Chapter 2

Question 1

Manufacturing Costs

Answer 1

Direct Materials: Raw materials used directly in production. Contrasts with indirect materials like cleaning supplies.

Direct Labor: Cost of labor directly involved in making a product or service. Includes wages and benefits for workers on the front lines.

Manufacturing Overhead: Indirect production costs (e.g., utilities, rent, maintenance) not linked to a specific product.

Question 2

Non-manufacturing Costs

Answer 2

Marketing Cost: Expenses for promoting and selling products, e.g., advertising and promotional materials.

Administrative Cost: Expenses in managing the whole business, such as office rent, non-production staff salaries, and office supplies.

Question 3

Product Cost

Answer 3

Costs directly tied to producing goods or services, including direct materials, direct labor, and manufacturing overhead

Question 4

Period Cost

Answer 4

Expenses in managing the whole business, such as office rent, non-production staff salaries, and office supplies.

Question 5

Manufacturing Company Balance Sheet (Inventory Classes)

Answer 5

1. Raw Materials Inventory
2. Work in Process Inventory (WIP)
3. Finished Goods Inventory

Question 6

Calculating COGS (Merchandising Company)

Answer 6

COGS = Beginning merchandise inventory + Purchases - Ending merchandise inventory

Question 7

Calculating COGS (Manufacturing Company)

Answer 7

COGS = Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory

Question 8

Cost Behaviour

Answer 8

Describes how costs react to changes in activity levels

Question 9

Fixed Cost

Answer 9

(In total) Not affected by changes in activity level.
(Per Unit) Decrease per unit as the activity level increases and increase per unit as the activity level decreases

Question 10

Variable Cost

Answer 10

(In total) TVC increases and decreases in proportion to changes in activity level
(Per Unit) Remain constant

Question 11

Direct Cost

Answer 11

Expenses directly tied to a specific product or project, e.g., raw material costs for a particular product.

Question 12

Indirect Cost

Answer 12

Expenses not directly linked to a specific product or project, like administrative salaries or office rent.

Question 13

Differential Cost and Differential Revenue

Answer 13

A difference in costs (or revenue) between any two alternatives