Cost Accounting, 1e (Farmer) Chapter 1 Cost Accounting Has Purpose 1) A ________ helps an organization, whether for profit or nonprofit, turn its purpose into action by establishing the direction of the entity. A) mission statement B) strategic plan C) SWOT analysis D) vision Answer: B Explanation: A strategic plan helps an organization, whether for profit or nonprofit, turn its purpose into action by establishing the direction of the entity. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 2) An organization's strategic plan includes its why, where and how for its purpose represented by A) opportunities, strengths and weaknesses. B) opportunities, strengths, and mission. C) mission, vision, and strategy. D) mission, strengths, and strategy. Answer: C Explanation: An organization's strategic plan includes its why, where, and how for its purpose represented by mission, vision, and strategy. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
1
3) In choosing a strategy, a business begins by undertaking a thorough examination of itself and the industry within which it operates by performing a ________ analysis. A) mission and vision statement B) strategic initiative C) target objective D) SWOT Answer: D Explanation: In choosing a strategy, a business begins by undertaking a thorough examination of itself and the industry within which it operates by performing a SWOT analysis. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 4) An organization's ________ is its purpose; its reason for existing. A) mission B) strategy C) initiative D) strategic plan Answer: A Explanation: An organization's mission is its purpose, its reason for existing. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 5) A SWOT analysis allows an organization to assess its A) strategies, wealth, outlets, and targets. B) strengths, warnings, outlets, and threats. C) strengths, weaknesses, opportunities, and threats. D) strategies, wealth, opportunities, and threats. Answer: C Explanation: A SWOT analysis allows an organization to assess its strengths, weaknesses, opportunities, and threats. Diff: 1 LO: 1 Bloom: C AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
2
6) What is a narrative that describes what the organization will look like, or a destination to achieve, by some future date called? A) SWOT analysis B) Strategic plan C) Vision D) Mission Answer: C Explanation: A narrative the describes what the organization will look like, or a destination to achieve, by some future date is called a vision. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 7) Which of the following statements is correct regarding a SWOT analysis? A) The basis for evaluation using the SWOT analysis focuses on external factors only. B) Factors to assess in a SWOT analysis included elements described in Porter's Five Forces. C) Insignificant in setting a company's strategy is determining the organization's critical success factors. D) A SWOT analysis is typically used in the Mission and Vision stage in creating the strategic plan for an organization. Answer: B Explanation: The correct statement regarding SWOT analysis is, "Factors to assess in a SWOT analysis included elements described in Porter's Five Forces." Diff: 2 LO: 1 Bloom: C AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
3
8) Which balanced scorecard perspective considers how an organization supports its people and infrastructure to drive and maintain new products and service development and growth? A) Financial perspective B) Customer perspective C) Internal business process perspective D) Learning and growth perspective Answer: D Explanation: The learning and growth perspective considers how an organization supports its people and infrastructure to drive and maintain new products and service development and growth. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 9) Which of the following represent internal factors in the SWOT analysis? A) Opportunities and threats B) Strengths and weaknesses C) Strengths and opportunities D) Weaknesses and threats Answer: B Explanation: Internal factors in the SWOT include strengths and weaknesses. Diff: 1 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
4
10) The correct flow of the steps in the creation of an organization's strategic plan is A) Mission and Vision→Strategies and Initatives→Goals and Objectives→Measures and Targets→Results. B) Mission and Vision→Goals and Objectives→Strategies and Initiatives→Measures and Targets→Results. C) Strategies and Initatives→Goals and Objectives→Mission and Vision→Measures and Targets→Results. D) Mission and Vision→Measures and Targets→Strategies and Initiatives→Goals and Objectives→Results. Answer: B Explanation: The correct flow of the steps in the creation of an organization's strategic plan is Mission and Vision→Goals and Objectives→Strategies and Initiatives→Measures and Targets→Results Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 11) When performing a SWOT analysis, a business would ask, "What are the organization's need- improvement areas that impede goal achievement" to address its A) strengths. B) weaknesses. C) opportunities. D) threats. Answer: B Explanation: When performing a SWOT analysis, a business would ask, "What are the organization's need-improvement areas that impede goal achievement" to address its weaknesses. Diff: 1 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
5
