CHAPTER 2

Question 1

Cost Classification:

Answer 1

Depends on how the information is to be used.

Different costs and classifications are used for different purposes.

Question 2

Can the same cost be classified in a number of ways?

Answer 2

Yes, depending on the intended use of the cost information.

Question 3

What are costs?

Answer 3

Costs are resources given up to achieve a particular objective.

Question 4

Variable costs

Answer 4

• costs that change in total proportionally to changes in the activity level. e.g commission based wage

Question 5

Fixed Costs

Answer 5

Costs that remain unchanged in total when the activity level changes.
E.g. Salaries, Rent

Question 6

Cost Object

Answer 6

An item assigned a seperate measure of costs.

e.g. products, divisions, customers, responsibility centre

Question 7

Direct Costs

Answer 7

a cost that can be identified with or traced to a particular cost object in an economic manner.
- are directly traced to the cost object

Question 8

Indirect costs

Answer 8

a cost that cannot be identified with or traced to a cost object in an economic manner.
- are allocated to the cost object.

Question 9

Controllable costs

Answer 9

can be controlled or significantly influenced by the manager

Question 10

Uncontrollable costs

Answer 10

cannot be controlled or significantly influenced by the manager.

Question 11

Direct product cost

Answer 11

Manufacturing costs that can be traced to products in an economic manner.

Question 12

Indirect product cost

Answer 12

Manufacturing costs that cannot be traced to products in an economic manner.

Question 13

Value Chain

Answer 13

a set of linked processes or activities that begins with acquiring resources and ends with providing and supporting products that customers value.

Question 14

Manufacturing costs

Answer 14

the cost of direct material, direct labour and manufacturing overheads.

Question 15

Non-manufacturing costs

Answer 15

all costs incurred outside of manufacturing, that is the cost of upstream and downstream activities

Question 16

Direct Material

Answer 16

The cost of materials consumed in the manufacturing process to produce a product, physically incorporated in the product and able to be traced to the product in an economic matter.

Question 17

Direct Labour

Answer 17

the cost of salary, wages and labour on cost for personnel who work directly on the manufactured product.

Question 18

Indirect material costs

Answer 18

the costs of material used in production that cannot be directly assigned to individual products in an economic matter.

Question 19

Indirect labour costs

Answer 19

the costs of any Labour used in production that cannot be directly traced to individual products in an economic manner.

Question 20

Conversion Costs

Answer 20

the costs of direct labour and manufacturing overhead incurred to convert raw material to a finished product.

Question 21

Prime costs

Answer 21

the costs of direct material and direct labour incurred to produce a product.

Question 22

Product Cost

Answer 22

the cost assigned to goods that were either manufactured or purchased for resale.
determines cost of goods sold.

Question 23

COGS expense

Answer 23

the cost of products transferred from the inventory account when sold, matched against revenue to determine gross margin.

Question 24

Period costs

Answer 24

costs that are expensed in the accounting period in which they are incurred.

Question 25

Raw material inventory

Answer 25

an account that records the cost of the major materials that will be used in production.

Question 26

Work in process inventory

Answer 26

an account that records the cost of products that are only partially complete at balance date.

Question 27

Finished goods inventory

Answer 27

an account that records the cost of the manufactured goods that are complete and ready for sale.

Question 28

Schedule of COGS and Cost of goods manufactured

Answer 28

summarises the flow of manufacturing costs.