Deck 2: An Introduction to Cost Terms and Purposes

Question 1

A cost object is anything for which a separate measurement of costs is desired.

Answer 1

True

Question 2

The plant supervisor's salary is a direct labour cost.

Answer 2

False

Question 3

Products, services, departments, and customers may be cost objects.

Answer 3

True

Question 4

Prime costs consist of direct and indirect manufacturing labour.

Question 5

Delivery charges are typically considered to be an indirect cost because it cannot be traced to each customer.

Question 6

A cost is classified as a direct or indirect cost based on the applicable cost object.

Question 7

Costs are accounted for in two basic stages: assignment followed by accumulation.

Question 8

Conversion costs are all manufacturing costs other than direct materials.

Question 9

A department could be considered a cost object.

Question 10

A cost object is always either a product or a service.

Question 11

Nearly all accounting systems accumulate forecasted costs.

Question 12

An actual cost is a predicted cost.

Question 13

Conversion costs include all direct manufacturing costs.

Question 14

Assigning direct costs poses more problems than assigning indirect costs.

Question 15

Costs of Sales is another way of phrasing Cost of Goods Sold.

Question 16

Factors affecting direct/indirect cost classifications are the materiality of the cost in question, the information-gathering technology used, and the operations.

Question 17

Rent for the building that contains the manufacturing and engineering departments can all be charged as manufacturing overhead costs.

Question 18

Indirect costs cannot be economically traced directly to the cost objective.

Question 19

"Cost" is defined by accountants as a resource sacrificed or foregone to achieve a specific objective.

Question 20

Cost tracing assigns indirect costs to the chosen cost object.

Question 21

A manufacturing plant produces two product lines: football equipment and hockey equipment.An indirect cost for the hockey equipment line is the

A)material used to make the hockey sticks.
B)labour to bind the shaft to the blade of the hockey stick.
C)shift supervisor for the hockey line.
D)plant supervisor.
E)salesperson travelling expenses.

Question 22

Cost tracing is

A)the assignment of direct costs to the 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 assignment of both direct and indirect costs associated with a cost object.

Question 23

Classifying a cost as either direct or indirect depends upon

A)the behaviour of the cost in response to volume changes.
B)whether the cost is expensed in the period in which it is incurred.
C)whether the cost can be traced to the cost object.
D)whether an expenditure is avoidable or not in the future.
E)the inventory classification system.

Question 24

Cost assignment is a term that refers solely to allocating indirect costs among diverse cost objects.

Question 25

Wages paid to machine operators on an assembly line are an example of which type of cost?

A)direct manufacturing labour costs
B)direct manufacturing overhead costs
C)direct materials costs
D)indirect manufacturing overhead costs
E)indirect material costs

Question 26

Cost allocation is

A)the process of tracking both direct and indirect costs associated to 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)the assignment of direct costs to the chosen cost object.

Question 27

Whether a company traces costs directly to an output unit or not depends upon

A)the materiality of the contribution a cost makes to the total cost per output unit.
B)the amount of similar costs in the cost assignment.
C)the effect of cost tracing on overhead.
D)the employment of cost management.
E)the amount of customer satisfaction.

Question 28

Which one of the following examples could be classified as a direct cost?

A)The costs of an entire factory's electricity related to a product; the product line is the cost object.
B)The printing costs incurred for payroll cheque processing; the payroll cheque processing is the cost object.
C)The salary of a maintenance supervisor in the manufacturing plant; Product A is the cost object.
D)The costs incurred for electricity in the office; the accounting office is the cost object.
E)The cost of advertising the products.

Question 29

Anything for which a separate measurement of costs is desired is known as

A)a cost item.
B)a cost object.
C)a fixed cost item.
D)a variable cost object.
E)a cost driver.

Question 30

Actual costs are defined as

A)costs incurred.
B)direct costs.
C)indirect costs.
D)predicted costs.
E)sunk costs.

Question 31

Which of the following is an indirect production cost?

A)materials placed into production
B)calibrating factory equipment
C)labour placed into production
D)cost of shipping a product to the customer
E)advertising

Question 32

Which of the following is TRUE concerning prime costs?

