Deck 2: An Introduction to Cost Terms and Purposes

Question 1

Evans Manufacturing has three cost objects that it uses to accumulate costs for its manufacturing plant in Virginia.They include:
Cost Object #1: The real estate dwelling(s)(physical buildings and equipment)
Cost Object #2: The use of buildings and equipment
Cost Object #3: The use and availability of manufacturing labor
The following manufacturing overhead cost categories are found in the accounting records:
a.Depreciation on buildings and equipment
b.Machine lubricants
c.Insurance for property
d.Supervisors salaries
e.Fringe benefits
f.Property taxes
g.Utilities
Required:
Assign each of the above costs to the most appropriate cost object.

Answer 1

Cost Object #1 includes categories a,c and f
Cost Object #2 includes categories b and g
Cost Object #3 includes categories d and e

Question 2

The broader definition of a cost object is:

A)the higher proportion of costs that are direct costs and the managers are more confident in the accuracy of the cost amounts.
B)the lower proportion of costs that are direct costs and the managers are more confident in the accuracy of the cost amounts.
C)the higher proportion of costs that are indirect costs and the managers are less confident in the accuracy of cost amounts.
D)the lower proportion of costs that are indirect costs and the managers are less confident in the accuracy of cost amounts.
E)the managers are never confident in the accuracy of cost amounts.

Answer 2

A

Question 3

The cost incurred is:

A)actual costs.
B)budgeted costs.
C)cost object.
D)cost accumulation.
E)cost allocation.

Answer 3

A

Question 4

The cost object is:

A)the cost incurred.
B)a collection of cost data in some organized way by means of a cost object.
C)a predicted,or forecasted,cost.
D)anything for which a measurement of costs is desired.
E)used to describe the assignment of indirect costs to a particular cost object.

Question 5

Which of the following is correct about indirect costs of a cost object?

A)Cost allocation is not used to describe the assignment of these costs to a particular cost object.
B)Cost tracing is used to describe its assignment of these costs to a particular cost object.
C)Can be traced to a cost object in an economically feasible way.
D)Cannot be traced to a cost object in an economically feasible way.
E)Cost assignment is not used in indirect costing methods.

Question 6

The two main ways managers use cost information are when they ________ decisions;and,________ decisions.

A)make;implement
B)create;brainstorm
C)control;create
D)brainstorm;control
E)control;accumulate

Question 7

A BMW X6 sports activity coupe is an example of the ________ cost object at BMW.

A)product
B)service
C)project
D)customer
E)activity

Question 8

A ________ is usually measured as the amount of money that must be paid to acquire goods and services.

A)time
B)cost
C)goal
D)product
E)prediction

Question 9

Recall that managers use a cost system to determine the costs of various cost objects.List and discuss how managers use the two basic stages in this process to determine the cost.

Question 10

Accountants measure the cost of direct materials or advertising at manufacturing plants by using the monetary amount paid to acquire them.

Question 11

Which of the following explains why managers compare the budgeted costs to actual costs?

A)Managers only focus on the budgeted costs.
B)Managers only learn how to make better decisions in the future.
C)Managers know how well they did to control costs only.
D)Managers evaluate how well they did to control costs and learn how to do better in the future.
E)Managers never compare these costs.

Question 12

Budgeted costs include:

A)the costs incurred this year.
B)the costs incurred last year.
C)the planned or forecasted costs.
D)the cost of a competitor.
E)the costs incurred two years ago.

Question 13

The managers at BMW utilize their knowledge about costs to make decisions about product innovation,quality,and customer service.

Question 14

Cost tracing:

A)describes the assignment of direct costs to a particular cost object.
B)is the cost incurred which is a predicted or forecasted cost.
C)is the collection of data in some organized way.
D)is used to describe the assignment of indirect costs to a particular cost object.
E)encompasses both cost tracing and allocating indirect costs to a cost object.

Question 15

Budgeted costs are also known as predicted or forecasted costs (future costs).

Question 16

Managers use their knowledge about costs to help guide their decisions about product innovation,quality,and customer service.

