E2–1 The following are a number of cost terms introduced in the chapter:

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 bag that is very popular with college students.
The cloth going into the manufacture of the bag would be called direct materials and classified as a __________ cost. In terms of cost behaviour, the cloth could also be described as a __________ cost.
2 The direct labour cost required to produce the bags, combined with the manufacturing overhead cost involved, would be known as __________ cost.
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 would be called __________ cost.
4 Taken together, the direct materials cost and the direct labour cost required to produce bags would be called __________ cost.
5 The company used to produce a smaller bag that was not very popular.
Some three hundred of these smaller bags are stored in one of the company’s warehouses. The amount invested in these bags would be called a __________ cost.
6 The bags are sold through agents who are paid a commission on each bag sold. These commissions would be classified by Lake Company as a __________ cost. In terms of cost behaviour, commissions would be classified as a __________ cost.
7 Depreciation on the equipment used to produce the bags would be classified by Lake Company as a __________ cost. However, depreciation on any equipment used by the company in selling and administrative activities would be classified as __________ cost. In terms of cost behaviour, depreciation would probably be classified as a __________ cost.
8 A __________ cost is also known as a stock-related cost, since such costs go into the Work in Progress stock account and then into the Finished Goods stock account before appearing on the profit and loss account as part of cost of goods sold.
9 The salary of Lake Company’s managing director would be classified as a __________ cost, since the salary will appear on the profit and loss account as an expense in the time period in which it is incurred.
10 Costs can often be classified in several ways. For example, Lake Company pays £5,000 rent each month on its factory building. The rent would be part of manufacturing overhead. In terms of cost behaviour, it would be classified as a __________ cost. The rent can also be classified as a cost and as part of __________ cost.

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Variable cost Fixed cost Prime cost Opportunity cost Product cost Sunk cost Conversion cost Period cost