Accounting for Business Decisions Review
Questions
Course Introduction
Accounting for Business Decisions explores the fundamental principles and techniques of accounting that are essential for effective business management. The course covers the preparation, interpretation, and analysis of key financial statements, such as balance sheets, income statements, and cash flow statements. Emphasis is placed on how accounting information aids managers in planning, controlling, and evaluating business operations, as well as making informed strategic decisions. Through real-world examples and practical exercises, students develop the ability to use accounting tools for budgeting, performance measurement, and decision-making across various business functions.
Recommended Textbook
Management Accounting for Business 6th Edition by Colin Drury
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15 Chapters
1373 Verified Questions
1373 Flashcards
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Page 2
Chapter 1: Introduction to Management Accounting
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78 Flashcards
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Sample Questions
Q1) Classify the activity of handling raw materials according to its value-chain category.
A) developing
B) designing
C) producing
D) distributing
Answer: C
Q2) Explain what is meant by confidentiality and why it is important.
Answer: Management accountants are entrusted with sensitive information about their companies and their dealings with outside firms. Confidentiality standards require that accountants honor this trust. They cannot disclose confidential information without the permission of the company, unless legally required to do so. They must monitor their subordinates to make sure that they are upholding the confidentiality standard. They may not use or appear to use confidential information acquired in their work for unethical or illegal advantage.
Q3) Describe the connection between planning, controlling, and feedback.
Answer: Planning establishes performance standards, feedback compares actual performance with planned performance, and control uses feedback to evaluate deviations from plans.
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3
Chapter 2: An Introduction to Cost Terms and Concepts
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Sample Questions
Q1) Prime product costs include
A) only factory overhead.
B) only direct labour.
C) direct labour and factory overhead.
D) direct materials and direct labour.
Answer: D
Q2) What system would a manufacturer of unique special orders or batch processes most likely use to accumulate costs?
A) process costing
B) contract costing
C) variable costing
D) job-order costing
Answer: D
Q3) Sunk costs are
A) future costs that have no benefit.
B) relevant costs that have only short-run benefits.
C) target costs.
D) cannot be avoided.
Answer: D
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Page 4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Cost-Volume-Profit analysis is subject to a number of assumptions. List five assumptions that are necessary to make cost-volume-profit analysis tractable (feasible).
Answer: The text discusses five assumptions that facilitate cost-volume-profit. These assumptions are:
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Q2) If at a given volume total costs and fixed costs are known, the variable costs per unit may be computed as follows:
A) (Total costs - Fixed costs)/Unit volume
B) (Total costs/Unit volume) - Fixed costs
C) (Total costs × Unit volume) - (Fixed costs/Unit volume)
D) Total costs - (Fixed costs/Unit volume)
Answer: A
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Chapter 4: Measuring Relevant Costs and Revenues for Decision-Making
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Sample Questions
Q1) A decision that focuses on whether a specially priced order should be accepted or rejected is a
A) special-order decision.
B) keep-or-drop a product-line decision.
C) make-or-buy decision.
D) Both a and c are correct.
Q2) Zandy Beverage Company plans to eliminate a branch that has a contribution margin of £50,000 and fixed costs of £75,000. Of the fixed costs, £55,000 cannot be eliminated. The effect of eliminating this branch on net income would be a(n)
A) decrease of £25,000
B) increase of £25,000
C) decrease of £30,000
D) increase of £30,000
Q3) Which of the following is a qualitative factor that should be considered when evaluating a make-or-buy decision?
A) the quality of the outside supplier's product
B) whether the outside supplier can provide the needed quantities
C) whether the outside supplier can provide the product WHEN it is needed
D) all of the above
Page 6
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Chapter 5: Pricing Decisions and Profitability Analysis
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Sample Questions
Q1) Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2004 when 30,000 were projected. Sales for 2005 look no better. At £100 per game, it is not a hot seller. Direct costs of the board game are £56 variable cost and £100,000 fixed. John is considering several options. Option One: Cut the price to £70 and perhaps sell 15,000 units. Option Two: Cut the price to £60, reduce material costs by £10, and cut advertising by £60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to £80 and include a £10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. What is the profit (loss) from Option Three?