Question 17

Cost accumulation:

A)is the cost incurred.
B)is a collection of cost data in an organized way by means of a cost object.
C)predicts,or forecasts,costs.
D)measures the desired costs.
E)describes the assignment of indirect costs to a particular cost object.

Question 18

A/an ________ cost is the cost incurred;and they are distinguished from a ________ cost;which is a predicted,forecasted,or future cost.

A)budget;object
B)actual;budgeted
C)accumulated;actual
D)budgeted;actual
E)cost object;actual

Question 19

The predicted,or forecasted costs,are:

A)actual costs.
B)budgeted costs.
C)cost object.
D)cost accumulation.
E)cost allocation.

Question 20

The general term used to identify the tracing and allocation of accumulated costs to a cost object is:

A)cost accumulation.
B)cost assignment.
C)cost tracing.
D)conversion costing.
E)convertible costing.

Question 21

An example of a mixed cost is:

A)monthly rent payments.
B)manager's salary.
C)monthly electric bill.
D)direct materials.
E)none of these are mixed costs.

Question 22

We define cost tracing as:

A)the assignment of direct costs to a chosen cost object.
B)a function of cost allocation.
C)the process of tracking both direct and indirect costs associated with a cost object.
D)the process of determining the actual cost of the cost object.
E)the process of tracking only the direct and indirect costs.

Question 23

Cost tracing is used to describe the assignment of indirect costs to a particular cost object.

Question 24

One highlight of indirect costs of a cost object is that it can be traced in an economically feasible way.

Question 25

Financial accountants realize that a mixed cost is:

A)a fixed cost.
B)a cost with fixed and variable elements.
C)a variable cost.
D)always an indirect cost.
E)only an indirect cost.

Question 26

Write a short essay and explain why it is important for managers to assign costs accurately to cost objects.What are some of the challenges that managers face when they allocate costs to cost objects?

Question 27

In general,a manager is more confident about the accuracy of direct costs of cost objects.

Question 28

We define cost allocation as:

A)the process of tracking both direct and indirect costs associated with a cost object.
B)the process of determining the actual cost of the cost object.
C)the assignment of indirect costs to the chosen cost object.
D)a function of cost tracing.
E)not a function of cost assignment.

Question 29

Indirect costs of a cost object can be traced to a specific cost object and direct costs of a cost object cannot be traced to a specific cost object.

Question 30

Which of the following statements about the direct or indirect cost classification is not true?

A)Indirect costs are always traced.
B)Indirect costs are always allocated.
C)The design of operations affects the direct or indirect cost classification.
D)The direct/indirect classification depends on the choice of the cost object.
E)All of these statements are true.

Question 31

Write a brief summary and discuss why cost allocation is important to a manager.Discuss some of the challenges that managers face when they allocate costs and discuss those factors that affect the direct/indirect cost classification.Be specific.

Question 32

Write a short essay and discuss some of the factors that affect the classification of direct and indirect costs.

Question 33

Write a short essay and explain how technological advances have improved the accounting or finance manager's ability to track costs.Be specific.

Question 34

Which of the following is not a challenge to managers that allocate costs?

A)Assign inaccurate product costs.
B)Inaccurate product costs mislead managers about the profitability of products.
C)Managers will promote unprofitable products.
D)Managers deemphasize profitable products.
E)Assign accurate product costs.

Question 35

The costing systems that managers use to identify the cost of each activity such as testing,design,or set-up are called:

A)product-based costing systems.
B)action-based costing systems.
C)managerial-based costing systems.
D)activity-based costing systems.
E)resource-based costing systems.

Question 36

Write a short essay and explain why a manager at a manufacturing company considers the direct costs to be more accurate than indirect costs.

Question 37

Fixed and variable costs:

A)always change in the same proportion.
B)are defined as variable or fixed for a specific activity for a given time period.
C)are only defined for a specific activity and never for a given period of time.
D)are only defined for a given period of time and not for a specific activity.
E)are never useful to managers when they make cost decisions.

Question 38

The cost of steel and tires to an automobile manufacturer is an example of a direct cost.

