Chapter 2 - Terms

Question 1

A method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves.

Answer 1

Account Analysis

Question 2

A measure of whatever causes the incurrence of a variable cost.

Answer 2

Activity Base

Question 3

All executive, organizational, and clerical costs associated with the general management of an organization rather that with manufacturing or selling.

Answer 3

Administrative Costs

Question 4

Investments in facilities, equipment, and basic organizational structure that can’t be significantly reduced even for short periods of time without making fundamental changes.

Answer 4

Committed Fixed Costs

Question 5

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

Answer 5

Common Cost

Question 6

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.

Answer 6

Contribution Approach

Question 7

The amount remaining from sales revenues after all variable expenses have been deducted.

Answer 7

Contribution Margin

Question 8

Direct labor cost + manufacturing overhead cost

Answer 8

Conversion Cost

Question 9

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

Answer 9

Cost Behavior

Question 10

Anything for which cost data are desired.

Answer 10

Cost Object

Question 11

The relative proportion of fixed, variable, and mixed costs in an organization.

Answer 11

Cost Structure

Question 12

A variable that responds to some casual factor

Answer 12

Dependent Variable

Question 13

A difference in cost between two alternatives

Answer 13

Differential Cost

Question 14

The difference in revenue between two alernatives

Answer 14

Differential Revenue

Question 15

A cost that can be easily and conveniently traced to a specified cost object

Answer 15

Direct Labor

Question 16

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it

Answer 16

Direct Materials

Question 17

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research

Answer 17

Discretionary Fixed Costs

Question 18

A detailed analysis of cost behavior based on an industrial engineer’s evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs

Answer 18

Engineering Approach

Question 19

A cost that remains constant regardless of changes in the level of activity withing the relevant range

Answer 19

Fixed Cost

Question 20

A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels

Answer 20

High-Low Method

Question 21

An increase in cost between two alternatives

Answer 21

Incremental Cost

Question 22

A variable that acts as a casual factor

Answer 22

Independent Variable

Question 23

A cost that cannot be easily and conveniently traced to a specified cost object

Answer 23

Indirect Cost

Question 24

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

Answer 24

Indirect Labor

Question 25

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it

Answer 25

Indirect Materials

Question 26

Synonym for product costs

Answer 26

Inventoriable Costs

Question 27

A method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors

Answer 27

Least-Squares Regression Method

Question 28

Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity

Answer 28

Linear Cost Behavior

Question 29

All manufacturing costs except direct materials and direct labor

Answer 29

Manufacturing Overhead

Question 30

A cost that contains both variable and fixed cost elements

Answer 30

Mixed Cost

Question 31

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

Answer 31

Opportunity Cost

Question 32

Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued

Answer 32

Period Costs

Question 33

Direct Materials Cost + Direct Labor Cost

Answer 33

Prime Cost

Question 34

All costs that are involved in acquiring or making a product

Answer 34

Product Costs

Question 35

Any materials that go into the final product

Answer 35

Raw Materials

Question 36

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

Answer 36

Relevant Range

Question 37

All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer

Answer 37

Selling Costs

Question 38

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

Answer 38

Sunk Cost

Question 39

A cost that varies in direct proportion to changes in the level of activity

Answer 39

Variable Cost