Question 1

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

Accepted Answer

This is because the income statement prepared for external parties is typically prepared using the absorption costing method, which includes all manufacturing costs (both variable and fixed) in the cost of goods sold. This results in a higher reported gross margin and net income compared to the variable costing method.

Question 2

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

Accepted Answer

Production costs are indeed classified as direct materials, direct labor, and overhead.

Question 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

The statement is true. 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.

Accepted Answer

Cost management information provides valuable insights for production processes, pricing strategies, and customer service improvements, making it beneficial for various business systems. Additionally, cost management information is essential for making informed managerial decisions regarding budgeting, investments, and cost-cutting measures.

Question 6

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

Accepted Answer

An integrated cost management system receives information from and provides information to multiple levels of management within a company, including the controller, operations managers, and top executives.

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.

Accepted Answer

The statement accurately describes the primary purpose of the cost management information system.

Question 8

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

Accepted Answer

Work in process refers to all partially completed units that are in production at a given point in time. Therefore, the statement is true.

Question 9

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

Accepted Answer

Product costs indeed include production, marketing, and customer service, which are important factors that need to be considered for strategic decision making and 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.

Accepted Answer

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

Accepted Answer

Assigning costs accurately to cost objects is of high priority because it helps to make informed decisions and control costs effectively. Accuracy is evaluated based on various cost accounting methods and techniques to ensure that costs are allocated appropriately and reflect the best possible estimate of the true cost.

Question 12

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

Accepted Answer

Gross margin is indeed 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.

Accepted Answer

Cost is the cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the company, not a loss.

Question 14

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

Accepted Answer

Intangible products are goods that are not physical in nature and cannot be touched, such as software, music, or intellectual property. They are not produced by converting raw materials 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.

Accepted Answer

The Financial accounting information system primarily provides information for external reporting purposes, focusing on historical financial information about an organization's performance, financial position, and cash flows, rather than costing services and products, which is more related to managerial accounting.

Question 16

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

Accepted Answer

This statement is true. Services are intangible, meaning they cannot be touched, tasted, or seen like tangible products. Services are also perishable, meaning they cannot be stored for later use like many tangible products. Finally, services are often inseparable from the person providing the service, meaning the service experience is influenced by the provider and the customer's interaction with them.

Question 17

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

Accepted Answer

Cost assignment refers to the process of identifying and allocating costs to specific cost objects, such as products or services. It is an essential component of cost accounting, which helps organizations to accurately determine the true cost of producing goods or delivering services.

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.

Accepted Answer

The definition of value chain involves all of these activities, from design to post-sales service.

Question 19

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

Accepted Answer

Direct tracing is the most precise method of cost assignment as it directly assigns costs to the product or service based on observable causal relationships. It does not rely on assumptions or allocation based on indirect relationships.

Question 20

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

Accepted Answer

The cost of goods manufactured includes direct materials, direct labor, and manufacturing overhead, and represents the total cost of goods that were completed in the current period.

Quiz 2: Basic Cost Management Concepts