Chapter 2 - Intro to Cost Terms & Purposes

Question 1

Direct Costs of a Cost Object

Answer 1

Costs related to the particular cost object that can be traced to that object in an economically feasible (cost-effective) way.

Question 2

Direct Manufacturing Labor Costs

Answer 2

Include the compensation of all manufacturing labor that can be traced to the cost object (work in process and then finished goods) in an economically feasible way.

Question 3

Direct Material Costs

Answer 3

Acquisition costs of all materials that eventually become part of the cost object (work in process and then finished goods), and that can be traced to the cost object in an economically feasible way.

Question 4

Direct Materials Inventory

Answer 4

Direct materials in stock and awaiting use in the manufacturing process.

Question 5

Factory Overhead Costs (Indirect Manufacturing Costs)

Answer 5

All manufacturing costs that are related to the cost object but that cannot be traced to that cost object in an economically feasible way.

Question 6

Finished Goods Inventory

Answer 6

Goods completed but not yet sold.

Question 7

Fixed Costs

Answer 7

Cost that remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume.

Question 8

Idle Time

Answer 8

Wages paid for unproductive time caused by lack of orders, machine breakdowns, material shortages, poor scheduling, and the like.

Question 9

Indirect Costs of a Cost Object

Answer 9

Costs related to the particular cost object that cannot be traced to that object in an economically feasible way.

Question 10

Indirect Manufacturing Costs (aka Manufacturing Overhead/Factory Overhead)

Answer 10

All manufacturing costs that are related to the cost object but that cannot be traced to that cost object in an economically feasible way.

Question 11

Inventoriable Costs

Answer 11

All costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold only when the product is sold.

Question 12

Manufacturing Overhead Costs (aka Indirect Manufacturing Costs/Factory Overhead Costs)

Answer 12

All manufacturing costs that are related to the cost object but that cannot be traced to that cost object in an economically feasible way.

Question 13

Manufacturing Sector Companies

Answer 13

Companies that purchase materials and components and convert them into various finished goods.

Question 14

Merchandising Sector Companies

Answer 14

Companies that purchase and then sell tangible products without changing their basic form.

Question 15

Operating Income

Answer 15

Total revenues from operations minus cost of goods sold and operating (period) costs (excluding interest expense and income taxes)

Question 16

Overtime Premium

Answer 16

Wage rate paid to workers (for both direct labor and indirect labor) in excess of their straight-time wage rates.

Question 17

Period Costs

Answer 17

All costs in the income statement other than cost of goods sold.

Question 18

Prime Costs

Answer 18

All direct manufacturing costs.

Question 19

Product Cost

Answer 19

Sum of the costs assigned to a product for a specific purpose.

Question 20

Relevant Range

Answer 20

Band or normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question.

Question 21

Revenues

Answer 21

Inflows of assets (usually cash or accounts receivable) received for products or services provided to customers.

Question 22

Service Sector Companies

Answer 22

Companies that provide services or intangible products to their customers.

Question 23

Unit Cost (aka Average Cost)

Answer 23

Cost computed by dividing total cost by the number of units.

Question 24

Variable Cost

Answer 24

Cost that changes in total in proportion to changes in the related level of total activity or volume.

Question 25

Work-in-Process Inventory (aka Work-in-Process)

Answer 25

Goods partially worked on but not yet completed.

Question 26

Actual Cost

Answer 26

Cost incurred (a historical or past cost), as distinguished from a budgeted or forecasted cost.

Question 27

Average Cost (aka Unit Cost)

Answer 27

Cost computed by dividing total cost by the number of units.

Question 28

Budgeted Cost

Answer 28

Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.

Question 29

Conversion Costs

Answer 29

All manufacturing costs other than direct materials costs.

Question 30

Cost

Answer 30

Resource sacrificed or foregone to achieve a specific objective.

Question 31

Cost Accumulation

Answer 31

Collection of cost data in some organized way by means of an accounting system.

Question 32

Cost Allocation

Answer 32

Assignment of indirect costs to a particular cost object.

Question 33

Cost Assignment

Answer 33

General term that encompasses both (1) tracing accumulated costs that have a direct relationship to a cost object and (2) allocating accumulated costs that have an indirect relationship to a cost object.

Question 34

Cost Driver

Answer 34

A variable, such as the level of activity or volume, that casually affects costs over a given time span.

Question 35

Cost Object

Answer 35

Anything for which a measurement of costs is desired.

Question 36

Cost of Goods Manufactured

Answer 36

Costs of goods brought to completion, whether they were started before or during the current accounting period.

Question 37

Cost Tracing

Answer 37

Describes the assignment of direct costs to a particular cost object.