Cost Ch. 2 Homework

What are three common features of cost accounting and cost​ management? A. Analyzing the relevant information for making decisions. B. Calculating the cost of​ products, services, and other cost objects. C. Obtaining information for planning and control and performance evaluation. D. Direct material costs are also referred to as overhead costs or factory overhead costs. E. Period costs are considered assets in the balance sheet when they are incurred and become cost of goods sold only when the product is sold.

A. Analyzing the relevant information for making decisions. B. Calculating the cost of​ products, services, and other cost objects. C. Obtaining information for planning and control and performance evaluation.

​"Management accounting should not fit the straitjacket of financial​ accounting." Explain and give an example. A. Management accounting does not allow managers to charge interest on​ owners' capital to help judge a​ division's performance, even though such a charge is required under GAAP. B. Management accounting and financial accounting can use asset or liability measurement​ rules, such as present values or resale​ prices, whichever is more reasonable at the time. C. Management accounting does not have to comply with the same standards of financial accounting such as generally accepted accounting principles. D. Management accounting cannot include assets or liabilities with nicknames that are developed​ internally, which is allowed under GAAP.

C. Management accounting does not have to comply with the same standards of financial accounting such as generally accepted accounting principles.

Why do managers consider direct costs to be more accurate than indirect​ costs? A.When costs are​ allocated, managers are less certain whether the cost allocation base accurately measures the resources demanded by a cost​ object, and​ therefore, direct costs are considered to be more accurate. B. Allocating indirect costs is more subjective and generally more difficult to assign to a cost object than are direct costs.​ Therefore, direct costs are deemed by managers to be more accurate costs than indirect costs. C. Cost​ tracing, which is used when assigning direct costs to a particular cost​ object, is more accurate than cost​ allocation, which is used to assign indirect costs to the same cost object. D. All of the above.

D. All of the above.

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

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

Compensation of all manufacturing labor that can be traced to the cost object.

Direct manufacturing-labor costs

Costs of all materials that can be traced to the cost object.

Direct material costs

All manufacturing costs related to the cost object but cannot be traced to the cost object.

Manufacturing overhead costs

Payment to individuals in each focus group to provide comments on new products

direct; variable

Costs incurred to improve the design of focus groups to make them more effective

indirect fixed

All direct manufacturing costs.

prime costs

Factors affecting the classification of a cost as direct or indirect include A. materials, labor, and factory overhead. B. materiality of the​ cost, available​ information-gathering technology, and design of operations. C. unit​ costs, inventory production​ stage, and contractual agreements. D. cost behavior​ patterns, cost​ drivers, and relevant ranges.

B. materiality of the​ cost, available​ information-gathering technology, and design of operations.

What is the relevant​ range? What role does the​ relevant-range concept play in explaining how costs​ behave? A. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the related fixed costs. Costs are described as direct or indirect with respect to a particular relevant range. B. The relevant range is the band of normal activity level or volume in which there is no relationship between the level of activity or volume and the cost in question. Costs are described as relevant or irrelevant with respect to a particular relevant range. C. The relevant range is the band 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. Costs are described as variable or fixed with respect to a particular relevant range. D. The relevant range is the band of normal activity level or volume in which there is an abnormal relationship between the level of activity or volume and the variable cost per unit. Costs are described as relevant or irrelevant with respect to a particular relevant range.

C. The relevant range is the band 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. Costs are described as variable or fixed with respect to a particular relevant range.

All manufacturing costs other than direct material costs.

conversion costs

Recruiting cost to hire marketing specialists

indirect; variable

Define product cost. Describe three different purposes for computing product costs. A. A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include​ (1) pricing and product mix​ decisions, (2) contracting with government​ agencies, and​ (3) preparing financial statements for external reporting under GAAP. B. A product cost is the sum of all manufacturing costs other than direct materials assigned to a product. Purposes for computing a product cost include​ (1) analyzing fluctuations in the​ non-material costs of a​ product, (2) product pricing​ decisions, and​ (3) preparing financial statements for internal reporting purposes. C. A product cost is the sum of all indirect costs assigned to a product. Purposes for computing a product cost include​ (1) valuing​ inventory, (2) product mix​ decisions, and​ (3) analyzing production efficiencies. D. A product cost is the sum of all direct material costs and direct labor costs assigned to a product. Purposes for computing a product cost include​ (1) choosing a supplier with competitive​ prices, (2) employee​ wage-rate analysis, and​ (3) analyzing fluctuations in material and labor costs.

A. A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include​ (1) pricing and product mix​ decisions, (2) contracting with government​ agencies, and​ (3) preparing financial statements for external reporting under GAAP.

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 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. C. 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. 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.

Describe the​ overtime-premium and​ idle-time categories of indirect labor. A. Overtime premium is the wage rate paid to workers​ (for both direct labor and indirect​ labor) in excess of their​ straight-time wage rates. Idle time is a subclassification of indirect labor that represents wages paid for unproductive time caused by lack of​ orders, machine​ breakdowns, poor​ scheduling, etc. B. Idle time is the wage rate paid to workers​ (for both direct labor and indirect​ labor) in excess of their​ straight-time wage rates. Overtime premium is a subclassification of indirect labor that represents wages paid for unproductive time caused by lack of​ orders, machine​ breakdowns, poor​ scheduling, etc. C. Overtime premium is calculated by multiplying the total overtime hours worked by the​ workers' straight-time wage rates. Idle time costs are calculated by multiplying the number of unproductive hours by the overtime premium wage rate. D. Both A. and B.

