,DOWNLOADgTHEgTestgBankgforgCostgAccountinggFoundationsg&gEvolutionsg10th
gEditiongKinney
Chapter 2 g
Cost Terminology and Cost Behaviors
g g g g
gLearninggObjectives
AftergreadinggandgstudyinggChapterg2,gyougshouldgbegablegtoganswergthegfollowinggquestions:
1. Whygaregcostsgassociatedgwithgagcostgobject?
2. Whatgassumptionsg dogaccountantsgmakegaboutgcostgbehavior,gandgwhygaregthesegassumpti
onsgnecessary?
3. Howgaregcostsgclassifiedgongthegfinancialgstatements,gandgwhygaregsuchgclassificationsguseful?
4. Howgdoesgthegconversiongprocessgoccurgingmanufacturinggandgservicegcompanies?
5. Whatgaregthegproductgcostgcategories,gandgwhatgitemsgcomprisegthosegcategories?
6. Howgdogproductgcostsgflowgthroughgagcostgsystem?
7. Howgisgcostgofggoodsgmanufacturedgcalculatedgandgusedgingpreparinggangincomegstatement?
gTerminology
Actualg costg system:g Ag costingg systemg thatg chargesg Workg ing Processg Inventoryg withg theg actualg dir
ectgmaterial,gdirectglabor,gandgoverheadgcostsgofgproducinggagproduct
Appraisalgcosts:gCostsgincurredgtogfindgmistakesgnotgeliminatedgthroughgprevention
Conversiong costs:g Theg costsg (directg laborg andg overhead)g requiredg tog convertg directg materialg intog
agfinishedggoodgorgservice
Cost:gThegmonetarygmeasuregofgresourcesggivengupgtogattaingangobjectivegsuchgasgproducinggagproductg
orgprovidinggagservice
Costgallocation:gThegassignmentgofgangindirectgcostgtogonegorgmoregcostgobjectsgusinggsomegreasonabl
egallocationgbasegorgdriver
Costgdriver:gAgfactorgthatghasgangabsolutegcause-effectgrelationshipgtogagcost
Costgmanagementgsystemg(CMS):gAgsetgofgformalgmethodsgdevelopedgforgplanninggandgcontrollinggan
g organization’sgcost-generatinggactivitiesgrelativegtogitsgstrategy,ggoals,gandgobjectives
Costgobject:gAnythinggforgwhichgmanagementgwantsgtogcollectgorgaccumulategcosts
Costgofggoodsgmanufacturedg(CGM):gThegtotalgcostgofgtheggoodsgcompletedgandgtransferredgtogFinish
edgGoodsgInventorygduringgthegperiod
©CambridgegBusinessgPublishers,g2021
Instructor’sgManual,gChapterg2 2-1
mynursytest.store
,DOWNLOADgTHEgTestgBankgforgCostgAccountinggFoundationsg&gEvolutionsg10th
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Directgcosts:gCostsgwhichgaregconvenientlygandgeconomicallygtraceablegtogagparticulargcostgobject
Directglabor:gLaborgcostsgofgindividualsgwhogworkgspecificallygongmanufacturinggagproductgorgperformin
ggagservice
Directgmaterial:gMaterialgcostsgthatgcangbegeasilygandgeconomicallygtracedgtogagproduct
Distributiongcost:g Anygcostgincurredgtogwarehouse,gtransport,gorgdelivergagproductgorgservice
Expiredgcost:gThegportiongofgangasset’sgvaluegthatghasgbeengconsumedgorgsacrificedgduringgthegperio
dg andgwhichgisgreportedgasgangexpensegorglossgongthegincomegstatement
Failuregcosts:gInternalgcostsg(e.g.,gscrapgandgrework)gandgexternalgcostsg(e.g.,gproductgreturns,gwarran
