Cost Test

variable cost

cost that changes in total in proportion to changes in the related level of total activity or volume of output produced

fixed cost

cost that remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume of output produced

activity based costing system

costing systems that identify the cost of each activity such as testing, design, or setup

direct cost

costs that can be traced to a cost object in an economically feasible way

indirect costs

costs that cannot be traced to a cost object in an economically feasibly way

cost allocation

describes the assignment of indirect costs to a particular cost object

cost tracing

describes the assignment of indirect costs to a particular cost object

industrial engineering method

estimates cost functions by analyzing the relationship between inputs and outputs in physical terms

account analysis method

estimates cost functions by classifying various cost accounts as variable, fixed, or mixed in regard to the identified level of activity

conference method

estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of a company

nonlinear

outside the relevant range, variable and fixed cost-behavior patterns change, causing costs to become __________

direct materials costs

the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object in an economically feasible way

y = a + bX

what is the general formula for the linear cost function

B

​"Transferred-in costs are those costs incurred in the preceding accounting​ period." Do you​ agree? Explain. A.) No.​ Transferred-in costs or current period costs are costs incurred only while the product is being processed within the current department. As the costs are incurred in the current​ period, they are transferred in and assigned to the units. B.) No.​ Transferred-in costs or previous department costs are costs incurred in a previous department that have been charged to a subsequent department. These costs may be costs incurred in that previous department during this accounting period or a preceding accounting period. C.) Yes.​ Transferred-in costs or previous department costs are only costs incurred in a preceding accounting period. As units move from one accounting period to​ another, the related costs are transferred by monthly journal entries. D.) None of the above are correct.​ Transferred-in costs have nothing to do with costs incurred during any accounting period.

absorption costing

- most common & GAAP - Manufacturing costs (DM, DL, MOH) are capitalized - Non-manufacturing costs (SG&A) are expensed.

cost drivers

Any factors or activities that have a direct cause-effect relationship with the resources consumed.

B

Differences in operating income between variable costing and absorption costing are due solely to accounting for fixed costs. Do you​ agree? A.) Yes, that is the only difference. B.) No, differences in operating income between variable costing and absorption costing are due to accounting for fixed manufacturing costs. C.) No, differences in operating income between variable costing and absorption costing are due to accounting for variable manufacturing costs. D.) No, there is no difference in operating income between variable costing and absorption costing.

indirect and both

Direct or Indirect? Variable or Fixed?... for a tire manufacturer factory utilities

D

Johnson Superior Products Inc. produces hospital equipment and the setup requirements vary from product to product. Johnson produces its products based on customer orders and uses ABC costing. In one of its indirect cost pools, setup costs and distribution costs are pooled together. Costs in this pool are allocated using number of customer orders for the easiness of costing operations. Based on the information provided, which of the following arguments is valid? A) Johnson has clearly failed to identify as many direct costs as is economically feasible. B) All costs in a homogeneous cost pool have the same or a similar cause-and-effect relationship with the single cost driver that is used as the cost-allocation base for Johnson. C) Johnson has unnecessarily wasted resources by classifying setup and distribution costs as they could have been considered as direct costs. D) Johnson has failed to use the correct cost driver as the cost-allocation base for setup costs.

actual costing

MOH based on the actual MOH rate times the actual activity consumption

Normal costing

MOH based on the budgeted MOH rate times the actual activity consumption

supply

Theoretical capacity and practical capacity react to ________________ (supply or demand)

cost assignment

a general term that encompasses both (1) tracing direct costs to a cost object and (2) allocating indirect costs to a cost object

cost function

a mathematical description of how a cost changes with changes in the level of an activity relating to that cost

budgeted cost

a predicted or forecasted cost

cost

a resource sacrificed or forgone to achieve a specific objective

regression analysis method

a statistical method that measures the average amount of change in the dependent variable associated with a unit change in one or more independent variables the method is widely used because it helps managers "get behind the numbers" so they understand why costs behave the way they do and what managers can do to influence them

cost driver

a variable, such as the level of activity or volume, that casually affects costs over a given time span

overhead

both the overtime premium and the costs of idle time are considered ____________________ costs

process costing

- Costs are accumulated for a time period - (week or month). - Costs are assigned to departments or processes for a specified period of time. - Unit product cost is total costs divided by # units.

