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ACCT 306 > Ch. 2 > Flashcards

Ch. 2 Flashcards

1
Q

What is cost?

A

A resource sacrificed or forgone to achieve a specific objective

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2
Q

Actual cost

A

Cost incurred (historical or past cost) distinguished from budgeted cost

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3
Q

Budgeted cost

A

Predicted or forecasted, a future cost

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4
Q

Cost object

A

Anything for which a cost measurement is desired

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5
Q

Cost accumulation

A

Collection of cost data in some organized way by means of an accounting system

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6
Q

Direct costs of a cost object

A

Related to particular cost object and can be traced to it in an economically feasible (cost effective way)

Ex) cost of steel or tires

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7
Q

Cost tracing

A

Used to describe the assignment of direct costs to a particular cost object

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8
Q

Indirect costs of a cost object

A

Related to the particular cost object but cannot be traced to it in an economically feasible (cost effective way)

Ex) salaries of plant administrators

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9
Q

Cost allocation

A

Used to describe the assignment of indirect costs to a particular cost object

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10
Q

Cost assignment is a general term that encompasses both

A
  1. Tracing direct costs to a cost object

2. Allocating indirect costs to a cost object

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11
Q

Managers want to assign costs accurately to cost objects because

A

Inaccurate product costs will mislead managers about the profitability

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12
Q

What are the factors that affect whether a cost is classified as direct or indirect?

A
  1. Materiality of the cost in question
  2. Available info gathering technology
  3. Design of operations
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13
Q

The smaller the amount of a cost means the cost is more

A

Immaterial and less likely it is economically feasible to trace it to a particular product

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14
Q

A specific cost can both be

A

A direct cost of one cost object and a indirect cost of another cost object

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15
Q

Example of a cost that can be both direct and indirect

A

Salary of an assembly department supervisor at BMW is a direct cost of the cost object is the assembly department.

However, the supervisor salary is an indirect cost of the cost object is a product such as the BMW sport vehicle

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16
Q

What are the two basic cost behavior patterns?

A

Variable cost –> changes in total in proportion to changes in the related level of total activity or volume of output produced

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

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17
Q

Example of variable cost

A

Steering wheel cost

Because total cost changes in proportion to changes in # of vehicles produced

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18
Q

Fixed costs become smaller and smaller on a per unit basis as

A

of vehicles assembled increases

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19
Q

Costs are fixed when total costs remain

A

Unchanged despite significant changes in the level of total activity or volume

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20
Q

Unlike variable costs, fixed costs of resources cannot be what?

A

Quickly & easily changed to match the resources needed or used

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21
Q

Unlike variable costs that go away automatically if the resources are not used, reducing fixed costs requires what?

A

Active intervention on the part of managers

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22
Q

Cost driver

A

Is a variable such as the level of activity or volume that casually effects costs over a given time span

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23
Q

Activity Is an

A

Event task or unit of work with a specified purpose

ex) design products, setting up machines or testing products

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24
Q

The level of activity or volume is a cost driver if there is a

A

Cause and effect relationship between a change in the level of activity or volume and a change in the level of total costs

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25
Q

The cost driver of a variable cost is

A

The level of activity or volume whose change causes proportionate changes in the variable cost

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26
Q

Costs that are fixed in the short run have no what?

A

Cost driver in the short run but may have a cost driver in the long run

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27
Q

Costing systems that identify the cost of each activity such as testing, design or set up are called

A

Activity based costing systems

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28
Q

Relevant range

A

Is the band or range of normal activity level or volume in which there is a specific relationship between the level of activity or volume and cost in question

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29
Q

Can fixed costs have a chance of changing from one year to the next?

A

Yes

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30
Q

Outside relevant range, variable costs such as direct material costs may no longer change

A

Proportionately with changes in production volumes

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31
Q

Unit cost also called average cost is calculated by

A

Total cost/related number of units produced

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32
Q

Unit cost concept helps managers determine

A

Total costs in the income statement & balance sheets

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33
Q

Managers should think in terms of what type of cost rather than unit costs for many decisions

A

Total costs

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34
Q

Manufacturing sector companies

A

Purchase materials and components and convert them into various finished goods

Ex) automotive companies such as jaguar, CEO phone producers, food processing such as Heinz and comput r companies

35
Q

Merchandising sector companies purchase

A

Purchase and then sell tangible products without changing their basic form.

Ex) companies engaged in retailing such as bookstores, department stores such as target, distribution such as supplier of hospital goods

36
Q

Service sector companies

A

Provide services (intangible products) such as

Legal advice or audits to customers

Ex) law firms, banks, insurance companies, tv stations

37
Q

Manufacturing companies have 3 types of inventory

A

1) DM
2) WIP
3) FGI

38
Q

DM

A

in stock that will be used in manufacturing process

Ex) computer chips needed to manufacture cell phones

39
Q

WIP

A

Goods partially worked on but not yet completed

Ex) cell phones @ various stages of completion

40
Q

FGI

A

Goods completed but not yet sold

41
Q

Merchandise sector companies only have 1 type of inventory which is

A

Merchandise inventory

42
Q

Service sector companies do not have any

A

Inventories of tangible products

43
Q

DM cost

A

Are acquisition costs of all materials that eventually become part of cost object (WIP then FGI) and can be traced to cost object in a feasible way

44
Q

Direct manufacturing labor costs

A

Include compensation of all manufacturing labor that can be traced to cost object (WIP& FGI) in economic feasibly way

Ex) wages and fringe benefits paid to machine operators & assembly Line workers who convert DM to finished goods

45
Q

Indirect manufacturing costs

A

All manufacturing costs that are related to cost object (WIP then FGI) but cannot be traced to cost object in an economically feasible way .