tygcosts,gcomplaintsgtogcustomergservice)gcausedgbygqualitygproblems
Finishedggoods:gThegcostsgofgunitsgofginventorygthatghavegbeengfullygcompleted
Fixedgcost:gAgcostgthatgremainsgconstantgingtotalgwithingthegrelevantgrangegofgactivitygbutgvariesgongag
unitgbasis
Indirectgcosts:g Costsgthatgcannotgbegeconomicallygtracedgtogagparticulargcostgobjectgandgthereforegm
ustgbegallocatedgtogthegobjectginstead
Inventoriablegcosts:gThegdirectgcostsgofgmaterialsgandglaborgplusgthegindirectgcostsgofgoverheadgwhich
gbecomegpartgofgthegcostgofginventory
Manufacturer:gAgcompanygengagedgingaghighgdegreegofgconversiongofgrawgmaterialgthatgresultsgingagta
ngiblegoutput
Mixedgcost:gAgcostgthatghasgbothgagvariablegandgagfixedgcomponentgandgthatgchangesgwithgchangesgi
ngactivity,gbutgnotgproportionately
Normalgcostgsystem:gAgcostinggsystemgthatgchargesgthegWorkgingProcessgInventorygwithgthegactualgc
ostsgofgdirectgmaterialgandgdirectglaborgandgangassignedgamountgofgoverheadgbasedgongagpredetermine
dgoverheadgrate
Overhead:gAnygfactorygorgproductiongcostgthatgisgindirectgtogthegproductgorgserviceg(thatgis,gagproductio
n-grelatedgcostgthatgcannotgbegdirectlygtracedgtogthegproduct)
Periodgcosts:gCostsgrelatedgtogbusinessgfunctionsgothergthangproductiong(suchgasgsellinggandgadminist
rativegcosts)gwhichgaregexpensedgingthegcurrentgaccountinggperiod
Predeterminedgoverheadgrate:gAgchargegpergunitgofgactivitygusedgtogallocategorgapplygoverheadgcostgf
romgthegOverheadgControlgaccountgtogWorkgingProcessgInventorygforgthegperiod’sgproductiongorgservice
s
Predictor:gAngactivitygmeasuregthat,gwhengchanged,gisgaccompaniedgbygconsistent,gobservablegchange
sg ingagcostgitem
Preventiongcosts:gCostsgincurredgtogimprovegqualitygbygprecludinggproductgdefectsgandgimpropergproc
essinggfromgoccurring
Primegcosts:gThegprimarygcostsg(directgmaterialgandgdirectglabor)gofgproducinggagproductgorgdeliveringg
agservice
Productgcosts:gCostsgassociatedgwithgmakinggorgacquiringgthegproductsgorgprovidinggthegservicesgthat
gdirectlyggenerategthegrevenuesgofgangentity
Rawgmaterial:gThegmaterialsgusedgingthegproductiongprocess.g Fromgthegstandpointgofgconversion,graw
gmaterialgrepresentsgworkgnotgyetgstarted
Relevantgrange:gThegassumedgrangegofgactivitygthatgreflectsgthegcompany’sgnormalgoperatinggrangega
ndgovergwhichgunitgvariablegcostsgandgtotalgfixedgcostsgaregassumedgtogremaingconstant
©CambridgegBusinessgPublishers,g2021
mynursytest.store
, DOWNLOADgTHEgTestgBankgforgCostgAccountinggFoundationsg&gEvolutionsg10th
gEditiongKinney
2-2 CostgAccounting,g10thgEdition
mynursytest.store
gEditiongKinney
Chapter 2 g
Cost Terminology and Cost Behaviors
g g g g
gLearninggObjectives
AftergreadinggandgstudyinggChapterg2,gyougshouldgbegablegtoganswergthegfollowinggquestions:
1. Whygaregcostsgassociatedgwithgagcostgobject?
2. Whatgassumptionsg dogaccountantsgmakegaboutgcostgbehavior,gandgwhygaregthesegassumpti
onsgnecessary?
