ACCT 2301 Ch.2 Concepts

Expired costs are called:
expenses
Cost is:
the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization.
As costs are used up in the production of revenues, they are said to expire. Expired costs are called expenses.
True
Assigning costs tells the accountant who spent the money.
False
A cost object is any item such as products, customers, departments, regions, and so on, for which costs are measured and assigned.
True
Accumulating costs is the way that costs are measured and recorded.
True
An indirect cost
is hard to trace.
Indirect costs are costs that are not easily and accurately traced to a cost object.
True
Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient method.
True
The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled.

Is the cost of tires for Honda Civics a direct or indirect cost?

Direct cost
The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled.

Is the salary of the public relations manager at the Amarillo plant a direct or indirect cost (for Civics versus Chevys)?

Indirect cost
Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year.

Would the salary of MTC’s Director of Research be considered a direct or indirect cost?

Indirect cost
The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled.

Is the salary of the engineer who monitors production quality for Honda Civics (but NOT GM Chevys) a direct or indirect cost?

Direct Cost
Property taxes on a factory building would normally be classified as a fixed cost.
True
A fixed cost is a cost that does not increase in total as output increases and does not decrease in total as output decreases.
True
The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled.

Is the salary of the public relations manager at the Amarillo plant a variable or fixed cost?

Fixed cost
Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year.

MTC provides meals at each focus group session. Is the cost of meals variable or fixed?

Variable cost
Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year.

Would the salary of MTC’s Director of Research be considered a variable or fixed cost?

Fixed cost
The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled.

Is the salary of the engineer who monitors production quality for Honda Civics a fixed or variable cost?

Fixed cost
Product costs include direct materials, direct labor, and selling costs.
False
Product costs are carried in inventory until the goods are finished, then they are expensed.
False
Non-manufacturing costs include
marketing and administration.
Product costs consist of
direct materials, direct labor, and overhead.
Product costs are expensed
when the product is sold.
Direct materials can be directly traced to the goods or services being produced.
True
A factory building needs to hire janitorial services. This is classified as indirect labor.
True
Indirect labor would include
salary of factory supervisor.
Which of the following is not an example of a direct materials cost?
nails used to manufacture a desk
Overhead includes
indirect labor, indirect materials, and factory supplies
Ashland Company, maker of kitchen cabinets, incurred the following costs during the current year. Which of the following is a period cost?
Salary of Ashland’s chief executive officer
Ashland Company, maker of kitchen cabinets, incurred the following costs during the current year. Which of the following is a period cost?
Depreciation on automobiles used by the sales staff
Which of the following is an example of a period cost?
research and development, selling and marketing, and general accounting
Period costs
are selling costs and administrative costs.
Cost is a dollar measure of the resources used to achieve a given benefit.
True
Costs are incurred to produce future benefits.
True
Assigning costs involves the way that a cost is linked to some cost object.
True
Price is not:
the same as cost.
Assigning costs
involves the way that a cost is linked to some cost object, occurs in both manufacturing and service businesses, and to a cost object using a reasonable and convenient method is allocation.
Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year.

Is the payment to individual participants considered a direct or indirect cost?

Direct cost
Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year.

MTC leases a fancy office for its corporate headquarters. Would the cost of the lease be considered a direct or indirect cost?

Indirect cost
Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year.

MTC leases a fancy office for its corporate headquarters. Would the cost of the lease be considered a variable or fixed cost?

Fixed cost
What is an example of a service?
eye exam
Direct labor is a(n)
product cost.
What is an example of direct labor?
assembly line worker for televisions
Gross margin is the difference between sales revenue and cost of goods sold.
True
Marketing costs would be classified as period costs.
True
Ashland Company, maker of kitchen cabinets, incurred the following costs during the current year. Which of the following is NOT a period cost?
Property taxes on factory building
Cost of goods manufactured equals
the product cost of goods completed during the current period and transferred to finished goods.
Price must be greater than cost in order for the firm to generate revenue.
False
Expired cost are called assets.
False
The revenue per unit is called cost.
False
Costs can be assigned to cost objects in only one way.
False
Assigning costs to cost objects
provides information for decision making, can be accomplished in a number of ways, and can be a simple or complex process.
A cost object is something for which a company wants to know the cost.
True
The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled.

Is the cost of electricity for the entire plant a direct or indirect cost (for Civics versus Chevys)?

Indirect cost
Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year.

MTC provides meals at each focus group session. Is the cost of meals direct or indirect?

Direct cost
Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year.

Is the payment to individual participants considered a variable or fixed cost?

Variable cost
A variable cost in total
increases as output increases and decreases as output decreases.
The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled.

Is the cost of tires for Honda Civics fixed or variable costs?

Variable cost
Glue used in the manufacture of cabinets would be an example of a fixed cost.
False
The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled.

Is the cost of electricity for the entire plant a fixed or variable cost?

Variable cost
Product costs
are costs that are included in the determining the value of the inventory, are manufacturing costs, and include direct materials, direct labor, and overhead.
Any costs associated with storing, selling, and delivering the product are classified as product costs.
False
Research and development costs would be classified as product cost.
False
What is an example of a direct materials cost?
engine on an airplane
Cost of goods sold is the total product cost of the units sold during a period.
True
Sales revenue equals the product cost per unit times the number of units sold.
False
The unit cost
is the total product costs divided by the number of units produced.
Cost of goods manufactured equals
total product costs incurred during the current period + beginning work in process − ending work in process.
What would not be a period cost?
direct materials
Ashland Company, maker of kitchen cabinets, incurred the following costs during the current year. Which of the following is a period cost?
Salary of the Director of Marketing