A) £215,000
B) £1,200,000
C) £110,000
D) (£60,000)
Q2) Cost-based pricing has traditionally been important because:
A) cost data are available.
B) cost-based prices are defensible.
C) revenues must exceed costs if the firm is to remain in business.
D) of all of the above.
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Page 7
Chapter 6: Capital Investment Decisions
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Sample Questions
Q1) Refer to Figure 6. JD's net present value of the project is
A) £40,480
B) £48,625
C) £50,625
D) £54,450
Q2) Which of the following methods uses income instead of cash flows?
A) payback
B) accounting rate of return
C) internal rate of return
D) net present value
Q3) The time required for a project to return its investment is the A) accounting rate of return
B) interest
C) net present value
D) payback period
Q4) Describe capital investment in the advanced manufacturing environment.
Q5) Explain what a capital investment decision is and distinguish between independent and mutually exclusive capital investment decisions.
Q6) What are the steps normally undertaken in an effective capital budgeting process?
Page 8
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Chapter 7: Cost Assignment
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Sample Questions
Q1) Refer to Figure 3 above. If Ray Manufacturing used direct labour hours as the cost driver, the total cost of the proposed job would be
A) £144,000
B) £136,400
C) £112,400
D) £106,400
Q2) Examples of support departments include all of the following EXCEPT A) maintenance. B) personnel.
C) machining.
D) data processing.
Q3) Refer to Figure 1 above. What was Harrison Company's total cost to produce product XY?
A) £650,000
B) £910,000
C) £900,000
D) £890,000
Q4) Why is it important to have an accurate and reliable product costing system?
Q5) Define the terms cost objectives, cost pools, and allocation bases.
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Chapter 8: Activity-Based Costing
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Sample Questions
Q1) What is cross-subsidization and when is it most likely to occur?
Q2) Product costs can be distorted if a unit-based cost driver is used and
A) nonunit-based overhead costs are a significant proportion of total overhead
B) the consumption ratios differ between unit-based and nonunit-based input categories
C) both a and b
D) neither a nor b
Q3) An activity-based costing system uses which of the following procedures?
A) Overhead costs are traced to departments, then costs are traced to products.
B) Overhead costs are traced to activities, then costs are traced to products.
C) Overhead costs are traced directly to products.
D) All overhead costs are expensed as incurred.
Q4) If activity-based costing is used, materials handling would be classified as a A) unit-level activity.
B) batch-level activity.
C) product-level activity.
D) facility-level activity.
Q5) The most critical step in activity-based costing is identifying cost drivers. Explain this statement.
Q6) Explain how the activity resource usage model is used in assessing relevancy.
Page 10
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Chapter 9: The Budgeting Process
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Sample Questions
Q1) The production budget
A) summarizes the cost of producing units for the budget period
B) is calculated based on the sales budget and the desired ending inventory
C) specifies the required overhead
D) specifies the required direct labour hours
Q2) Activity-based budgeting is most useful when
A) output is homogeneous.
B) production processes are simple.
C) diverse products are produced.
D) volume levels are stable.
Q3) Arlo Company uses an annual cost formula for overhead of £72,000 + £1.60 for each direct labour hour worked. For the upcoming month, Arlo plans to manufacture 96,000 units. Each unit requires five minutes of direct labour. Arlo's budgeted overhead for the month is
A) £12,800
B) £18,800
C) £84,800
D) £225,600
Q4) Describe zero-based budgeting.
Q5) Explain how budgets provide a basis for performance evaluation.
Page 11
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Chapter 10: Management Control Systems
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Sample Questions
Q1) The budget most appropriate for control purposes is the
A) static budget.
B) flexible budget.
C) continuous budget.
D) incremental budget.
Q2) _____ exists when managers deliberately underestimate revenues or overestimate costs to provide flexibility
A) Realistic standards
B) Monetary incentives
C) Budgetary slack
D) Management by exception
Q3) If the static budget variance for materials is £200 F and the budgeted cost for materials is £52,000, then the actual cost of materials is
A) £52,000.
