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
