Chapter 2

Question 1

What are Inventoriable Costs?

Answer 1

All costs related to a product are considered assets on the balance sheet and are only considered COGS when the product is sold. Because the costs have yet to be recovered and generate revenue for the producer, the costs remain in inventory.

Question 2

What is the formula for Prime costs?

Answer 2

Direct Material costs + Direct Manufacturing Labour costs

Question 3

What is the formula for Conversion costs?

Answer 3

Direct Manufacturing Labour costs + Manufacturing Overhead costs

Question 4

Describe the 4-step flow of Inventoriable costs

Answer 4

Step 1: Cost of direct materials used
Step 2: Total manufacturing costs incurred
Step 3: Cost of Goods Manufactured
Step 4: Cost of Goods Sold

Question 5

If a worker was paid $20 an hour for straight-time, and $30 an hour for overtime, what is their overtime premium?

Answer 5

Overtime - straight-time = overtime premium
$30 - $20 = $10

Question 6

A worker makes $20 an hour and works 40 hours this week. 3 of those hours he was waiting for code from another worker. What is his idle time?

Answer 6

Hours worked * straight-line = idle time
3 * $20 = $60

Question 7

True or False: Idle time and overtime premium are considered overhead costs.

Answer 7

True
Both are considered overhead costs and are not specific to any one product.

Question 8

True or False: You cannot customize cost classification.

Answer 8

False
While IFRS/ASPE limits flexibility when it comes to cost classification, internal management allows you to customize cost classification for specific purposes.

Question 9

What are the five-steps of the decision-making process?

Answer 9

Step 1: Identify the problem and uncertainties
Step 2: Obtain Information
Step 3: Predict the future
Step 4: Decide Among Alternatives
Step 5: Implement the decision, evaluate performance, and learn

Question 10

What is the difference between direct and indirect costs?

Answer 10

A direct cost is any cost that can be traced to the cost object in an economically feasible way.

Indirect costs are related to a specific cost object but cannot be traced in an economically feasible way.

Question 11

What are upstream and downstream costs?

Answer 11

Upstream costs are incurred before production.
Downstream costs are incurred after production.

Question 12

Beginning Inventory is $11,000
Cost of Materials available for use is $84,000
Ending Inventory is $8,000
What is the Direct Materials used?

Answer 12

Direct Materials used is $76,000

84,000 - 8,000 = 76,000

Question 13

What is the difference between Period costs and Inventoriable costs?

Answer 13

Periods costs are incurred in the period they are incurred. Inventoriable costs are considered assets until they are sold.