Chapter 2 Cost Terms, Concepts, and Classifications
True/False Questions
1. The!!sumcof!!all!!costs!!of!!manufacturing!!costs!!except!!direct!!materials!!is!!calle
d!!manufacturing!!overhead.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 1 Level:! ! Easy
2. Conversion!!cost!!iscthe!!sum!!of!!direct!!labor!!and!!manufacturing!!overhead.
Ans:! ! True AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 1 Level:! ! Easy
3. Prime!!cost!!is!!the!!sum!!of!!direct!!labor!!and!!manufacturing!!overhead.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 1 Level:! ! Easy
4. Thread!!used!!in!!the!!production!!of!!mattresses,!!an!!indirect!!material,!!is!!classified!!
as!!manufacturing!!overhead.
Ans:! ! True AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 1 Level:! ! Easy
5. Period!!costs!!are!!also!!known!!as!!inventoriable!!costs.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 2 Level:! ! Easy
6. All!!costs!!in!!a!!merchandising!!company!!are!!period!!costs.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 2 Level:! ! Easy
7. The!!cost!!of!!goods!!sold!!of!!a!!manufacturing!!company!!equals!!beginning!!finished!!goo
ds!!inventory!!+!!cost!!of!!goods!!manufactured!!-!!ending!!finished!!goods!!inventory.
Ans:! ! True AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting,!!Measu
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 2-1
,Chapter 2 Cost Terms, Concepts, and Classifications
rement LO:! ! 3 Level:! ! Easy
8. A!!variable!!cost!!is!!constant!!if!!expressed!!on!!a!!per!!unit!!basis!!but!!the!!total!!dollar!!amo
unt!!changes!!as!!the!!number!!of!!units!!increases!!or!!decreases.
Ans:! ! True AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 5 Level:! ! Easy
9. As!!activity!!increases!!within!!the!!relevant!!range,!!fixed!!costs!!remain!!constant!!on!!a!!p
er!!unit!!basis.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 5 Level:! ! Easy
10. DirectL costsL areL oftenL difficultL toL traceL toL theL specificL costL objectL underL consideration.
Ans:L False AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 6 Level:L Easy
11. AllL ofL theL followingL areL examplesL ofL opportunityL costs:L salaryL givenL upL toL
startL aL business;L rentalL incomeL givenL upL whenL youL liveL inL aL houseL youL own;L
interestL incomeL thatL couldL beL earnedL onL moneyL spentL forL aL car.
Ans:L True AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 7 Level:L Medium
12. TheL amountL thatL wasL paidL byL aL companyL forL aL buildingL toL houseL itsL
operationsL isL anL exampleL ofL aL sunkL cost.
Ans:L True AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 7 Level:L Easy
13. TheL mostL effectiveL wayL toL minimizeL qualityL costsL whileL maintainingL highL
qualityL isL toL avoidL havingL qualityL problemsL inL theL firstL place.L ThisL isL theL reasonL
forL incurringL appraisalL costs.
Ans:L False AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting Appendix:L 2B LO:L 9
Level:L Medium
14. ExternalL failureL costsL areL limitedL toL theL costsL ofL repairingL defectiveL productsL
thatL areL underL warranty.
Ans:L False AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting Appendix:L 2B LO:L 9
Level:L Hard
2-2 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
,Chapter 2 Cost Terms, Concepts, and Classifications
15. TheL costsL ofL lostL salesL arisingL fromL poorL qualityL areL alwaysL includedL inL
qualityL costL reports.
Ans:L False AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting Appendix:L 2B LO:L 10
Level:L Medium
MultipleL ChoiceL Questions
16. TheL costL ofL theL cushionsL thatL areL usedL toL manufactureL sofasL isL bestL describedL asL a:
A) manufacturingL overheadL cost.
B) periodL cost.
C) variableL cost.
D) conversionL cost.
