Deck 2: An Introduction to Cost Terms and Purposes

Question 1

A cost is a resource sacrificed or forgone to achieve a specific objective.

Answer 1

True

Question 2

Lucas Manufacturing has three cost objects that it uses to accumulate costs for its manufacturing plants.They are:
The following manufacturing overhead cost categories are found in the accounting records:
Required:
Assign each of the above costs to the most appropriate cost object.

Answer 2

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 3

A cost object is anything for which a cost measurement is desired.

Answer 3

True

Question 4

Managers use cost accumulation data to make decisions and implement them.

Question 5

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

Question 6

Which of the following statements about the direct/indirect cost classification is true?

A) Indirect costs are always traced.
B) Indirect costs are always allocated.
C) The design of sales target affects the direct/indirect classification.
D) The direct/indirect classification depends on the cost control measures.

Question 7

Cost accumulation is ________.

A) the collection of cost data in some organized way by means of an accounting system
B) anything for which a cost measurement is desired
C) anything for which a profit measurement is desired
D) the collection of profit data in some organized way by means of an accounting system

Question 8

An actual cost is the cost incurred-a historical or past cost.

Question 9

Cost allocation is ________.

A) the process of tracking both direct and indirect costs associated with a cost object
B) the process of determining the opportunity cost of a cost object chosen
C) the assignment of indirect costs to the chosen cost object
D) made based on material acquisition document

Question 10

Cost assignment ________.

A) includes future and arbitrary costs
B) encompasses allocating indirect costs to a cost object
C) is the same as cost accumulation
D) is the difference between budgeted and actual costs

Question 11

Comparing budgeted costs to actual costs helps managers to improve ________.

A) coordination
B) control
C) implementation
D) planning

Question 12

Classifying a cost as either direct or indirect depends upon ________.

A) the behavior 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 easily traced with the cost object
D) whether a cost is fixed or variable

Question 13

An actual cost is ________.

A) is the cost incurred
B) is a predicted or forecasted cost
C) is anything for which a cost measurement is desired
D) is the collection of cost data in some organized way by means of an accounting system

Question 14

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

Question 15

Budgeted costs are ________.

A) the costs incurred this year
B) the costs incurred last year
C) planned or forecasted costs
D) competitor's costs

Question 16

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

A) cost accumulation
B) cost assignment
C) cost tracing
D) conversion costing

Question 17

The determination of a cost as either direct or indirect depends upon the ________.

A) accounting standards
B) tax system chosen
C) inventory valuation
D) cost object chosen

Question 18

Which of the following factors affect the direct/indirect classification of a cost?

A) the level of budgeted profit for the next year
B) the estimation of time required to complete the order
C) the ability to execute an order in the most cost-efficient manner
D) the design of the operation

Question 19

Accountants define a cost as a resource to be sacrificed to achieve a specific objective.

Question 20

A cost system determines the cost of a cost object by ________.

A) accumulating and then assigning costs
B) accumulating costs
C) assigning and then accumulating costs
D) assigning costs

Question 21

Archambeau Products Company manufactures office furniture.Recently,the company decided to develop a formal cost accounting system and classify all costs into three categories.Categorize each of the following items as being appropriate for (1)cost tracing to the finished furniture,(2)cost allocation of an indirect manufacturing cost to the finished furniture,or (3)as a nonmanufacturing item.

Question 22

The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.

Question 23

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

Question 24

The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).

Question 25

Indirect manufacturing costs ________.

A) can be traced to the product that created the costs
B) can be easily identified with the cost object
C) generally include the cost of material and the cost of labor
D) may include both variable and fixed costs

Question 26

Which of the following is true of indirect costs?

A) Indirect costs are always considered sunk costs.
B) All indirect costs are included in cost of goods sold.
C) Indirect costs always vary in direct proportion to the level of production.
D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.

Question 27

The cost of electricity used in the production of multiple products would be classified as a indirect cost.

Question 28

Assigning indirect costs is easier than assigning direct costs.

Question 29

Which of the following statements is true?

A) A direct cost of one cost object will always be a direct cost of another cost object.
B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
C) All fixed costs are indirect costs.
D) All direct costs are variable costs.

Question 30

A direct cost of one cost object can be an indirect cost of another cost object.

Question 31

Which of the following is a fixed cost?

A) monthly rent payment
B) electricity expenses
C) travel expenses
D) direct material costs

Question 32

What are the factors that affect the classification of a cost as direct or indirect?

Question 33

A manufacturing plant produces two product lines: golf equipment and soccer equipment.An example of indirect cost for the soccer equipment line is the ________.

A) material used to make the soccer balls
B) labor to shape the leather used to make the soccer ball
C) material used to manufacture the soccer studs
D) salary paid to plant supervisor

Question 34

Which of the following is true if the volume of sales increases?

A) fixed cost increases
B) variable cost decreases
C) variable cost increases
D) fixed cost decreases

Question 35

A manufacturing plant produces two product lines: golf equipment and soccer equipment.An example of direct costs for the golf equipment line is ________.

