Chapter 1 Management Accounting

TRUE OR FALSE STATEMENTS True 10. Management accountants must

False 1. Management accounting refrain form disclosing confidential
information generally pertains to an entity as information acquired in the course of their
a whole and is very detailed. work, except when authorized, unless
legally obligated to do so.
False 2. Determining the unit cost of
manufacturing a product is an output of True 11. Competence is one of the
management accounting. underlying ethical conduct professionals
must maintain..
False 3. Management accounting reports
are prepared less frequently than classified True 12. The plans of management are
financial statements. expressed in quantitative form as budgets.

True 4. The management function of False 16. In practice, the planning,

planning is mainly concerned with setting organizing, and controlling functions of
goals and objectives for the entity. management are kept separate from the
decision-making function.
False 5. An organization chart in a
manufacturing company replaces the chart False 17. Staff departments in an line
of accounts. departments. organization generally have
direct authority over line departments
False 6. Reports prepared in management
accounting are general-purpose reports, False 18. The accounting information
whereas reports prepared in financial produced by a management accounting
accounting are usually special- purpose system does not include the expenses
reports. incurred in an operating department.

False 7. Directing is the process of True 19. Management accounting deals

determining whether planned goals are with providing economic information to
being met. internal constituencies.

False 8. Decision-making is an integral part False 20. The functions of management

of the planning, directing and motivating accounting information are: operational
functions, but not of the controlling function. control, product and customer costing,
management control, and external
True 9. Recognize and communicate reporting.
professional limitations or other constraints
that would preclude responsible judgment or False 21. The steps to be followed in
successful performance of an activity is an implementing an organization's objectives
integrity ethical conduct of professionals. are set down through strategic planning.
True 22. Strategic planning is sometimes 3. Which description identifies financial
referred to as setting policy. statements that are prepared for external
users?
True 23. Management accountant must a. External reports
understand and anticipate the reactions of b. Special-purpose
individual to information and measurements. c. User-specific
d. General-purpose
True 24. A balanced report is a
measurement system for clarifying, 4. Which term describes management
communicating, and implementing business accounting reports?
strategy. a. All purpose reports
b. Special-purpose
False 25. Management accounting c. General-purpose
produces information that helps workers, d. Regulatory reports
manager, and executives in organizations
make better decisions and improve their 5. Which one of the following involves
processes and performance. coordinating a company's activities to
produce a smooth-running operation?
False 26. Internal reporting is the a. Auditing
preparation of financial reports based on b. Controlling
generally accepted accounting principles c. Planning
d. Directing
II. MULTIPLE CHOICE QUESTIONS
6. Which of the following statements about
1. Management accounting information internal reports is true?
a. pertains to the entity as a whole and a. Most internal reports are
is highly aggregated. summarized rather than detailed.
b. must be prepared according to b. Internal reports focus on general
generally accepted accounting purpose needs of users.
principles. c. The content of internal reports
c. pertains to subunits of the entity extends beyond the double-entry
and may be very detailed. accounting system.
d. ‘is prepared only once a year. d. Internal reports are often very
general.
2. How often are internal management
reports communicated? 7. Management accounting
a. As frequently as needed a. is concerned with costing products.
b. Annually b. is governed by generally accepted
c. During every audit by the company's accounting principles.
CPA c. pertains to the entity as a whole and
d. Monthly is highly aggregated.
d. places emphasis on
special-purpose information.
8. What broad functions do the d. It includes hiring and training
management of an organization perform? employees.
a. Directing, manufacturing, and
controlling 13. Which of the following represents two
b. Planning, directing, and management functions?
controlling a. Regulating and directing
c. Planning, directing, and selling b. Controlling and directing.
d. Planning, manufacturing, and c. Controlling and auditing
controlling d. Auditing and planning

