Deck 2: Basic Cost Management Concepts

Question 1

The income statement prepared for external parties is frequently referred to as absorption-costing income, or full costing income.

Answer 1

True

Question 2

Production costs are costs associated with manufacturing goods or providing services and are classified as direct materials, direct labor, and overhead.

Answer 2

True

Question 3

The cost of goods sold is the cost of direct materials, direct labor and overhead attached to the units sold.

Answer 3

True

Question 4

The three methods of cost assignment are direct tracing, driver tracing, and allocation.

Question 5

Cost management information benefits production, marketing, and customer service systems as well as being a crucial part of managerial decision making.

Question 6

An integrated cost management system receives information from and provides information to only the controller of a company.

Question 7

The cost management information system is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives.

Question 8

Work in process consists of all partially completed units found in production at a given point in time.

Question 9

Product costs include production, marketing, and customer service, and are used for strategic design decisions and tactical profitability analysis.

Question 10

Conversion cost is the sum of direct materials and direct labor cost and prime cost is the sum of direct labor and overhead cost.

Question 11

Assigning costs accurately to cost objects is of low priority. Accuracy is not evaluated based on knowledge of
some underlying "true cost".

Question 12

Gross margin, also called gross profit, is the difference between sales and costs of goods sold.

Question 13

Cost is the cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future loss to the company.

Question 14

Intangible products are goods produced by converting raw material into finished products through the use of labor and capital inputs.

Question 15

The Financial accounting information system provides information for three broad objectives: costing services and products, planning and control, and decision making.

Question 16

Services differ from tangible products on three dimension: intangibility, perishability, and inseparability.

Question 17

Cost assignment is one of the key processes of the cost accounting system.

Question 18

The value chain is the set of activities required to design, develop, produce, market, deliver and provide post-sales service for the products and services sold to customers.

Question 19

The most precise of the three methods of cost assignment is direct tracing since it relies on observable causal relationships.

Question 20

The cost of goods manufactured represents the total manufacturing cost of goods completed during the current period.

Question 21

The cost accounting system that emphasizes tracing over allocation is called an activity-based accounting system.

Question 22

means the consumer cannot see, hear, feel, or taste a service before it is bought.

Question 23

Cost management systems can be broadly classified as traditional or activity based.

Question 24

A subsystem of the accounting information system designed to satisfy costing, controlling and decision making objectives is called the system.

Question 25

are generally materials necessary for production that do not become part of the finished product or are not used to provide a service.

Question 26

Gross margin is the difference between and the cost of goods or services sold.

Question 27

The overall objective of an activity-based cost management system is to manage activities to reduce costs and improve customer value.

Question 28

Cost management systems are made up of two subsystems: the accounting system and the
control system.

Question 29

A traditional cost accounting system assumes that all costs can be classified as fixed with respect to changes in the units or volume produced.

Question 30

income is the difference between gross margin and selling and administrative expenses.

Question 31

In preparing an income statement, and costs are separated.

Question 32

The overall objective of accounting information is to provide information to .

Question 33

Generally, more managerial objectives can be met with an activity-based system than with a system.

Question 34

The cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers relative to their control of activities is the information system.

Question 35

Costs necessary to market and distribute a product or service are often referred to as order- __________ and order- __________ costs.

Question 36

The least accurate but easiest to apply method of cost assignment is the method.

Question 37

Error costs are costs associated with measurements required by the cost management system and measurement costs are the costs associated with making poor decisions.

Question 38

Expired costs used up in the generation of revenues are called .

Question 39

In deciding whether to implement a(n) cost management system, managers must evaluate the trade- off between costs of measurement and cost of errors.

Question 40

The resources given up that are expected to bring a current or future benefit to the organization are called
__________ .

Question 41

Which of the following is a major subsystem of the cost accounting information system?

A) ERP
B) Operational control information system
C) OLAP
D) EDI

Question 42

The overall objective of accounting information systems is to

A) provide information to users.
B) manage the organization.
C) prepare financial reports.
D) report to the government.

Question 43

The resources given up that are expected to bring a current or future benefit to the organization are represented by:

A) Costs
B) Expired costs
C) Expenses
D) Losses

Question 44

In a company that supplies muffins to bakeries, which of the following would NOT be considered an input?

A) delivered muffins
B) flour
C) egg
D) oil

Question 45

In a company that supplies muffins to bakeries, which of the following would NOT be considered a transforming process?

A) delivered muffins
B) baking
C) packaging
D) mixing

Question 46

The accounting information subsystem that is primarily concerned with producing outputs for external users is called:

A) cost management information system
B) computer system
C) internal accounting system
D) financial accounting information system

Question 47

In an accounting information system, which of the following is NOT a transformation process?

A) collecting data
B) performance reports
C) analyzing data
D) summarizing data

Question 48

Which of the following is NOT one of the features of an operational control information system?

A) to assist in continuous improvement of all aspects of the business
B) to improve the value received by customers
C) to provide product cost information needed by management
D) to improve profits by improving value

Question 49

A computerized information system that strives to input data once and to make it available to people across the company for different purposes is called a:

A) cost management information system
B) enterprise resource planning system
C) internal accounting system
D) financial accounting information system

Question 50

A cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control activities is called the:

A) cost accounting information system
B) financial accounting system
C) operational control information system
D) tax reporting system

Question 51

Which of the following is a cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control of activities?