job order costing

- Costs are assigned to each job or batch. - Need to compute the cost per job - Measures costs for each job completed - not for set time periods.

variable costing

- Variable manufacturing costs (DM, DL, VMOH) are capitalized - Variable non-manufacturing costs and all fixed costs (both manufacturing and non-manufacturing) are expensed. - capacity analysis

B

A company might use budgeted costs rather than actual costs to compute​ direct-labor rates because A.) the budgeted cost will result in lower corporate income taxes. B.) it may be difficult to trace direct labor costs to jobs as they are completed. C.) the budgeted costs will result in a higher gross margin. D.) the budgeted costs are more accurate.

B

A distinct feature of the FIFO process-costing method is that the ________. A) work done on beginning inventory before the current period is blended with the work done during the current period in the calculation of equivalent units B) work done on beginning inventory before the current period is kept separate from the work done during the current period in the calculation of equivalent units C) work done on ending inventory is kept separate from the work done during the current period in the calculation of equivalent units and is usually not included in the calculation D) FIFO process-costing method is only minimally different from the weighted-average process-costing method

B

Comprehensive CareComprehensive Care Nursing Home is required by statute and regulation to maintain a minimum 3 to 1 ratio of direct service staff to residents to maintain the licensure associated with the Nursing Home beds. The salary expense associated with direct service staff for the Comprehensive CareComprehensive Care Nursing Home would most likely be classified​ as: A.) Inventoriable costs. B.) Fixed cost. C.) Variable cost. D.) Overhead costs.

B

Conroe Company is reviewing the data provided by its management accounting system. Which of the following statements are correct? 1. A cost driver is a causal factor that increases the total cost of a cost object 2. Cost drivers may be volume based or activity based 3. Cost drivers are normally the largest cost in the manufacturing process a) 1 is only correct b) 1 and 2 are only correct c) 2 and 3 are only correct d) 1, 2 , and 3 are all correct

False

Cost functions are always linear T or F

activity cost pools

Costs of a distinct type of activity.

B

Define cost object and give three examples. a) A cost object is a resource sacrificed or forgone to achieve a specific objective. Examples include direct​ materials, direct​ labor, and advertising. b) A cost object is anything for which a separate measurement of costs is desired. Examples include a​ product, a​ service, and a customer. c) A cost object is the collection of cost data in some organized way by means of an accounting system. Examples include accumulated​ costs, overhead, and direct labor. d)A cost object is a cost incurred​ (historical or past​ cost), as distinguished from a budgeted​ cost, which is a predicted or forecasted cost​ (a future​ cost). Examples include​ materials, labor, and overhead.

C

Define product cost. Describe three different purposes for computing product costs. A.) A product cost is the sum of all indirect costs assigned to a product. Purposes for computing a product cost include​ (1) valuing​ inventory, (2) product mix​ decisions, and​ (3) analyzing production efficiencies. B.) A product cost is the sum of all manufacturing costs other than direct materials assigned to a product. Purposes for computing a product cost include​ (1) analyzing fluctuations in the​ non-material costs of a​ product, (2) product pricing​ decisions, and​ (3) preparing financial statements for internal reporting purposes. C.) A product cost is 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. D.) A product cost is the sum of all direct material costs and direct labor costs assigned to a product. Purposes for computing a product cost include​ (1) choosing a supplier with competitive​ prices, (2) employee​ wage-rate analysis, and​ (3) analyzing fluctuations in material and labor costs.