3. Howgaregcostsgclassifiedgongthegfinancialgstatements,gandgwhygaregsuchgclassificationsguseful?
4. Howgdoesgthegconversiongprocessgoccurgingmanufacturinggandgservicegcompanies?
5. Whatgaregthegproductgcostgcategories,gandgwhatgitemsgcomprisegthosegcategories?
6. Howgdogproductgcostsgflowgthroughgagcostgsystem?
7. Howgisgcostgofggoodsgmanufacturedgcalculatedgandgusedgingpreparinggangincomegstatement?
gTerminology
Actualg costg system:g Ag costingg systemg thatg chargesg Workg ing Processg Inventoryg withg theg actualg dir
ectgmaterial,gdirectglabor,gandgoverheadgcostsgofgproducinggagproduct
Appraisalgcosts:gCostsgincurredgtogfindgmistakesgnotgeliminatedgthroughgprevention
Conversiong costs:g Theg costsg (directg laborg andg overhead)g requiredg tog convertg directg materialg intog
agfinishedggoodgorgservice
Cost:gThegmonetarygmeasuregofgresourcesggivengupgtogattaingangobjectivegsuchgasgproducinggagproductg
orgprovidinggagservice
Costgallocation:gThegassignmentgofgangindirectgcostgtogonegorgmoregcostgobjectsgusinggsomegreasonabl
egallocationgbasegorgdriver
Costgdriver:gAgfactorgthatghasgangabsolutegcause-effectgrelationshipgtogagcost
Costgmanagementgsystemg(CMS):gAgsetgofgformalgmethodsgdevelopedgforgplanninggandgcontrollinggan
g organization’sgcost-generatinggactivitiesgrelativegtogitsgstrategy,ggoals,gandgobjectives
Costgobject:gAnythinggforgwhichgmanagementgwantsgtogcollectgorgaccumulategcosts
Costgofggoodsgmanufacturedg(CGM):gThegtotalgcostgofgtheggoodsgcompletedgandgtransferredgtogFinish
edgGoodsgInventorygduringgthegperiod
©CambridgegBusinessgPublishers,g2021
Instructor’sgManual,gChapterg2 2-1
mynursytest.store
,DOWNLOADgTHEgTestgBankgforgCostgAccountinggFoundationsg&gEvolutionsg10th
gEditiongKinney
Directgcosts:gCostsgwhichgaregconvenientlygandgeconomicallygtraceablegtogagparticulargcostgobject
Directglabor:gLaborgcostsgofgindividualsgwhogworkgspecificallygongmanufacturinggagproductgorgperformin
ggagservice
Directgmaterial:gMaterialgcostsgthatgcangbegeasilygandgeconomicallygtracedgtogagproduct
Distributiongcost:g Anygcostgincurredgtogwarehouse,gtransport,gorgdelivergagproductgorgservice
Expiredgcost:gThegportiongofgangasset’sgvaluegthatghasgbeengconsumedgorgsacrificedgduringgthegperio
dg andgwhichgisgreportedgasgangexpensegorglossgongthegincomegstatement
Failuregcosts:gInternalgcostsg(e.g.,gscrapgandgrework)gandgexternalgcostsg(e.g.,gproductgreturns,gwarran
tygcosts,gcomplaintsgtogcustomergservice)gcausedgbygqualitygproblems
Finishedggoods:gThegcostsgofgunitsgofginventorygthatghavegbeengfullygcompleted
Fixedgcost:gAgcostgthatgremainsgconstantgingtotalgwithingthegrelevantgrangegofgactivitygbutgvariesgongag
unitgbasis
Indirectgcosts:g Costsgthatgcannotgbegeconomicallygtracedgtogagparticulargcostgobjectgandgthereforegm
ustgbegallocatedgtogthegobjectginstead
Inventoriablegcosts:gThegdirectgcostsgofgmaterialsgandglaborgplusgthegindirectgcostsgofgoverheadgwhich
gbecomegpartgofgthegcostgofginventory
Manufacturer:gAgcompanygengagedgingaghighgdegreegofgconversiongofgrawgmaterialgthatgresultsgingagta
ngiblegoutput
Mixedgcost:gAgcostgthatghasgbothgagvariablegandgagfixedgcomponentgandgthatgchangesgwithgchangesgi
ngactivity,gbutgnotgproportionately
Normalgcostgsystem:gAgcostinggsystemgthatgchargesgthegWorkgingProcessgInventorygwithgthegactualgc
ostsgofgdirectgmaterialgandgdirectglaborgandgangassignedgamountgofgoverheadgbasedgongagpredetermine
dgoverheadgrate
Overhead:gAnygfactorygorgproductiongcostgthatgisgindirectgtogthegproductgorgserviceg(thatgis,gagproductio
n-grelatedgcostgthatgcannotgbegdirectlygtracedgtogthegproduct)
Periodgcosts:gCostsgrelatedgtogbusinessgfunctionsgothergthangproductiong(suchgasgsellinggandgadminist
rativegcosts)gwhichgaregexpensedgingthegcurrentgaccountinggperiod
Predeterminedgoverheadgrate:gAgchargegpergunitgofgactivitygusedgtogallocategorgapplygoverheadgcostgf
romgthegOverheadgControlgaccountgtogWorkgingProcessgInventorygforgthegperiod’sgproductiongorgservice
s
Predictor:gAngactivitygmeasuregthat,gwhengchanged,gisgaccompaniedgbygconsistent,gobservablegchange
sg ingagcostgitem
Preventiongcosts:gCostsgincurredgtogimprovegqualitygbygprecludinggproductgdefectsgandgimpropergproc
essinggfromgoccurring
Primegcosts:gThegprimarygcostsg(directgmaterialgandgdirectglabor)gofgproducinggagproductgorgdeliveringg
agservice
Productgcosts:gCostsgassociatedgwithgmakinggorgacquiringgthegproductsgorgprovidinggthegservicesgthat
gdirectlyggenerategthegrevenuesgofgangentity
Rawgmaterial:gThegmaterialsgusedgingthegproductiongprocess.g Fromgthegstandpointgofgconversion,graw
gmaterialgrepresentsgworkgnotgyetgstarted
Relevantgrange:gThegassumedgrangegofgactivitygthatgreflectsgthegcompany’sgnormalgoperatinggrangega
ndgovergwhichgunitgvariablegcostsgandgtotalgfixedgcostsgaregassumedgtogremaingconstant
©CambridgegBusinessgPublishers,g2021
mynursytest.store
, DOWNLOADgTHEgTestgBankgforgCostgAccountinggFoundationsg&gEvolutionsg10th
gEditiongKinney
2-2 CostgAccounting,g10thgEdition
mynursytest.store
