Chapter 2 Reading

Question 1

cost = ?

Answer 1

resource sacrificed or foregone to achieve a specific objective

Question 2

cost object = ?

Answer 2

anything for which a separate measurement of costs is desired

(e.g., a bicycle (product), flight (service), showcase (programme))

Question 3

2 stages of the costing system?

Answer 3

• accumulates costs & categorises them
• assigns the costs to cost objects

Question 4

cost accumulation = ?

Answer 4

the collection of cost data in some organised way through an accounting system

Question 5

cost assignment = ?

Answer 5

general term that encompasses both tracing and allocation of costs to a cost object

Question 6

costs that are traced to a cost object are…?

Answer 6

direct costs

Question 7

costs that are allocated to a cost object are…?

Answer 7

indirect costs

Question 8

many accounting systems accumulate what type of costs?

Answer 8

actual costs

Question 9

actual costs = ?

Answer 9

amount paid to acquire an asset

Question 10

distinguished = ?

Answer 10

recognised

Question 11

direct costs of a cost object = ?

Answer 11

costs that are related to a cost object and can be traced to it

Question 12

indirect costs of a cost object = ?

Answer 12

costs that are related to a cost object but cannot be traced to it

Question 13

how are indirect costs connected to to cost objects?

Answer 13

through the cost-allocation method

Question 14

direct/indirect costs of manufacturing a tennis racket?

Answer 14

direct cost - racket materials
indirect cost - electricity for factory

Question 15

on which basis do managers prefer to make decisions regarding costs?

Answer 15

on the basis of direct costs as they’re more accurate

Question 16

how does cost assignment work?

Answer 16

direct costs are assigned to a cost object via cost tracing

indirect costs are assigned to a cost object via cost allocation

Question 17

cost tracing = ?

Answer 17

the assignment of direct costs to the chosen cost object

Question 18

cost allocation = ?

Answer 18

the assignment of indirect costs to the chosen cost object

Question 19

what does cost assignment encompass?

Answer 19

encompasses cost tracing & cost allocation

Question 20

three factors affecting the classification of a cost as direct or indirect?

Answer 20

materiality

information-gathering technology available

design of operations

Question 21

the higher the cost in question…

Answer 21

the easier it is to trace it to a cost object

Question 22

what impact has barcodes had on traceability?

Answer 22

barcodes made costs to become increasingly traceable

subsequently converting them into direct costs

Question 23

cost driver = ?

Answer 23

any factor that affects total costs

Question 24

cost management = ?

Answer 24

the set of actions taken by managers to satisfy customers whilst controlling costs

Question 25

variable costs = ?

Answer 25

cost that changes in proportion to changes in a cost driver

Question 26

fixed costs = ?

Answer 26

costs that remain constant despite changes in a cost driver

Question 27

two types of cost behaviour patterns?

Answer 27

• variable costs
• fixed costs

Question 28

relevant range = ?

Answer 28

the range of the cost driver in which a specific relationship between cost and driver is valid

Question 29

unit cost = ?

Answer 29

average cost

computed by dividing total cost by the number of units

Question 30

is it better to think in terms of total costs or unit costs?

Answer 30

total costs because unit costs are averages

Question 31

service-sector companies = ?

Answer 31

provide services/intangible products to their customers

they have no physical stock

e.g., law firms, accounting firms

most significant cost category is labour costs often 70% of total costs

Question 32

merchandising-sector companies = ?

Answer 32

provide tangible products they have previously purchased from suppliers

includes companies involved in retailing (e.g., book/clothing stores)

Question 33

manufacturing-sector companies = ?

Answer 33

provide tangible products that have been converted from raw materials to a finished product

stock can include raw materials, work in progress, finished products

Question 34

three terms used when describing manufacturing costs?

Answer 34

direct materials costs
direct manufacturing labour costs
indirect manufacturing costs

Question 35

direct materials costs = ?

Answer 35

the acquisition costs of all materials that eventually become part of the cost object & can be traced

Question 36

direct manufacturing labour costs = ?

Answer 36

costs of compensation to all manufacturing labour that can be traced to the cost object

Question 37

indirect manufacturing costs = ?

Answer 37

manufacturing costs related to the cost object but can’t be traced to the cost object

Question 38

capitalised costs = ?

Answer 38

costs that are recorded as an asset (capitalised) on the B/S rather than an expense on the P/L when incurred

Question 39

revenue costs = ?

Answer 39

costs recorded as expenses in the P/L in the period in which they’re incurred

Question 40

operating costs = ?

Answer 40

costs involved in generating revenues other than COGS

Question 41

stock-related costs = ?

Answer 41

costs related to stock (raw materials, work in progress, finished goods)

AKA inventoriable costs

Question 42

period costs = ?

Answer 42

costs not classed as inventoriable & therefore expensed during the accounting period

all costs in the P/L other than COGS

Question 43

prime costs = ?

Answer 43

all direct manufacturing costs

Question 44

conversion costs = ?

Answer 44

all manufacturing costs other than direct material costs

costs incurred to convert raw/direct materials into finished goods

Question 45

COGS for manufacturing companies = ?

Answer 45

opening stock + cost of stock manufactured - closing stock

Question 46

cost of goods manufactured = ?

Answer 46

cost of goods brought to completion

Question 47

product cost = ?

Answer 47

the sum of the costs assigned to a product for a specific purpose

Question 48

three purposes for product costing = ?

Answer 48

• product pricing & product emphasis
• contracting with government agencies
• financial statements

Question 49

elements that make up a product cost?

Answer 49

• r&d
• design
• production
• marketing
• distribution
• customer service

Question 50

assignment to a cost object classifications = ?

Answer 50

direct costs
indirect costs

Question 51

behaviour pattern in relation to changes in the level of a cost driver classifications = ?

Answer 51

variable costs
fixed costs

Question 52

aggregate or average cost classifications = ?

Answer 52

total costs
average costs

Question 53

assets or expenses costs classes = ?

Answer 53

inventoriable/product costs
period costs