direct and variable

Direct or Indirect? Variable or Fixed?... for a tire manufacturer Reinforcement cables

direct and variable

Direct or Indirect? Variable or Fixed?... for a tire manufacturer Rubber

indirect and both

Direct or Indirect? Variable or Fixed?... for a tire manufacturer cleaning supplies for factory

indirect and fixed

Direct or Indirect? Variable or Fixed?... for a tire manufacturer custodian of factory

indirect and both

Direct or Indirect? Variable or Fixed?... for a tire manufacturer depreciation on formers

indirect and both

Direct or Indirect? Variable or Fixed?... for a tire manufacturer depreciation on mixing machines

direct and variable

Direct or Indirect? Variable or Fixed?... for a tire manufacturer finishing department hourly laborers

indirect and fixed

Direct or Indirect? Variable or Fixed?... for a tire manufacturer fire insurance on factory building

indirect and both

Direct or Indirect? Variable or Fixed?... for a tire manufacturer machine maintenance personnel in each department

indirect and both

Direct or Indirect? Variable or Fixed?... for a tire manufacturer machinist (running the forming machines)

indirect and both

Direct or Indirect? Variable or Fixed?... for a tire manufacturer machinist (running the mix machine)

indirect and variable

Direct or Indirect? Variable or Fixed?... for a tire manufacturer maintenance supplies for factory

indirect and both

Direct or Indirect? Variable or Fixed?... for a tire manufacturer material handlers in each department

indirect and fixed

Direct or Indirect? Variable or Fixed?... for a tire manufacturer mixing department manager

indirect and fixed

Direct or Indirect? Variable or Fixed?... for a tire manufacturer night guard in factory

direct and variable

Direct or Indirect? Variable or Fixed?... for a tire manufacturer other direct materials

indirect and fixed

Direct or Indirect? Variable or Fixed?... for a tire manufacturer rent on factory building

D

Distinguish between actual costing and normal costing. A.) Actual costing and normal costing differ in their use of actual or budgeted quantities of​ cost-allocation bases. B.) Actual costing and normal costing differ in their use of actual or budgeted quantities of​ direct-cost inputs. C.) Actual costing and normal costing differ in their use of actual or budgeted​ direct-cost rates. D.) Actual costing and normal costing differ in their use of actual or budgeted​ indirect-cost rates.

D

Distinguish between actual costing and normal costing. A.) Actual costing and normal costing differ in their use of actual or budgeted​ direct-cost rates. B.) Actual costing and normal costing differ in their use of actual or budgeted quantities of​ cost-allocation bases. C.) Actual costing and normal costing differ in their use of actual or budgeted quantities of​ direct-cost inputs. D.) Actual costing and normal costing differ in their use of actual or budgeted​ indirect-cost rates.

A

Distinguish direct costs from indirect costs. A.) Direct costs are related to the particular cost object and can be traced to that cost object in a​ cost-effective way while indirect costs are related to the particular cost object but cannot be traced to that cost object in a​ cost-effective way. B.) Direct costs are historical or past costs incurred while indirect costs are predicted or forecasted costs. C.) Direct costs include the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object in an economically feasible way while indirect costs include compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way. D.) Direct costs are those that change in total in proportion to changes in the related level of total activity or volume while indirect costs are those that remain unchanged in total for a given time​ period, despite wide changes in the related level of total activity or volume.

standard costing

MOH based on the budgeted MOH rate times the budgeted activity consumption.

A

Give an example of​ how, under absorption​ costing, operating income could fall even though the unit sales level rises. A.)Under absorption​ costing, heavy reductions of inventory during the accounting period might combine with low production and a large production volume variance. This combination could result in lower operating income even if the unit sales level rises. B.) Under absorption​ costing, large purchases of inventory during the accounting period might combine with increased production and a small production volume variance. This combination could result in lower operating income even if the unit sales level rises. C.) Under absorption​ costing, operating income could never fall if the unit sales level rises. D.) Under absorption​ costing, the build up of older inventories combined with low production can result in lower operating income regardless of the unit sales level rising.

