Ch 2

Question 0

Direct materials

Answer 0

Materials that become an integral part of the finished product
And whose costs can be traced to finished product

Question 1

Raw materials

Answer 1

Any materials used in final product

Question 2

Indirect materials

Answer 2

Relatively insignificant materials in finished products
Part of manufacturing overhead
Ex. Glue

Question 3

Direct labor

Answer 3

Labor costs that can easily be traced to individual

Units of product

Question 4

Indirect labor

Answer 4

Labor costs that can’t be physically traced to individual products
Treated as part of manufacturing overhead

Question 5

Manufacturing overhead

Answer 5

Includes all manufacturing costs except direct materials

And direct labor

Question 6

Selling costs, examples 6?

Answer 6

Include all costs incurred to secure customer orders
And get finished product to customer

Ex. Advertising, shipping, sales travel, sales commission,
Sales salaries, cost of finished goods warehouses

Question 7

Administrative costs, examples 5?

Answer 7

Include all costs associated with general management
Of organization

Ex. Executive compensation, general accounting, secretarial,
Public relations, general administrative costs

Question 8

Product costs AKA Inventoriable costs

Answer 8

Include all costs involved in acquiring or making product

Question 9

Period costs

Answer 9

All selling and administrative expenses

Question 10

Prime cost

Answer 10

Prime cost = direct materials cost + direct labor cost

Question 11

Conversion cost

Answer 11

Conversion cost= direct labor cost +manufacturing overhead cost

Question 12

Cost behavior

Answer 12

Refers to how cost reacts to changes in level of activity

Question 13

Cost structure

Answer 13

Relative proportion of each type of cost in organization

Question 14

Variable cost, examples 4? How is it expressed usually?

Answer 14

Varies, in total, in direct proportion to changes in activity level

Ex. Direct materials, direct labor, indirect materials, supplies

Expressed in per unit basis

Question 15

Activity base AKA cost driver, examples 4? How is it usually expressed in text book?

Answer 15

Measure of whatever causes incurrence of variable cost
Ex. # miles driven, labor hours, machine hours, units produced

Usually expressed as total volume of goods and services
Provided by organization

Question 16

Fixed cost

Answer 16

Cost that remains constant despite changes in activity levels

Question 17

Committed fixed costs, 4 examples?

Answer 17

Represent organizational investments with multi year
Planning horizon, which can’t be reduced over short periods of
Time without making significant adjustments

Ex. Investments in facilities/equipment, real estate taxes, insurance expenses, salaries to top management

Question 18

Discretionary fixed costs, 5 examples?

Answer 18

Arise from annual decisions by management to spend
On certain fixed cost items

Ex. Advertising, research, public relations,
management development programs, internships for students

Question 19

Relevant range

Answer 19

Range of activity within which the assumption

That cost behavior is strictly linear is reasonably valid

Question 20

Mixed costs AKA semi variable costs

Answer 20

Contains both variable and fixed cost elements

Question 21

Account analysis of mixed costs

Answer 21

Account is classified as either variable or fixed
Based on analyst’s prior knowledge of how
Cost in account behaves

Question 22

Engineering approach

Answer 22

Cost analysis involves detailed analysis of what cost
Behavior should be, based on industrial engineer’s
Evaluation of production methods, materials,
labor requirements, equipment usage, production efficiency,
Power consumption, etc

Question 23

Dependent variable

Answer 23

Y axis, depends on another activity

Question 24

Independent variable

Answer 24

Plotted on X axis, ex. Days, hours

Question 25

Linear

Answer 25

Straight line

Question 26

Variable cost

Answer 26

Variable cost = slope = change in cost/change in activity

Question 27

High-low method

Answer 27

Variable cost = (cost high activity level - cost low activity level)/ (high activity level - low activity level) Uses 2 dat points based on highest cost. And lowest cost

Question 28

Least squares regression method

Answer 28

Y = mx + b Uses all data points

Question 29

Contribution approach

Answer 29

Provides managers with income statement that clearly distinguishes btw fixed and variable costs Therefor aids in planning, controlling and decision making

Question 30

Contribution margin

Answer 30

Amount remaining from sales revenues after variable Expenses have been deducted This amount contributes toward covering fixed expenses Then toward profits for period

Question 31

Cost object

Answer 31

Anything for which cost data are desired including | Products, customers, jobs, organizational subunits

Question 32

Direct cost, example

Answer 32

Cost that can easily be traced to specified cost object

Question 33

Indirect cost

Answer 33

Cost can't be easily traced to specific cost object

Question 34

Common cost

Answer 34

Cost incurred to support number of cost objects, | But can't be traced to them individually

Question 35

Differential cost AKA Incremental cost

Answer 35

Difference in costs between any 2 alternatives Incremental only refers to increases in cost

Question 36

Differential revenue

Answer 36

Difference in revenue btw any 2 alternatives

Question 37

Opportunity cost

Answer 37

Potential benefit that is given up when one alternative | Is selected over another

Question 38

Sunk cost

Answer 38

Cost has already been incurred and can't be changed | By any decision made now or in the future

Question 39

R-squared

Answer 39

Measures goodness of fit Tells percentage of variation in dependent variable (cost) That is explained by variation in independent variable (activity)

Question 40

Quality of conformance

Answer 40

Degree to which a product or service meets or exceeds It's design specifications and is free of defects or other Problems that mar its appearance or degrade performance

Question 41

Quality cost

Answer 41

Refers to all costs that are incurred to prevent defects | Or result from defects in products

Question 42

Prevention costs

Answer 42

Support activities whose purpose is to reduce number of defects

Question 43

Quality circles

Answer 43

Small groups of employees that meet on regular basis | To discuss ways to improve quality

Question 44

Statistical process control

Answer 44

Technique used to detect whether process is in or Out of control Workers use charts to monitor quality of units Defects are out of control process in which machine Produces defective units

Question 45

Appraisal costs AKA Inspection costs

Answer 45

Are incurred to identify defective products before products | Are shipped to customers

Question 46

Internal failure costs, examples 4?

Answer 46

Results from identifying defects before they are shipped to customers Ex. Scrap, rejected products, reworking defective units, Downtime caused by quality problems

Question 47

External failure costs,4 examples?

Answer 47

Result when defective product delivered to customer Ex. Warranty repairs, replacement, legal action, Lost sales arising from reputation for poor quality

Question 48

Quality cost report

Answer 48

Provides estimate of financial consequences of Company's current level of defects Details prevention costs, appraisal costs, costs of internal And external failures that arise from current quality control efforts

Question 49

ISO 9000 standards

Answer 49

Quality control requirements issued by International | Organization for Standardization that relate to products sold in European countries