A) beverages provided daily in the plant break room
B) monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver
C) salaries of the clerical staff that work in the company administrative offices
D) overheads incurred in producing both golf and soccer equipment

Question 36

A cost may be direct for one cost object and indirect for another cost object.

Question 37

Which of the following statements is true of direct costs?

A) A direct cost of one cost object is a true sense of the budgeted costs.
B) All variable costs are direct costs.
C) A direct cost of one cost object can be an indirect cost of another cost object.
D) All fixed costs are direct costs.

Question 38

Improvements in information-gathering technologies are making it possible to trace more costs as direct.

Question 39

Which one of the following items is a direct cost?

A) Customer-service costs of a multiproduct firm; Product A is the cost object.
B) Printing costs incurred for payroll check processing; payroll check processing is the cost object.
C) The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object.
D) Utility costs of the administrative offices; the accounting department is the cost object.

Question 40

The broader the cost object definition,higher the proportion of direct costs are of total costs.

Question 41

Fixed costs depend on the ________.

A) amount of resources used
B) amount of resources acquired
C) volume of production
D) total number of units sold

Question 42

Answer the following questions using the information below:
Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows:
$$\begin{array} { l r } \text { Direct materials } & \$ 70 \\\text { Direct manufacturing labor } & 20 \\\text { Variable manufacturing overhead } & 15 \\\text { Fixed manufacturing overhead } & 32 \\\text { Sales commissions ( } 2 \% \text { of sales) } & 5 \\\text { Administrative salaries } & 16 \\\quad \text { Total } & \$ 158\end{array}$$

-What are the direct variable manufacturing costs per unit associated with Product DCT121?

A) $142
B) $90
C) $105
D) $110

Question 43

Within the relevant range,if there is a change in the level of the cost driver,then ________.

A) total fixed costs and total variable costs will change
B) total fixed costs and total variable costs will remain the same
C) total fixed costs will remain the same and total variable costs will change
D) total fixed costs will change and total variable costs will remain the same

Question 44

Answer the following questions using the information below:
Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows:
$$\begin{array} { l r } \text { Direct materials } & \$ 70 \\\text { Direct manufacturing labor } & 20 \\\text { Variable manufacturing overhead } & 15 \\\text { Fixed manufacturing overhead } & 32 \\\text { Sales commissions ( } 2 \% \text { of sales) } & 5 \\\text { Administrative salaries } & 16 \\\quad \text { Total } & \$ 158\end{array}$$

-What are the indirect nonmanufacturing variable costs per unit associated with Product DCT121?

A) $5
B) $21
C) $90
D) $142

Question 45

Cost behavior 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 perpetual or period costs
D) whether a particular expense is expensed in the same or the following period

Question 46

Maize Plastics manufactures and sells 50 bottles per day.Fixed costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000.Each bottle is sold for $1,000.How would the daily profit be affected if the daily volume of sales drop by 10%?

A) profits are reduced by $4,000
B) profits are reduced by $1,000
C) profits are reduced by $5,000
D) profits are reduced by $6,000

Question 47

Outside the relevant range,variable costs,such as direct material costs ________.

A) will decrease proportionately with changes in sales volumes
B) will remain the same with changes in production volumes
C) will not change proportionately with changes in production volumes
D) will increase proportionately with changes in sales volumes

Question 48

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

A) considered to be a direct 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

Question 49

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 driver range
D) relevant range

Question 50

Answer the following questions using the information below:
The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows:
$$\begin{array} { l r } \text { Direct materials } & \$ 54 \\\text { Direct manufacturing labor } & 8 \\\text { Variable manufacturing overhead } & 11 \\\text { Fixed manufacturing overhead } & 25 \\\text { Sales commissions ( } \% \text { of sales) } & 5 \\\text { Administrative salaries } & 12 \\\quad \text { Total } & \$ 115\end{array}$$

-What is the percentage of the total variable costs per unit associated with Product ORD105 with respect to total cost?

A) 72%
B) 68%
C) 75%
D) 70%

Question 51

Answer the following questions using the information below:
The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows:
$$\begin{array} { l r } \text { Direct materials } & \$ 54 \\\text { Direct manufacturing labor } & 8 \\\text { Variable manufacturing overhead } & 11 \\\text { Fixed manufacturing overhead } & 25 \\\text { Sales commissions ( } \% \text { of sales) } & 5 \\\text { Administrative salaries } & 12 \\\quad \text { Total } & \$ 115\end{array}$$

-What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost?

A) 32%
B) 28%
C) 26%
D) 20%

Question 52

Which of the following statements is true?

A) There is a cause-and-effect relationship between the cost driver and the amount of cost.
B) Fixed costs have cost drivers over the short run.
C) Over the short run all costs have cost drivers.
D) Volume of production is a cost driver of distribution costs.

Question 53

Which one of the following is a variable cost for an insurance company?

A) rent of the building
B) CEO's salary
C) electricity expenses
D) property taxes

Question 54

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

Question 55

Which of the following is true if the production volume decreases?

