Updated Latest Cost Terms, Concepts and Classifications Chapter 2 Comprehensive Study Guide With Cost Accounting Principles Cost Behavior Fixed Costs Variable Costs Mixed Costs Direct and Indirect Costs Product and Period Costs Job Costing Process Costing

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Updated Latest Cost Terms, Concepts and Classifications Chapter 2 Comprehensive Study Guide With Cost Accounting Principles Cost Behavior Fixed Costs Variable Costs Mixed Costs Direct and Indirect Costs Product and Period Costs Job Costing Process Costing

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164 pages

2025/2026

Institution Cost Accounting

Course Cost accounting

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Build a solid foundation in cost accounting with this updated Chapter 2 Cost Terms, Concepts and Classifications study resource designed for students in accounting and business programs during the 2025–2026 academic period. This comprehensive guide explains essential cost accounting concepts including cost behavior patterns, fixed costs, variable costs, mixed costs, direct and indirect costs, product versus period costs, and cost classification methods used in managerial decision-making. It also introduces fundamental costing systems such as job order costing and process costing, helping students understand how costs are accumulated and assigned in different business environments. The material includes structured exam-style questions with detailed answers and explanations to improve analytical thinking, accuracy, and understanding of cost control and financial planning. Ideal for quizzes, assignments, midterms, finals, and professional accounting exams, this resource simplifies complex cost accounting principles into clear, organized sections that enhance retention and application. Whether used for classroom learning or independent revision, it provides essential academic support for mastering cost terms and achieving success in the 2026–2027 academic cycle.

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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, Manageria Accounting, Twelfth Edition
F 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. Direct costs are often difficult to trace to the specific cost object under consideration.
F F F F F F F F F F F F F

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 6 Level: Easy
F F F F

11. All of the following are examples of opportunity costs: salary given up to start a
F F F F F F F F F F F F F F F

business; rental income given up when you live in a house you own; interest income
F F F F F F F F F F F F F F F

that could be earned on money spent for a car.
F F F F F F F F F

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 7 Level: Medium
F F F F

12. The amount that was paid by a company for a building to house its operations is an
F F F F F F F F F F F F F F F F F

example of a sunk cost. F F F F

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 7 Level: Easy
F F F F

13. The most effective way to minimize quality costs while maintaining high quality is to
F F F F F F F F F F F F F F

avoid having quality problems in the first place. This is the reason for incurring
F F F F F F F F F F F F F F

appraisal costs. F

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting Appendix: 2B LO: 9 Level: Medium
F F F F F

14. External failure costs are limited to the costs of repairing defective products that are
F F F F F F F F F F F F F F

under warranty. F

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard
F F F F F

15. The costs of lost sales arising from poor quality are always included in quality cost
F F F F F F F F F F F F F F F

reports.
2-2 Garrison/Noreen/Brewer, Manageria Accounting, Twelfth Edition F

,Chapter 2 Cost Terms, Concepts, and Classifications

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting Appendix: 2B LO: 10 Level: Medium
F F F F F

Multiple Choice Questions
F F

16. The cost of the cushions that are used to manufacture sofas is best described as a:
F F F F F F F F F F F F F F F

A) manufacturing overhead cost. F F

B) period cost. F

C) variable cost. F

D) conversion cost. F

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 1,2,5 Level: Medium
F F F F

17. Chezpere Company manufactures and sells washing machines. In order to make
F F F F F F F F F F F

assembly of the machines faster and easier, some of the metal parts in the machines
F F F F F F F F F F F F F F F

are coated with grease. How should the cost of this grease be classified?
F F F F F F F F F F F F

Direct Material Cost F F Fixed Cost F

A) Yes Yes
B) Yes No
C) No Yes
D) No No

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 1,5,6 Level: Hard
F F F F

Garrison/Noreen/Brewer, Manageria Accounting, Twelfth Edition F 2-3

, Chapter 2 Cost Terms, Concepts, and Classifications

18. A security guard's wages at a factory would be an example of:
F F F F F F F F F F F F

Indirect labor Fixed manufacturing overhead
F F F

A) No No
B) Yes Yes
C) Yes No
D) No Yes

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 1,5 Level: Medium Source: CPA, adapted
F F F F F F

19. Manufacturing overhead includes: F F

A) all direct material, direct labor and administrative costs.
F F F F F F F

B) all manufacturing costs except direct labor.
F F F F F

C) all manufacturing costs except direct labor and direct materials.
F F F F F F F F

D) all selling and administrative costs.
F F F F

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 1 Level: Easy
F F F F

20. Materials used in the operation of a factory, such as cleaning supplies, that are not an
F F F F F F F F F F F F F F F F

integral part of the final product should be classified as:
F F F F F F F F F

A) direct materials. F

B) a period cost. F F

C) administrative expense. F

D) manufacturing overhead. F

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 1 Level: Easy
F F F F

21. The one cost that would be classified as part of both prime cost and conversion cost
F F F F F F F F F F F F F F F F

would be: F

A) indirect material. F

B) direct labor. F

C) direct material. F

D) indirect labor. F

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
F F F F F F F

AICPA FN: Reporting LO: 1 Level: Easy
F F F F

2-4 Garrison/Noreen/Brewer, Manageria Accounting, Twelfth Edition F

Connected book

Will Seal, Carsten Rohde, Ray Garrison, Eric Noreen EBOOK: Management Accounting, 6e

Publisher: 2018 ISBN: 9781526847164 Edition: Unknown

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Number of pages: 164
Written in: 2025/2026
Type: Exam (elaborations)
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