Ch 2 Multiple Choice
What are three common features of cost accounting and cost management?
-Obtaining information for planning and control and performance evaluation. -Analyzing the relevant information for making decisions. -Calculating the cost of products, services, and other cost objects.
What role does the relevant-range concept play in explaining how costs behave?
Costs are described as variable or fixed with respect to a particular relevant range.
Choose the correct description of variable and fixed costs.
-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. -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.
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.
What are three different types of inventory that manufacturing companies hold?
Direct materials, work-in-process, and finished goods
Why must unit costs often be interpreted with caution?
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.
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.
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
Factors affecting the classification of a cost as direct or indirect include
materiality of the cost, available information-gathering technology, and design of operations.
Service-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.
Manufacturing-sector companies
purchase materials and components and convert them into various finished goods, for example automotive companies and textile companies.
What is the relevant range?
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.
product cost
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.
