Cost Classification

Question 1

Direct costs

Answer 1

specifically associated with a particular unit department or patient which is known as a cost object with a separate cost measurement.

Question 2

Indirect costs

Answer 2

not be specifically associated with a particular cost object (controller’s office)

Question 3

Fixed costs

Answer 3

costs that do not vary in total when activity levels (or volume) of operations change.

Question 4

Variable costs

Answer 4

costs that vary in direct proportion to changes in activity levels (or volume) of operations.

Question 5

Semi-variable costs

Answer 5

vary when the activity levels (or volume) of operations change, but not in direct proportion.

Question 6

Predominant Characteristics vs Step Method

Answer 6

predominant characteristics method: the manager judges whether the cost is more fixed or more variable and acts on that judgment.

step method: the manager examines the “steps” in the step pattern of mixed cost and decides whether the cost appears to be more fixed or more variable.