Chapter 2: Cost Concepts and Behavior

The process of assigning costs is called cost ______.

Allocation

Cost of Goods Manufactured (COGM)

Beginning WIP inventory + Direct materials put into production + Direct labor + O/H - Ending WIP inventory = COGM

Cost of Goods Sold (COGS)

Beginning finished goods inventory + COGM - Ending finished goods inventory

Finished Goods Inventory

COGM - COGS + Beginning finished goods inventory

A sacrifice of a resource is a ______.

Cost

The way costs respond to changes in activity levels is called ______ ______.

Cost Behavior

True or false: The excess of operating revenues over the operating costs incurred to generate those revenues is net income.

False

True or False: The focus of cost accounting is on expenses.

False- costs

An international long distance plan that charges a flat fee of $10 plus $.05 per minute of use is an example of a ______ cost.

Semivariable

If a company is focused on trying to eliminate waste, income statement costs can be divided into ______.

Value-added vs. nonvalue-added

Goods that have been started in production but are not yet completed are called ______.

Work in process

To calculate cost of goods manufactured during the year, take total manufacturing costs and ______.

add beginning work in process and subtract ending work in process inventory

Cost of goods manufactured (direct materials)

beginning direct materials + added direct materials - ending direct materials

Cost to be assigned to cost objects are accumulated in a(n) ______ ______.

cost pool

Cost of goods manufactured and sold statements are ______.

prepared as part of a company's internal reporting system

Costs assigned to units of production and expensed when the units are sold are ______ costs, whereas ______ costs are expensed as incurred.

product; period

A cost ______. (all that apply) is a sacrifice of resources is the same as an expense must be a cash outflow may be recorded as an asset is always recorded in the accounting records

is a sacrifice of resources may be recorded as an asset

Full absorption cost ______. (all that apply) is the inventoriable cost for external financial statements includes fixed, but not variable manufacturing overhead costs is required by GAAP includes selling and administrative costs

is the inventoriable cost for external financial statements is required by GAAP

The difference between full cost and full absorption cost is ______.

fixed and variable selling costs are included in full cost but not in full absorption cost

Common approaches for determining product costs discussed in the text do not include ______ costing.

full

The two types of product costs are ______ manufacturing costs and ______ manufacturing costs.

Direct; Indirect

Which of the following statements are true? (all that apply) A cost of goods manufactured and sold statement is published as part of GAAP external financial statements. Cost of goods manufactured and sold statements can be effective communication devices. Managerial reports are tailored to the individual company's needs. The cost of goods manufactured and sold statement focuses on both current costs and inventories.

Cost of goods manufactured and sold statements can be effective communication devices. Managerial reports are tailored to the individual company's needs. The cost of goods manufactured and sold statement focuses on both current costs and inventories.

The cost of parts purchased by a manufacturer that can be identified with units or batches of products are classified as ______ ______cost.

Direct Materials

The three major categories of product costs are ______ materials, ______ ______, and manufacturing ______.

Direct; Direct Labor: Overhead

Which of the following statements are true? (all that apply) Distinguishing between manufacturing and nonmanufacturing costs can be difficult. Nonmanufacturing costs are expensed as incurred for financial accounting purposes. Marketing costs include costs to manage the operation and provide staff support. For managerial purposes, managers often assign nonmanufacturing costs to products.

Distinguishing between manufacturing and nonmanufacturing costs can be difficult. Nonmanufacturing costs are expensed as incurred for financial accounting purposes. For managerial purposes, managers often assign nonmanufacturing costs to products.

Which of the following statements are true? Service companies provide customers with a tangible product. Information technology represents the major cost for some service organizations. All costs in a service organization are treated as marketing and administrative costs. Labor is the most important single cost for many service organizations.

Information technology represents the major cost for some service organizations. Labor is the most important single cost for many service organizations.

Any end to which a cost is assigned is a cost ______.

Object

Departments, units of products, and product lines are all examples of cost ______.

Object

Nonmanufacturing costs are also called ______ costs and manufacturing costs are also called ______ costs.

Period; Product

Department costs, rental costs, or travel costs incurred to visit multiple clients are examples of items accumulated in cost ______ to be assigned to cost ______.

Pool; Object

The sum of direct materials and direct labor equals ______ costs and the sum of direct labor and manufacturing overhead equals ______ costs.

Prime; Conversion

Which of the following statements are true? (all that apply) Cost of goods sold for a wholesaler includes costs required to sell them, such as salaries of salespeople. Retailers have an entire category of amounts that do not appear on service company income statements. Gross margin reflects the ability of a wholesaler to price products. Efficiency in operations is measured by considering a retailer's cost of goods sold.

Retailers have an entire category of amounts that do not appear on service company income statements. Gross margin reflects the ability of a wholesaler to price products.

If a company is focused on trying to eliminate waste and reduce costs, financial statements can be developed that classify costs into ______-______ and ______-______ activities.

Value added; Nonvalue added

Direct materials and sales commissions are most likely ______ costs, whereas many manufacturing overhead costs such as rent and supervisor salaries are ______ costs.