9. Management accounting information is 14. Which management function is a

generally prepared for manager performing when objectives are
a. stockholders. being established?
b. managers. a. Regulating
c. regulatory agencies. b. Planning
d. investors. c. Motivating
d. Directing
10. Which one of the following describes
internal reports? 15. Which one of the following shows the
a. They are often audited by CPAs. delegation of responsibility within a
b. They are highly regulated by the company?
Securities & Exchange Commission. a. Authority Outline
c. They are aggregated b. Organization chart
d. They are detailed. c. Company's charter
d. Sarbanes-Oxley Act
11. Which one of the following does the
planning function involve? 16. Management and financial accounting
a. Analyzing financial statements are used for which of the following
b. Setting goals and objectives for purposes?
an entity
Management Financial
c. Hiring the right people for a Accounting Accounting
particular job
d. Coordinating the accounting a. Internal External
information system
b. External Internal
12. Which one of the following is true c. Internal Internal
concerning the managerial function of
controlling? d, External External
a. It includes performance
evaluation by management.
b. It is concerned mainly with operating 17. Management accounting
a manufacturing segment. a. Is more concerned with the future
c. It is performed only by the controller than financial accounting.
of a company.
 b. Is less concerned with segments of 22. The key link between managing
a company than financial resources and managing change in an
accounting. organization is
c. Is more constrained by rules and a. Responsibility accounting.
regulations than financial b. Information
accounting. c. Strategies.
d. all of the above are true. d. conversion activities.

18. Which of the following is not an internal 23. Management accounting differs from
user? financial accounting in that management
a. Corporate officers accounting:
b. Staff employees a. Is internal and future oriented, and
c. Stockholders governed by generally accepted
d. Department manager accounting principles, whereas
financial accounting is not
19. Which of the following is not part of b. Is future oriented and focuses on the
management organization as a whole, whereas
a. Determining whether planned goals financial accounting is not.
are being met c. Emphasizes relevant and flexible
b. Reporting financial information to information whereas financial
the shareholders accounting does not.
c. Calculating product costs d. Emphasizes relevant historical
d. Controlling costs information about the whole firm,
whereas financial accounting does
20. Which of the following uses not.
management accounting?
a. Manufacturing and service entities, 24. Which of the following is a false
but not merchandising statement?
b. Profit-oriented businesses only a. Financial accounting is governed by
c. Service, manufacturing, and generally accepted accounting
merchandising entities principles whereas management
d. Only manufacturing entities accounting is not.
b. Management accounting places
21. Which one of the following tasks would more emphasis on the past than
not be performed by a management does financial accounting.
accountant? c. Financial accounting tends to
a. Being concerned with the impact of emphasize precision while
cost and volume on profits management accounting
b. Strategic cost management emphasizes relevance and flexibility.
c. Assisting in budget planning d. Management accounting draws
d. Preparing reports primarily for heavily from other disciplines.
external users 25. Financial accounting
a. is primarily concerned with internal
reporting.
 b. is more concerned with verifiable,
historical information than is cost 29. The basic difference between
accounting. management and financial accounting is
c. focuses on the parts of the that:
organization rather than the whole. a. Financial accounting is a division of
d. is specifically directed at accounting that is concerned with
management decision-making providing information to stockholders
needs. whereas management accounting is
concerned with providing information
26. The ethical standards established for to managers for their use in directing
management accountants are in the areas the activities of the organization.
of b. Financial accounting relies on
a. competence, licensing, reporting, information gathered from sources
and education. outside the business whereas
b. budgeting, cost allocation, product management accounting relies on
costing, and insider trading. internally generated information.
c. competence, confidentiality, c. Financial accounting system relies
integrity, and objectivity. on accounting information whereas
d. disclosure, communication, decision management accounting does not.
making, and planning. d. Management accounting relies
upon the concept of responsibility
27. Management accounting accounting whereas financial
a. must follow generally accepted accounting does not.
accounting principles.
b. information should be developed
within the same general
accounting system as financial
accounting.
c. deals primarily with the needs of
parties external to the firm such as
investors and creditors.
d. is just another financial accounting
term.