A)Prime costs are direct manufacturing costs.
B)They include indirect manufacturing labour.
C)They equal the sum of direct manufacturing costs plus conversion costs.
D)They equal the sum of fixed manufacturing costs plus conversion costs.
E)They are indirect manufacturing costs.

Question 33

Which of the following is a cost object?

A)direct materials
B)customers
C)conversion costs
D)cost assignments
E)indirect labour

Question 34

Prime costs can include

A)conversion costs.
B)direct material costs.
C)indirect manufacturing labour.
D)machine set up costs.
E)advertizing costs.

Question 35

Which one of the following items is typically an example of an indirect cost of a cost object?

A)courier charges for shipment delivery
B)manufacturing plant electricity
C)direct manufacturing labour
D)wood used for furniture manufacture
E)refundable sales tax on direct materials

Question 36

Materiality refers to the significance of the cost in question.

Question 37

Cost assignment is

A)always arbitrary.
B)linking actual costs to cost objects.
C)the same as cost accumulation.
D)finding the difference between budgeted and actual costs.
E)the same as cost conversion.

Question 38

The determination of a cost as being either direct or indirect depends upon

A)the accounting system.
B)the allocation system.
C)the cost tracing system.
D)only the cost object chosen to determine its individual costs.
E)the choice of the cost object, and the materiality of the cost in question.

Question 39

A manufacturing plant produces two product lines: football equipment and hockey equipment.Direct costs for the football equipment line are the

A)beverages provided daily in the plant break room.
B)monthly lease payments for a specialized piece of equipment needed to manufacture the football helmet.
C)salaries of the clerical staff that work in the company administrative offices.
D)utilities paid for the manufacturing plant.
E)advertising costs.

Question 40

Factors affecting direct/indirect cost classification include all of the following EXCEPT the

A)cost assignment method.
B)materiality of the cost in question.
C)selection of the cost object.
D)available information-gathering technology.
E)design of operations.

Question 41

A relevant range is the range of the cost driver in which a specific relationship between cost and driver is valid.

Question 42

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
safety hats and shoes

Question 43

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
factory worker overtime premiums

Question 44

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
fringe benefits for factory workers

Question 45

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
lubricants for machines

Question 46

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
property taxes on the administration office

Question 47

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
utilities on the factory

Question 48

What are the differences between direct costs and indirect costs? Give an example of each.

Question 49

A fixed cost is a cost that changes per unit as cost driver volume changes.

Question 50

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
property insurance on the factory

Question 51

What is the meaning of the term "cost object"? Give an example of a cost object that would be used in a manufacturing company, a merchandising company, and a service sector company?

Question 52

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
amortization on buildings and equipment

Question 53

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
night security

Question 54

Changes in particular cost drivers automatically result in decreases in overall costs.

Question 55

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
utilities on the administrative building

Question 56

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
factory worker overtime premiums

Question 57

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
factory supervisor's salaries

Question 58

Sheen Manufacturing has four manufacturing cost pools and many types of costs, some of which are e listed below.Match the type of cost with the most appropriate cost pool or as a period cost.

A)Period cost
B)Cost pool - indirect factory operating costs
C)Cost pool - indirect factory labour
D)Cost pool - direct factory labour
idle time wages

Question 59

Office Supply Company manufactures office furniture.Recently the company decided to develop a formal cost accounting system.The company is currently converting all costs into classifications as related to its manufacturing processes.Required:
For the following items, label each as being appropriate for

Question 60

Manufacturing overhead includes

A)corporate insurance cost.
B)the executive officers' salaries.
C)marketing costs.
D)supplies used in the human resources department.
E)plant utilities.

Question 61

Use the information below to answer the following question(s).Big Island Coffee Co.produced and sold 120,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
Calculate this year's operating income if the company plans to produce and sell 60,000 units.

A)$120,000
B)$0
C)$<30,000>
D)$<100,000>
E)$<450,000>

Question 62

Which one of the following is a variable cost in a grocery store?

