,DOWNLOAD THE Test Bank for Cost Accounting Foundations & Evolutions 10th E
d d d d d d d d d d d
dition Kinney d
Chapter 2 d
Cost Terminology and Cost Behaviors
d d d d
Learning Objectives
d d
AfterdreadingdanddstudyingdChapterd2,dyoudshoulddbedabledtodanswerdthedfollowingdquestions:
1. Whydaredcostsdassociateddwithdadcostdobject?
2. Whatdassumptionsd dodaccountantsdmakedaboutdcostdbehavior,danddwhydaredthesedassumptions
dnecessary?
3. Howdaredcostsdclassifieddondthedfinancialdstatements,danddwhydaredsuchdclassificationsduseful?
4. Howddoesdthedconversiondprocessdoccurdindmanufacturingdanddservicedcompanies?
5. Whatdaredthedproductdcostdcategories,danddwhatditemsdcomprisedthosedcategories?
6. Howddodproductdcostsdflowdthroughdadcostdsystem?
7. Howdisdcostdofdgoodsdmanufactureddcalculateddandduseddindpreparingdandincomedstatement?
Terminology
d
Actuald costd system:d Ad costingd systemd thatd chargesd Workd ind Processd Inventoryd withd thed actuald directd
material,ddirectdlabor,danddoverheaddcostsdofdproducingdadproduct
Appraisaldcosts:dCostsdincurreddtodfinddmistakesdnotdeliminateddthroughdprevention
Conversiond costs:d Thed costsd (directd labord andd overhead)d requiredd tod convertd directd materiald intod adfi
nisheddgooddordservice
Cost:dThedmonetarydmeasuredofdresourcesdgivendupdtodattaindandobjectivedsuchdasdproducingdadproductdordp
rovidingdadservice
Costdallocation:dThedassignmentdofdandindirectdcostdtodonedordmoredcostdobjectsdusingdsomedreasonabledall
ocationdbasedorddriver
Costddriver:dAdfactordthatdhasdandabsolutedcause-effectdrelationshipdtodadcost
Costdmanagementdsystemd(CMS):dAdsetdofdformaldmethodsddevelopeddfordplanningdanddcontrollingdand org
anization’sdcost-generatingdactivitiesdrelativedtoditsdstrategy,dgoals,danddobjectives
Costdobject:dAnythingdfordwhichdmanagementdwantsdtodcollectdordaccumulatedcosts
Costdofdgoodsdmanufacturedd(CGM):dThedtotaldcostdofdthedgoodsdcompleteddanddtransferreddtodFinisheddG
oodsdInventorydduringdthedperiod
©CambridgedBusinessdPublishers,d2021
Instructor’sdManual,dChapterd2 2-1
mynursytest.store
,DOWNLOAD THE Test Bank for Cost Accounting Foundations & Evolutions 10th E
d d d d d d d d d d d
dition Kinney d
Directdcosts:dCostsdwhichdaredconvenientlydanddeconomicallydtraceabledtodadparticulardcostdobject
Directdlabor:dLabordcostsdofdindividualsdwhodworkdspecificallydondmanufacturingdadproductdordperformingda
dservice
Directdmaterial:dMaterialdcostsdthatdcandbedeasilydanddeconomicallydtraceddtodadproduct
Distributiondcost:d Anydcostdincurreddtodwarehouse,dtransport,dorddeliverdadproductdordservice
Expireddcost:dThedportiondofdandasset’sdvaluedthatdhasdbeendconsumeddordsacrificeddduringdthedperiodd an
ddwhichdisdreporteddasdandexpensedordlossdondthedincomedstatement
Failuredcosts:dInternaldcostsd(e.g.,dscrapdanddrework)danddexternaldcostsd(e.g.,dproductdreturns,dwarrantydc
osts,dcomplaintsdtodcustomerdservice)dcauseddbydqualitydproblems
Finisheddgoods:dThedcostsdofdunitsdofdinventorydthatdhavedbeendfullydcompleted
Fixeddcost:dAdcostdthatdremainsdconstantdindtotaldwithindthedrelevantdrangedofdactivitydbutdvariesdondadunitdb
asis
Indirectdcosts:d Costsdthatdcannotdbedeconomicallydtraceddtodadparticulardcostdobjectdanddthereforedmustdb
edallocateddtodthedobjectdinstead
Inventoriabledcosts:dTheddirectdcostsdofdmaterialsdanddlabordplusdthedindirectdcostsdofdoverheaddwhichdbe
