AN INTRODUCTION TO COST TERMS AND
PURPOSES
TRUE/FALSE
1. Products, services, departments, and customers may be cost objects.
2.
Answer: Difficulty: 1 Objective: 1 Terms to Learn: cost object
Costs are accounted for in two basic stages: assignment followed by accumulation.
Answer: Difficulty: 1 Objective: 1 Terms to Learn: cost accumulation
Costs are accounted for in two basic stages: accumulation followed by assignment.
Actual costs and budgeted costs are two different terms referring to the same thing.
Answer: Difficulty: 1 Objective: 1 Terms to Learn: budgeted costs
Budgeted costs are what are planned before the beginning of the accounting period, while actual costs are those costs compiled at the end of the accounting period.
Accountants define a cost as a resource to be sacrificed to achieve a specific objective.
Answer: Difficulty: 1 Terms to Learn: cost
A cost object is always either a product or a service.
Objective: 1
3.
4.
5. 6.
Answer: Difficulty: 2 Objective: 1 Terms to Learn: cost object
A cost object could be anything management wishes to determine the cost of, for example, a department.
A department could be considered a cost object.
7.
Answer:
Terms to Learn: cost object Difficulty: 2
Objective: 1
The same cost may be direct for one cost object and indirect for another cost object.
Answer: Difficulty: 3 Objective: 2 Terms to Learn: cost object
Assigning direct costs poses more problems than assigning indirect costs. Answer: Difficulty: 2 Objective: 2 Terms to Learn: direct costs of a cost object, indirect costs of a cost object Tracing direct costs is quite straightforward, whereas assigning indirect costs to a number of different cost objects can be very challenging.
Improvements in information-gathering technologies are making it possible to trace more costs as direct.
8.
9.
Answer: Difficulty: 2 Objective: 2 Terms to Learn: direct costs of a cost object
10. Misallocated indirect costs may lead to promoting products that are not
profitable.
Answer: Difficulty: 2 Terms to Learn: cost allocation
MULTIPLE CHOICE
1. Cost objects include: a. products b. customers c. departments d. All of these answers are correct. Answer: d Difficulty: 2 Terms to Learn: cost object
2. Actual costs are: a. the costs incurred b. budgeted costs c. estimated costs d. forecasted costs
Objective: 2
Objective: 1
3. Answer: a Difficulty: 1 Terms to Learn: actual cost
Objective: 1
The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is: a. cost accumulation b. cost assignment c. cost tracing
d. conversion costing
Answer: b Difficulty: 1 Terms to Learn: cost assignment
4. The collection of accounting data in some organized way is: a. cost accumulation b. cost assignment c. cost tracing
d. conversion costing
Answer: a Difficulty: 1 Terms to Learn: cost accumulation
Objective: Objective: 1
1 5. 6. 7. 8. 9.
Budgeted costs are:
a. the costs incurred this year b. the costs incurred last year c. planned or forecasted costs d. competitor’s costs
Answer: c Difficulty: 2 Terms to Learn: budgeted costs
Cost assignment is: a. always arbitrary
b. includes tracing and allocating c. the same as cost accumulation
d. finding the difference between budgeted and actual costs Answer: b Difficulty: 2 Terms to Learn: cost assignment
Objective: 1 Objective: 1
Which of the following does NOT affect the direct/indirect classification of a cost?
a. the level of budgeted profit for the next year b. the materiality of the cost in question
c. available technology to gather information about the cost d. the design of the operation
Answer: a Difficulty: 2 Objective: 2 Terms to Learn: direct costs of a cost object, indirect costs of a cost object Which of the following statements about the direct/indirect cost classification is NOT true?
a. Direct costs are always traced. b. Direct costs are always allocated.
c. The design of operations affects the direct/indirect classification.
d. The direct/indirect classification depends on the choice of cost object. Answer: b Difficulty: 2 Objective: 2 Terms to Learn: direct costs of a cost object, indirect costs of a cost object Cost tracing is:
a. the assignment of direct costs to the chosen cost object b. a function of cost allocation
c. the process of tracking both direct and indirect costs associated with a cost
object
d. the process of determining the actual cost of the cost object
Answer: a Difficulty: 2 Terms to Learn: cost tracing
Objective: 2
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