Conceptual questions on costs and expenditures

1. Enumerate the various classifications of costs.
2. Conversion cost is equal to the total of (a) direct labor and raw materials; (b) direct labor and factory overhead ; (c) indirect labor and factory overhead ; or (d) factory overhead and raw materials. Select the answer which correctly completes the statement.

3. Which of the following is the best example of a variable cost? (a) property taxes; (b) the corporate president's salary; (c) the controller's salary; (d) interest charges; or (e) material in a unit of product?

4. The statement has often been made that an actual product cost in the sense of absolute authenticity and verifiability does not exist. Why? 

5. The division of costs between inventory charges and profit and loss charges is not uniform throughout industries.
(a) Name two broad classifications of costs that find different treatments.
(b) Give reasons for the existence of these differences.

6. Expenditures may be divided into two general categories — (1) capital expenditures and (2) revenue expenditures.
(a) Distinguish between these two categories of expenditures and between their treatments in the accounts.
(b) Discuss the impact on both present and future balance sheets and income statements of improperly distinguishing between capital and revenue expenditures.
(c) What criteria do firms generally use in establishing a policy for classifying expenditures under these two general categories? Discuss.