28. Financial accounting is concerned with:

a. The company as a whole rather
than with the segments of a
company.
b. The needs of stockholders and
creditors,
c. Meeting the requirements of internal
users only.
d. Recording the financial history of an
organization.
 2. Consider the following short
1. Enumerate the four areas covered descriptions. Indicate whether
by Standards of Ethical Conduct each description more closely
for Management Accountants and relates to a major feature of
how these areas are defined? financial accounting (use FA) or
A. Competence management accounting (use MA)
- “Is defined as the capacity to a. Behavioral impact is
respond to individual, or secondary - FA
societal, demands in order to b. Is constrained by generally
perform an activity or accepted accounting
complete a given task.” principles - FA
- Maintain an appropriate level c. Has a future orientation - MA
of professional competence d. Is characterized by detailed
by ongoing development of reports - MA
their knowledge and skills. e. Field is more sharply defined
- Perform their professional - MA
duties in accordance with f. Has less flexibility - FA
laws, regulations and
technical standards. 3. For each of the following, indicate
whether the employee has line (L), or
B. Confidentiality standard responsibility (S).
- Refrain from disclosing a. Production superintendent - L
confidential information b. Cost accountant - S
acquired in the course of c. Market research analyst - S
their work, except when d. District sales manager - L
authorized, unless legally e. Head of the legal department - L
obligated to do so. f. President - L

C. Integrity
- Avoid actual or apparent
conflicts of interest and
advise all appropriate parties
of any potential conflict.
- Refrain from engaging in any
activity that would prejudice
their ability to carry out their
duties ethically.

D. Objectivity
- Communicate information
fairly and objectively
4. Financial accounting information and management accounting information have a
number of distinguishing characteristics.
M 1. Reporting standard is relevant to the decision to be made.
F 2. Classified financial statements.
F 3. Reports generally pertain to the company as a whole.
M 4. Reports generally pertain to subunits.
M 5. Reports issued quarterly or annually.
F 6. General purpose reports.
M 7. Reports are used internally.
F 8. Prepared in accordance with generally accepted accounting principles.
M 9. Special purpose reports.
F 10. Limited to historical cost data.
 Chapter 2: Management Accounting Information System

TRUE OR FALSE STATEMENTS

True 1. Designing a good accounting True 10. An effective accounting system
system is a specialized job requiring a high provides information only to internal
degree of skill. managers for use in planning and
controlling routine operations and in
True 2. Accounting system must contain strategic planning.
controls to achieve accuracy, reliability, and
efficiency. True 11. Data processing includes the
preparation of documents (such as checks
True 3. Information system is a and invoices), and the flow of the data
combination of hardware, software, people, contained in these documents through the
and events to provide information for major accounting steps of recording,
decision making. classifying, and summarizing.

