Accounting for Decision Making
Exam Solutions
Course Introduction
Accounting for Decision Making is designed to equip students with the essential accounting concepts and analytical tools necessary for informed managerial decision-making. The course emphasizes the use of financial and managerial accounting information in planning, controlling, and evaluating business operations. Students learn how to interpret financial statements, understand cost behavior, analyze budgeting processes, and apply relevant data to solve practical business problems. Through real-world case studies and problem-solving exercises, participants develop the skills needed to make strategic decisions that enhance organizational effectiveness and financial performance.
Recommended Textbook
Cost Management Measuring Monitoring and Motivating Performance 2nd Canadian Edition by
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18 Chapters
2553 Verified Questions
2553 Flashcards
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Page 2
Chapter 1: The Role of Ethical Accounting Information in Management Decision Making
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Sample Questions
Q1) Management decisions require monitoring over time for all of the following reasons except:
A)The economic environment may change
B)New opportunities may become available
C)To motivate employees to follow plans exactly, even if the plan results in poor performance
D)Unforeseen threats may arise
Answer: C
Q2) Uncertainties and biases can affect:
I. Organizational vision
II. Core competencies
III. Operating plans
A)I only
B)II only
C)I and III only
D)I, II, and III
Answer: C
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Chapter 2: Cost Concepts, Behaviour, and Estimation
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Sample Questions
Q1) Learning curves lead to greater productivity over time.
A)True
B)False
Answer: False
Q2) Bob and James are installing new flooring in their home. The house has 5 rooms of approximately equal size where the flooring will be replaced. Bob and James spent 3 hours removing the old flooring from the first room. If Bob and James are operating with an 85% learning curve, what is the estimated average time to remove the flooring from all 5 rooms? Note: ln(85%)/ ln(2)= -0.234.
A)2)05 hours total
B)2)05 hours per room
C)2)55 hours total
D)2)55 hours per room
Answer: B
Q3) The relevant range is defined as:
A)The period of time over which costs do not change
B)The volume of production over which the cost assumptions hold
C)The volume of production over which step-wise fixed costs increase
D)The time period in which the level of production does not change
Answer: B
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Degree of operating leverage is:
A)The contribution margin divided by profit
B)The ratio of total variable costs to total revenues
C)The volume of revenue needed to breakeven
D)Only important when the organization is very profitable
Answer: A
Q2) Log Homes on Spec (LHOS)in British Columbia makes log home kits. Currently, the company does not advertise and has a low selling price for its kits compared to competitors. Next year, the company plans to increase the selling price and begin a wide advertising campaign. Which of the following statements is true?
A)LHOS's breakeven point will be lower next year
B)LHOS's operating leverage will be higher next year if the same number of units is sold
C)LHOS's profits will be higher next year
D)LHOS's margin of safety will be lower next year
Answer: B
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Chapter 4: Relevant Information for Decision Making
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Sample Questions
Q1) Managers should discontinue a business if its contribution margin is less than the sum of:
A)Relevant fixed costs and opportunity costs
B)Relevant fixed costs and sunk costs
C)Relevant opportunity costs and sunk costs
D)Relevant opportunity costs and profits
Q2) In a special order decision, which of the following is most likely a qualitative factor that managers should consider?
A)Can we deliver without disrupting current schedules?
B)Will layoffs affect worker morale?
C)Does this order reflect our core competencies?
D)Will the decision affect future supply costs?
Q3) In general, a company should outsource if the cost to buy is:
A)Less than the sum of variable costs and fixed costs
B)Less than the relevant variable costs
C)Greater than or equal to (variable costs + relevant fixed costs - opportunity costs)
D)Less than or equal to (variable costs + relevant fixed costs - opportunity costs)
Q4) Describe the costs that are usually relevant to a make or buy decision.
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Page 6
Chapter 5: Job Costing
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Sample Questions
Q1) Critique the following statement: "Our accountants always use past job cost information to estimate the costs for future jobs. Therefore, we always know how much profit to expect on our jobs."