Question 39

The plant administrative costs at a manufacturing company are indirect costs.

Question 40

Ford Motor Company is an example of a plant that manufactures automobiles.The cost of the lease where it manufactures automobiles can be categorized as an indirect cost.

Question 41

Outside the relevant range,variable costs,such as direct materials,may not change proportionately with changes in production volume.

Question 42

Which of the following is not a true statement about variable costs?

A)A total cost that can change in proportion to changes in the number of product produced.
B)An important cost to identify so managers can make important management decisions.
C)Total cost never changes in proportion to any changes in related levels of volume or activity.
D)When considering total cost behavior,focus on total costs.
E)Total cost is known to change in proportion to any changes in related level of volume or activity.

Question 43

Managers compute the unit cost by:

A)multiplying total cost by the number of units.
B)dividing total cost by the number of units.
C)dividing variable cost by the number of units.
D)adding variable cost to fixed cost.
E)adding variable,direct,and indirect costs.

Question 44

When 40,000 units are produced,fixed costs are $16 per unit.Therefore,when 80,000 units are produced,fixed costs will:

A)increase to $32 per unit.
B)remain at $16 per unit.
C)decrease to $8 per unit.
D)total $640,000.
E)total $540,000.

Question 45

Costs are defined as variable or fixed for a specific activity and for a given time period.

Question 46

Write a short essay and discuss whether or not managers should assume that individual cost items are inherently fixed or variable? Why are some costs fixed and other costs variable costs?

Question 47

Write a brief summary and explain how the impact of a financial crisis impacts how managers at global companies account for fixed costs.Be specific.

Question 48

Answer the question below using the following information:

Required:
Compute the fixed supervision cost per custom carburetor for 5,000,10,000,and 15,000 carburetors produced.

A)$250;$300
B)$250;$166.66
C)$150;$100
D)$200;$300
E)$50;$25

Question 49

Which of the following is not true about unit costs?

A)Decision makers think in terms of total costs rather than unit costs.
B)Decision makers think in terms of unit costs rather than total costs.
C)Calculating unit cost is essential.
D)Unit costs are also known as average costs.
E)Managers can express costs in various ways.

Question 50

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

A)average range.
B)cost-allocation range.
C)cost drive range.
D)relevant range.
E)driving range.

Question 51

When 5,000 units are produced,variable costs are $6 per unit.Therefore,when 20,000 units are produced:

A)variable costs will total $120,000.
B)variable costs will total $60,000.
C)variable unit costs will increase to $12 per unit.
D)variable unit costs will decrease to $3 per unit.
E)variable costs will decrease to $2 per unit.

Question 52

Write a short essay and explain how managers differentiate between fixed costs and variable costs.

Question 53

The managerial accountant at Sahara Organizations matches business functions to cost drivers.The list below provides representative cost drivers in the right column are randomized with respect to the list of functions in the left column [Note: These are not matched to the respective cost driver].

Numbers 1-6 represent the Business Functions and the letters A-F represent the cost drivers at the company.
Required:
Insert the letter of the appropriate cost driver (A through F)and match each business function with its appropriate cost driver.

Question 54

Unit costs are found in:

A)only the production department.
B)only the sales department.
C)all areas of the value chain.
D)only in the marketing department.
E)only in the human resource department.

Question 55

A manager at an airline must purchase individual annual licenses and pay registration costs for each airplane in the fleet of airplanes they operate at the airport.What type of cost is/are the registration and license costs for the miles flown each year for each individual airplane?

A)Fixed and variable cost for the miles flown by each individual plane.
B)Mixed cost for the miles flown by all planes each year.
C)Fixed cost for the miles flown by each individual plane.
D)Variable cost for the miles flown by each individual plane.
E)Licenses and registrations are not considered costs to the airline.

Question 56

Costs that have both fixed and variable elements are called mixed costs or semivariable costs.

Question 57

Answer the question using the information provided below:

The manager at the Carburetor Factory buys a custom carburetor at $50.00 each for each of its custom vehicles.Compute the total fixed cost per custom carburetor if 1,500,and 1,000 custom carburetors are produced.

