Chapter 2 - Building Blocks of Managerial Accounting

Question 1

CONVERSION COSTS

Answer 1

The combination of direct labor and manufacturing overhead costs.

Question 2

SERVICE COMPANY

Answer 2

A company that sells intangible services rather than tangible products.

Question 3

FIXED COSTS

Answer 3

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

Question 4

PERIOD COSTS

Answer 4

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

Question 5

DIFFERENTIAL COST

Answer 5

The difference in cost between two alternative courses of action.

Question 6

DIRECT MATERIALS

Answer 6

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

Question 7

UNCONTROLLABLE COSTS

Answer 7

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

Question 8

DIRECT COSTS

Answer 8

A cost that can be traced to a cost object.

Question 9

OTHER INDIRECT MANUFACTURING COSTS

Answer 9

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

Question 10

INDIRECT COST

Answer 10

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

Question 11

PERIODIC INVENTORY

Answer 11

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 12

BIOMIMICRY

Answer 12

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 13

INDIRECT LABOR

Answer 13

Labor costs that are difficult to trace to specific products.

Question 14

INDIRECT MATERIALS

Answer 14

Materials whose costs are difficult to trace to specific products.

Question 15

ALLOCATE

Answer 15

To assign an indirect cost to a cost object.

Question 16

CONTROLLABLE COSTS

Answer 16

Costs that can be influenced or changed by management.

Question 17

INVENTORIABLE PRODUCT COSTS

Answer 17

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 18

MERCHANDISING COMPANY

Answer 18

A company that resells tangible products previously bought from suppliers.

Question 19

CUSTOMER SERVICE

Answer 19

Support provided for customers after the sale.

Question 20

COST OF GOODS MANUFACTURED

Answer 20

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

Question 21

GREENWASHING

Answer 21

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

Question 22

LIFE-CYCLE ASSESSMENT

Answer 22

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 23

FINISHED GOODS INVENTORY

Answer 23

Completed goods that have not yet been sold.

Question 24

MARGINAL COST

Answer 24

The cost of producing one more unit.

Question 25

AVERAGE COST

Answer 25

The total cost divided by the number of units.

Question 26

TRIPLE BOTTOM LINE

Answer 26

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 27

MANUFACTURING OVERHEAD

Answer 27

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

Question 28

SUNK COST

Answer 28

A cost that has already been incurred.

Question 29

VARIABLE COSTS

Answer 29

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

Question 30

PRODUCTION OR PURCHASES

Answer 30

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

Question 31

PERPETUAL INVENTORY

Answer 31

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

Question 32

DISTRIBUTION

Answer 32

Delivery of products or services to customers.

Question 33

TOTAL COST

Answer 33

The cost of all resources used throughout the value chain.

Question 34

TRACE

Answer 34

To assign a direct cost to a cost object.

Question 35

OPERATING INCOME

Answer 35

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

Question 36

DIRECT LABOR

Answer 36

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 37

WORK IN PROCESS INVENTORY

Answer 37

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

Question 38

RESEARCH AND DEVELOPMENT (R&D)

Answer 38

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

Question 39

COST OBJECT

Answer 39

Anything for which managers want a separate measurement of costs.

Question 40

DESIGN

Answer 40

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

Question 41

RAW MATERIALS INVENTORY

Answer 41

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

Question 42

PRIME COSTS

Answer 42

The combination of direct material and direct labor costs.

Question 43

WHOLESALER

Answer 43

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

Question 44

ASSIGN

Answer 44

To attach a cost to a cost object.

Question 45

MANUFACTURING COMPANY

Answer 45

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

Question 46

RETAILER

Answer 46

Merchandising company that sells to consumers.

Question 47

VALUE CHAIN

Answer 47

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 48

MARKETING

Answer 48

Promotion and advertising of products or services.

Question 49

MANUFACTURING OVERHEAD (CALCULATION)

Answer 49

Includes all manufacturing costs other than direct materials and direct labor

Indirect Materials include /*Janitorial suplies, oil and lubricants for the machines, and any physical components of the finished product that are very inexpensive

Indirect Labor includes the cost of all employees in the plant other than those employees directly converting the raw materials into the finished product /*The salaries, wages, and benefits of plant forklift operators, plant security officers, plant janitors, and plant supervisors

Other - Include plant related costs such as /* depreciation on the plant and plant equipment, plant property taxes and insurance, plant repairs, and maintenance, and plant utilities