B

How does a​ job-costing system differ from a​ process-costing system? A.) A​ process-costing system allocates indirect costs to​ products; a​ job-costing system does not allocate indirect costs to products. B.) A​ job-costing system assigns costs to distinct​ units; a​ process-costing system assigns costs to masses of similar units. C.) A​ job-costing system allocates indirect costs to​ products; a​ process-costing system does not allocate indirect costs to products. D.) A​ job-costing system assigns costs to masses of similar​ units; a​ process-costing system assigns costs to distinct units.

D

In a normal costing system (if you use both MOH control and MOH allocated), the Manufacturing Overhead Control account ________. A) is increased by allocated manufacturing overhead B) is credited with amounts transferred to Work-in-Process C) is decreased by allocated manufacturing overhead D) is debited with actual overhead costs

absorption

Managers may seek to manipulate CGS and income by over-producing products (which results in less FMOH cost to be expensed as CGS during the period and more FMOH cost to be capitalized as inventory) under ________ costing

B

In process costing, why are costs often divided into two main classifications? a) process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Often, only two cost classifications, fixed and variable costs, are necessary. Fixed costs are only added at the start of the process and variable costs are added at the end b) process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Often, only two cost classifications, direct materials and conversion costs, are necessary. Direct materials are frequently added at the start or end of the process and conversion costs are often added throughout the process c) process costing systems separate costs into cost categories according to the type of product or service being provided. Direct materials are applicable only to the manufacture of a product and conversion costs are applicable only when a service is being provided d) process costing systems separate costs into cost categories according to the inventory method being used. Indirect costs are used under the weighted average method and direct costs are used under the FIFO method

demand

Normal capacity utilization and master budget capacity utilization react to ________________ (supply or demand)

C

Select the 4 decisions of which ABC information is useful: a) 1. Allocating DM costs 2. Allocating DL costs 3. Identifying direct MOH cost pools 4. Identifying indirect MOH cost pools b) 1. product-cost cross subsidization 2. converting product-sustaining costs into unit level costs 3. identifying cost objects 4. predicting gross profit c) 1. pricing and product mix 2. cost reduction and process improvement 3. product design 4. decisions for planning and managing activities d) 1. identifying problems and uncertainties 2. obtaining information 3. making predictions about the future 4. choosing among alternatives

absorption costing

The costing method used to value inventories and cost of goods sold for external financial reporting purposes.

D

What are the four levels of a cost​ hierarchy? A.) 1. Direct materials 2. Direct labor 3. Direct manufacturing overhead 4. Indirect manufacturing overhead B.) 1. Direct costs 2. Indirect costs 3. Variable costs 4. Fixed costs C.) 1. Design costs 2. Manufacturing costs 3. Distribution costs 4. Customer service costs D.) 1. Output​ unit-level costs 2. Batch-level costs 3. Product-sustaining costs or​ service-sustaining costs 4. Facility-sustaining costs

D

What is a possible consequence of using broad averaging to calculate unit​ costs? A.) By ignoring the allocation of indirect costs to the cost​ objects, broad averaging can lead to product overcosting. B.) Broad averaging does not take into account variable cost​ components, and​ therefore, this method is unable to provide meaningful data when estimating costs across various levels of activity. C.) Broad​ averaging, which ignores actual average indirect cost​ rates, can lead to product overcosting or product undercosting. D.) By ignoring the variation in the consumption of resources by different cost​ objects, broad averaging can lead to inaccurate product costing.

B

What is an activity based approach to designing a cost system? a) an activity based approach traces direct costs to a cost object by using the actual direct cost rates times the actual quantities of the direct cost input. Indirect costs are allocated based on the actual indirect cost rates times the actual quantities of the cost allocation bases b) an activity based approach refines a costing system by focusing on individual activities as the fundamental cost object. it uses the cost of these activities as the basis for assigning costs to other cost objects such as products or services c) an activity based approach describes a particular costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects d) an activity based approach means making changes that result in cost numbers better measuring the way different cost objects, such as products, use different amounts of resources of the company. These changes require the assignment of costs to direct and indirect cost pools and the use of a single indirect cost rate

C

What is broad​ averaging? A.) Broad averaging describes the method of calculating the average fixed manufacturing overhead cost of each unit produced or service performed. B.) Broad averaging describes a costing approach that allocates indirect costs to cost objects based on the budgeted average indirect cost rates multiplied by the budgeted quantities of the​ cost-allocation bases. C.) Broad averaging describes a costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects. D.) Broad averaging describes a costing system that uses direct costs to assign the cost of resources directly to cost objects.

