total manufacturing costs $105 What is the per unit cost when producing 3,000 tables? A) $58.33 B) $175.00 C) $85.00 D) $125.45
D) cost object chosen
The determination of a cost as either direct or indirect depends upon the ________. A) accounting standards B) tax system chosen C) inventory valuation D) cost object chosen
B) 28%
The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows: Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115 What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost? A) 32% B) 28% C) 26% D) 20%
A) accumulating and then assigning costs
A cost system determines the cost of a cost object by ________. A) accumulating and then assigning costs B) accumulating costs C) assigning and then accumulating costs D) assigning costs
B) dividing total cost by the number of units produced
A unit cost is computed by ________. A) multiplying total cost by the number of units produced B) dividing total cost by the number of units produced C) dividing variable cost by the number of units produced D) dividing fixed cost by the number of units produced
B) are considered a fixed cost
At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually ________. A) are considered a variable cost B) are considered a fixed cost C) depend on the scheduling of floor workers D) depend on the scheduling of production runs
C) whether the cost can be easily traced with the cost object
Classifying a cost as either direct or indirect depends upon ________. A) the behavior of the cost in response to volume changes B) whether the cost is expensed in the period in which it is incurred C) whether the cost can be easily traced with the cost object D) whether a cost is fixed or variable
A) the collection of cost data in some organized way by means of an accounting system
Cost accumulation is ________. A) the collection of cost data in some organized way by means of an accounting system B) anything for which a cost measurement is desired C) anything for which a profit measurement is desired D) the collection of profit data in some organized way by means of an accounting system
C) the assignment of indirect costs to the chosen cost object
Cost allocation is ________. A) the process of tracking both direct and indirect costs associated with a cost object B) the process of determining the opportunity cost of a cost object chosen C) the assignment of indirect costs to the chosen cost object D) made based on material acquisition document
B) encompasses allocating indirect costs to a cost object
Cost assignment ________. A) includes future and arbitrary costs B) encompasses allocating indirect costs to a cost object C) is the same as cost accumulation D) is the difference between budgeted and actual costs
A) how costs react to a change in the level of activity
Cost behavior refers to ________. A) how costs react to a change in the level of activity B) whether a cost is incurred in a manufacturing, merchandising, or service company C) classifying costs as either perpetual or period costs D) whether a particular expense is expensed in the same or the following period
A) the assignment of direct costs to the chosen cost object
Cost tracing is ________. A) the assignment of direct costs to the chosen cost object B) a function of cost allocation C) the process of tracking both direct and indirect costs associated with a cost object D) the process of determining the actual cost of the cost object
D) $3,000
Eigen Manufacturing Corp. provided the following information for last month: Sales $40,000 Variable costs 14,000 Fixed costs 10,000 Operating income $16,000 If sales reduce to half of the amount in the next month, what is the projected operating income? A) $15,000 B) $6,000 C) $16,000 D) $3,000
B) amount of resources acquired
Fixed costs depend on the ________. A) amount of resources used B) amount of resources acquired C) volume of production D) total number of units sold
C) both work-in-process inventory and finished goods inventory
For a manufacturing company, direct labor costs may be included in ________. A) direct materials inventory only B) merchandise inventory only C) both work-in-process inventory and finished goods inventory D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
C) both work-in-process inventory and finished goods inventory
For a manufacturing company, indirect manufacturing costs may be included in ________. A) direct materials inventory only B) merchandise inventory only C) both work-in-process inventory and finished goods inventory D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
C) manufacturing overhead cost
For a manufacturing-sector company, the cost of factory depreciation is classified as a ________. A) direct material cost B) direct manufacturing labor cost C) manufacturing overhead cost D) period cost
B) $98,000
Grip Manufacturing currently produces 1,000 tires per month. The following per unit data for 1,000 tires apply for sales to regular customers: Direct materials $30 Direct manufacturing labor 5 Variable manufacturing overhead 8 Fixed manufacturing overhead 12 Total manufacturing costs $55 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? A) $110,000 B) $98,000 C) $68,000 D) $88,000
B) considered to be a direct variable cost
If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________. A) considered to be a direct fixed cost B) considered to be a direct variable cost C) considered to be an indirect fixed cost D) considered to be an indirect variable cost
A) total costs
In making product mix and pricing decisions, managers should focus on ________. A) total costs B) unit costs C) variable costs D) manufacturing costs
D) may include both variable and fixed costs
Indirect manufacturing costs ________. A) can be traced to the product that created the costs B) can be easily identified with the cost object C) generally include the cost of material and the cost of labor D) may include both variable and fixed costs
A) profits are reduced by $4,000
Maize Plastics manufactures and sells 50 bottles per day. Fixed costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000. Each bottle is sold for $1,000. How would the daily profit be affected if the daily volume of sales drop by 10%? A) profits are reduced by $4,000 B) profits are reduced by $1,000 C) profits are reduced by $5,000 D) profits are reduced by $6,000
C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
Manufacturing-sector companies report ________. A) only merchandise inventory B) only finished goods inventory C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts D) direct materials inventory and finished goods inventory accounts only