Q2) Direct materials are 30% of the year's manufacturing costs incurred. The beginning work-in-process is 125% of the ending work-in-process. Labour and overhead costs total $56,000 and the cost of goods manufactured is $90,000. Direct materials cost is:
A)$24,000
B)$34,000
C)$27,000
D)None of the above
Q3) To develop a cost allocation rate for overhead, normal costing uses:
A)Actual costs and the actual volume of the allocation base
B)Estimated costs and estimated volumes of the allocation base
C)Actual costs and estimated volumes of the allocation base
D)Estimated costs and actual volumes of the allocation base
Q4) Under a normal costing system, explain why the volume used to calculate the estimated allocation rate will not usually be equal to the actual volume.
Q5) Can overhead be over- or underapplied in an actual job costing system? Explain.
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Chapter 6: Process Costing
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Sample Questions
Q1) Process costing is simplified when a company uses just-in-time inventory methods.
A)True
B)False
Q2) Gholson, Inc. employs a process costing system in which direct materials are added at the beginning of the process. Direct material costs from the prior period for beginning work in process are $1,250. The current period's direct material costs total $31,500. The company began the period with 500 units, 70% complete, started 10,500 units, and finished the period with 1,000 units, 40% complete. Using a FIFO system, the direct material cost per equivalent unit is:
A)$3.00
B)$2.98
C)$3.20
D)$2.55
Q3) Explain how normal spoilage costs are treated when goods are transferred to another department in a process costing system.
Q4) Describe one factor that would affect an accountant's choice of process costing method)
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Chapter 7: Activity-Based Costing and Management
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Sample Questions
Q1) Activity-based management can be used to manage both quality and constrained resources.
A)True B)False
Q2) In an activity-based costing system, both organization-sustaining and facility-sustaining activities are assumed to be unaffected by the number of customers.
A)True B)False
Q3) The costs of designing and implementing an ABC system include employee time and training.
A)True
B)False
Q4) Which of the steps listed below normally occurs first when assigning costs in an ABC system?
A)Assign costs to activity-based pools
B)Allocate activity costs to each cost object
C)Identify activities
D)Identify the relevant cost object
Q5) Discuss the similarities and differences between ABC, GPK, and RCA.
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Chapter 8: Measuring and Assigning Support Department
Costs
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Sample Questions
Q1) When allocating support department costs, managers must identify cost pools. The choice of cost pools is:
A)Determined by generally accepted accounting principles
B)Not influenced by the allocation base
C)Influenced by the design of the accounting information system
D)Not important, because all support department costs will eventually be allocated anyway
Q2) Managers need allocation bases when they:
I. Allocate support department costs to operating departments
II. Trace direct costs to products
III. Trace direct labour to products
A)I only
B)I and II only
C)I and III only
D)I, II, and III
Q3) Typical support departments include accounting and human resources.
A)True
B)False
Q4) What should determine the choice of cost allocation method (direct, step-down, and reciprocal)discussed in this chapter?
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Chapter 9: Joint Product and By-Product Costing
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140 Flashcards
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Sample Questions
Q1) Managers should choose a joint cost allocation method to:
A)Justify dropping an unprofitable product
B)Minimize the total joint cost allocated to all products
C)Maximize the organization's overall profitability
D)Avoid giving the mistaken impression that one or more products are sold at a loss
Q2) Joint product costs:
A)Are irrelevant in deciding whether or not to produce beyond the split-off point
B)Cannot be allocated using the physical output method
C)Are not included in the costs of ending inventory
D)Require use of the alternative cost method
Q3) Costs incurred beyond the split-off point that are traceable to individual products are:
A)Joint costs
B)Common costs
C)Net realizable costs
D)Separable costs
Q4) Describe the split-off point and explain its significance for joint product costing.
