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

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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 15

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

Question 16

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 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

In preparing an income statement, __________ and __________ costs are separated.

Question 26

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

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

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 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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 35

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

Question 36

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 37

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 38

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

Question 39

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

Question 40

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

Question 41

A cost that expires without producing any revenue benefit is known as a(n) _____.

A)loss
B)expense
C)profit
D)surplus

Question 42

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 43

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 44

_____ is concerned with determining what activities should be performed and assessing how well they are performed.

A)The financial accounting system
B)The value chain
C)Operational control
D)Traditional costing

Question 45

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 46

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 47

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 48

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 49

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 50

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 51

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 52

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 53

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 54

The outputs of an accounting information system includes:

A)economic events.
B)financial statements.
C)bill of lading report.
D)value chain information.

Question 55

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 56

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 57

For financial accounting, the nature of the inputs and the rules and conventions governing processes are defined by the _____.

A)Securities and Exchange Commission (SEC)
B)Trade Reporting and Compliance Board (TRCP)
C)International Ethics Standards Board (IESB)
D)Monetary and Securities Trade Regulation Commission (MSTRC)

Question 58

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 59

Which of the following is an objective of the operational control system?

A)Providing information to external users
B)Facilitating stewardship evaluation
C)Increasing value to customers
D)Increasing post-purchase costs

Question 60

In an accounting information system, the inputs are usually

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

Question 61

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 62

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 63

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 64

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

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

Question 65

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

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

Question 66

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 67

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 68

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 69

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 70

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 71

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 72

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 73

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 74

Which of the following statements is true of traceability?

A)It uses well-specified economic events as inputs, and its processes follow certain rules and conventions.
B)It is used for investment decisions, stewardship evaluation, activity monitoring, and regulatory measures.
C)It is the ability to assign a cost directly to a cost object in an economically feasible way by means of a causal relationship.
D)It is concerned with determining what activities should be performed by managers and assessing how well they are performed.

Question 75

A(n) _____ is a basic unit of work performed within an organization.

A)allocation
B)object
C)driver
D)activity

Question 76

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 77

The three methods of assigning costs to cost objects are direct tracing, driver tracing, and _____.

A)observation
B)arbitration
C)assignment
D)allocation

Question 78

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

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

Question 79

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 80

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