Answer (C) is correct.
A direct cost can be specifically associated with a single cost object in an
economically feasible way. An indirect cost cannot be specifically
associated with a single cost object. Thus, the specific cost object
influences whether a cost is direct or indirect. For example, a cost might
be directly associated with a single plant. The same cost, however, might
not be directly associated with a particular department in the plant.

Answer (D) is correct.
Direct labor is both a product cost and a prime cost. Product costs are
incurred to produce units of output and are deferred to future periods to
the extent that output is not sold. Prime costs are defined as direct
materials and direct labor.

Answer (C) is correct.
Conversion costs consist of direct labor and factory overhead. These are
the costs of converting raw materials into a finished product.

Answer (B) is correct.
Conversion costs are necessary to convert raw materials into finished
products. They include all manufacturing costs, for example, direct labor
and factory overhead, other than direct materials.

Answer (B) is correct.
Conversion costs consist of direct labor and factory overhead, the costs
of converting raw materials into finished goods. Normally, a company
does not consider only conversion costs in making pricing decisions, but
if the customer were to furnish the raw materials, conversion cost pricing
would be appropriate

Answer (D) is correct.
Prime costs are raw material costs and direct labor costs.

Answer (B) is correct.
Cost allocation is the process of assigning and reassigning costs to cost
objects. It is used for those costs that cannot be directly associated with a
specific cost object. Cost allocation is often used for purposes of
measuring income and assets for external reporting purposes. Cost
allocation is less meaningful for internal purposes because responsibility
accounting systems emphasize controllability, a process often ignored in
cost allocation.

Answer (A) is correct.
A cost driver is “a measure of activity, such as direct labor hours,
machine hours, beds occupied, computer time used, flight hours, miles
driven, or contracts, that is a causal factor in the incurrence of cost to an
entity” (IMA). It is a basis used to assign costs to cost objects.

Answer (D) is correct.
Materials, labor, and overhead (both fixed and variable) are examples of
product costs. Abnormal spoilage is an example of a period cost.
Abnormal spoilage is not inherent in a production process and should not
be categorized as a product cost. Abnormal spoilage should be charged to
a loss account in the period that detection of the spoilage occurs.

Answer (B) is correct.
Direct labor costs are wages paid to labor that can be specifically
identified with the production of finished goods. Because the wages of a
factory machine operator are identifiable with a finished product, the
wages are a direct labor cost. Because a supervisor’s or vice-president’s
salary is not identifiable with the production of specific finished goods, it
is a part of factory overhead and not a direct labor cost.

Answer (B) is correct.
Product costs can be associated with a specific product. Product costs
include direct materials and direct labor. Factory overhead cannot be
traced to specific products and therefore is allocated to all products
produced. Thus, the amount of costs traceable to specific products in the
production process is $228,000 ($120,000 + $108,000).

Answer (C) is correct.
The costs of holding or storing inventory are carrying costs. Examples
include the costs of capital, insurance, warehousing, breakage, and
obsolescence.

Answer (A) is correct.
Direct costs are ones that can be associated with a particular cost object
in an economically feasible way, that is, they can be traced to that object.
Fixed costs are those that remain unchanged in total over the relevant
range of production. A motel manager’s salary is traceable to the single
location she manages, and it remains fixed over a set period of time
regardless of the number of guests.

Answer (B) is correct. Financial accounting is primarily concerned with historical accounting, i.e., traditional financial statements, and with external financial reporting to creditors and shareholders. Management accounting applies primarily to the planning and control of organizational operations, considers nonquantitative information, and is usually less precise.

Answer (A) is correct.
Setting standards at an ideal level can motivate employees. However, if
the standards are too high, employees may get discouraged. If the
standards are too low, employees will not be competitive or driven.
Setting the correct level of standards is a difficult task, but it can
motivate employees when done correctly.

Answer (D) is correct. In both normal and standard costing, immaterial efficiency variances are accounted for as an addition to cost of goods sold.

Answer (A) is correct. A standard-cost system records the product at standard (predetermined) costs and compares expected with actual cost. This comparison allows deviations (variances) from expected results to be identified and investigated. A standard-cost system can be used in job-order, processcosting, and activity-based systems to isolate variances.

Answer (C) is correct. Gross margin or gross profit is the excess of sales over cost of goods sold, calculated on a full absorption basis. Cost of goods sold would include all manufacturing costs, both fixed and variable.

Answer (D) is correct. A standard cost is an estimate of what a cost should be under normal operating conditions based on accounting and engineering studies. Comparing actual and standard costs permits an evaluation of the effectiveness of managerial performance. Because of the impact of fixed costs in most businesses, a standard costing system is usually not effective unless the company also has a flexible budgeting system. Flexible budgeting uses standard costs to prepare budgets for multiple activity levels.

Answer (B) is correct. Standard costs are predetermined, attainable unit costs. Standard cost systems isolate deviations (variances) of actual from expected costs. One advantage of standard costs is that they facilitate flexible budgeting. Accordingly, standard and budgeted costs should not differ when standards are currently attainable. However, in practice, budgeted (estimated actual) costs may differ from standard costs when operating conditions are not expected to reflect those anticipated when the standards were developed.

Answer (D) is correct. The contribution margin is calculated by subtracting all variable costs from sales revenue. It represents the portion of sales that is available for covering fixed costs and profit.

Answer (C) is correct. Absorption (full) costing considers all manufacturing costs to be inventoriable as product costs. These costs include variable and fixed manufacturing costs, whether direct or indirect. The alternative to absorption is known as variable (direct) costing

Answer (B) is correct. In a variable costing system, only the variable costs are recorded as product costs. All fixed costs are expensed in the period incurred. Because changes in the relationship between production levels and sales levels do not cause changes in the amount of fixed manufacturing cost expensed, profits more directly follow the trends in sales.

Answer (C) is correct. A standard cost is an estimate of what a cost should be under normal operating conditions based on studies by accountants and engineers. In addition, line management is usually involved in the setting of standard costs as are quality control personnel. Top management would not be involved because cost estimation is a lower level operating activity. Participation by affected employees in all control systems permits all concerned to understand both performance levels desired and the measurement criteria being applied.

Answer (A) is correct. Target costing begins with a target price, which is the expected market price given the company’s knowledge of its customers and competitors. Subtracting the unit target profit margin determines the long-term target cost. If this cost is lower than the full cost, the company may need to adopt comprehensive cost-cutting measures. For example, in the furniture industry, certain price points are popular with buyers: a couch might sell better at $400 than at $200 because consumers question the quality of a $200 couch and thus will not buy the lower-priced item. The result is that furniture manufacturers view $400 as the target price of a couch, and the cost must be lower.

Answer (B) is correct. An activity-based costing (ABC) system identifies the causal relationship between the incurrence of cost and the underlying activities that cause those costs. Under an ABC system, costs are applied to products on the basis of resources consumed (drivers)

Answer (A) is correct. Full absorption costing treats fixed factory overhead costs as product costs. Thus, inventory and cost of goods sold include (absorb) fixed factory overhead.

Answer (D) is correct. A job costing system is used when products differ from one customer to the next, that is, when products are heterogeneous. A process costing system is used when similar products are mass produced on a continuous basis. A print shop, for example, would use a job costing system because each job will be unique. Each customer provides the specifications for the product desired. A beverage manufacturer, however, would use a process costing system because homogeneous units are produced continuously.