COST AND MANAGERIAL
ACCOUNTING QUESTIONS AND
ANSWERS UPDATED 2026
# Term Definition
1 Managerial Accounting Activities Planning Controlling Decision Making
2 Cost Classifications
Financial Reporting Predicting Cost Behavior
Assigning Costs to Cost Objects Making
Business Decisions
3 Common Costs
indirect costs incurred to support a number of cost
objects; cannot be traced to any individual cost object -
utilities
4 Manufacturing Costs
Direct materials Direct Labor Manufacturing overhead
5 Manufacturing Overhead
indirect costs; costs that cannot be easily traced directly
to specific units produced
6 Indirect materials
Used to support production process - lubricants, cleaning
supplies
7 Nonmanufacturing Costs
Selling Costs - necessary to secure the order and
deliver the product; direct or indirect Administrative
Costs - all executive, organizational and clerical costs;
direct or indirect
8 Financial Statement Cost Classifications
Product Costs (inventoriable costs)- direct materials,
direct labor and manufacturing overhead Period Costs -
not attached to a product; all selling costs and admin
costs
, 9 Product Costs
-Assigned to inventory account on BS -Goods sold -COGS
assigned on income statement
10 Period Costs Expenses reported on Income Statement
11 Prime Costs Direct material and direct labor
12 Conversion Costs
Direct labor and manufacturing overhead; costs incurred
to convert direct materials into finished products
# Term Definition
13 Cost Behavior
refers to how a cost will react to changes in the level of
activity
14 Variable Cost
total varies in direct proportion to changes in the level
of activity
15 Variable Cost Per Unit
Constant variable cost - text message @ $0.05/text
16 Activity Base (cost driver)
measure of what causes the incurrence of a variable cost
- units produced - machine hours labor hours - miles
driven
17 Fixed Cost Per Unit
average fixed cost per unit varies inversely w/changes in
activity - average fixed cost per cell phone call made
decreases as more calls are made
18 Fixed Costs
Committed - long term; cannot be significantly reduced
in the short term - depreciation on buildings and
equipment; real estate taxes Discretionary - may be
altered in the short term by current managerial
decision - advertising, R & D
,19 Relevant Range
given the level of activity, use Accountant's Straight-Line
approximation (constant unit variable cost)
20 Behavior of Cost - Variable ($/text)
Total: increases and decreases in proportion to changes
in the activity level Per Unit: variable cost/unit remains
constant
21 Behavior of Cost - Fixed (monthly cell
Total: total fixed cost not affected by changes in the
phone cost)
activity level within the relevant range Per Unit: cost
decreases as activity level increases and increases as
activity level falls
22 Mixed Cost Formula
Y=a + bx (straight line) Y = total mixed cost a = total fixed
cost b = variable cost/unit x = level of activity
# Term Definition
23 High-Low Method
1. Calculate difference between highest and lowest
variable (change in activity) 2. Calculate between highest
and lowest cost Cost difference/activity change =
variable cost
24 Manufacturing Company Income
Statements - Traditional Primarily used for external reporting Sales COGS = Gross
Margin Gross Margin - Selling & admin expenses = Net
Operating Income COGS:
Beg. Inv. + Purchases - Ending Inv.
25 Manufacturing Company Income
Statements - Contribution Primarily used by management Sales - variable expenses
= Contribution Margin Contribution
Margin - fixed expenses = Net Operating Income
, 26 Decision Making Costs
Differential cost and revenue - differ among alternatives
Opportunity cost - potential benefit that is given up
when one alternative is chosen over another; generally
not entered into accounting records but must be
explicitly considered in all decisions Sunk costs - already
incurred and cannot be changed now or in the future;
ignored when making decisions
27 Cost Object Anything for which cost data are desired
28 Differential Costs or Revenue
Incremental costs or revenue - change between two
alternatives
29 Step-Variable Costs
-Can be adjusted quickly as conditions change
-May include total salaried employees expense
30 Cost Structure
The relative proportion of each type of cost in an
organization
31 Job-order Costing Systems
Used when: 1. Many different products are produced
each period 2. Products are manufactured to order. 3.
The unique nature of each order requires tracing or
allocating costs to each job, and maintaining cost
records for each job.
