Following are a number of cost terms introduced in the chapter:
Variable cost......................... Product cost
Fixed cost............................... Sunk cost
Prime cost........................ Conversion cost
Opportunity cost...................... Period cost
Required:
Choose the term or terms above that most appropriately describe the cost identified in each of the following situations. A cost term can be used more than once.
1. Lake Company produces a popular tote bag. The cloth used to manufacture the tote bag is direct m aterials and for financial accounting purposes is classified as a(n)____________ . In terms of cost behavior, the cloth could also be described as a(n) _______________.
2. The direct labor cost required to produce the tote bags, combined with manufacturing overhead cost, is called_______________.
3. The company could have taken the funds that it has invested in production equipment and invested them in interest-bearing securities instead. The interest forgone on the securities is a(n)______________
4. Taken together, the direct materials cost and the direct labor cost required to produce tote bags is called __________.
5. Formerly, the company produced a smaller tote bag that was not very popular. Three hundred of these smaller bags are stored in one of the company's warehouses. The amount invested in these bags is called a(n)_________.
6. Tote bags are sold through agents who are paid a commission on each bag sold. For financial accounting purposes, these commissions are classified as a(n)__________. In terms of cost b ehavior, commissions are classified as a(n)_______.
7. For financial accounting purposes, depreciation on the equipment used to produce tote bags is a(n)___________. However, for financial accounting purposes, depreciation on any equipment used by the company in selling and administrative activities is classified as a(n) ____________. In terms of cost behavior, depreciation is usually a(n)____________.
8. A(n)______________ is also known as an inventoriable cost, because such costs go into the Work in Process inventory account and then into the Finished Goods inventory account before appearing on the income statement as part of Cost of Goods Sold.
9. For financial accounting purposes, the salary of Lake Company's president is classified as a(n)______________ because the salary will appear on the income statement as an expense in the time period in which it is incurred.
10. Costs are often classified in several ways. For example, Lake Company pays $5,000 rent each month on its factory building. The rent is part of manufacturing overhead. In terms of cost behavior, it would be classified as a(n)_____________ The rent can also be classified as a(n)________ and as (n)_________.