A)$25,000;$50,000
B)$30,000;$60,000
C)$35,000;$70,000
D)$40,000;$45,000
E)$45,000;$90,000

Question 58

Fixed costs can be changed quickly to match the amount of resources that are needed or used in the organization.

Question 59

Write an essay and define relevant range.Discuss what the relevant range is and explain why it is important to managers?

Question 60

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

A)considered to be a fixed cost.
B)considered to be a direct variable cost.
C)considered to be an indirect fixed cost.
D)considered to be an indirect variable cost.
E)none of these are true.

Question 61

Write a brief summary and explain why managers account for inventoriable and period costs.Explain the differences between inventoriable and period costs.

Question 62

All costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold only when the product is sold are:

Question 63

Which of the following is normally included in direct materials inventory?

A)Direct materials in stock and awaiting use in the manufacturing process.
B)Goods partially worked on but not yet fully completed.
C)Goods fully completed but not yet sold.
D)Products in their original form intended to be sold without changing their basic form.
E)Goods and products that have been completed and sold.

Question 64

Write a short essay and discuss how unit costs are calculated.Discuss how unit costs are related to the value chain.

Question 65

Accounting systems report:

A)only the total cost amounts.
B)only the average-cost per unit amounts.
C)both total-cost amounts and average-cost per unit amounts.
D)only average costs.
E)no cost amount data.

Question 66

Acme Candle Company reported the following information:

Required:
Compute the average manufacturing cost per unit.

A)$1.00
B)$1.75
C)$2.95
D)$4.50
E)$5.00

Question 67

In finished goods inventory:

A)direct materials are in stock and awaiting use in the manufacturing process.
B)goods are partially worked on but not yet fully completed.
C)goods are fully completed but not yet sold.
D)products are in their original form intended to be sold but the basic form is changed basic form.
E)goods are partially completed and sold as is.

Question 68

Which of the following is not a characteristic of the type of inventory used in manufacturing-type sector companies?

A)Direct materials inventory.
B)Work-in process inventory.
C)Finished goods inventory.
D)Materials in stock and waiting to use.
E)Products already manufactured and sold.

Question 69

Write a brief essay and discuss how manufacturing-sector companies inventory their products.

Question 70

Manufacturing-sector companies purchase materials and components and convert them into various finished goods.

Question 71

The unit cost,or average cost,is the ratio of total costs to the number of units produced.

Question 72

During 2011,Maryland Corporation incurred manufacturing expenses of $15,000,000 to produce 300,000 finished units.At year-end,it was determined that 250,000 units were sold while 25,000 units remained in ending inventory.
Required:
a.Compute the cost to produce one unit.
b.Compute the amount that will be reported on the income statement for cost of goods sold.
c.Compute the amount that will be reported on the balance sheet for ending inventory.

Question 73

As a general rule,managers first calculate total costs,and then compute which of the following costs when they need to make decisions?

A)A direct cost.
B)A unit cost.
C)A variable cost.
D)An indirect cost.
E)A cost driver.

Question 74

Managers should think in terms of unit costs rather than terms of total costs for many decisions.

Question 75

Which of the following is not a commonly used classification or characteristic of manufacturing costs?

A)Direct material costs.
B)Direct manufacturing labor costs.
C)Indirect manufacturing costs.
D)Freight-in charges.
E)Cost of goods sold.

Question 76

Service-sector companies only provide services or intangible products and so do not hold inventories of tangible products.

Question 77

Write a short essay and explain how managers classify manufacturing costs.

Question 78

Merchandising-sector companies purchase and then sell tangible products without changing their basic form.

Question 79

Jim's Manufacturing currently produces 1,250 brakes per month.The following per unit data apply for sales to regular customers:

The plant has capacity for 2,000 brakes.
Required:
a.What is the total cost of producing 1,000 brakes?
b.What is the total cost of producing 1,500 brakes?
c.What is the per-unit cost when producing 1,500 brakes?

Question 80

Service-sector companies are known as companies that provide products to its customers.