Chapter 2

Question 1

Finished Goods Inventory

Answer 1

Completed goods that have not yet been sold.

Question 2

Manufacturing Company

Answer 2

A company that uses labor, plant, and equipment to convert raw materials into new finished products.

Question 3

Merchandising Company

Answer 3

A company that resells tangible products previously bought from suppliers.

Question 4

Raw Materials Inventory

Answer 4

All raw materials (direct materials and indirect materials) not yet used in manufacturing.

Question 5

Retailer

Answer 5

Merchandising company that sells to consumers.

Question 6

Service Company

Answer 6

A company that sells intangible services rather than tangible products.

Question 7

Triple Bottom Line

Answer 7

Evaluating a company’s performance not only by its ability to generate economic profits, but also by its impact on people and the planet.

Question 8

Value Chain

Answer 8

The activities that add value to a firm’s products and services; includes R&D, design, production or purchases, marketing, distribution, and customer service.

Question 9

Wholesaler

Answer 9

Merchandising companies that buy in bulk from manufacturers, mark up the prices, and then sell those products to retailers.

Question 10

Work in Process Inventory

Answer 10

Goods that are partway through the manufacturing process but not yet complete.

Question 11

Biomimicry

Answer 11

A means of product design in which a company tries to mimic, or copy, the natural biological process in which dead organisms (plants and animals) become the input for another organism or process.

Question 12

Customer Service

Answer 12

Support provided for customers after the sale.

Question 13

Design

Answer 13

Detailed engineering of products and services and the processes for producing them.

Question 14

Distribution

Answer 14

Delivery of products or services to customers.

Question 15

Greenwashing

Answer 15

The unfortunate practice of overstating a company’s commitment to sustainability.

Question 16

Life-Cycle Assessment

Answer 16

A method of product design in which the company analyzes the environmental impact of a product, from cradle to grave, in an attempt to minimize negative environmental consequences throughout the entire lifespan of the product.

Question 17

Marketing

Answer 17

Promotion and advertising of products or services.

Question 18

Production or Purchases

Answer 18

Resources used to produce a product or service, or to purchase finished merchandise intended for resale.

Question 19

Research and Development (R&D)

Answer 19

Researching and developing new or improved products or services or the processes for producing them.

Question 20

Allocate

Answer 20

To assign an indirect cost to a cost object.

Question 21

Assign

Answer 21

To attach a cost to a cost object.

Question 22

Cost Object

Answer 22

Anything for which managers want a separate measurement of costs.

Question 23

Direct Cost

Answer 23

A cost that can be traced to a cost object

Question 24

Indirect Cost

Answer 24

A cost that relates to the cost object but cannot be traced to it.

Question 25

Trace

Answer 25

To assign a direct cost to a cost object

Question 26

Conversion Costs

Answer 26

The combination of direct labor and manufacturing overhead costs.

Question 27

Direct Labor

Answer 27

The cost of compensating employees who physically convert raw materials into the company’s products; labor costs that are directly traceable to the finished product.

Question 28

Direct Materials

Answer 28

Primary raw materials that become a physical part of a finished product and whose costs are traceable to the finished product.

Question 29

Indirect Labor

Answer 29

Labor costs that are difficult to trace to specific products.

Question 30

Indirect Materials

Answer 30

Materials whose costs are difficult to trace to specific products.

Question 31

Inventoriable Product Costs

Answer 31

All costs of a product that GAAP requires companies to treat as an asset (inventory) for external financial reporting. These costs are not expensed until the product is sold.

Question 32

Manufacturing Overhead

Answer 32

All manufacturing costs other than direct materials and direct labor; also called factory overhead and indirect manufacturing cost.

Question 33

Other Indirect Manufacturing Costs

Answer 33

All manufacturing overhead costs aside from indirect materials and indirect labor.

Question 34

Period Costs

Answer 34

Costs that are expensed in the period in which they are incurred; often called operating expenses or selling, general, and administrative expenses.

Question 35

Prime Costs

Answer 35

The combination of direct material and direct labor costs.

Question 36

Total Cost

Answer 36

The cost of all resources used throughout the value chain.

Question 37

Cost of Goods Manufactured

Answer 37

The cost of manufacturing the goods that were finished during the period.

Question 38

Operating Income

Answer 38

Earnings generated from the company’s primary ongoing operations; the company’s earnings before interest and taxes.

Question 39

Perpetual Inventory

Answer 39

An inventory system in which both Cost of Goods Sold and Inventory are updated every time a sale is made.

Question 40

Periodic Inventory

Answer 40

An inventory system in which Cost of Goods Sold is calculated at the end of the period, rather than every time a sale is made.

Question 41

Controllable Costs

Answer 41

Costs that can be influenced or changed by management.

Question 42

Differential Cost

Answer 42

The difference in cost between two alternative courses of action.

Question 43

Sunk Cost

Answer 43

A cost that has already been incurred.

Question 44

Uncontrollable Costs

Answer 44

Costs that cannot be changed or influenced in the short run by management.

Question 45

Average Cost

Answer 45

The total cost divided by the number of units.

Question 46

Fixed Costs

Answer 46

Costs that stay constant in total despite wide changes in volume.

Question 47

Marginal Cost

Answer 47

The cost of producing one more unit.

Question 48

Variable Costs

Answer 48

Costs that change in total in direct proportion to changes in volume.