Ex) supplies, indirect materials such as lubricants, indirect manufacturing labor such as plant rent, plant insurance, property taxes, plant depreciation

46
Q

Inventoriable costs

A

Costs of a product that are considered assets in a company’s balance sheet when the costs are incurred and that are expenses as COGS only when product is sold

47
Q

For manufacturing sector companies, all manufacturing costs are

A

Inventoriable costs.

48
Q

Inventoriable costs first accumulate as

A

WIP, and then FGI assets

49
Q

When something is sold, costs move from assets to

A

COGS expense

50
Q

Expenses are matched against

A

Revenues which are inflows of assets received for products or services customers purchase

51
Q

COGS includes all

A

Manufacturing costs incurred to produce them

52
Q

For merchandising sector companies, inventoriable costs are costs of purchasing goods that are resold in the same form. These costs are made up of the costs of

A

Goods themselves plus incoming freight, insurance, and handling costs for those goods

53
Q

Period costs

A

Are costs in the income statement other than COGS

54
Q

Period costs such as marketing, distribution and customer service costs are treated as

A

Expenses of the accounting period in which they are incurred because managers expect these costs to increase revenues in only that period and not in future periods

55
Q

Expensing period costs as they incurred best matches

A

Expenses to revenues

56
Q

For manufacturing sector companies all non manufacturing costs in the income statement are

A

Period costs

57
Q

For merchandising sector companies all costs in the income statement not related to the cost of goods purchased for resale are

A

Period costs

58
Q

Costs of goods manufactured

A

Refers to the cost of goods brought to completion

59
Q

All of the manufacturing costs of finished goods such as ( DM, DML, & MOH) are

A

Inventoriable

60
Q

Prime costs

A

All direct manufacturing costs

61
Q

The greater the proportion of prime costs (or direct costs) to total costs , the more confident managers can be about

A

The accuracy of costs of products

62
Q

Conversion costs

A

Are all manufacturing costs other than direct materials costs

63
Q

Direct manufacturing labor costs is considered both

A

Prime and conversion costs

64
Q

Computer integrated manufacturing (CIM)

A
  • has few workers
  • workers role is to monitor process and maintain equipment that that produced multiple products
  • do not have direct manufacturing labor because it is relatively small and it is difficult to trace costs to products
65
Q

In CIM plant the only prime cost is

And the conversion costs include

A

Cost of DM

Conversion cost: largely moh

66
Q

Measuring costs requires

A

Judgement

67
Q

What are th 2 classes of indirect labor?

A
  1. Overtime premium

2. Idle time

68
Q

Overtime premium

A

Is the wage rate paid to workers (for both direct & indirect labor) in excess of their straight time wage rates

69
Q

Overtime premium is usually considered to be part of

A

Indirect costs or overhead

70
Q

Idle time

A

Refers to wages paid for unproductive time caused by lack of orders, machine or computer breakdowns, work delays, poor scheduling etc

71
Q

Pay roll fringe costs

A

Included employee benefits such as social security, life insurance, health insurance & pensions

72
Q

It is important for managers and management accountants to pinpoint clearly what direct labor

A

Includes and excludes

73
Q

Product cost

A

Is the sum of the costs assigned to a product for a specific purpose

74
Q

Pricing and product mix decisions

A

Managers are interested in the overall total profitability of different products &I consequently assign costs incurred in all business functions of the value chain to different products

75
Q

Reimbursement under government contracts

A

Government contracts often reimburse contractors on the basis of cost of product plus the prespecified margin of profit

76
Q

Cost plus agreements are typically used

A

For services & development contracts when it is not easy to predict the amount of money required to design, fabricate & test items

77
Q

Preparing financial statements for external reporting under GAAP

A

Under GAAP only manufacturing costs can be assigned to inventories in the financial statements

78
Q

The following 3 features of cost account & cost management can be used for a wide range of applications

A
  1. Calculating cost of products, services and other cost objects
  2. Obtaining information for planning & controlling & performance evaluation
  3. Analyzing the relevant info for making decisions
79
Q

Budgeting is the most commonly used tool for

A

Planning and control

80
Q

Budgets forced managers to

A

Look ahead, to translate a company’s strategy into plans, to coordinate & communicate with organization and to provide a benchmark for evaluating company’s performance

81
Q

At the end of reporting period managers compare the company’s actual results to

A

Planned performance

82
Q

The managers tasks is to understand the differences between actual and planned performance so

A

They can use information provide by these variances as feedback to promote learning and future improvement

83
Q

When designing strategies and implementing them managers must what?

A

Understand which revenues and costs to consider and which to ignore

84
Q

When making strategi decisions about which products and how much to produce, managers must know

A

How revenues and costs vary with changes in outputs to levels

ACCT 306 (4 decks)

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