Cost Concepts and Classifications: Master the Fundamentals of Cost Accounting

Question 1

The primary purpose of cost classification is NOT to:

Accepted Answer

Comply with external reporting requirements

Answer

Support decision-making

Answer

Evaluate performance

Answer

Facilitate cost control

Question 2

Variable costs are characterized by:

Accepted Answer

Fluctuating in proportion to activity

Answer

Remaining constant with changes in activity

Answer

Increasing per unit as activity increases

Answer

Decreasing per unit as activity increases

Question 3

Fixed costs that should be considered in making a decision are known as:

Accepted Answer

Relevant fixed costs

Answer

Sunk costs

Answer

Opportunity costs

Answer

Unavoidable fixed costs

Question 4

Indirect material costs are used:

Accepted Answer

Indirectly in the production process

Answer

Directly in the production process

Answer

For general administrative purposes

Answer

For marketing and sales activities

Question 5

Prime costs consist of:

Accepted Answer

Direct material and direct labor costs

Answer

Manufacturing overhead and direct labor costs

Answer

Direct material and manufacturing overhead costs

Answer

Direct labor and manufacturing overhead costs

Question 6

The discrepancy between actual costs and standard costs is known as:

Accepted Answer

Cost variance

Answer

Budget variance

Answer

Performance variance

Answer

Controllable variance

Question 7

Which of the costs listed below is classified as a direct cost?

Accepted Answer

Raw materials used in manufacturing

Answer

Rent

Answer

Depreciation of factory equipment

Answer

Advertising expenses

Question 8

Which of the following is an example of a sunk cost?

Accepted Answer

Equipment acquisition costs

Answer

Research and development expenses

Answer

Utilities expenses

Answer

Sales commissions

Question 9

The difference between total cost and explicit cost is referred to as:

Accepted Answer

Implicit cost

Answer

Fixed cost

Answer

Variable cost

Answer

Marginal cost

Question 10

A fixed cost that remains unchanged regardless of changes in activity level is known as a:

Accepted Answer

Committed cost

Answer

Semi-fixed cost

Answer

Stepped cost

Answer

Variable cost

Question 11

Which of the following is a primary benefit of using a cost classification system?

Accepted Answer

Improved decision-making

Answer

Reduced production costs

Answer

Increased sales

Answer

Enhanced customer satisfaction

Question 12

What is the term for the process of assigning costs to specific cost objects?

Accepted Answer

Cost allocation

Answer

Cost analysis

Answer

Cost estimation

Answer

Cost budgeting

Question 13

Prime costs consist of:

Accepted Answer

Direct material costs and direct labor costs

Answer

Direct material costs and manufacturing overhead costs

Answer

Direct labor costs and manufacturing overhead costs

Answer

Direct material costs, direct labor costs, and manufacturing overhead costs

Question 14

Which of the following cost behavior patterns describes costs that remain constant within a relevant range of activity?

Accepted Answer

Fixed

Answer

Variable

Answer

Mixed

Answer

Stepped

Question 15

Indirect costs are costs that:

Accepted Answer

Cannot be easily traced directly to a specific unit of production (e.g., utilities)

Answer

Can be easily identified with a specific cost object (e.g., raw materials)

Answer

Are incurred in small amounts and are relatively insignificant

Answer

Do not vary with the level of activity (e.g., rent)

Question 16

Which type of costing system accumulates costs by process rather than by individual job?

Accepted Answer

Process costing

Answer

Job costing

Answer

Activity-based costing

Answer

Standard costing

Question 17

The difference between actual costs and budgeted costs is referred to as:

Accepted Answer

Cost variance

Answer

Cost overrun

Answer

Cost underrun

Answer

Budget variance

Question 18

A cost that is recognized as an expense in the period incurred is classified as a(n):

Accepted Answer

Period cost

Answer

Product cost

Answer

Fixed cost

Answer

Variable cost

Question 19

Which of the following methods is used to allocate overhead costs to products based on their consumption of overhead resources?

Accepted Answer

Activity-based costing

Answer

Job order costing

Answer

Plant-wide overhead rate

Answer

Departmental overhead rate

Question 20

Which of the following costs is not useful for making decisions?

Accepted Answer

Sunk cost

Answer

Materials cost

Answer

Manufacturing overhead

Answer

Incremental cost