True 4. Data collection via an accounting True 12. Information generated or

system facilitates the best collective processed by computers is said to be free
decision making from any errors, thus, it possesses the
quality of accuracy.
True 5. A program is a series of steps
planned to carry out a certain process, such False 13. Computers can make decisions
as the preparation of payroll. in the sense of exercising judgment and can
choose among alternatives by following the
False 6. Accounting machines is usually specific instructions contained in the
applied to mechanical or electronic program,
equipment capable of performing arithmetic
functions and not used to produce a variety False 14. Accounting system must contain
of accounting records and reports. controls to achieve accuracy, honesty, and
efficiency, and speed.
True 7. The input in a computer-based
system corresponds to the journals in a True 15. The accuracy quality of
manual system information refers to the degree to which
information is free from error.
True 8. One of the first steps in the
development of an accounting system is the True 16. The firm's organizational
preparation of a chart of accounts. structure refers to how authority and
responsibility for decision making are
True 9. Accounting system is often the distributed.
principal means of gathering data to aid and
coordinate the process of making the best True 17. Costs-benefits trade-offs may be
collective operating or routine decisions in considered by managers in designing
light of the overall goals or objectives of an management information system.
organization.
False 18. Information could be considered d. organizational managers,
as complete only when all the necessary but not to staff personnel
dara needed by the user is provided.
2. Which of the following is not a
False 19. In order to become effective, primary goal of a cost management
managers should always follow the order of system?
information flow set by the organization. a. use cost drivers to develop
product costs.
True 20. Information system can only b. improve understanding of
function efficiently and effectively if the activities
people involved in it will perform their duties c. develop organizational
carefully and accurately. strategies
d. measure performance
False 21. Information is said to be
complete if the user could accumulate as 3. A cost management system will
many information as possible. provide the means to develop
a. the most accurate product or
True 22. Information is said to be timely if service costs
it still useful to the decision makers before a b. a reasonably accurate
decision has been made. product or service cost
oven cost-benefit analysis
True 23. Management control systems c. a product or service cost that
guides the organizations in designing and does not include any
implementing strategies to achieve its non-value-added overhead
objectives d. a costing mom that traces all
costs directly to individual
True 24. A detector is a measuring device products or serving
that identifies what is actually happening in
the process being controlled 4. The cost generated by the cost
management system are used to
False 25. Communications network is a a. Assess product/service
part of cost management system that profitability
identifies the cost of resources of the firms. b. Establish prices for products
with significant competition
Multiple Choice Questions: c. Determine underlying
reasons for variations from
1. A management accounting system standards
should provide information to d. All of the above
a. all functional areas of the
organization
b. only the accounting area of
the organization
c. only the production areas of
the organization
 5. Information about the life-cycle
b No No No
performance of a product or service
should provided in the c No Yes Yes

Financial Cost d Yes Yes Yes

Accounting Management
System System 9. Which of the following would be
considered a detector?
a. Yes Yes a. computer program
b. Yes No b. source document
c. No Yes c. variance report
d. No No d. all of the above

6. A management information system 10. Feedback is reflected in which

should do which of the following? component of a management control
system?
Collect Organize Analyze data
Data Data for for a. Sensor
Managers management b. Assessor
c. Effector
a Yes No Yes d. Detector

b Yes Yes No 11. Reactions to information provided by the

management control system are
c No No Yes
a. formulated in the organization's
d Yes Yes Yes strategic plan.
b. judgmental, and are based on
7. A management information system interpretations and circumstances
should emphasize satisfying c. cassessed by the communications
a. external demands for information. network of the MCS.
b. external and internal demands for d. determined as those activities that
information. will be most efficient and effective
c. internal demands for information. given the organization's available
d. the Accounting Department's technology.
demands for information.
12. An increase in the use of technology
8. Who of the following are external users of has caused
data gathered by a management a. fewer costs to be susceptible to
information system? short-run control
b. companies to be more flexible in
responding to changing short-term
Creditors Regulatory Suppliers conditions
Bodies c. managers to be less concerned
a Yes No Yes about capacity utilization because of
 the increased ability to produce in 16. As an organization moves to
large quantities. decentralize its operations, an effective
d. a decline in the amount of fixed reporting system will have _________ when
costs in an organization the organization was centralized.
a. about the same importance as
13. Which of the following is considered a b. less importance than
"feeder system to the cost management c. more importance than
system? d. a level of importance that depends
on organizational size as compared
to
Payroll Budgeting Inventory
Valuation
17. Performance reports are useful only to
a Yes No Yes the extent that performance is measured
against
b Yes Yes Yes
a. a meaningful benchmark
c No No No b. the performance of all other units or
managers
d Yes Yes No c. the budget as adopted for the
period.
14. Which of the following is a primary d. competitors achievements.
element of a cost management system?
18. The reward system for subunit
Informa Reporting Motiva Evalua
managers of mature businesses should
tion tion tion
emphasize
a Yes Yes Yes Yes a. Long-term competitive prospects.
b. near-term profit and cash flow
b No Yes Yes No c. success in product design and
c Yes No No Yes development.
d. exceeding last year's subunit profit.
d Yes Yes Yes No

