Ch 3 | Basic Cost Management Concepts

The accounting records of Harrison Corporation revealed the following selected costs: Sales commissions $50,000 Plant supervision $104,000 Administrative expenses $195,000 Harrison's period costs total:

$245,000 $50,000 + $195,000 = $245,000

Which of the following statements are true?

At low values for the cost driver, costs increase at a decreasing rate; the law of diminishing marginal productivity occurs at higher levels of the cost driver

The calculation of cost of goods sold is:

Beginning finished goods + cost of goods manufactured - ending finished goods

Which of the following is correct?

Beginning inventory + Cost added = Cost transferred out + Ending inventory

Which of the following would not be classified as a product cost?

Costs of shipping a product to a customer

Which of the following employees would be classified as indirect labor?

Factory supervisor, factory custodian, plant security guard

True or false: A cost is only incurred when cash changes hands.

False

True or false: How successful firms need to apply cost management is dependent on the competitive strategy being used.

False

Cost of items ready for sale are held in:

Finished Goods Inventory

High Point Rockers is a company that manufactures wooden rocking chairs. The following production costs were incurred last month: Wood $10,000 Paint (various colors) $1,250 Glue (one-gallon container) $80 Which item(s) is most likely to be treated as an indirect material?

Glue

True or false: Many types of costs are volume-based, meaning they vary with the amount produced or quantity provided.

True

True or false: The cost driver for a vehicle cost can be either volume-based or activity-based.

True

True or false: To properly interpret total average unit cost, it must be separated into unit variable and unit fixed costs.

True

The four types of cost drivers are:

activity-based, volume-based, structural, executional

A cost object is:

any product, service, customer, or activity to which costs are assigned

Assembly workers' wages:

are always direct labor but some labor costs such as payroll taxes and training may be treated as indirect labor

When a resource is used for some purpose, a(n) _____ is incurred.

cost

The process of assigning costs to cost pools and then from cost pools to cost objects is called _____ _____.

cost assignment

Any factor that causes total cost to change is a(n) _____ _____.

cost driver

Enabling the assignment of costs to cost objects and explaining cost behavior are the two important roles provided by _____ _____.

cost drivers

Indirect costs are assigned using:

cost drivers

Examples of _____ _____ include grouping based on type of cost, source of cost, responsibility, and department.

cost pools

Prime costs are the combination of:

direct materials and direct labor

Design of a production process is a(n) _____ cost driver.

executional

Factors the firm can manage in the short term to reduce costs are _____ cost drivers.

executional

In a manufacturing firm, indirect labor, indirect materials and other indirect costs are combined together into a single amount knows as:

factory overhead

Product costs include:

factory overhead, direct materials and direct labor

Costs that provide capacity for operations are _____ costs.

fixed

Activity analysis:

helps improve operational and management control in the firm, is used to identify activity-based cost drivers

Having a detailed description of the firm's activities:

helps the firm achieve its strategic objectives, improves operational and management control

A(n) _____ _____ cannot be conveniently or economically traced to a cost pool or cost object.

indirect cost

Factors that influence the cost of preparing information for decision making include:

level of desired accuracy, timeliness, level of aggregation

Selling and administrative costs are:

never product costs

Operational complexity does NOT include the:

number of suppliers

Within the _____ _____ the total cost curve is approximately linear.

relevant range

Cost pools may be based on:

source of the cost, responsibility center, type of cost

Cornelius company collected the following information for one of its operating costs. Unit produced Total Cost 100 $10,000 200 $10,000 300 $15,000 400 $15,000 Based on the available information, this would be classified as a _____ cost.

step

Cost objects play a key role in:

strategy implementation, financial statement preparation, decision making

These are strategic in nature and involve decisions that have long-term effects on the firm's total costs.

structural cost drivers

An example of an executional cost driver is:

supplier relationships

The determination of whether a cost is variable generally depends on:

the nature of the cost object

If the actual value of a volume-based cost driver is expected to fall somewhere between 2,000 and 4,000 units, then 2,000 to 4,000 units represents:

the relevant range

Having necessary information available to management to facilitate effective decision making is:

timeliness

Product costs for a merchandising company include:

transportation costs to get the product to where it will be sold

The value chain of a manufacturer begins with _____ activities such as design and end with _____ activities including customer service.

upstream, downstream

The concept of cost objects includes products and groups of products which are called _____ _____.

value stream

A firm can use _____-_____ analysis to help assess the long term consequences of its current or planned commitment to a structural cost driver.

value-chain

With the relevant range of activity, per unit _____ costs are expected to remain approximately constant.

variable

Costs that are consumed during operations are:

variable costs

Which of the following is an example of a decision involving structural cost drivers?

Complexity

Which of the following statements are true?

Indirect labor includes factory supervisors and material handlers. Payroll taxes and fringe benefits for assembly line workers may be treated as indirect labor. Labor can sometimes be both direct and indirect depending on the cost object.

Direct material costs are included in: Option A Prime cost Conversion cost No period cost Option B No prime cost No conversion cost Period cost Option C Prime cost No conversion cost No period cost Option D No prime cost Conversion cost No period cost

Option C

The wage of the repair/maintenance personnel in a manufacturing plant is an example of: Option A No indirect labor Manufacturing overhead Option B Indirect labor No manufacturing overhead Option C Indirect labor Manufacturing overhead Option D No indirect labor No manufacturing overhead

Option C

Which of the following is not an example of a decision involving structural cost drivers?

Workforce empowerment

Internal accounting controls:

are designed to prevent or detect errors and fraud, restrict and guide financial processing activities, consists of policies and procedures

Fixed costs:

are generally not expected to change within a year, are defined for a period of time

Total cost of resources consumed divided by the number of units of output is the _____ _____.

average cost

A merchandising company is likely to have:

cost of goods sold

The dollar amount of a product transferred to the income statement at the time of a sale is called _____ _____ _____ _____.

cost of goods sold

Direct material cost generally includes:

cost of materials used in the production of the product, a reasonable allowance for scrap and defects

Meaningful groups into which costs are assigned are called:

cost pools

A cost that can be conveniently and economically traced to a cost pool or cost object is called a(n) _____ _____.

direct cost

Costs added to Work-in-Process Inventory include:

direct labor cost, overhead cost

The components of the cost of goods manufactured calculation are:

direct labor, overhead, direct materials used

The two types of cost assignments are _____ _____ and _____.

direct tracing, allocation

Cornelius company collected the following information for one of its operating costs. Unit produced Total Cost 100 $10,000 200 $10,000 300 $10,000 400 $10,000 Based on the available information, this cost would be classified as:

fixed

The cost of goods finished and transferred out of the Work-in-Process Inventory accounting during a specified period is called cost of goods _____.

manufactured

The three basic components of manufacturing (product) cost are direct labor costs, direct material costs, and:

manufacturing (factory) overhead costs

Total cost within the relevant range that includes both variable and fixed components is referred to as a(n) _____ _____.

mixed cost

Characteristics that help determine a firm's operational complexity include:

number and diversity of products, production processes and locations, distribution networks

Cost allocation is:

one type of cost assignment, the assignment of indirect costs to cost pools and cost objects

Cost of goods manufactured includes:

only product costs

All indirect costs are combined into a single cost pool called _____.

overhead

Then ending balance of inventory is determined by a count when using a(n) _____ inventory system.

periodic

Within the relevant range of activity _____ are expected to remain approximately constant.

total fixed costs and per unit variable costs

The sum of direct materials used, direct labor and overhead is called _____ _____ _____ for the period.

total manufacturing cost