Ans:L C AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1,2,5 Level:L Medium
17. ChezpereL CompanyL manufacturesL andL sellsL washingL machines.L InL orderL toL
makeL assemblyL ofL theL machinesL fasterL andL easier,L someL ofL theL metalL partsL inL
theL machinesL areL coatedL withL grease.L HowL shouldL theL costL ofL thisL greaseL beL
classified?
DirectL MaterialL Cost FixedL Cost
A) Yes Yes
B) Yes No
C) No Yes
D) No No
Ans:L D AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1,5,6 Level:L Hard
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 2-3
, Chapter 2 Cost Terms, Concepts, and Classifications
18. AL securityL guard'sL wagesL atL aL factoryL wouldL beL anL
exampleL of:L IndirectL labor FixedL manufacturingL
overhead
A) No No
B) Yes Yes
C) Yes No
D) No Yes
Ans:L B AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL ThinkingL
AICPAL FN:L Reporting LO:L 1,5 Level:L Medium Source:L CPA,L
adapted
19. ManufacturingL overheadL includes:
A) allL directL material,L directL laborL andL administrativeL costs.
B) allL manufacturingL costsL exceptL directL labor.
C) allL manufacturingL costsL exceptL directL laborL andL directL materials.
D) allL sellingL andL administrativeL costs.
Ans:L C AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1 Level:L Easy
20. MaterialsL usedL inL theL operationL ofL aL factory,L suchL asL cleaningL supplies,L thatL areL
notL anL integralL partL ofL theL finalL productL shouldL beL classifiedL as:
A) directL materials.
B) aL periodL cost.
C) administrativeL expense.
D) manufacturingL overhead.
Ans:L D AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1 Level:L Easy
21. TheL oneL costL thatL wouldL beL classifiedL asL partL ofL bothL primeL costL andL
conversionL costL wouldL be:
A) indirectL material.
B) directL labor.
C) directL material.
D) indirectL labor.
Ans:L B AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1 Level:L Easy
2-4 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
True/False Questions
1. The!!sumcof!!all!!costs!!of!!manufacturing!!costs!!except!!direct!!materials!!is!!calle
d!!manufacturing!!overhead.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 1 Level:! ! Easy
2. Conversion!!cost!!iscthe!!sum!!of!!direct!!labor!!and!!manufacturing!!overhead.
Ans:! ! True AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 1 Level:! ! Easy
3. Prime!!cost!!is!!the!!sum!!of!!direct!!labor!!and!!manufacturing!!overhead.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 1 Level:! ! Easy
4. Thread!!used!!in!!the!!production!!of!!mattresses,!!an!!indirect!!material,!!is!!classified!!
as!!manufacturing!!overhead.
Ans:! ! True AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 1 Level:! ! Easy
5. Period!!costs!!are!!also!!known!!as!!inventoriable!!costs.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 2 Level:! ! Easy
6. All!!costs!!in!!a!!merchandising!!company!!are!!period!!costs.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 2 Level:! ! Easy
7. The!!cost!!of!!goods!!sold!!of!!a!!manufacturing!!company!!equals!!beginning!!finished!!goo
ds!!inventory!!+!!cost!!of!!goods!!manufactured!!-!!ending!!finished!!goods!!inventory.
Ans:! ! True AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting,!!Measu
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 2-1
,Chapter 2 Cost Terms, Concepts, and Classifications
rement LO:! ! 3 Level:! ! Easy
8. A!!variable!!cost!!is!!constant!!if!!expressed!!on!!a!!per!!unit!!basis!!but!!the!!total!!dollar!!amo
unt!!changes!!as!!the!!number!!of!!units!!increases!!or!!decreases.
Ans:! ! True AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 5 Level:! ! Easy
9. As!!activity!!increases!!within!!the!!relevant!!range,!!fixed!!costs!!remain!!constant!!on!!a!!p
er!!unit!!basis.