A) financial accounting information system
B) operational control information system
C) cost accounting information system
D) all of the above

Question 52

High quality cost management systems should have an organization-wide perspective. Which of the following would NOT be a benefit of a cost management system?

A) increases speed by ignoring non-financial information
B) reduces duplicate data storage and use of data
C) improves timeliness of reports
D) increases the efficiency of generating reliable and accurate information

Question 53

In an accounting information system, the inputs are usually

A) financial statements.
B) analyzing data.
C) economic events.
D) performance reports.

Question 54

The set of interrelated parts that performs one or more processes to accomplish specific objectives is called a(n):

A) cost objective
B) system
C) activity
D) cost driver

Question 55

In a company that supplies muffins to bakeries, which of the following would be considered a transforming process?

A) delivered muffins
B) baking
C) egg
D) oil

Question 56

Which of the following is a cost management subsystem designed to assign costs to individual products and services and other objects, as specified by management?

A) financial accounting information system
B) operational control information system
C) cost accounting information system
D) all of the above

Question 57

In a company that supplies muffins to bakeries, which of the following would be considered an input?

A) delivered muffins
B) flour
C) baking
D) none of these

Question 58

Which of the following is NOT an objective of the operational control system?

A) increasing value to customers
B) increasing profit by providing value
C) Increasing post purchase costs
D) all of the above

Question 59

The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization is/are called:

A) Expenses
B) Cost
C) An activity
D) A loss

Question 60

In a company that supplies muffins to bakeries, delivered muffins to bakeries would be a(n)

A) interrelated part.
B) input.
C) output.
D) process.

Question 61

The direct costs of operating a college computer center would NOT include

A) rent paid for computers.
B) a fair share of college utilities.
C) paper used by the center.
D) computer consultants' salaries.

Question 62

The most likely method to assign the cost of an assembly-line supervisor when the assembly line is the cost object is the:

A) driver tracing method
B) arbitration method
C) allocation method
D) direct tracing method

Question 63

Which of the following expenses incurred by a department store is a direct cost for the women's shoe department?

A) the salespersons' commissions in the women's shoe department
B) the salaries for individuals working in the accounting department
C) the advertising expense for the service department
D) the allocated rent expense for the clothing department

Question 64

If physical observation can NOT be used to identify the exact amount of resources consumed by a cost object, the next best approach is

A) driver tracing.
B) allocation.
C) estimation.
D) none of these.

Question 65

Which of the following costs incurred by a chair manufacturer would be traced to the product cost through direct tracing?

A) the depreciation on factory equipment
B) the supervisor's salary
C) the insurance on the factory building
D) the woodworker's salary

Question 66

Which cost assignment method would likely assign the cost of maintenance for machines in a department that does cutting when the cutting activity is the cost object?

A) driver tracing
B) direct tracing
C) allocation
D) arbitration

Question 67

Direct costs

A) are incurred for the benefit of the business as a whole.
B) would continue even if a particular product were discontinued.
C) are those costs that can be easily and accurately traced to a cost object.
D) can be assigned to products only by a process of allocation.

Question 68

Which of the following methods of assigning costs is based on convenience or some assumed linkage, and reduces the overall accuracy of the cost assignments?

A) direct tracing
B) driver tracing
C) allocation
D) all of the above

Question 69

What is a disadvantage of assigning costs evenly over all cost objects?

A) not all costs will be assigned
B) total costs will be distorted
C) costs may be distorted by consumption patterns of other cost objects
D) none of these

Question 70

Which cost assignment method would likely assign the cost of heating in a plant that makes beds and dressers when the bed product line is the cost object?

A) driver tracing
B) direct tracing
C) allocation
D) arbitration

Question 71

Which of the following is an example of a possible cost object?

A) a product
B) a customer
C) a department
D) all of the above

Question 72

The insurance paid on the factory is

A) a direct cost if the cost object is the factory.
B) an indirect cost if the cost object is the product produced.
C) could be either a direct cost or an indirect cost, depending on the cost object.
D) all of the above.

Question 73

Which of the following is an example of an expense?

A) the cost of a proposed advertising campaign
B) the cost of a product delivered to a customer
C) the cost of the purchase of equipment
D) the write-off of an obsolete product

Question 74

The assignment of indirect costs to cost objects is referred to as:

A) Allocation
B) Direct tracing
C) Physical observation
D) Cost management

Question 75

Which of the following is an example of a loss?

A) the cost of a product delivered to a customer
B) the cost of a delivered advertising campaign
C) the cost of the purchase of equipment
D) the write-off of an obsolete product

Question 76

Which of the following costs incurred by a bus manufacturer would NOT be directly attributable to the finished product?

A) the wages paid to assembly-line production workers
B) the tires for buses
C) the windshields for buses
D) the depreciation on factory building

Question 77

Traceability is a function of

A) an indirect relationship to the cost object.
B) distortion.
C) a causal relationship.
D) none of these.

Question 78

Which of the following would NOT be a cost that could be directly traced to a custom piece of furniture based upon physical observation?

A) the wood and upholstery materials that are in the final piece
B) the depreciation paid on factory equipment t
C) he labor of the worker assembling the piece of furniture
D) the labor of the woodworker who finishes the wood of the piece

Question 79

A cost used up in the production of revenues is a(n)

A) unexpired cost.
B) loss.
C) expense.
D) asset.

Question 80

Factors that cause changes in resource usage, activity usage, costs and revenues are called

A) indirect costs.
B) drivers.
C) assignments.
D) cost objects.