A)rent
B)president's salary
C)inventory of vegetables
D)property taxes
E)administrative salaries

Question 63

If each furnace required a hose that costs $20 and 2,000 furnaces are produced for the month, the $40,000 total cost for hoses

A)is considered to be a direct fixed cost.
B)is considered to be a direct variable cost.
C)is considered to be an indirect fixed cost.
D)is considered to be an indirect variable cost.
E)is considered to be variable or fixed, depending on the relevant range.

Question 64

Use the information below to answer the following question(s).Big Island Coffee Co.produced and sold 120,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
Variable costs

A)are always indirect costs.
B)increase in total when the actual level of activity increases.
C)include most personnel costs and depreciation on machinery.
D)can always be traced directly to the cost object.
E)change in relation to selling price.

Question 65

Use the information below to answer the following question(s).Big Island Coffee Co.produced and sold 120,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
The relevant range is important because

A)it specifies which costs should be used for a given decision.
B)it provides a basis for determining a range of acceptable cost alternatives.
C)it is required to determine inventoriable costs under ASPE/IFRS.
D)it specifies the limits beyond which the relationship of cost to cost drivers may not be valid.
E)it determines the time horizon.

Question 66

Total variable costs change in direct proportion to changes in cost driver volume.

Question 67

The variable cost per unit of a product should stay the same throughout the relevant range of production.

Question 68

Competition places an increased emphasis on cost reductions.For an organization to reduce costs it must focus on

A)maximizing the cost allocation system.
B)reporting non-value added costs separately from value-added costs.
C)efficiently managing the use of the cost drivers in those value-added activities.
D)the cost allocation process.
E)reducing the number of cost drivers.

Question 69

Costing systems that identify the cost of each activity such as testing, design, or setup are called management-based costing systems.

Question 70

Use the information below to answer the following question(s).Big Island Coffee Co.produced and sold 120,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
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)a cost with direct and indirect elements.

Question 71

Use the information below to answer the following question(s).Macadamia Co.produced and sold 40,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
Calculate this year's operating income if the company plans to produce and sell 50,000 units.

A)$50,000
B)$0
C)$<250,000>
D)$<550,000>
E)$250,000

Question 72

Use the information below to answer the following question(s).Big Island Coffee Co.produced and sold 120,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
Calculate this year's operating income if the company plans to produce and sell 200,000 units.

A)$460,000
B)$0
C)$<100,000>
D)$900,000
E)$980,000

Question 73

Use the information below to answer the following question(s).Big Island Coffee Co.produced and sold 120,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
Cost behaviour refers to

A)how costs react to a change in the level of activity.
B)whether a cost is incurred in a manufacturing, merchandising, or service company.
C)classifying costs as either inventoriable or period costs.
D)whether a particular expense has been ethically incurred.
E)how costs react to a change in selling price.

Question 74

Use the information below to answer the following question(s).Macadamia Co.produced and sold 40,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
Calculate this year's operating income if the company plans to produce and sell 60,000 units.

A)$150,000
B)$0
C)$<300,000>
D)$<650,000>
E)$300,000

Question 75

Use the information below to answer the following question(s).Big Island Coffee Co.produced and sold 120,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
Calculate last year's operating income when the company produced and sold 120,000 units.

A)$0
B)$<60,000>
C)$<500,000>
D)$<800,000>
E)$<1,000,000>

Question 76

An appropriate cost driver for shipping costs might be the number of units shipped.

Question 77

Use the information below to answer the following question(s).Macadamia Co.produced and sold 40,000 units last year.Per unit revenue and costs were as follows:
Fixed manufacturing overhead and administrative salaries are fixed costs.The per unit amounts are based on last year's production.
Calculate last year's operating income when the company produced and sold 40,000 units.

A)$0
B)$<200,000>
C)$<500,000>
D)$<800,000>
E)$<1,000,000>

Question 78

Fixed costs do not have cost drivers, at least in the short-run.

Question 79

Which of the following is a fixed cost in a clothing store?

A)store manager's salary
B)electricity
C)sales commissions
D)inventory
E)paper for the cash register

Question 80

Which of the following statements about cost management is TRUE?

A)It requires that managers actively strive to increase revenues.
B)It only focuses on inventoriable costs.
C)It is not affected by the organization's customers.
D)It only applies to period costs.
E)It requires efficient management of the use of the cost drivers in the value-added activities.