12) An organization's mission is the same as its A) purpose. B) vision. C) objectives. D) targets. Answer: A Explanation: An organization's mission is the same as its purpose. Diff: 1 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 13) A wide-reaching set of documents detailing a company's purpose, future destination, and short-term and long-term techniques for getting there is its A) vision. B) strategic plan. C) balanced scorecard. D) SWOT analysis. Answer: B Explanation: A wide-reaching set of documents detailing a company's purpose, future destination, and short-term and long-term techniques for getting there is Its strategic plan. Diff: 1 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 14) Which of the following statements is correct? A) A strategic plan conveys the idea of a coordinated, consolidated, short-term, organizationwide plan. B) Many strategic plans include both short-term and long-term goals to direct the organization toward arriving at its vision. C) Once an organization determines its mission, it does not need to change it. D) Only for-profit entities need purpose and direction normally detailed in a strategic plan. Answer: B Explanation: The correct statement is, "Many strategic plans include both short-term and longterm goals to direct the organization toward arriving at its vision." Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 6
15) In evaluating a nonprofit organization's balanced scorecard, which perspective might be addressed? A) Customer perspective B) Learning and growth perspective C) Financial stewardship perspective D) Internal business process perspective Answer: C Explanation: In evaluating a nonprofit organization's balanced scorecard, the financial stewardship perspective might be addressed. The other perspectives are for a for-profit organization. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 16) Which of the following would NOT be included in an organization's strategic plan? A) Mission (why) B) Vision (where) C) Timing (when) D) Strategy (how) Answer: C Explanation: An organization's strategic plan includes its why (mission), where (vision) and how (strategy). It does not include when (timing). Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 17) Porter's Five Forces used in the SWOT analysis would NOT include impacts of A) customers. B) the strategic plan. C) existing competitors. D) potential new entrants. Answer: B Explanation: Porter's Five Forces used in the SWOT analysis would not include impacts of the strategic plan, but would include the impacts of customers, existing competitors, and potential new entrants. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 7
18) The current or future external challenges that are unfavorable for an organization are referred to as A) threats. B) opportunities. C) strengths. D) weaknesses. Answer: A Explanation: The current or future external challenges that are unfavorable for an organization are referred to as threats. Diff: 1 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 19) At a minimum, factors to assess in a SWOT analysis include elements described in A) an organization's critical success factors. B) an organization's key performance indicators (KPI). C) Porter's Five Forces. D) the balanced scorecard. Answer: C Explanation: At a minimum, factors to assess in a SWOT analysis include elements described in Porter's Five Forces. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 20) What a company does well that is helpful for its goal achievement is identified as A) strengths. B) weaknesses. C) opportunities. D) threats. Answer: A Explanation: What a company does well that helpful for goal achievement is identified as strengths. Diff: 1 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
8
21) "SMARTER" goals should be all of the following except A) relevant. B) achievable. C) universal. D) meaningful. Answer: C Explanation: Smarter goals should be relevant, achievable and meaningful, but should not be universal. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 22) ________ goals complete the circle with feedback and adjustment components, which are necessary for any good goal-setting plan. A) "BALANCED" B) "STRONG" C) "SMARTER" D) "FLEXIBLE" Answer: C Explanation: SMARTER goals complete the circle with feedback and adjustment components, which are necessary for any good goal-setting plan. Diff: 1 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 23) A performance measurement tool used to evaluate what actually happened against an organization's stated objectives which integrates an organization's vision, mission, and strategy is a A) balanced scorecard. B) SWOT analysis. C) strategic plan. D) key performance indicator. Answer: A Explanation: A performance measurement tool used to evaluate what actually happened against an organization's stated objectives which integrates an organization's vision, mission, and strategy is a balanced scorecard. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 9