B) £52,200.
C) £51,200.
D) £51,800.
Q4) Identify and discuss the key features that a budgetary system should have to encourage managerial, goal-congruent behaviour.
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Chapter 11: Standard Costing and Variance Analysis
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Sample Questions
Q1) Refer to Figure 8. Noelle's standard fixed overhead rate is
A) £14.82
B) £14.48
C) £14.34
D) £14.00
Q2) Refer to Figure 5. Ebola's labour efficiency variance would be
A) £18,000 favorable
B) £18,000 unfavorable
C) £17,700 unfavorable
D) £17,700 favorable
Q3) Refer to Figure 3. Tuvok's actual cost per pound of materials must have been (round to the nearest cent)
A) £0.50
B) £0.55
C) £0.61
D) £5.00
Q4) Discuss the advantages and disadvantages of both ideal or currently attainable standards.
Q5) How are standards developed? What is the difference between ideal and currently attainable standards?
13
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Chapter 12: Divisional Financial Performance Measurement
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Sample Questions
Q1) Economic value added (EVA) is
A) before-tax operating income minus the total annual cost of capital
B) after-tax operating income minus the total annual cost of capital
C) after-tax operating income minus the before-tax cost of debt
D) none of the above
Q2) Refer to Figure 1. Asset turnover for the Clark Division is
A) 66.7%
B) 50.0%
C) 40.0%
D) 20.0%
Q3) Return on investment (ROI) is calculated as
A) Operating income/Average operating assets
B) (Operating income/Sales) x (Sales/Average operating assets)
C) Operating income margin x Operating asset turnover
D) all of the above
Q4) Evaluating performance using ROI encourages managers to focus on
A) income and investment
B) cost efficiency and operating asset efficiency
C) both a and b
D) neither a nor b
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Chapter 13: Transfer Pricing in Divisionalized Companies
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Sample Questions
Q1) When an outside market exists for an intermediate product that is perfectly competitive, the ideal method of transfer pricing is often:
A) market price.
B) the one that creates the highest margin to the selling unit.
C) one that is higher than what the outside market is quoting.
D) based on management accounting numbers.
Q2) The opportunity cost approach to setting a transfer price would set the maximum transfer price as
A) the opportunity cost of the firm as a whole
B) the opportunity cost of the selling division
C) the opportunity cost of the buying division
D) none of the above
Q3) _____ is when the transfer price is computed equal to a sales price received by the reseller less an appropriate markup.
A) Advance pricing agreement
B) Comparable uncontrolled price approach
C) Cost-plus approach
D) Resale price method
Q4) Discuss the advantages of decentralization in a multinational company.
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Chapter 14: Cost Management
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Sample Questions
Q1) Which of the following stages comes first?
A) Introduction
B) Growth
C) Development
D) Decline
Q2) Which of the following is NOT a detection activity?
A) inspecting products and processes
B) developing environmental performance measures
C) testing for contamination
D) operating pollution control equipment
Q3) Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time to 1 hour. Setup labour is £6 per hour. The value-added costs are
A) £72.
B) £66.
C) £12.
D) £6.
Q4) What is responsibility accounting? Compare and contrast financial-based responsibility accounting with activity-based responsibility accounting.
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Chapter 15: Strategic Performance Management
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Sample Questions
Q1) From the customer perspective, which of the following might be considered a core objective rather than a performance value?
A) decrease price
B) increase customer retention
C) improve image
D) improve product quality
Q2) Strategic-based performance measures are balanced measures. Give examples of four types of balanced measures.
Q3) Which of the following anticipates the emerging and potential needs of customers and creates new products and services to satisfy those needs?
A) the innovation process
B) the operations process
C) the postsales process
D) none of the above
Q4) Cycle time is calculated as
A) Total production time/Number of units sold
B) Total production time/Number of units produced
C) Total production time/Number of units in inventory
D) Total production time/Number of direct labour hours used
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