Chapter 2

The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires.

$98,000 Total cost of producing 2,000 tires = [(30+5+8) x 2,000 units] + (12 x 1,000 units)

A cost system determines the cost of a cost object by _______

Accumulating and then assigning costs

A cost incurred is called an ______

Actual cost

______ ______ is the collection of cost data in some organized way by means of an accounting system

Cost accumulation

T or F: Assigning indirect costs is easier than assigning direct costs.

False

T or F: Costs are accounted for in two basic stages: assignment followed by accumulation

False: Costs are accounted for in two basic stages: accumulation followed by assignment

T or F: The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.

False: The smaller the amount of a cost the less likely it is economically feasible to trace it to a particular cost object.

______ ______ costs may include both variable and fixed costs

Indirect manufacturing costs

The most likely cost driver of distribution costs is the ________

Number of miles driven

A band of normal activity or volume in which specific cost volume relationships are maintained is referred to as the _______ ______

Relevant range

I making product mix and pricing decisions, managers should focus on ________ ________

Total costs

Within the relevant range, if there is a change in the level of the cost driver, then ______

Total fixed costs will remain the same and total variable costs will change.

Xian manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?

Total manufacturing costs will increase and unit manufacturing costs will decrease.

T or F: A cost is a resource sacrificed or forgone to achieve a specific objective.

True

T or F: A cost may be direct for one cost object and indirect for another cost object

True

T or F: A cost object is anything in which a cost measurement is desired.

True

T or F: Printing costs incurred for payroll check processing; payroll check processing is the cost object.

True

T or F: The cost of electricity used in the production of multiple products would be classified as an indirect cost.

True

T or F: The design of the operation affects the direct/indirect classification of a cost?

True

T or F: Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs

True

_____ _____ is computed by dividing total cost by the number of units produced

Unit cost

_______ _________ increase in total when the actual level of activity increases

Variable Costs

If volume of sales increases, ________ _______ increase

Variable costs

When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ______

Variable costs will remain at $8 per unit.

Outside the relevant range, variable costs, such as direct material costs _________

Will not change proportionately with changes in production volumes

When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will _______

increase by $20 16 per unit x 20,000 units =$320,000 $320,000 / 16,000 units = $20

Classifying a cost as either direct or indirect depends upon _______

whether the cost can be easily traced with the cost object

At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually are considered a ______ ________

Fixed cost

Fixed costs depend on the ______

Amount of resources acquired

Comparing budgeted costs to actual costs helps managers to improve _______

Control

_____ _____ is the general term used to identify both the tracing and the allocation of accumulated costs to a cost object.

Cost assignment

____ ______ refers to how costs react to a change in the level of activity

Cost behavior

Monthly rent payment would be considered a _____ ______

Fixed cost

If the production volume decreases _________

Fixed cost per unit increases

T or F: An actual cost is the most incurred-a historical or past cost.

True

An example of a fixed cost for an automobile manufacturing plant is__________

Administrative salaries

Planned or forecasted costs are called_____ _______

Budgeted costs

_____ _______ is the assignment of indirect costs to the chosen cost object.

Cost allocation

______ __________ encompass allocating indirect costs to a cost object

Cost assignment

The following manufacturing overhead cost categories are found in the accounting records: A. Depreciation on buildings and equipment B. Lubricants for machines C. Property insurance D. Supervisors salaries E. fringe benefits F. Property Taxes G. Utilities Assign each of the above costs to the most appropriate cost object.

Cost object 1: A,C, and F Cost object 2: B and G Cost object 3: D and E

The determination of a cost as either direct or indirect depends upon the ______ ______ _______

Cost object chosen

______ _______ is the assignment of direct costs to the chosen cost object

Cost tracing

T or F: Variable costs per unit vary with the level of production or sales volume.

False: Variable costs per unit are constant with the level of production or sales volume.

A manufacturing plant produces two product lines: gold equipment and soccer equipment. An example of direct costs for the gold equipment line is:

Monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver.

The most likely cost driver of direct labor costs is the

Number of production hours

Maize Plastics manufactures and sells 50 bottles per day. Fixed costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000. Each bottle is sold for $1,000. How would the daily profit be affected if the daily volume of sales drop by 10%?

Profits are reduced by $4,000 Variable cost per unit = $10,000 / 50 = $200 Profit for 50 bottles= (1,000 x 50 ) - ($30,000 + 10,000) =10,000 Sales after 10% drop= 50 x (1-.1)=45 Profit for 45 bottles = (1,000 x 45) - (30,000 + (45 x 200))=$6,000 Change in profit= $10,000-$6,000 = $4,000

A manufacturing plant produces two product lines: gold equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the _________

Salary paid to a plant supervisor

T or F: A direct cost of one cost object can be an indirect cost of another cost object.

True

T or F: A direct cost of one object can be an indirect cost of another cost object

True

T or F: A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume of outbound produced.

True

T or F: Accountants define a cost as a resource to be sacrificed to achieve a specific objective.

True

T or F: Fixed cost per unit reduces with an increase in production volume

True

T or F: Improvements in information gathering technologies are making it possible to trace more costs as direct.

True

T or F: Indirect costs are always allocated with regard to cost classification.

True

T or F: Indirect costs cannot be traced to a particular cost object in an economically feasible way.

True

T or F: Managers use accumulation data to make decisions and implement them.

True

If each motorcycle requires a belt that cost $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ___________

considered to be a direct variable cost