Ch. 2 Cost terminology

A cost is the same as an expense

• True

• False

Answer explanation

A cost is a sacrifice of some sort that can be classified as an asset or expense.

Costs of being in business that appear on the income statement when incurred are

• period costs

• product costs

Answer explanation

Product costs are incurred to make the product and ultimately are expensed as Cost of Goods Sold.

Period costs are most costs on the income statement after CoGS.

Which of the following is NOT included in product costs?

• Direct materials

• Direct labor

• Manufacturing Overhead

• Administrative

Answer explanation

Administrative, selling, and marketing are period costs

Direct labor is

• a prime cost

• a conversion cost

• a product cost

• all of these

Answer explanation

Prime costs = DM + DL

Conversion costs = DL + OH

Product costs = DM + DL + OH

Which of the following generally does not have Inventory or Cost of Goods Sold accounts?

• Service providers

• Merchandisers

• Manufacturers

Answer explanation

Some service providers may include inventory as a byproduct, like spare parts or supplies for repairs.

Costs that are constant per unit but change based on volume of activity are called

• variable costs

• fixed costs

• overhead

• period costs

Answer explanation

Total variable costs =Variable cost per unit * # of units