2 an introduction to cost terms and purposes - Pearson Learning ...

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$College of Marin Study Guide for Math 95 A,B - Pearson Learning ...$

DECISION POINTS The following question-and-answer format summarizes the chapter’s learning objectives. Each decision presents a key question related to a learning objective. The guidelines are the answer to that question. ISBN: 0-536-53243-5 Decision Guidelines 1. How do managers choose a A cost object is anything for which a separate measurement of cost is needed. Examples cost object? include a product, a service, a project, a customer, a brand category, an activity, and a department. 2. How do managers decide whether A direct cost is any cost that is related to a particular cost object and can be traced to that a cost is a direct or an indirect cost? cost object in an economically feasible way. Indirect costs are related to the particular cost object but cannot be traced to it in an economically feasible way. The same cost can be direct for one cost object and indirect for other cost objects. This book uses cost tracing to describe the assignment of direct costs to a cost object and cost allocation to describe the assignment of indirect costs to a cost object. 3. How do managers decide whether A variable cost changes in total in proportion to changes in the related level of total activity a cost is a variable or a fixed cost? or volume. A fixed cost remains unchanged in total for a given time period despite wide changes in the related level of total activity or volume. 4. How should costs be estimated? In general, focus on total costs, not unit costs. When making total cost estimates, think of variable costs as an amount per unit and fixed costs as a total amount. The unit cost of a cost object should be interpreted cautiously when it includes a fixed-cost component. 5. How do you distinguish among Manufacturing-sector companies purchase materials and components and convert them manufacturing-, merchandising-, into finished goods. Merchandising-sector companies purchase and then sell tangible and service-sector companies? products without changing their basic form. Service-sector companies provide services (intangible products) to their customers. 6. How do manufacturing companies The three categories of inventories found in many manufacturing companies depict stages categorize inventories? in the conversion process: direct materials, work in process, and finished goods. 7. Which costs are initially treated as Inventoriable costs are all costs of a product that are regarded as an asset in the assets for external reporting, and accounting period when they are incurred and then become cost of goods sold in the which costs are expensed as they accounting period when the product is sold. Period costs are expensed in the accounting are incurred? period in which they are incurred and are all of the costs in an income statement other than cost of goods sold. 8. How do managers assign costs Managers can assign different costs to the same cost object depending on the purpose. to cost objects? For example, for the external reporting purpose in a manufacturing company, the inventoriable cost of a product includes only manufacturing costs. In contrast, costs from all business functions of the value chain often are assigned to a product for pricing and product-mix decisions. 9. What are the features of cost Three features of cost accounting and cost management are (a) calculating the cost of accounting and cost management? products, services, and other cost objects; (b) obtaining information for planning and control and performance evaluation; and (c) analyzing the relevant information for making decisions. TERMS TO LEARN This chapter contains more basic terms than any other in this book. Do not proceed before you check your understanding of the following terms. Both the chapter and the Glossary at the end of the book contain definitions. actual cost (p. 27) average cost (p. 35) budgeted cost (p. 27) conversion costs (p. 42) cost (p. 27) cost accumulation (p. 27) cost allocation (p. 27) cost assignment (p. 27) cost driver (p. 32) cost object (p. 27) cost of goods manufactured (p. 39) cost tracing (p. 27) direct costs of a cost object (p. 27) direct manufacturing labor costs (p. 37) direct material costs (p. 37) An Introduction to Cost Terms and Purposes 49 Cost Accounting: A Managerial Emphasis, Twelfth Edition, by Charles T. Horngren, Srikant M. Datar, and George Foster. Copyright © 2006 by Pearson Education, Inc. Published by Prentice Hall.
direct materials inventory (p. 37) factory overhead costs (p. 37) finished-goods inventory (p. 37) fixed cost (p. 30) idle time (p. 43) indirect costs of a cost object (p. 27) indirect manufacturing costs (p. 37) inventoriable costs (p. 37) manufacturing overhead costs (p. 37) manufacturing-sector companies (p. 36) merchandising-sector companies (p. 36) operating income (p. 40) overtime premium (p. 43) period costs (p. 38) prime costs (p. 42) product cost (p. 44) relevant range (p. 33) revenues (p. 38) service-sector companies (p. 36) unit cost (p. 35) variable cost (p. 30) work-in-process inventory (p. 37) work in progress (p. 37) Prentice Hall Grade Assist (PHGA) Your professor may ask you to complete selected exercises and problems in Prentice Hall Grade Assist (PHGA). PHGA is an online tool that can help you master the chapter’s topics. It provides you with multiple variations of exercises and problems designated by the PHGA icon. You can rework these exercises and problems—each time with new data—as many times as you need. You also receive immediate feedback and grading. ASSIGNMENT MATERIAL Questions 2-1 Define cost object and give three examples. 2-2 Define direct costs and indirect costs. 2-3 Why do managers consider direct costs to be more accurate than indirect costs? 2-4 Name three factors that will affect the classification of a cost as direct or indirect. 2-5 Define variable cost and fixed cost. Give an example of each. 2-6 What is a cost driver? Give one example. 2-7 What is the relevant range? What role does the relevant-range concept play in explaining how costs behave? 2-8 Explain why unit costs must often be interpreted with caution. 2-9 Describe how manufacturing-, merchandising-, and service-sector companies differ from each other. 2-10 What are three different types of inventory that manufacturing companies hold? 2-11 Distinguish between inventoriable costs and period costs. 2-12 Do service-sector companies have inventoriable costs? Explain. 2-13 Define the following: direct material costs, direct manufacturing-labor costs, manufacturing overhead costs, prime costs, and conversion costs. 2-14 Describe the overtime-premium and idle-time categories of indirect labor. 2-15 Define product cost. Describe three different purposes for computing product costs. Exercises CHAPTER 2 50 2-16 Computing and interpreting manufacturing unit costs. Minnesota Office Products (MOP) produces three different paper products at its Vaasa lumber plant: Supreme, Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July 2007 are $150 million ($20 million of which are fixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line. Summary data (in millions) for July 2007 are as follows: Supreme Deluxe Regular Direct material costs $84 $54 $62 Direct manufacturing labor costs $14 $28 $ 8 Manufacturing overhead costs $42 $84 $24 Units produced 80 120 100 ISBN: 0-536-53243-5 Cost Accounting: A Managerial Emphasis, Twelfth Edition, by Charles T. Horngren, Srikant M. Datar, and George Foster. Copyright © 2006 by Pearson Education, Inc. Published by Prentice Hall.
Page 1 and 2: Because of permissions issues, some
Page 3 and 4: EXHIBIT 2-1 Examples of Cost Object
Page 5 and 6: ect cost if the cost object is a pr
Page 7 and 8: Again examine the table. It is prec
Page 9 and 10: EXHIBIT 2-4 $160,000 Fixed-Cost Beh
Page 11 and 12: Study Tip: Practice is helpful if y
Page 13 and 14: EXHIBIT 2-6 Assignment of Costs to
Page 15 and 16: Step 3: Cost of goods manufactured
Page 17 and 18: Prime Costs and Conversion Costs Tw
Page 19 and 20: Benefits of Defining Accounting Ter
Page 21 and 22: 9 Describe a framework for cost acc
Page 23: SOLUTION 1. Foxwood Company Income
Page 27 and 28: . Variable or fixed (V or F) costs
Page 29 and 30: Required 1. What is the unit cost t
Page 31 and 32: 2-33 Income statement and schedule
Page 33 and 34: Required 2-38 Cost analysis, litiga

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