B

When costs can be traced to a particular cost object in an economically feasible way, the cost is a/an: A) indirect cost B) direct cost C) allocated cost D) budgeted cost

equal to

When production in units equals sales in units, operating income using variable costing would be ________________ operating income using absorption costing

less than

When production in units is greater than sales in units, operating income using variable costing would be ________________ operating income using absorption costing

greater than

When production in units is less than sales in units, operating income using variable costing would be ________________ operating income using absorption costing

ABC

When to use ____________ costing: - Product lines differ in volume and manufacturing complexity. - Product lines are numerous and diverse. - Overhead costs constitute a significant portion of total costs. - The manufacturing process or the number of products has changed significantly. - Production or marketing managers are ignoring data provided by the existing system.

A

When using the high-low method, the two observations used are the high and low observations of the ________. A) cost driver B) fixed cost component C) slope coefficient D) direct cost

D

Which of the following are examples of industries that use​ process-costing systems? A.) Pharmaceutical B.) Oil refining C.) Semiconductor Chips D.) All of the above

B

Which of the following costs will be treated as period costs under absorption costing? A) raw materials used in the production B) sales commission paid on sale of product C) depreciation on factory equipment D) rent for factory building

A

Which of the following describes the distinctive characteristic of FIFO computations in assigning costs to units completed and to units in ending work in​ process? A.) Assigns the cost of the previous accounting​ period's equivalent units in beginning​ work-in-process inventory to the first units completed and transferred out of the process and assigns the cost of equivalent units worked on during the current period first to complete beginning​ inventory, next started and completed new​ units, and finally to units in ending​ work-in-process inventory. B.) Standard costs are assigned first to complete beginning​ work-in-process inventory, next started and completed new​ units, and finally to start new units that are in ending​ work-in-process inventory. C.) Calculates the equivalent unit cost of all the work done to date and assigns this cost to equivalent units completed and transferred out of the​ process, and to equivalent units in ending​ work-in-process inventory. D.) None of the above.

C

Which of the following does not accurately describe the application of job order costing? a) finished goods that are purchased by customers will directly impact cost of goods sold b) indirect manufacturing labor and indirect materials are part of the actual manufacturing costs incurred c) manufacturing overhead costs incurred is used to determine total manufacturing costs d) direct materials and direct manufacturing labor are included in total manufacturing costs

A

Which of the following is a fixed cost for an automobile manufacturing plant? A) administrative salaries B) electricity used by assembly-line machines C) sales commissions D) tires

A

Why is it important to classify costs into a cost​ hierarchy? A.) It is important to classify costs into a cost hierarchy because costs in different cost pools relate to different​ cost-allocation bases and not all​ cost-allocation bases are unit level. If costs were not classified into a cost​ hierarchy, the alternative would be to consider all costs as​ unit-level costs, leading to misallocation of those costs that are not​ unit-level costs. B.) It is important to classify costs into a cost hierarchy because although costs in different cost pools relate to different​ cost-allocation bases, all​ cost-allocation bases are​ unit-level. Classifying costs into a cost hierarchy allows managers to spread costs evenly across all units. C.) It is important to classify costs into a cost hierarchy because it allows managers to evaluate the importance of costs in the manufacturing process. If costs were not classified into a cost​ hierarchy, managers would be unable to assess the importance of each cost incurred in manufacturing the product. D.) It is important to classify costs into a cost hierarchy because costs in different cost pools relate to only one​ cost-allocation base and​ cost-allocation bases are always​ unit-level. Classifying costs into a cost hierarchy allows managers to spread costs evenly across all units.