Variable; Fixed

Products that have been started but not yet completed are called ______ ______ ______.

Work in process

Under variable costing, ______.

all costs except variable manufacturing costs are period costs

Product costs for unsold units are ______.

assigned to inventory under both absorption and variable costing

Putting fixed cost on a per unit basis ______.

may be misleading for decision making. It makes them appear variable.

Sermivariable costs are also called ______ costs.

mixed

A company started the year with $185,000 of goods finished and ready for sale. During the year, a total of $700,000 of goods were started in production. Of the goods started, $550,000 were finished during the year. If total cost of goods sold for the year equals $625,000, the company's ending finished goods inventory equals $______.

110,0000

The process of assigning indirect costs is called cost ______.

Allocation

Which of the following is NOT one of the four basic cost behavior categories? Variable Direct Fixed Step

Direct

The cost of parts purchased by a manufacturer that can be identified with units or batches of products are classified as ______ ______ cost.

Direct Manufacturing

Costs that do not change as volume changes are costs and costs that change in direct proportion with a change in volume are costs.

Fixed; Variable

Costs required to obtain customer orders are ______ costs and costs required to manage the organization are ______ costs.

Marketing; Administrative

Companies with low overhead costs focus on managing ______ costs, whereas companies with high overhead costs focus on managing ______ costs.

Prime; Conversion

Customers are provided with an intangible product by ______.

Service

True or false: Whether a cost is direct or indirect depends on the cost object.

True

A company is considering a special order that would not impact marketing, administrative, or total fixed manufacturing costs. Assuming the special order would not affect the regular market for the product, the special order should ______.

be accepted as long as the purchase price per unit is greater than the variable manufacturing cost per unit

Costs that can be unambiguously related to cost objects are ______ costs whereas costs that cannot be unambiguously related to cost objects are ______ costs.

Direct; Indirect

Product costs that can be identified with units at a relatively low cost are ______ manufacturing costs and all other product costs are ______ manufacturing costs.

Direct; Indirect

When preparing financial statements, ______ are deducted from revenues associated with an accounting period.

Expenses

True or False: Cost of goods sold includes the actual cost of goods that were sold and the costs required to sell them.

False

True or False: The excess of operating revenues over the operating costs incurred to generate those revenues is net income.

False

To calculate net income, operating profit is adjusted for ______. (all that apply) Intrest Expense All taxes associated with operating the business Extraordinary items Other Required regulatory adjustments

Interest expense Extraordinary items Other required regulatory adjustments

JPL Inc. makes a product that has a manufacturing cost of $2.75 per unit. ($1.75 per unit variable manufacturing and $1.00 per unit fixed manufacturing cost.). JPL has received a special order for 5,000 units of the product at $2.50 each. Marketing, administrative, and total fixed manufacturing costs will not be affected if the order is accepted, and it will not affect the regular market for the product. Which of the following statements regarding the special order is correct? JPL should accept the order because it will contribute $3,750 to operating profit. JPL should reject the special order because it will result in a $1,250 loss for the company. JPL should accept the order because it will contribute $7,500 to operating profit.

JPL should accept the order because it will contribute $3,750 to operating profit. $2.50 - $1.75 variable cost = $.75 contribution per unit x 5,000 units = $3,750 contribution to operating profit.

Which of the following statements are true? (all that apply) Per unit fixed costs are only valid at one volume. Per unit variable costs are only valid at one volume. Fixed costs should only be put on a per unit basis when making a special order decision. Putting fixed costs on a per unit basis makes it appear that they are variable costs.

Per unit fixed costs are only valid at one volume. Putting fixed costs on a per unit basis makes it appear that they are variable costs.

Beginning work in process inventory plus total manufacturing costs equals ______.

Resources put into production during the year

A doctor's office requires one nurse for each 10 patients scheduled per day. In this case, the nurses' salaries represent a ______ cost.

Step

Semifixed costs are also call ______ costs.

Step

Which of the following statements are true? (all that apply) Transportation-in is included in the cost of direct materials. Lubricating oil is included in direct material cost. Direct materials are often called raw materials. Direct materials are directly identified with products.

Transportation-in is included in the cost of direct materials. Direct materials are often called raw materials. Direct materials are directly identified with products.

True or false: For a manufacturer, finished goods inventory is optional.

True- If goods are shipped directly from the production line, no finished goods inventory exists.

Major categories of product costs include ______. (all that apply) direct labor indirect labor manufacturing overhead indirect materials direct materials

direct labor manufacturing overhead direct materials

The full cost of a product equals all ______.

manufacturing and selling costs (both fixed and variable)

Assume total units produced equals total units sold. If the company prepares a gross margin income statement and a contribution margin income statement, ______. (all that apply) marketing and administrative costs will be the same on both statements gross margin equals contribution margin products costs will be the same on both statements operating profit will be the same on both statements

marketing and administrative costs will be the same on both statements operating profit will be the same on both statements