15. Organizational form directly affects

which of the following? Decision-making

Decision Cost of Taxation Mission

Making Capital
Authority

a No Yes Yes Yes

b Yes Yes Yes No

c No Yes No Yes

d Yes Yes No No
 Chapter 3: Cost concepts, Classifications, and Cost Behavior

TRUE OR FALSE STATEMENTS

True 12. A variable cost will change in total
True 1. A cost object is the monetary in proportion to changes in the level of
measure of a resource used or foregone to activity.
achieve a specific purpose.
True 13. Cost function is an expression that
True 2. The major purpose for using cost mathematically links costs,, their behavior,
objects is to aid management planning and and their cost driver.
control.
True 14. As volume decreases within the
True 3. Cost accumulation, cost allocation, relevant range, variable cost per unit
and cost objects are interrelated. True 4. An remains the - same and fixed cost per unit
activity index is the activity that causes increases
changes in the behavior of costs.
False 15. When making predictions,
False 4. Fixed cost per unit remains variable costs and fixed costs should be
constant at various levels of activity. thought of on a per unit basis.

True 5. A variable cost remains constant True 16. Within the relevant range, the
per unit, though in total increases as activity amount of variable cost per unit remains
levels increase. constant at each volume level.

False 6. If volume increases, both total False 17. The relevant range of activity is
variable and total fixed costs will increase. the activity level at which the company the
highest amount of profits. makes
False 7. If the activity level decreases, fixed
costs per unit will decrease. True 18. Fixed costs per unit decline as the
activity level increases within the relevant
False 8. Decreases in the level of activity range of activity.
will cause total variable and total fixed costs
to decrease. False 19. A fixed cost is const int per unit of
product.
False 9. An assumption regarding cost
behavior is that two cost drivers are used for True 20. Manufacturing overhead is an
a given cost. indirect cost with respect to units of product.

False 10. Manufacturing overhead True 21. Cost behavior is the impact that a
combined with direct materials is known as cost driver has on a cost True 29. Variable
conversion cost. cost changes in total in direct proportion to
changes in activity or output.
True 11. Non-manufacturing costs consist of
selling costs and administrative costs.
True 22. When graphed, total variable costs
d. increases remains constants
and total fixed costs are both assumed to be
linear within the relevant range.
3. A cost that remains constant in total but
True 23. Fixed cost is constant in total varies on a per-unit basis with changes
amount regardless of changes in activity in activity is called a(n)
level within the relevant range. a. expired cost.
b. fixed cost.
True 24. The variable cost element of a c. variable cost
mixed cost is the amount that total costs d. mixed cost.
increase for each additional unit of activity.
4. When the number of units manufactured
True 25. A period cost is defined as the cost increases, the most significant change in
incurred when asset is used up or sold for unit cost will be reflected as a(n)
the purpose of generating revenue. a. increase in the fixed element.
b. decrease in the variable element.
True 26. Average cost is the total cost to c. increase in the mixed element.
produce the products is divided by the d. decrease in the fixed element.
number of units manufactured or produced.
5. Which of the following always has a direct
True 27.Opportunity costs could be defined cause-effect relationship to a cost?
as the revenue lost when one alternative is
not taken in favor of another alternative Predictor Cost driver

II. MULTIPLE CHOICE QUESTIONS a. yes yes

b. yes no
1. The term "relevant range" in cost
accounting means the range over which a. c. no yes
a. costs may fluctuate.
b. cost relationships are valid. d. no no
c. Production may vary.
d. relevant costs are incurred. 6. A cost driver
a. causes fixed costs to rise because of
2. Which of the following defines variable production changes.
cost behavior? b. has a direct cause-effect
relationship to a cost.
Total cost reaction Cost per unit
to increase in rection to increase c. can predict the cost behavior of a
activity in activity variable, but not a fixed cost.

a. remains constant remains constant

b. remains constant increases

c. increases increases