A) fixed cost per unit increases
B) average cost per unit decreases
C) variable cost per unit increases
D) variable cost per unit decreases

Question 56

Which of the following is a cost driver for a company's human resource costs?

A) the number of employees in the company
B) the number of job applications processed
C) the number of units sold
D) the square footage of the office space used by the human resource department

Question 57

At a plant where a union agreement sets annual salaries and conditions,annual labor costs usually ________.

A) are considered a variable cost
B) are considered a fixed cost
C) depend on the scheduling of floor workers
D) depend on the scheduling of production runs

Question 58

The most likely cost driver of distribution costs is the ________.

A) number of parts within the product
B) number of miles driven
C) number of products manufactured
D) number of production hours

Question 59

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) are never considered a part of prime cost

Question 60

The most likely cost driver of direct labor costs is the ________.

A) number of machine setups for the product
B) number of miles driven
C) number of production hours
D) number of machine hours

Question 61

In making product mix and pricing decisions,managers should focus on ________.

A) total costs
B) unit costs
C) variable costs
D) manufacturing costs

Question 62

Describe a variable cost.Describe a fixed cost.Explain why the distinction between variable and fixed costs is important in cost accounting.

Question 63

When 20,000 units are produced,variable costs are $8 per unit.Therefore,when 10,000 units are produced ________.

A) variable costs will remain at $8 per unit
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

Question 64

Eigen Manufacturing Corp.provided the following information for last month: $$\begin{array} { l r } \text { Sales } & \$ 40,000 \\\text { Variable costs } & 14,000 \\\text { Fixed costs } & 10,000 \\\text { Operating income } & \$ 16,000\end{array}$$ If sales reduce to half of the amount in the next month,what is the projected operating income?

A) $15,000
B) $6,000
C) $16,000
D) $3,000

Question 65

A fixed cost is fixed only in relation to a given wide range of total activity or volume and only for a given time span,usually a particular budget period.

Question 66

The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column.That is,they do not match.
Required:
Match each business function with its representative cost driver.

Question 67

Wood used to manufacture chairs is considered a direct variable cost.

Question 68

Ridez Manufacturing currently produces 1,000 bicycles per month.The following per unit data apply for sales to regular customers: $\begin{array}{lr}\text { Direct materials } & \$ 50 \\\text { Direct manufacturing labor } & 8 \\\text { Variable manufacturing overhead } & 12 \\\text { Fixed manufacturing overhead } & \underline{15} \\{\text { Total manufacturing costs }} & \$ 85\end{array}$ The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles.What is the per unit cost of producing 2,000 bicycles?

A) $78.50 per unit
B) $170 per unit
C) $72.50 per unit
D) $77.50 per unit

Question 69

Butler Hospital wants to estimate the cost for each patient stay.It is a general health care facility offering only basic services and not specialized services such as organ transplants.
Required:
a.Classify each of the following costs as either direct or indirect with respect to each patient.
b.Classify each of the following costs as either fixed or variable with respect to hospital costs per day.

Question 70

Grip Manufacturing currently produces 1,000 tires per month.The following per unit data for 1,000 tires apply for sales to regular customers: $$\begin{array} { l r } \text { Direct materials } & \$ 30 \\\text { Direct manufacturing labor } & 5 \\\text { Variable manufacturing overhead } & 8 \\\text { Fiæed manufacturing overhead } & \underline { 12 } \\\text { Total manufacturing costs } & \underline { \$ 55 }\end{array}$$ The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires.What is the total cost of producing 2,000 tires?

A) $110,000
B) $98,000
C) $68,000
D) $88,000

Question 71

Variable costs per unit vary with the level of production or sales volume.

Question 72

A cost driver is a variable,such as the level of activity or volume that causally affects costs over a given time span.

Question 73

Fixed cost per unit reduces with an increase in production volume.

Question 74

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

Question 75

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

Question 76

Variable costs depend on the resources used.

Question 77

When 20,000 units are produced,fixed costs are $16 per unit.Therefore,when 16,000 units are produced,fixed costs will ________.

A) increase to $20 per unit
B) remain at $16 per unit
C) decrease to $10 per unit
D) total $160,000

Question 78

A unit cost is computed by ________.

A) multiplying total cost by the number of units produced
B) dividing total cost by the number of units produced
C) dividing variable cost by the number of units produced
D) dividing fixed cost by the number of units produced

Question 79

XIAN Manufacturing produces a unique valve,and has the capacity to produce 50,000 valves annually.Currently XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next year.What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?

A) Total manufacturing costs will increase and unit manufacturing costs will stay the same.
B) Total manufacturing costs will increase and unit manufacturing costs will decrease.
C) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
D) Total manufacturing costs will increase and unit manufacturing costs will also increase.

Question 80

Genosis Metals provided the following information for last month: $$\begin{array} { l r } \text { Sales } & \$ 20,000 \\\text { Variable costs } & 8,000 \\\text { Fixed costs } & 4,000 \\\text { Operating income } & \$ 8,000 \\\hline\end{array}$$ If sales reduce to half the amount in the next month,what is the projected operating income?

A) $0
B) $4,000
C) $2,000
D) $6,000