24) Which of the following represents the correct four perspectives of the balanced scorecard? A) Financial, organizational capacity, customer, and internal business process perspectives B) Financial, customer, internal business process, and learning and growth perspectives C) Financial, customer, business processes, and organization capacity perspectives D) Customer, business processes, financial stewardship, and beneficiary/stakeholder perspectives Answer: B Explanation: The four perspectives of the balanced scorecard are financial, customer, internal business process, and learning and growth perspectives. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 25) Which of the following statements is true regarding the balanced scorecard? A) The balanced scorecard focuses on financial measures alone to measure the success of an organization. B) Governmental agencies and nonprofit organizations use the same four perspectives as forprofit organizations use in the balanced scorecard approach. C) The balanced scorecard is a framework for measuring organizational performance using both financial and nonfinancial measures. D) The balanced scorecard uses the five elements described in Porter's Five Forces to assess the strategies and initiatives of an organization. Answer: C Explanation: The statement regarding the balanced scorecard which is true is, "The balanced scorecard is a framework for measuring organizational performance using both financial and nonfinancial measures." Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
10
26) Which of the following is a balanced scorecard perspective for governmental agencies and nonprofit organizations? A) Customer perspective B) Organization capacity perspective C) Internal business process perspective D) Learning and growth perspective Answer: B Explanation: The organizational capacity perspective is the only balanced scorecard perspective for governmental agencies and nonprofit organizations. Diff: 2 LO: 1 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 27) Which of the following statements about cost accounting is correct? A) Cost accounting has an external focus. B) Cost accounting is very narrow in scope. C) Cost accounting helps owners and managers make decisions about their companies. D) Cost accounting cannot be tied to all functional areas of a company. Answer: C Explanation: Cost accounting helps owners and managers make decisions about their companies is a correct statement. All other statements about cost accounting are incorrect. Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Reporting & Control: Cost Accounting. 28) Who is at the heart of a multi-directional flow of financial information in the decisionmaking process? A) Management B) Accountants C) Board of directors D) Stockholders Answer: B Explanation: Accountants are at the heart of a multi-directional flow of financial information in the decision-making process. Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Reporting & Control: Financial Recordkeeping.
11
29) Which of the following statements is true regarding accounting in the management decisionmaking process? A) The format and content of internal financial reports are determined by the framework, principles, and rules of GAAP and/or IFRS. B) The scope of external financial reports and the level of detail within is kept private, as it is broader and more detailed than internal reports. C) External financial reports and records are created from the same database of financial transactions that populate the internal financial reports for decision-making purposes. D) Financial reports and records initiate the entire decision-making process for management. Answer: C Explanation: The statement which is true is, "External financial reports and records are created from the same database of financial transactions that populate the internal financial reports for decision-making purposes." Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Strategy, Planning & Performance: Decision Analysis. 30) Which financial manager is responsible for the financial reporting process, which includes creation and monitoring of the internal controls that support financial processes? A) Chief financial officer B) Treasurer C) Internal auditor D) Controller Answer: D Explanation: A Controller is the financial manager who is responsible for the financial reporting process, which includes creation and monitoring of the internal controls that support the financial process. Diff: 1 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Strategy, Planning & Performance: Cost Management.
12
31) The Chief financial officer is responsible for A) managing cash, cash equivalents, short-term investments, issuance of debt and equities, and relationships with lenders only. B) the financial reporting process, which includes creation and monitoring of the internal controls that support financial processes only. C) all processes within the finance and accounting functional areas and an important player in strategic decisions for the company. D) preparing internal and external financial reports and records. Answer: C Explanation: The Chief financial officer is responsible for all processes within the finance and accounting functional areas and an important player in strategic decisions for the company. Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Reporting & Control: Integrated Reporting. 32) The financial manager who is responsible for managing cash, cash equivalents, short-term investments, issuance of debt and equities, and relationships with lenders is the A) controller. B) treasurer. C) chief financial officer. D) auditor. Answer: B Explanation: The financial manager who is responsible for managing cash, cash equivalents, short-term investments, issuance of debt and equities, and relationships with lenders is the Treasurer. Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Reporting & Control: Integrated Reporting.