comedpartdofdthedcostdofdinventory
Manufacturer:dAdcompanydengageddindadhighddegreedofdconversiondofdrawdmaterialdthatdresultsdindadtangib
ledoutput
Mixeddcost:dAdcostdthatdhasdbothdadvariabledanddadfixeddcomponentdanddthatdchangesdwithdchangesdindacti
vity,dbutdnotdproportionately
Normaldcostdsystem:dAdcostingdsystemdthatdchargesdthedWorkdindProcessdInventorydwithdthedactualdcostsd
ofddirectdmaterialdandddirectdlabordanddandassigneddamountdofdoverheaddbaseddondadpredetermineddoverhe
addrate
Overhead:dAnydfactorydordproductiondcostdthatdisdindirectdtodthedproductdordserviced(thatdis,dadproduction-
drelateddcostdthatdcannotdbeddirectlydtraceddtodthedproduct)
Perioddcosts:dCostsdrelateddtodbusinessdfunctionsdotherdthandproductiond(suchdasdsellingdanddadministrati
vedcosts)dwhichdaredexpenseddindthedcurrentdaccountingdperiod
Predetermineddoverheaddrate:dAdchargedperdunitdofdactivityduseddtodallocatedordapplydoverheaddcostdfrom
dthedOverheaddControldaccountdtodWork dindProcessdInventorydfordthedperiod’sdproductiondordservices
Predictor:dAndactivitydmeasuredthat,dwhendchanged,disdaccompanieddbydconsistent,dobservabledchangesd i
ndadcostditem
Preventiondcosts:dCostsdincurreddtodimprovedqualitydbydprecludingdproductddefectsdanddimproperdprocess
ingdfromdoccurring
Primedcosts:dThedprimarydcostsd(directdmaterialdandddirectdlabor)dofdproducingdadproductdorddeliveringdads
ervice
Productdcosts:dCostsdassociateddwithdmakingdordacquiringdthedproductsdordprovidingdthedservicesdthatddire
ctlydgeneratedthedrevenuesdofdandentity
Rawdmaterial:dThedmaterialsduseddindthedproductiondprocess.d Fromdthedstandpointdofdconversion,drawdmat
erialdrepresentsdworkdnotdyetdstarted
Relevantdrange:dThedassumeddrangedofdactivitydthatdreflectsdthedcompany’sdnormaldoperatingdrangedanddo
verdwhichdunitdvariabledcostsdanddtotaldfixeddcostsdaredassumeddtodremaindconstant
©CambridgedBusinessdPublishers,d2021
2-2 CostdAccounting,d10thdEdition
mynursytest.store
, DOWNLOAD THE Test Bank for Cost Accounting Foundations & Evolutions 10th E
d d d d d d d d d d d
dition Kinney d
Serviced company:d Ad firmd engagedd ind ad highd ord moderated degreed ofd conversiond usingd ad significantda
mountdofdlabor
Stepd cost:d Ad costd thatd increasesd (decreases)d ind distinctd amountsd becaused ofd increasedd (decreased)da
ctivity.d Stepdvariabledcostsdhavedsmalldstepsdanddstepdfixeddcostsdhavedlargedsteps
Totaldcostdtodaccountdfor:d ThedsumdofdthedbeginningdWIPdInventorydanddthedtotaldcurrentdmanufacturingdco
stsd(DM,dDL,dOH)
Unexpireddcost:dThedportiondofdandasset’sdvaluedthatdhasdnotdyetdbeendconsumeddordsacrificeddanddwhichdi
sdreporteddondthedbalancedsheetdasdandasset
Variabledcost:dAdcostdthatdvariesdindtotaldproportionatelydwithdchangesdindactivitydbutdwhichdisdadconstantdam
ountdperdunit
Workdindprocess:dThedcostsdofdworkdstarteddbutdnotdyetdcompleted
©CambridgedBusinessdPublishers,d2021
Instructor’sdManual,dChapterd2 2-3
mynursytest.store
d d d d d d d d d d d
dition Kinney d
Chapter 2 d
Cost Terminology and Cost Behaviors
d d d d
Learning Objectives
d d
AfterdreadingdanddstudyingdChapterd2,dyoudshoulddbedabledtodanswerdthedfollowingdquestions:
1. Whydaredcostsdassociateddwithdadcostdobject?
2. Whatdassumptionsd dodaccountantsdmakedaboutdcostdbehavior,danddwhydaredthesedassumptions
dnecessary?