32 Job-order Costing -
Includes indirect materials and indirect labor; allocated
Manufacturing Overhead
to all jobs rather than directly traced to each job; zero
balance at end of period
# Term Definition
33 Allocation Base
Used to assign manufacturing overhead to individual
jobs (Direct labor hours, direct labor dollars, or machine
hours)
ACCOUNTING QUESTIONS AND
ANSWERS UPDATED 2026
# Term Definition
1 Managerial Accounting Activities Planning Controlling Decision Making
2 Cost Classifications
Financial Reporting Predicting Cost Behavior
Assigning Costs to Cost Objects Making
Business Decisions
3 Common Costs
indirect costs incurred to support a number of cost
objects; cannot be traced to any individual cost object -
utilities
4 Manufacturing Costs
Direct materials Direct Labor Manufacturing overhead
5 Manufacturing Overhead
indirect costs; costs that cannot be easily traced directly
to specific units produced
6 Indirect materials
Used to support production process - lubricants, cleaning
supplies
7 Nonmanufacturing Costs
Selling Costs - necessary to secure the order and
deliver the product; direct or indirect Administrative
Costs - all executive, organizational and clerical costs;
direct or indirect
8 Financial Statement Cost Classifications
Product Costs (inventoriable costs)- direct materials,
direct labor and manufacturing overhead Period Costs -
not attached to a product; all selling costs and admin
costs
, 9 Product Costs
-Assigned to inventory account on BS -Goods sold -COGS
assigned on income statement
10 Period Costs Expenses reported on Income Statement
11 Prime Costs Direct material and direct labor
12 Conversion Costs
Direct labor and manufacturing overhead; costs incurred
to convert direct materials into finished products
# Term Definition
13 Cost Behavior
refers to how a cost will react to changes in the level of
activity
14 Variable Cost
total varies in direct proportion to changes in the level
of activity
15 Variable Cost Per Unit
Constant variable cost - text message @ $0.05/text
16 Activity Base (cost driver)
measure of what causes the incurrence of a variable cost
- units produced - machine hours labor hours - miles
driven
17 Fixed Cost Per Unit
average fixed cost per unit varies inversely w/changes in
activity - average fixed cost per cell phone call made
decreases as more calls are made
18 Fixed Costs
Committed - long term; cannot be significantly reduced
in the short term - depreciation on buildings and
equipment; real estate taxes Discretionary - may be
altered in the short term by current managerial
decision - advertising, R & D
,19 Relevant Range
given the level of activity, use Accountant's Straight-Line
approximation (constant unit variable cost)
20 Behavior of Cost - Variable ($/text)
Total: increases and decreases in proportion to changes
in the activity level Per Unit: variable cost/unit remains
constant
21 Behavior of Cost - Fixed (monthly cell
Total: total fixed cost not affected by changes in the
phone cost)
activity level within the relevant range Per Unit: cost
decreases as activity level increases and increases as
activity level falls
22 Mixed Cost Formula
Y=a + bx (straight line) Y = total mixed cost a = total fixed
cost b = variable cost/unit x = level of activity
# Term Definition
23 High-Low Method
1. Calculate difference between highest and lowest
variable (change in activity) 2. Calculate between highest
and lowest cost Cost difference/activity change =
variable cost
24 Manufacturing Company Income
Statements - Traditional Primarily used for external reporting Sales COGS = Gross
Margin Gross Margin - Selling & admin expenses = Net
Operating Income COGS:
Beg. Inv. + Purchases - Ending Inv.
25 Manufacturing Company Income
Statements - Contribution Primarily used by management Sales - variable expenses
= Contribution Margin Contribution
Margin - fixed expenses = Net Operating Income
, 26 Decision Making Costs
Differential cost and revenue - differ among alternatives
Opportunity cost - potential benefit that is given up
when one alternative is chosen over another; generally
not entered into accounting records but must be
explicitly considered in all decisions Sunk costs - already
incurred and cannot be changed now or in the future;
ignored when making decisions
27 Cost Object Anything for which cost data are desired
28 Differential Costs or Revenue
Incremental costs or revenue - change between two
alternatives
29 Step-Variable Costs
-Can be adjusted quickly as conditions change
-May include total salaried employees expense
30 Cost Structure
The relative proportion of each type of cost in an
organization
31 Job-order Costing Systems
Used when: 1. Many different products are produced
each period 2. Products are manufactured to order. 3.
The unique nature of each order requires tracing or
allocating costs to each job, and maintaining cost
records for each job.
32 Job-order Costing -
Includes indirect materials and indirect labor; allocated
Manufacturing Overhead
to all jobs rather than directly traced to each job; zero
balance at end of period
# Term Definition
33 Allocation Base
Used to assign manufacturing overhead to individual
jobs (Direct labor hours, direct labor dollars, or machine
hours)
