chapter 3

Question 1

Define cost objects

Answer 1

resources or activities that serve as the basis for management decisions

require separate cost measurement and may e products, product lines, departments, georgraphic territories or any other classification taht aids in decision making

Question 2

product costs

Answer 2

not expensed until the product is sold.

all costs related to the manufacture of the product

inventory and COGS

comprised of direct materials direct labor and manufacturing overhead appled

Question 3

period costs

Answer 3

are expensed in the period in which they are incurred

not inventoriable like product costs

SG&A expense, interest expense

Question 4

manufacturing cost

Answer 4

treated as product costs

include all costs asociated with the manufacture of a product

Question 5

nonmanufacturing costs

Answer 5

costs that do not relate to the manufacture of a porduct

i.e. period costs

Question 6

type of cost - wages for factory employees?

Answer 6

direct labor - product cost

t

Question 7

type of cost - wages for accounting department?

Answer 7

period cost

Question 8

type of cost - sales and promotion expense

Answer 8

period cost

Question 9

type of cost - raw materials purchased

Answer 9

direct material - product cost

Question 10

type of cost - general and administrative costs

Answer 10

period cost

Question 11

type of cost - manufacturing overhead

Answer 11

product cost

Question 12

type of cost - interest expense

Answer 12

period cost

Question 13

What is comprised in product costs?

Answer 13

DM + DL + MOH

Question 14

define direct costs

Answer 14

can be easily (without excessive cost or significant error) traced to a cost pool or object, as the cost directly relates to that item

includes direct raw material and direct labor

Question 15

define direct raw materials

Answer 15

costs of materials purchased to be used in production (including freight in net of any applicable purchase discounts )PLUS a reasonable amount for normal scrap created by the process

Question 16

define direct labor

Answer 16

cost of the labor that is directly related to the production of a product or the performance of a service PLUS a reasonable amount of expected downtime for the labor (i.e. breaks, setup , training, etc.)

Question 17

define indirect cost

Answer 17

not easily traceable to a cost pool or cost object. Typically incurred to benefit two or more cost pools or objects. The specific benefit each cost gives to the cost pool or object cannot be determined without making some sort of reasonable estimate or using an allocation methodology.

known as “overhead”

includes indirect material, indirect labor, other indirect costs

Question 18

define indirect materials

Answer 18

cost of materials that were not used specifically or could not be traced to the completed procut with ease Ii.e. cleaning supplies to clean up work space)

Question 19

define indirect labor

Answer 19

cost of labor that is not easily traceable to a particular product, service, etc.

most often, the type of labor supports the manufacturing process but does not work directly on the specific job

ex: maintenance owkrers, shift supervisors, workers in the receiving department, janitorial staff, inspectors, engineers, training, et.

included in manufacturing overhead

Question 20

define other indirect costs

Answer 20

“factory costs”

costs other than those for materials or labor

costs for depreciation, rent of production warehouse, machine maintenance, property tax on building, insurance, utilities, etc.

Question 21

prime cost

Answer 21

= DL + DM

Question 22

conversion cost

Answer 22

= DL + MOH

Question 23

Traditional costing

Answer 23

all indirect costs (MOH) are allocated to a single cost pool or account called overhead and allocated as a single pool.

1. overhead rate = budgeted OH / est. cost drive
2. applied OH = actual cost driver x OH rate

Question 24

variable cost

Answer 24

changes proportionally with the cost driver (typical cost drivers include sales volume and production volume)

change in total, but constant per unit

Question 25

fixed cost

Answer 25

does not change when the cost driver changes

remain constant in total but they vary per unity

Question 26

define relevant range

Answer 26

range for which the assumptions of the cost driver are valid (i.e. VC/unit and FC in total do not change

when the cost driver is no longer within the relevant range, the VC and FC assumptions cannot be used to allocate costs to cost objects