A) purchase and then sell tangible products without changing their basic form
Merchandising-sectors ________. A) purchase and then sell tangible products without changing their basic form B) provide intangible products C) purchase materials and components and convert them into finished goods D) purchase and then sell tangible products by changing their basic form
C) $30.00
Pederson Company reported the following: Manufacturing costs $150,000 Units manufactured 5,000 Units sold 4,700 units sold for $75 per unit Beginning inventory 100 units What is the average manufacturing cost per unit? A) $40.00 B) $42.00 C) $30.00 D) $32.00
A) $12,000
Pederson Company reported the following: Manufacturing costs $150,000 Units manufactured 5,000 Units sold 4,700 units sold for $75 per unit Beginning inventory 100 units What is the manufacturing cost for the ending finished goods inventory? A) $12,000 B) $8,000 C) $11,000 D) $5,000
D) $1,645,000
Pederson Company reported the following: Manufacturing costs $2,000,000 Units manufactured 50,000 Units sold 47,000 units sold for $75 per unit Beginning inventory 0 units What is the amount of gross profit margin? A) $1,750,000 B) $3,525,000 C) $5,405,000 D) $1,645,000
D) $77.50 per unit
Ridez Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to regular customers: Direct materials $50 Direct manufacturing labor 8 Variable manufacturing overhead 12 Fixed manufacturing overhead 15 Total manufacturing costs $85 The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per unit cost of producing 2,000 bicycles? A) $78.50 per unit B) $170 per unit C) $72.50 per unit D) $77.50 per unit
A) provide intangible products
Service-sector companies ________. A) provide intangible products B) purchase and then sell tangible products without changing their basic form C) purchase and then sell tangible products by changing their basic form D) purchase materials and components and convert them into finished goods
D) no inventory accounts
Service-sector companies report ________. A) work-in-process inventory, and finished goods inventory accounts B) only finished goods inventory C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts D) no inventory accounts
True
T/F A cost is a resource sacrificed or forgone to achieve a specific objective.
True
T/F A cost may be direct for one cost object and indirect for another cost object.
True
T/F A cost object is anything for which a cost measurement is desired.
True
T/F A direct cost of one cost object can be an indirect cost of another cost object.
True
T/F A fixed cost is fixed only in relation to a given wide range of total activity or volume and only for a given time span, usually a particular budget period.
True
T/F 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 output produced.
True
T/F A unit cost is also called an average cost.
True
T/F A unit cost is computed by dividing total cost by the number of units.
True
T/F Accountants define a cost as a resource to be sacrificed to achieve a specific objective.
True
T/F Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for making decisions.
true
T/F An actual cost is the cost incurred-a historical or past cost.
True
T/F An appropriate cost driver for shipping costs might be the number of units shipped.
False
T/F Assigning indirect costs is easier than assigning direct costs.
False
T/F Costs are accounted for in two basic stages: assignment followed by accumulation.
True
T/F Fixed cost per unit reduces with an increase in production volume.
True
T/F Improvements in information-gathering technologies are making it possible to trace more costs as direct.
True
T/F Managers use cost accumulation data to make decisions and implement them.
True
T/F The broader the cost object definition, higher the proportion of direct costs are of total costs.
True
T/F The cost of electricity used in the production of multiple products would be classified as a indirect cost.
False
T/F The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).
False
T/F The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.
False
T/F Variable costs depend on the resources used.
False
T/F Variable costs per unit vary with the level of production or sales volume.
True
T/F When making decisions for product mix or and pricing, the focus should be on total costs and not unit costs.
True
T/F Wood used to manufacture chairs is considered a direct variable cost.
A) 72%
The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows: Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115 What is the percentage of the total variable costs per unit associated with Product ORD105 with respect to total cost? A) 72% B) 68% C) 75% D) 70%
D) $1,032,500
The following information pertains to Alleigh's Mannequins: Manufacturing costs $1,500,000 Units manufactured 30,000 Units sold 29,500 units sold for $85 per unit Beginning inventory 0 units What is the amount of gross margin? A) $1,475,000 B) $1,500,000 C) $2,507,500 D) $1,032,500
B) $9.00
The following information pertains to Razor's Corp: Manufacturing costs $135,000 Units manufactured 15,000 Units sold 12,000 units sold for $15 per unit Beginning inventory $3,500 14) What is the average manufacturing cost per unit? A) $11.00 B) $9.00 C) $11.25 D) $11
D) $30,500
The following information pertains to Razor's Corp: Manufacturing costs $135,000 Units manufactured 15,000 Units sold 12,000 units sold for $15 per unit Beginning inventory $3,500 What is the manufacturing cost for the ending finished goods inventory? A) $42,500 B) $25,500 C) $18,500 D) $30,500
B) cost assignment
The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is ________. A) cost accumulation B) cost assignment C) cost tracing D) conversion costing
C) number of production hours
The most likely cost driver of direct labor costs is the ________. A) number of machine setups for the product B) number of miles driven C) number of production hours D) number of machine hours
B) number of miles driven
The most likely cost driver of distribution costs is the ________. A) number of parts within the product B) number of miles driven C) number of products manufactured D) number of production hours
B) direct manufacturing labor cost
Wages paid to machine operators on an assembly line are classified as a ________. A) direct material cost B) direct manufacturing labor cost C) manufacturing overhead cost D) period cost
A) variable costs will remain at $8 per unit
