Chapter 2

Question 1

Direct materials

Answer 1

Those materials that become

an integral part of a finished product and can be conveniently traced to it.

Question 2

Indirect materials

Answer 2

Small items of material that may become an integral part of a finished product but whose costs of tracing exceed the benefits.

Question 3

Direct labour

Answer 3

Those factory labour costs that can be traced easily to individual units of product.

Question 4

Indirect labour

Answer 4

The labour costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced directly to particular products.

Question 5

Manufacturing overhead

Answer 5

All costs associated with manufacturing except direct materials and direct labour.

Question 6

Conversion cost

Answer 6

Direct labour cost plus manufacturing overhead cost.

Question 7

Prime cost

Answer 7

Direct materials cost plus direct labour cost.

Question 8

Overtime premiums

Answer 8

The extra hourly wage rate paid to workers who must work more than their normal time requirements.

Question 9

Marketing or selling cost

Answer 9

All costs necessary to secure customer orders and get the finished product or service to the customer.

Question 10

Administrative costs

Answer 10

All executive, organizational, and clerical costs associated with the general management of an orga- nization rather than with manu- facturing, marketing, or selling.

Question 11

Product costs

Answer 11

All costs that are involved in
the purchase or manufacture
of goods. In the case of manufactured goods, these costs consist of direct materials, direct labour, and manufacturing overhead. They are also called inventoriable costs.

Question 12

Period costs

Answer 12

All costs that are expensed on the income statement in the period in which they are incurred or accrued. Selling (marketing) and administrative expenses are period costs.

Question 13

Raw (direct) materials inventory

Answer 13

Materials used to make a product that have not yet been placed into production.

Question 14

Work in process inventory

Answer 14

Inventory consisting of units of product that are only partially complete and will require further work before they are ready for sale to a customer.

Question 15

Finished goods inventory

Answer 15

Inventory consisting of units of product that have been completed but have not yet been sold to customers.

Question 16

Cost of goods manufactured

Answer 16

Costs that include the direct materials, direct labour, and manufacturing overhead used for the products finished during the period.

Question 17

Schedule of cost of goods manufactured

Answer 17

A schedule showing the direct materials, direct labour, and manufacturing overhead costs incurred for a period and assigned to work in process and completed goods.

Question 18

Total manufacturing costs

Answer 18

Costs that represent the direct materials, direct labour, and manufacturing overhead used to perform the production work for finished or unfinished products for the period.

Question 19

Cost behaviour

Answer 19

The way in which a cost reacts or responds to changes in the level of activity.

Question 20

Variable cost

Answer 20

A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.

Question 21

Fixed cost

Answer 21

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity.

Question 22

Relevant range

Answer 22

The range of activity within which assumptions about variable and fixed cost behaviour are valid.

Question 23

Mixed costs

Answer 23

Costs that contain both variable and fixed cost elements.

Question 24

Cost object

Answer 24

Anything for which cost data are desired.

Question 25

Direct cost

Answer 25

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

Question 26

Indirect cost

Answer 26

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

Question 27

Common cost

Answer 27

A cost that is incurred to support a number of cost objects but cannot be traced to any of them individually.

Question 28

Differential cost

Answer 28

A difference in cost between any two alternatives.

Question 29

Differential revenue

Answer 29

A difference in revenue between any two alternatives.

Question 30

Incremental cost

Answer 30

An increase in cost between two alternatives.

Question 31

Opportunity cost

Answer 31

The potential benefit that is given up when one alternative is selected over another.

Question 32

Sunk cost

Answer 32

Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.