Chapter 1

Question 1

account analysis

Answer 1

a method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves

Question 2

activity base

Answer 2

a measure of whatever causes the incurrence of a variable cost. EX// total cost of an x-ray film in the hospital will increase as the no of x-rays increases

Question 3

administrative costs

Answer 3

all executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing and selling

Question 4

committed fixed costs

Answer 4

investments in facilities, eqpt, and basic org structure that can’t be significantly reduced even for short periods of time w.o making fundamental changes

Question 5

contribution approach

Answer 5

an income statement format that organizes costs by their behavior. costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes

Question 6

common cost

Answer 6

a cost that is incurred to support a no of cost objects but that cannot be traced to the individually

Question 7

contribution margin

Answer 7

the amount remaining from sales revenues after all variable expenses have been deducted

Question 8

conversion cost

Answer 8

direct labor cost plus manufacturing overhead costs

Question 9

cost behavior

Answer 9

the way in which a cost reacts to changes in the level of activity

Question 10

cost object

Answer 10

anything for which cost data are desired. ex// products, customers, jobs, depts, divisions

Question 11

cost structure

Answer 11

the relative proportion of fixed, variable and mixed costs in an organization

Question 12

dependent variable

Answer 12

a variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation y=a+bX

Question 13

differential cost

Answer 13

a difference in cost between two alternatives

Question 14

differential revenue

Answer 14

the difference in revenue between two alternatives

Question 15

direct cost

Answer 15

a cost that can be easily and conveniently traced to a specified cost object

Question 16

direct labor

Answer 16

factory labor costs that can be easily traced to individual units of product

Question 17

direct materials

Answer 17

materials that become an integral part of a finished product and whose costs can be conveniently traced to it

Question 18

discretionary fixed costs

Answer 18

those fixed costs that arise from annual decisions by mgt to spend on certain fixed costs, such as ads, and research

Question 19

engineering approach

Answer 19

a detailed analysis of cost behavior based on an industrial engineer’s evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs

Question 20

fixed cost

Answer 20

a cost that remains constant in total regardless of changes in the level of activity within the relevant range

Question 21

high-low method

Answer 21

a method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels

Question 22

incremental cost

Answer 22

an increase in cost between two alternatives

Question 23

independent variable

Answer 23

a variable that acts as a causal factor; activity is the X in the equation y=a+bX

Question 24

indirect cost

Answer 24

a cost that cannot be easily and conveniently traced to a specified cost object

Question 25

indirect labor

Answer 25

the labor costs of janitors, supervisors, material handlers, and other factory workers that cannot be conveniently traced to particular products

Question 26

indirect materials

Answer 26

small items of materials such as glue, and nails that may be an integral part of a finished product but whose cost cannot be easily or conveniently traced to it

Question 27

inventoriable costs

Answer 27

synonym for product costs

Question 28

least-squares regression method

Answer 28

a method of seperating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors

Question 29

linear cost behavior

Answer 29

cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity

Question 30

manufacturing overhead

Answer 30

all manufacturing overhead costs except direct materials and direct labor

Question 31

mixed cost

Answer 31

a cost that contains both variable and fixed cost elements

Question 32

opportunity cost

Answer 32

the potential benefit that is given up when one alternative is selected over another

Question 33

period costs

Answer 33

costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued

Question 34

prime costs

Answer 34

all costs that are involved in acquiring or making a product. in the case of manufactured goods, these costs consist of direct materials, direct labor and manufacturing overhead

Question 35

raw materials

Answer 35

any materials that go into the final product

Question 36

relevant range

Answer 36

the range of activity within which assumptions about variable and fixed cost behavior are valid

Question 37

selling costs

Answer 37

all costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer

Question 38

sunk cost

Answer 38

a cost that has already been incurred and that cannot be changed by any decision made now or in the future

Question 39

variable cost

Answer 39

a cost that varies, in total, in direct proportion to changes in the level of activity. a variable cost is constant per unit