3. Howdaredcostsdclassifieddondthedfinancialdstatements,danddwhydaredsuchdclassificationsduseful?
4. Howddoesdthedconversiondprocessdoccurdindmanufacturingdanddservicedcompanies?
5. Whatdaredthedproductdcostdcategories,danddwhatditemsdcomprisedthosedcategories?
6. Howddodproductdcostsdflowdthroughdadcostdsystem?
7. Howdisdcostdofdgoodsdmanufactureddcalculateddandduseddindpreparingdandincomedstatement?
Terminology
d
Actuald costd system:d Ad costingd systemd thatd chargesd Workd ind Processd Inventoryd withd thed actuald directd
material,ddirectdlabor,danddoverheaddcostsdofdproducingdadproduct
Appraisaldcosts:dCostsdincurreddtodfinddmistakesdnotdeliminateddthroughdprevention
Conversiond costs:d Thed costsd (directd labord andd overhead)d requiredd tod convertd directd materiald intod adfi
nisheddgooddordservice
Cost:dThedmonetarydmeasuredofdresourcesdgivendupdtodattaindandobjectivedsuchdasdproducingdadproductdordp
rovidingdadservice
Costdallocation:dThedassignmentdofdandindirectdcostdtodonedordmoredcostdobjectsdusingdsomedreasonabledall
ocationdbasedorddriver
Costddriver:dAdfactordthatdhasdandabsolutedcause-effectdrelationshipdtodadcost
Costdmanagementdsystemd(CMS):dAdsetdofdformaldmethodsddevelopeddfordplanningdanddcontrollingdand org
anization’sdcost-generatingdactivitiesdrelativedtoditsdstrategy,dgoals,danddobjectives
Costdobject:dAnythingdfordwhichdmanagementdwantsdtodcollectdordaccumulatedcosts
Costdofdgoodsdmanufacturedd(CGM):dThedtotaldcostdofdthedgoodsdcompleteddanddtransferreddtodFinisheddG
oodsdInventorydduringdthedperiod
©CambridgedBusinessdPublishers,d2021
Instructor’sdManual,dChapterd2 2-1
mynursytest.store
,DOWNLOAD THE Test Bank for Cost Accounting Foundations & Evolutions 10th E
d d d d d d d d d d d
dition Kinney d
Directdcosts:dCostsdwhichdaredconvenientlydanddeconomicallydtraceabledtodadparticulardcostdobject
Directdlabor:dLabordcostsdofdindividualsdwhodworkdspecificallydondmanufacturingdadproductdordperformingda
dservice
Directdmaterial:dMaterialdcostsdthatdcandbedeasilydanddeconomicallydtraceddtodadproduct
Distributiondcost:d Anydcostdincurreddtodwarehouse,dtransport,dorddeliverdadproductdordservice
Expireddcost:dThedportiondofdandasset’sdvaluedthatdhasdbeendconsumeddordsacrificeddduringdthedperiodd an
ddwhichdisdreporteddasdandexpensedordlossdondthedincomedstatement
Failuredcosts:dInternaldcostsd(e.g.,dscrapdanddrework)danddexternaldcostsd(e.g.,dproductdreturns,dwarrantydc
osts,dcomplaintsdtodcustomerdservice)dcauseddbydqualitydproblems
Finisheddgoods:dThedcostsdofdunitsdofdinventorydthatdhavedbeendfullydcompleted
Fixeddcost:dAdcostdthatdremainsdconstantdindtotaldwithindthedrelevantdrangedofdactivitydbutdvariesdondadunitdb
asis
Indirectdcosts:d Costsdthatdcannotdbedeconomicallydtraceddtodadparticulardcostdobjectdanddthereforedmustdb
edallocateddtodthedobjectdinstead
Inventoriabledcosts:dTheddirectdcostsdofdmaterialsdanddlabordplusdthedindirectdcostsdofdoverheaddwhichdbe
