Chapter02 Solutions-6e

Chapter02 Solutions-6e - CHAPTER 2 BASIC COST MANAGEMENT...

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CHAPTER 2 BASIC COST MANAGEMENT CONCEPTS QUESTIONS FOR WRITING AND DISCUSSION 1. A cost object is any item for which costs are measured and assigned, including such things as products, plants, projects, depart- ments, customers, and activities. 2. An activity is a basic unit of work performed within an organization. Examples include materials handling, inspection, purchasing, billing, and maintenance. 3. Direct costs are costs that can be easily and accurately traced to a cost object. An indir- ect cost is a cost that cannot be easily traced to cost objects. 4. Traceability is the ability to assign a cost dir- ectly to a cost object in an economically feasible way using a causal relationship. 5. Allocation is the assignment of indirect costs to cost objects based on convenience or as- sumed linkages. 6. Driver tracing is the use of drivers to trace costs to cost objects. Often, this means that costs are first traced to activities using re- source drivers and then to cost objects us- ing activity drivers. 7. Tangible products are goods that are made by converting raw materials through the use of labor and capital inputs. 8. A service is a task or activity performed for a customer or an activity performed by a cus- tomer using an organization’s products or fa- cilities. Services differ from tangible products on three important dimensions: in- tangibility, perishability, and inseparability. Intangibility means that buyers of services cannot see, feel, taste, or hear a service be- fore it is bought. Perishability means that services cannot be stored. Inseparability means that producers of services and buy- ers of services must be in direct contact (not true for tangible products). 9. Three examples of product cost definitions are value-chain, operating, and traditional definitions. The value-chain definition in- cludes cost assignments for research and development, production, marketing, and customer service (all value-chain activities). Operational product costs include all costs except for research and development. Tradi- tional product costs include only production costs. Different cost definitions are needed because they serve different managerial ob- jectives. 10. The three cost elements are direct materi- als, direct labor, and overhead. 11. The income statement for a service firm does not need a supporting cost of goods manufactured schedule. Since services can- not be stored, the cost of services produced equals the cost of services sold (not neces- sarily true for a manufacturing firm). 14
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EXERCISES 2–1 a. Allocation b. Direct tracing c. Allocation d. Direct tracing e. Driver tracing; potential driver— machine hours f. Direct tracing g. Driver tracing; potential driver— number of square feet occupied h. Direct tracing i. Driver tracing; potential driver— number of orders j. Direct tracing k. Allocation l. Driver tracing; potential driver— number of employees m. Direct tracing n. Allocation 14
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2–2 a. Value-chain. The price needs to cover all product costs, including the costs
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Chapter02 Solutions-6e - CHAPTER 2 BASIC COST MANAGEMENT...

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