Ans:! ! False AACSB:! ! Reflective!!Thinking
AICPA!!BB:! ! Critical!!Thinking!!AICPA!!FN:! ! Reporting
LO:! ! 5 Level:! ! Easy
10. DirectL costsL areL oftenL difficultL toL traceL toL theL specificL costL objectL underL consideration.
Ans:L False AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 6 Level:L Easy
11. AllL ofL theL followingL areL examplesL ofL opportunityL costs:L salaryL givenL upL toL
startL aL business;L rentalL incomeL givenL upL whenL youL liveL inL aL houseL youL own;L
interestL incomeL thatL couldL beL earnedL onL moneyL spentL forL aL car.
Ans:L True AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 7 Level:L Medium
12. TheL amountL thatL wasL paidL byL aL companyL forL aL buildingL toL houseL itsL
operationsL isL anL exampleL ofL aL sunkL cost.
Ans:L True AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 7 Level:L Easy
13. TheL mostL effectiveL wayL toL minimizeL qualityL costsL whileL maintainingL highL
qualityL isL toL avoidL havingL qualityL problemsL inL theL firstL place.L ThisL isL theL reasonL
forL incurringL appraisalL costs.
Ans:L False AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting Appendix:L 2B LO:L 9
Level:L Medium
14. ExternalL failureL costsL areL limitedL toL theL costsL ofL repairingL defectiveL productsL
thatL areL underL warranty.
Ans:L False AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting Appendix:L 2B LO:L 9
Level:L Hard
2-2 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
,Chapter 2 Cost Terms, Concepts, and Classifications
15. TheL costsL ofL lostL salesL arisingL fromL poorL qualityL areL alwaysL includedL inL
qualityL costL reports.
Ans:L False AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting Appendix:L 2B LO:L 10
Level:L Medium
MultipleL ChoiceL Questions
16. TheL costL ofL theL cushionsL thatL areL usedL toL manufactureL sofasL isL bestL describedL asL a:
A) manufacturingL overheadL cost.
B) periodL cost.
C) variableL cost.
D) conversionL cost.
Ans:L C AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1,2,5 Level:L Medium
17. ChezpereL CompanyL manufacturesL andL sellsL washingL machines.L InL orderL toL
makeL assemblyL ofL theL machinesL fasterL andL easier,L someL ofL theL metalL partsL inL
theL machinesL areL coatedL withL grease.L HowL shouldL theL costL ofL thisL greaseL beL
classified?
DirectL MaterialL Cost FixedL Cost
A) Yes Yes
B) Yes No
C) No Yes
D) No No
Ans:L D AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1,5,6 Level:L Hard
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 2-3
, Chapter 2 Cost Terms, Concepts, and Classifications
18. AL securityL guard'sL wagesL atL aL factoryL wouldL beL anL
exampleL of:L IndirectL labor FixedL manufacturingL
overhead
A) No No
B) Yes Yes
C) Yes No
D) No Yes
Ans:L B AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL ThinkingL
AICPAL FN:L Reporting LO:L 1,5 Level:L Medium Source:L CPA,L
adapted
19. ManufacturingL overheadL includes:
A) allL directL material,L directL laborL andL administrativeL costs.
B) allL manufacturingL costsL exceptL directL labor.
C) allL manufacturingL costsL exceptL directL laborL andL directL materials.
D) allL sellingL andL administrativeL costs.
Ans:L C AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1 Level:L Easy
20. MaterialsL usedL inL theL operationL ofL aL factory,L suchL asL cleaningL supplies,L thatL areL
notL anL integralL partL ofL theL finalL productL shouldL beL classifiedL as:
A) directL materials.
B) aL periodL cost.
C) administrativeL expense.
D) manufacturingL overhead.
Ans:L D AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1 Level:L Easy
21. TheL oneL costL thatL wouldL beL classifiedL asL partL ofL bothL primeL costL andL
conversionL costL wouldL be:
A) indirectL material.
B) directL labor.
C) directL material.
D) indirectL labor.
Ans:L B AACSB:L ReflectiveL Thinking AICPAL BB:L CriticalL
ThinkingL AICPAL FN:L Reporting LO:L 1 Level:L Easy
2-4 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
