ACCT 3270 Knowledge Check #2

Choose the correct description of variable and fixed costs.

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.

Distinguish between inventoriable costs and period costs.

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.

What is a cost​ driver? Give one example.

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.

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 the collection of cost data in some organized way by means of an accounting system. Examples include accumulated​ costs, overhead, and direct labor. C. 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. 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.

Carolyn Corporation provides the following information for 2020. Beginning inventory of direct materials, January 1, 2020 $10,000 Purchases of direct materials in 2020 $90,000 Ending inventory of direct materials, December 31, 2020 $2,000 Direct manufacturing labor costs in 2020 $32,000 Manufacturing overhead costs in 2020 $39,000 Calculate the total manufacturing costs incurred in 2020.

Begin by calculating the direct materials used in 2020 Beginning inventory of direct materials, 1/1/2020 $10,000 Purchases of direct materials in 2020 90,000 Less: Ending inventory of direct materials, 12/31/2020 (2,000) Direct materials used in 2020 $98,000 Part 2 Now calculate the total manufacturing costs incurred in 2020. Direct materials used in 2020 $98,000 Direct manufacturing labor costs in 2020 32,000 Manufacturing overhead costs in 2020 39,000 Total manufacturing costs incurred in 2020 $169,000

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

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

Distinguish direct costs from indirect costs.

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.

Select the correct definition for the following costs.

Direct material costs -Costs of all materials that can be traced to the cost object. Direct manufacturing-labor costs -Compensation of all manufacturing labor that can be traced to the cost object. Manufacturing overhead costs -All manufacturing costs related to the cost object but cannot be traced to the cost object. Prime costs -All direct manufacturing costs. Conversion costs -All manufacturing costs other than direct material costs.

What is the relevant​ range? What role does the​ relevant-range concept play in explaining how costs​ behave?

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.