13
33) The primary difference in reporting between cost accounting and financial accounting is that A) cost accounting reports support internal management decision-making whereas financial accounting reports present financial statement information to external users and decision- makers who do not work for the company. B) cost accounting reports are externally focused whereas financial accounting reports are internally focused. C) cost accounting reports are subject to GAAP and/or IFRS whereas financial accounting reports are not. D) cost accounting reports cannot be arranged or presented in any reasonable way and cannot be modified based on manager's feedback whereas financial accounting reports can. Answer: A Explanation: The primary difference in reporting between cost accounting and financial accounting is that cost accounting reports support internal management decision-making whereas financial accounting reports present financial statement information to external users and decision-makers who do not work for the company. Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Reporting & Control: Integrated Reporting. 34) The decision-making framework for an organization consists of ________ steps. A) three B) four C) five D) six Answer: C Explanation: The decision-making process for an organization consists of five steps. Diff: 1 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
14
35) Your company has been provided with the following steps for an organization's decisionmaking framework. What is the appropriate order for the steps? 1. Calculate relevant costs and benefits for each option. 2. Implement your choice. 3. Clearly outline the problem and its related unknowns. 4. Select the option that maximizes the benefit to the organization and meets required qualitative criteria. 5. Identify suitable options and gather relevant qualitative and quantitative information, making informed assumptions as need be. A) 5, 3, 1, 2, 4 B) 3, 5, 1, 4, 2 C) 3, 1, 5, 4, 2 D) 1, 3, 5, 4, 2 Answer: B Explanation: The appropriate order of steps in the decision-making process is (1) Clearly outline the problem and its related unknowns; (2) Identify suitable options and gather relevant qualitative and quantitative information, making informed assumptions as need be. (3) Calculate relevant costs and benefits for each option; (4) Select the option that maximizes the benefit to the organization and meets required qualitative criteria; and (5) Implement your choice. Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 36) In any decision-making scenario, after implementing a chosen option the next step is to A) determine how well the decision worked and to learn from that assessment. B) move on to additional problems that needed to be resolved. C) set new goals and objectives that will require the use of the decision-making framework. D) identify the stakeholders in the decision and determine the financial impact of the chosen option. Answer: A Explanation: In any decision-making scenario, after implementing a chosen option, the next step is to determine how well the decision worked and to learn from that assessment. Diff: 1 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge.
15
37) What is the first step in the decision-making framework? A) Identify suitable options. B) Gather relevant quantitative and qualitative information regarding the decision. C) Clearly outline the problem and its related unknowns. D) Calculate relevant costs and benefits of each option. Answer: C Explanation: The first step in the decision-making framework is to clearly outline the problem and its related unknowns. Diff: 1 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Business Acumen & Operations: Operational Knowledge. 38) Which type of data analytics uses observations and patterns to detected to shape future decisions? A) Descriptive analytics B) Diagnostic analytics C) Predictive analytics D) Prescriptive analytics Answer: C Explanation: The type of data analytics that uses observations and patterns detected to shape future decisions is predictive analytics. Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Technology & Analytics: Data Analytics. 39) Prescriptive analytics A) describes what has already happened or what is currently happening and helps organizations detect patterns in data. B) involves understanding the outputs of observations and patterns and finding different ways to reach those desired outcomes. C) attempts to make sense of the observations and/or patterns detected. D) uses observations and patterns detected to shape future decisions. Answer: B Explanation: Prescriptive analytics involves understanding the outputs of observations and patterns and finding different ways to reach those desired outcomes. Diff: 2 LO: 2 Bloom: K AACSB: Analytic AICPA: FC: Measurement, Analysis, and Interpretation IMA: Technology & Analytics: Data Analytics. 16