comedpartdofdthedcostdofdinventory
Manufacturer:dAdcompanydengageddindadhighddegreedofdconversiondofdrawdmaterialdthatdresultsdindadtangib
ledoutput
Mixeddcost:dAdcostdthatdhasdbothdadvariabledanddadfixeddcomponentdanddthatdchangesdwithdchangesdindacti
vity,dbutdnotdproportionately
Normaldcostdsystem:dAdcostingdsystemdthatdchargesdthedWorkdindProcessdInventorydwithdthedactualdcostsd
ofddirectdmaterialdandddirectdlabordanddandassigneddamountdofdoverheaddbaseddondadpredetermineddoverhe
addrate
Overhead:dAnydfactorydordproductiondcostdthatdisdindirectdtodthedproductdordserviced(thatdis,dadproduction-
drelateddcostdthatdcannotdbeddirectlydtraceddtodthedproduct)
Perioddcosts:dCostsdrelateddtodbusinessdfunctionsdotherdthandproductiond(suchdasdsellingdanddadministrati
vedcosts)dwhichdaredexpenseddindthedcurrentdaccountingdperiod
Predetermineddoverheaddrate:dAdchargedperdunitdofdactivityduseddtodallocatedordapplydoverheaddcostdfrom
dthedOverheaddControldaccountdtodWork dindProcessdInventorydfordthedperiod’sdproductiondordservices
Predictor:dAndactivitydmeasuredthat,dwhendchanged,disdaccompanieddbydconsistent,dobservabledchangesd i
ndadcostditem
Preventiondcosts:dCostsdincurreddtodimprovedqualitydbydprecludingdproductddefectsdanddimproperdprocess
ingdfromdoccurring
Primedcosts:dThedprimarydcostsd(directdmaterialdandddirectdlabor)dofdproducingdadproductdorddeliveringdads
ervice
Productdcosts:dCostsdassociateddwithdmakingdordacquiringdthedproductsdordprovidingdthedservicesdthatddire
ctlydgeneratedthedrevenuesdofdandentity
Rawdmaterial:dThedmaterialsduseddindthedproductiondprocess.d Fromdthedstandpointdofdconversion,drawdmat
erialdrepresentsdworkdnotdyetdstarted
Relevantdrange:dThedassumeddrangedofdactivitydthatdreflectsdthedcompany’sdnormaldoperatingdrangedanddo
verdwhichdunitdvariabledcostsdanddtotaldfixeddcostsdaredassumeddtodremaindconstant
©CambridgedBusinessdPublishers,d2021
2-2 CostdAccounting,d10thdEdition
mynursytest.store
, DOWNLOAD THE Test Bank for Cost Accounting Foundations & Evolutions 10th E
d d d d d d d d d d d
dition Kinney d
Serviced company:d Ad firmd engagedd ind ad highd ord moderated degreed ofd conversiond usingd ad significantda
mountdofdlabor
Stepd cost:d Ad costd thatd increasesd (decreases)d ind distinctd amountsd becaused ofd increasedd (decreased)da
ctivity.d Stepdvariabledcostsdhavedsmalldstepsdanddstepdfixeddcostsdhavedlargedsteps
Totaldcostdtodaccountdfor:d ThedsumdofdthedbeginningdWIPdInventorydanddthedtotaldcurrentdmanufacturingdco
stsd(DM,dDL,dOH)
Unexpireddcost:dThedportiondofdandasset’sdvaluedthatdhasdnotdyetdbeendconsumeddordsacrificeddanddwhichdi
sdreporteddondthedbalancedsheetdasdandasset
Variabledcost:dAdcostdthatdvariesdindtotaldproportionatelydwithdchangesdindactivitydbutdwhichdisdadconstantdam
ountdperdunit
Workdindprocess:dThedcostsdofdworkdstarteddbutdnotdyetdcompleted
©CambridgedBusinessdPublishers,d2021
Instructor’sdManual,dChapterd2 2-3
mynursytest.store
