Cost Term

1) Which of the following is a true statement about the definition of costs?

• A) An expense is the same as a cost.

• B) Noncash charges are not costs since no cash is paid.

• C) A cost can be an asset or an expense.

• D) Costs that have future benefit are expensed on the income statement.

2) Which of the following statements regarding expenses and costs is correct?

• A) Costs and expenses are the same for accounting and reporting purposes.

• B) Costs are reported on the income statement or the balance sheet, and expenses are reported only on the income statement.

• C) Costs are reported on the income statement, and expenses are reported on the balance sheet.

• D) An expense has remaining future benefit while a cost will never have future benefit

At the beginning of the year, Gizmo Inc. is considering whether to repair and retain an existing machine, or to replace it with a new machine. The following information is available to analyze this decision:

Machine overhaul costs (last year)                             $ 6,000

      Repair costs (current year)                                      3,000

      Annual operating costs (existing machine)           14,000  

      Annual operating costs (new machine)                 10,000

Which of the costs being considered for this decision represents a sunk cost?

• A) $6,000 of Machine overhaul costs (last year)

• B) $3,000 of repair costs (current year)

• C) $14,000 of annual operating costs (existing machine)

• D) $10,000 of annual operating costs (new machine)

CMG Construction purchased a truck 6 years ago at a cost of $68,000. Because the old truck required an overhaul of $4,000 last year, and repairs of $2,000 are needed in the current year, the company is now planning to purchase a new truck to replace the old one. The old truck has a trade-in value of $5,000. The cost of the new truck is $82,000.

What amount of these costs represent sunk costs?

• A) $68,000

• B) $72,000

• C) $77,000

• D) $79,000

Opportunity costs

• A) can be found on the income statement as expenses.

• B) can be found on the balance sheet as prepaid expenses.

• C) relate to decision-making but are not reported on the financial statements.

• D) do not impact decision-making because they happened in the past.

A resource sacrificed to bring benefit in the current period, leaving no remaining future benefit is a(n)

• A) cost.

• B) expense.

• C) expenditure.

• D) revenue

Which of the following is NOT an expense?

• A) Salaries and payroll-related

• B) Depreciation

• C) Marketing and selling

• D) Inventory

Costs with future benefits are considered

• A) expenses

• B) assets

• C) liabilities.

• D) net income.

Which of the following costs does not impact decision-making for a business?

• A) Sunk cost

• B) Opportunity cost

• C) Product cost

• D) Variable cost

10) If costs do NOT have objective, measurable future benefit, they are

• A) not reported on the financial statements.

• B) reported on the balance sheet as an asset.

• C) reported on the income statement as an expense.

• D) reported on the income statement as an asset or the balance sheet as an expense.