A. Overtime premium is the wage rate paid to workers​ (for both direct labor and indirect​ labor) in excess of their​ straight-time wage rates. Idle time is a subclassification of indirect labor that represents wages paid for unproductive time caused by lack of​ orders, machine​ breakdowns, poor​ scheduling, etc.

How does management accounting differ from financial​ accounting? A. Management accounting​ measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles​ (GAAP). B. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles​ (GAAP). C. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting​ measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. D. Management accounting​ measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Financial accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization.

B. Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles​ (GAAP).

Identify how​ manufacturing-, merchandising-, and​ service-sector companies differ from each other. A. Manufacturing-sector companies purchase and then sell tangible products without changing their basic​ form, for example retail stores and distribution companies. ​Merchandising-sector companies provide services or intangible products to their​ customers, for example legal advice or audits. ​Service-sector companies purchase materials and components and convert them into various finished​ goods, for example automotive companies and textile companies. B. Manufacturing-sector companies purchase materials and components and convert them into various finished​ goods, for example automotive companies and textile companies. ​Merchandising-sector companies purchase and then sell tangible products without changing their basic​ form, for example retail stores and distribution companies. Service-sector companies provide services or intangible products to their​ customers, for example legal advice or audits. C. Manufacturing-sector companies purchase materials and components and convert them into various finished​ goods, for example legal advice or audits. ​Merchandising-sector companies purchase and then sell tangible products without changing their basic​ form, for example automotive companies and textile companies. ​Service-sector companies provide services or intangible products to their​ customers, for example retail stores and distribution companies. D. Manufacturing-sector companies provide services or intangible products to their​ customers, for example legal advice or audits. ​Merchandising-sector companies purchase and then sell tangible products without changing their basic​ form, for example retail stores and distribution companies. ​Service-sector companies purchase materials and components and convert them into various finished​ goods, for example automotive companies and textile companies.

B. Manufacturing-sector companies purchase materials and components and convert them into various finished​ goods, for example automotive companies and textile companies. ​Merchandising-sector companies purchase and then sell tangible products without changing their basic​ form, for example retail stores and distribution companies. Service-sector companies provide services or intangible products to their​ customers, for example legal advice or audits.

What is a cost​ driver? Give one example. A. A cost driver is a factor affecting direct or indirect cost classifications. For​ example, the availability of​ information-gathering technology is a driver as to whether certain​ low-cost materials used in the manufacturing process is considered a direct or indirect cost of producing a​ motor-vehicle. B. A cost driver is a cost that changes in total in proportion to changes in the related level of total activity or volume. For​ example, the tons of steel needed to produce a vehicle is a driver of the total cost for that vehicle. C. A cost driver is a​ variable, such as the level of activity or​ volume, which causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For​ example, the number of vehicles assembled is a driver of the costs of steering wheels on a​ motor-vehicle assembly line. D. A cost driver is a cost that 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 cost driver is a​ variable, such as the level of activity or​ volume, which causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For​ example, the number of vehicles assembled is a driver of the costs of steering wheels on a​ motor-vehicle assembly line.

Distinguish direct costs from indirect costs. A. Direct costs are those that change in total in proportion to changes in the related level of total activity or volume while indirect costs are those that remain unchanged in total for a given time​ period, despite wide changes in the related level of total activity or volume. B. Direct costs are historical or past costs incurred while indirect costs are predicted or forecasted costs. C. Direct costs are related to the particular cost object and can be traced to that cost object in a​ cost-effective way while indirect costs are related to the particular cost object but cannot be traced to that cost object in a​ cost-effective way. D. Direct costs include the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object in an economically feasible way while indirect costs include compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way.

C. Direct costs are related to the particular cost object and can be traced to that cost object in a​ cost-effective way while indirect costs are related to the particular cost object but cannot be traced to that cost object in a​ cost-effective way.

Distinguish between inventoriable costs and period costs. A. Inventoriable costs are all costs of goods purchased that are resold in a subsequent period. Period costs are all costs of goods purchased that are resold within the same period. B. Inventoriable costs include material costs and are capitalized as assets to the company until the items are sold. Period costs include labor and overhead costs and are expensed as incurred. Period costs are reported in the income statement within the cost of goods sold account. C. Inventoriable costs are 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. 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. D. Inventoriable costs include direct manufacturing materials and direct manufacturing labor costs that are capitalized into inventory and remain on the balance sheet until sold. Period costs include indirect manufacturing​ (or manufacturing​ overhead) costs and are expensed as incurred through the cost of goods sold account.

C. Inventoriable costs are 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. 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.

Why must unit costs often be interpreted with​ caution? A. 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. B. 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. D. 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.

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.

Cost of tapes used to record comments made by individuals in a focus group session

direct; variable Reason: These tapes are sent to the company whose products are being tested

Annual subscription of Market Focus to Consumer Reports magazine

indirect; fixed

Lease payment by Market Focus for corporate office

indirect; fixed

Retainer paid to focus group leader to conduct 18 focus groups per year on new medical products

indirect; fixed

Phone calls made by Market Focus staff member to confirm individuals will attend a focus group session

indirect; fixed Reason: Some students will note that phone call costs are variable when each call has a separate charge. It is a fixed cost if Market Focus has a flat monthly charge for a line, irrespective of the amount of usage; Records of individual calls are not kept.

Gasoline costs of Market Focus staff for company-owned vehicles

indirect; variable Reason: Gasoline costs are likely to vary with the number of focus groups. However, vehicles likely serve multiple purposes, and detailed records may be required to examine how costs vary with changes in one of the many purposes served; Staff members submit monthly bills with no mileage breakdowns.