Chapter 2 - Cost Concepts & Terms

Question 1

Cost

Answer 1

A resource sacrificed or forgone to achieve a specific object; not always an expense - may be capitalized and recorded as an asset.

Question 2

Cost Object

Answer 2

Anything for which a measurement of cost is needed.

Question 3

Direct Costs

Answer 3

Costs that are specifically incurred for a particular cost object and can be traced to a particular cost object in an economically feasible way.

Question 4

Indirect Costs

Answer 4

Costs that are incurred to support a cost object but cannot be traced to a particular cost object in an economically feasible way - they must be allocated.

Question 5

Variable Cost

Answer 5

A cost that changes in total in proportion to the activity or volume; cost per unit remains constant.

Question 6

Fixed Cost

Answer 6

A cost that doesn’t change in total as the activity or volume changes.

Question 7

Relevant Range

Answer 7

The range over which cost relationships remain constant; volume or activity can be sustained without increasing capacity.

Question 8

Inventoriable Costs

Answer 8

All costs of a product that are regarded as assets when they are incurred; expensed (become COGS) when the product is sold.

Question 9

Period Costs

Answer 9

Costs that are expensed in the period in which they are incurred; costs that are expected to benefit revenues in the current period and are not expected to generate revenues in future periods.

Question 10

Manufacturing Firm

Answer 10

Produce and sell products; maintain three inventory accounts - materials, work in process, finished goods.

Question 11

Merchandising Firm

Answer 11

Sell products that have been produced by another company; maintain an inventory of products for resale.

Question 12

Service Firm

Answer 12

Sell service to public (accounting firms, law firms, physicians) and do not maintain an inventory.