variable

Why we use ______ costing: - For capacity analysis: The same fixed costs will be incurred regardless of the production level. In making decisions on the future production level, only variable costs are relevant - For performance evaluation: Operating income under absorption costing can be manipulated by increasing the level of production relative to the level of sales

master budget

_____________ capacity utilization is the level of capacity utilization that managers expect for the current budget period which is typically one year focus on demand

costing

_____________ is the process of estimating the cost (sacrifice) of taking action. In accounting, it is largely a matter of assigning costs to products or services.

normal

______________ capacity utilization is the level of capacity utilization that satisfies average customer demand over a period that is long enough to consider seasonal, cyclical, and trend factors focus on demand

process costing

__________________________ systems separate costs into cost categories according to when costs are introduced into the process. 1. Direct materials are usually added at the beginning of the production process, or at the start of work in a subsequent department down the assembly line. 2. Conversion costs are generally added equally along the production process.

period costs

all costs in the income statement other than costs of goods sold treated as expenses of the accounting period in which they are incurred because managers expect these costs to increase revenues in only that period and not in future periods

Inventoriable costs

all costs of a product that are considered assets in a company's balance sheet when the costs are incurred and that are expensed as cost of good sold only when the product is sold

prime costs

all direct manufacturing costs or Direct manufacturing costs (DM) + direct manufacturing labor costs (DL)

manufacturing overhead costs

all manufacturing costs that are related to the cost object but cannot be traced to that cost object in an economically feasible way

cost object

anything for which a cost measurement is desired

direct manufactoring labor costs

include the compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way

goodness of fit

indicates the strength of the relationship between the cost driver and costs

finished goods inventory

inventory of goods completed but not yet sold

work in process inventory

inventory of goods partially worked on but not yet completed

direct materials inventory

inventory of materials in stock that will be used in the manufacturing process

- direct materials inventory - work in process inventory - finished goods inventory

list the three types of inventory that companies typically have

cost estimation

managers use ___________ to measure a relationship based on data from past costs and the related level of an activity because they can help them make more accurate cost predictions

residual term

measures the difference between actual cost and estimated cost for each observation of the cost driver

idle time

refers to the wages paid for unproductive time caused by the lack of orders, machine or computer breakdowns, work delays, poor scheduling, and the like

Conversion Costs

represent all manufacturing costs incurred to direct materials into finished goods or Direct manufacturing labor costs (DL) + Manufacturing overhead costs (MOH)

slope coefficient

the amount by which total cost changes when a one unit change occurs in the level of activity

relevant range

the band or range 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

cost accumulation

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

actual cost

the cost incurred (historical or past cost)

Job costing system

the cost object is a unit or multiple units of a distinct product or service which we call a job. Each job generally uses different amounts of resources. -Examples: Custom-made cars, custom-made suits, buildings, auditing, consulting, advertising

process costing system

the cost object is masses of identical or similar units of a product or service. In this type of system, we divide the total cost of producing an identical or similar product or service by the total number of units produced to obtain a per-unit cost. Examples: Oil refining, cereal, soda, bank-check clearing

theoretical capacity

the level of capacity based on producing at full efficiency all the time capacity levels that are unattainable in the real world but they represent the ideal goal of capacity utilization a company can aspire to. focus on supply

practical capacity

the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions like scheduled maintenance time and shutdowns for holidays. focus on supply

variable

the longer the time horizon, all other things being equal, the more likely the cost will be ____________

high low method

the simplest form of quantitative analysis it uses only the highest and the lowest observed values of the cost driver within the relevant range and their respective costs to estimate the slope coefficient and the constant of the cost function

overtime premium

the wage rate paid to workers (both direct and indirect labor) in excess of their straight time wage rates

quantitative analysis

uses a formal mathematical method to fit cost functions to past data observations