Question 1

The portion of an asset that was consumed during a period is referred to an expired cost.

Accepted Answer

This statement is true. Expired cost refers to the portion of an asset that has been used up or consumed during a period. It is also known as a period cost or an expense.

Question 2

A cost that shifts upward or downward when activity changes by a certain interval is referred to as a mixed cost.

Accepted Answer

False

Question 3

Unexpired costs are reflected on the balance sheet.

Accepted Answer

Unexpired costs, such as prepaid expenses, are assets and are reflected on the balance sheet until they have been used or consumed.

Question 4

Fixed cost per unit varies directly with production.

Accepted Answer

Fixed cost per unit remains constant regardless of production. It is the total fixed cost that varies directly with production.

Question 5

If the cost of an additive is $5,000 + $0.50 for every unit of solvent produced, the cost is classified as a mixed cost.

Accepted Answer

The cost has both a fixed component ($5,000) and a variable component ($0.50/unit). Therefore, it is classified as a mixed cost.

Question 6

A specific product cannot be a cost object

Accepted Answer

A specific product can be a cost object as it is a unit of output that can be traced directly to the product.

Question 7

A fixed cost remains constant on a per-unit basis as production changes.

Accepted Answer

This statement is false. A fixed cost remains constant in total, but it does not remain constant on a per-unit basis as production changes. As production increases, the fixed cost per unit decreases, and vice versa.

Question 8

The portion of an asset's value on the balance sheet is referred to as an expired cost.

Accepted Answer

The portion of an asset's value on the balance sheet is referred to as a book value or carrying value, not an expired cost.

Question 9

A production plant could be a cost object.

Accepted Answer

A production plant can be a cost object as it incurs costs such as direct materials, direct labor, and overhead in the production process. These costs can be allocated to the production units or batches produced by the plant as a way of determining the cost per unit of those products.

Question 10

A mixed cost will be an effective cost driver.

Accepted Answer

A mixed cost consists of both fixed and variable components, therefore it cannot be an effective cost driver as it cannot be directly and clearly attributed to changes in the level of activity. A pure variable cost or a pure fixed cost would be a more effective cost driver.

Question 11

The relevant range is valid for all levels of activity

Accepted Answer

The relevant range is the range of activity within which the assumptions about fixed and variable costs are valid. Outside this range, cost patterns may change.

Question 12

An indirect cost can be easily traced to a cost object.

Accepted Answer

Indirect costs cannot be easily traced to a cost object because they are not directly related to a specific product, service or department. They include expenses such as rent, utilities, and administrative costs that are shared among different cost objects.

Question 13

A variable cost will be an effective cost driver.

Accepted Answer

A variable cost is directly proportional to the level of activity, which means that as the activity level increases, the variable cost also increases. This makes it an effective cost driver, as changes in the level of activity will result in corresponding changes in the variable cost.

Question 14

A cost that shifts upward or downward when activity changes by a certain interval is referred to as a step cost.

Accepted Answer

A step cost is a cost that changes by a fixed amount when activity changes by a certain interval.

Question 15

A variable cost remains constant on a per-unit basis as production increases

Accepted Answer

Variable costs, by definition, are costs that increase or decrease with the level of production or sales. However, they remain constant on a per-unit basis, meaning that the cost per unit produced or sold stays the same regardless of how many units are produced or sold. This is why they are called "variable" costs, as they vary in total depending on production or sales levels, but not on a per-unit basis.

Question 16

Variable cost per unit remains constant within the relevant range.

Accepted Answer

This is one of the fundamental assumptions of the cost-volume-profit analysis. Within the relevant range, variable cost per unit remains constant, meaning that for each additional unit produced, the variable cost will be the same.

Question 17

A predictor which has an absolute cause and effect relationship to a cost is referred to a cost driver.

Accepted Answer

A cost driver is a factor that causes a change in the cost of an activity or process. It has an absolute cause and effect relationship with a specific cost.

Question 18

If the cost of an additive is $5,000 + $0.50 for every unit of solvent produced, the cost is classified as a step cost.

Accepted Answer

The cost described is a mixed cost, combining both fixed ($5,000) and variable ($0.50 per unit) components, not a step cost which changes at certain levels of activity.

Question 19

Both accountants and economists view variable costs as linear in nature.

Accepted Answer

While accountants often view variable costs as linear for simplicity in calculations and analysis, economists recognize that variable costs can be non-linear due to factors like economies of scale, changes in efficiency, or varying prices for inputs at different levels of production.

Question 20

A cost object is anything for which management wants to collect or accumulate costs.

Accepted Answer

This is the definition of a cost object. It can be a product, service, department, project, customer, etc. that requires cost analysis and allocation.

Quiz 1: Cost Terminology and Cost Behaviors