Chapter 2

Question 1

What are the three categories of manufacturing costs?

Answer 1

direct materials, direct labour, overhead costs

Question 1

What are prime costs?

Answer 1

direct materials cost and direct labour costs

Question 2

What are conversion costs?

Answer 2

direct labour costs and manufacturing overhead costs

Question 3

How to calculate direct materials cost?

Answer 3

beginning raw materials inv.
add: purchase of raw materials
= raw materials avail. for use
deduct: ending raw materials inv.
= raw materials used in production

Question 4

How to calculate cost of goods manufactured?

Answer 4

beg. wip inv.
add: total manufacturing costs
deduct: end. wip inv.
= cost of goods manufactured

Question 5

How to calculate COGS

Answer 5

COGS =
+ beg. finished goods inv.
+ cost of goods manufactured
- ending finished goods inv.

Question 6

Basic equation for inventory accounts

Answer 6

beginning balance
+ additions to inventory
- withdrawals from inventory
= ending balance

Question 7

What are direct labour costs?

Answer 7

labour costs that can be easily traced to individual units of production

Question 8

What are direct materials costs?

Answer 8

materials that go into the final product and can be physically and conveniently traced directly to it

Question 9

What are manufacturing overhead costs?

Answer 9

all costs of manufacturing except direct material and direct labour (ex: indirect materials&labour)

Question 10

What are period costs?

Answer 10

all selling and admin costs, are shown as expenses on the income statement

Question 11

What are product costs?

Answer 11

includes DM, DL, and MOH, shown as the inventory on the balance sheet and once the product is sold, as COGS on the income statement

Question 12

What is work in process inventory (WIP)?

Answer 12

consists of units of product that are partially complete and require additional work before they are ready to sell to a customer

Question 13

What cost classifications are used to prepare external financial statements?

Answer 13

product costs and period costs

Question 14

What cost classifications are used to predict cost behaviour in response to changes in activity (managers use)?

Answer 14

variable and fixed cost

Question 15

What cost classifications are used to assign costs to cost objects such as departments of products?

Answer 15

direct cost and indirect cost

Question 16

What cost classification is used to make decisions?

Answer 16

differential cost and sunk cost

Question 17

What is variable cost behaviour (in total & per unit)?

Answer 17

total variable cost increases and decreases in proportion to changes in the activity level - variable costs remain constant per unit

Question 18

What is fixed cost behaviour (in total & per unit)?

Answer 18

total fixed cost is not affected by changes in the activity level with the relevant range - fixed costs decrease per unit as the activity level rises and increases per unit as the activity level falls

Question 19

What are mixed costs?

Answer 19

contain variable and fixed cost elements

Question 20

What is direct cost?

Answer 20

a cost that can be easily and conveniently traced to the particular cost object under consideration

Question 21

What is indirect cost?

Answer 21

a cost that cannot be easily and conveniently traced to the particular cost object under consideration

Question 22

What are cost objects?

Answer 22

any unit of analysis for which cost data are desired (products, customers, jobs, and organizational subunits)

Question 23

A difference in cost between any two alternatives is known as a:

Answer 23

differential cost (aka incremental cost - when increasing)

Question 24

A difference in revenues between any two alternatives is known as a:

Answer 24

differential revenue

Question 25

What is opportunity cost?

Answer 25

the potential benefit that is given up when one alternative is selected over another (the opportunity of doing something else)

Question 26

What are sunk costs?

Answer 26

costs that have already been incurred and cannot be changed

Question 27

What are the 4 types of cost classifications?

Answer 27

1. financial reporting 2. predicting cost behaviour 3. assigning costs to cost objects 4. decision making

Question 28

When valuing inventories and determining expenses for the balance sheet and income statement, costs are classified under either of these 2 costs:

Answer 28

1. product costs 2. period costs