When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ________. A) variable costs will remain at $8 per unit B) variable costs will total $60,000 C) variable unit costs will increase to $12 per unit D) variable unit costs will decrease to $3 per unit
A) Nike
Which of the following companies is part of the manufacturing sector of our economy? A) Nike B) Barnes & Noble C) Corvette Law Firm D) Sears, Roebuck, and Company
B) manufacturing labor cost
Which of the following cost is included in cost of goods sold? A) customer service cost B) manufacturing labor cost C) distribution cost D) marketing cost
D) the design of the operation
Which of the following factors affect the direct/indirect classification of a cost? A) the level of budgeted profit for the next year B) the estimation of time required to complete the order C) the ability to execute an order in the most cost-efficient manner D) the design of the operation
B) the number of job applications processed
Which of the following is a cost driver for a company's human resource costs? A) the number of employees in the company B) the number of job applications processed C) the number of units sold D) the square footage of the office space used by the human resource department
A) administrative salaries
Which of the following is a fixed cost for an automobile manufacturing plant? A) administrative salaries B) electricity used by assembly-line machines C) sales commissions D) tires
A) monthly rent payment
Which of the following is a fixed cost? A) monthly rent payment B) electricity expenses C) travel expenses D) direct material costs
A) fixed cost per unit increases
Which of the following is true if the production volume decreases? A) fixed cost per unit increases B) average cost per unit decreases C) variable cost per unit increases D) variable cost per unit decreases
C) variable cost increases
Which of the following is true if the volume of sales increases? A) fixed cost increases B) variable cost decreases C) variable cost increases D) fixed cost decreases
D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.
Which of the following is true of indirect costs? A) Indirect costs are always considered sunk costs. B) All indirect costs are included in cost of goods sold. C) Indirect costs always vary in direct proportion to the level of production. D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.
B) Indirect costs are always allocated.
Which of the following statements about the direct/indirect cost classification is true? A) Indirect costs are always traced. B) Indirect costs are always allocated. C) The design of sales target affects the direct/indirect classification. D) The direct/indirect classification depends on the cost control measures.
C) A direct cost of one cost object can be an indirect cost of another cost object.
Which of the following statements is true of direct costs? A) A direct cost of one cost object is a true sense of the budgeted costs. B) All variable costs are direct costs. C) A direct cost of one cost object can be an indirect cost of another cost object. D) All fixed costs are direct costs.
B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
Which of the following statements is true? A) A direct cost of one cost object will always be a direct cost of another cost object. B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs. C) All fixed costs are indirect costs. D) All direct costs are variable costs.
A) There is a cause-and-effect relationship between the cost driver and the amount of cost.
Which of the following statements is true? A) There is a cause-and-effect relationship between the cost driver and the amount of cost. B) Fixed costs have cost drivers over the short run. C) Over the short run all costs have cost drivers. D) Volume of production is a cost driver of distribution costs.
C) electricity expenses
Which one of the following is a variable cost for an insurance company? A) rent of the building B) CEO's salary C) electricity expenses D) property taxes
B) Printing costs incurred for payroll check processing; payroll check processing is the cost object.
Which one of the following items is a direct cost? A) Customer-service costs of a multiproduct firm; Product A is the cost object. B) Printing costs incurred for payroll check processing; payroll check processing is the cost object. C) The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object. D) Utility costs of the administrative offices; the accounting department is the cost object.
C) total fixed costs will remain the same and total variable costs will change
Within the relevant range, if there is a change in the level of the cost driver, then ________. A) total fixed costs and total variable costs will change B) total fixed costs and total variable costs will remain the same C) total fixed costs will remain the same and total variable costs will change D) total fixed costs will change and total variable costs will remain the same
B) Total manufacturing costs will increase and unit manufacturing costs will decrease.
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? A) Total manufacturing costs will increase and unit manufacturing costs will stay the same. B) Total manufacturing costs will increase and unit manufacturing costs will decrease. C) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same. D) Total manufacturing costs will increase and unit manufacturing costs will also increase.
C) service-sector company
Yahoo, an Internet search firm, would be classified as a(n) ________. A) manufacturing-sector company B) merchandising-sector company C) service-sector company D) financial services
C) $105
Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows: Direct materials $ 70 Direct manufacturing labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 32 Sales commissions (2% of sales) 5 Administrative salaries 16 Total $158 What are the direct variable manufacturing costs per unit associated with Product DCT121? A) $142 B) $90 C) $105 D) $110
A) $5
Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows: Direct materials $ 70 Direct manufacturing labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 32 Sales commissions (2% of sales) 5 Administrative salaries 16 Total $158 What are the indirect nonmanufacturing variable costs per unit associated with Product DCT121? A) $5 B) $21 C) $90 D) $142
C) Manufacturing
________ sector companies purchase materials and components and convert them into finished goods. A) Merchandising B) Service C) Manufacturing D) Professional