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11
Chapter 10: Static and Flexible Budgets
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Sample Questions
Q1) January February March April Sales
$26,400 $23,100 $33,000 $25,000
Production in units 990 1,440 1,710 1,200
Sales are 30% cash and 70% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 30% of credit sales are collected. The remainder is collected two months after the sale. It takes 4 kilograms of direct material to produce a finished unit, and direct materials cost $5 per kilogram. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase, 50% the following month, and 10% in the second month following the purchase. Ending direct materials inventory for each month is 40% of the next month's production needs. January's beginning materials inventory is 1,080 kilograms. Suppose that both accounts receivable and accounts payable are zero at the beginning of January. The ending direct materials inventory for March is:
A)1,920 kilograms
B)6,960 kilograms
C)2,736 kilograms
D)6,120 kilograms
Q2) Kaizen budgeting is designed to improve quality and reduce cost over time.
A)True
B)False
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Page 12
Chapter 11: Standard Costs and Variance Analysis
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Sample Questions
Q1) An unfavourable price variance may occur because:
A)The price of direct materials increased
B)The price of direct materials decreased
C)The manufacturing process is more efficient
D)The manufacturing process is less efficient
Q2) Here is information about standard costs for Rusth Manufacturing:
Standard Cost per Unit
Direct materials (4 metres @ $6 per metre)$24
Direct labour (? hours @ $? per hour)?
During the current period 3,500 units were produced. Rusth purchased 12,000 metre of material at a cost of $81,000. The direct materials inventory decreased by 1,500 metres during the period. 5,000 hours were used at a cost of $41,250. The direct labour efficiency variance was $2,000 favourable and the combined price and efficiency variances for direct labour were $750 favourable.
a)Determine direct materials price and efficiency variances.
b)Determine the standard cost of direct materials for units produced.
c)Determine the direct labour price variance.
d)Determine the standard price per direct labour hour and the standard number of direct labour hours per unit.
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Page 13
Chapter 12: Strategic Investment Decisions
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Sample Questions
Q1) (Appendix 12A)Under what conditions would it be most appropriate to use the nominal method for capital budget analysis?
Q2) Disquotek, Inc., is a software manufacturer. Managers are considering a new equipment proposal. The income tax rate is 40%, and the discount rate is 10%. The following data are available: Old Equipment New Equipment
Purchase cost $12,000 $36,000
Annual amortization 1,500 4,500
Remaining useful life (years)8 8
Current selling price 14,400 not applicable
Selling price in 8 years 1,000 2,000
Annual operating costs 14,000 8,000
The after-tax cash flows from selling the old equipment are:
A)$12,000
B)$13,440
C)$12,960
D)$11,040
Q3) Write a brief paragraph to a manager discouraging use of the accrual accounting rate of return for long-term investment decisions and recommending an alternative method.
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Page 14
Chapter 13: Pricing Decisions
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Sample Questions
Q1) The Mukilteo Division of Snohomish Corp. produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: Outside sales price $640
Direct materials 105
Direct labour 250
Fixed overhead 180
If Mukilteo is operating at full capacity and selling solely to outside customers, what price should another division pay for Mukilteo's product?
A)$285
B)$625
C)$640
D)$480
Q2) The sensitivity of sales to price increases is called the price elasticity of demand.
A)True
B)False
Q3) Profit-maximizing price occurs when marginal profits equal marginal revenues.
A)True
B)False
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Chapter 14: Strategic Management of Costs
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98 Flashcards
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Sample Questions
Q1) The target costing cycle:
A)Focuses on reducing costs in the design phase of a product and manufacturing process
B)Is a cost-based pricing method
C)Is finished when the product is designed
D)Considers cost over the life cycle of the product
Q2) Target costing works best when production processes are simple, rather than complex.
A)True
B)False
Q3) Kaizen costing relies on price forecasts.
A)True
B)False
Q4) (CMA)In target costing:
A)The market price of the product is taken as a given
B)Only raw materials, labour, and variable overhead cannot exceed a threshold target
C)Both labour and manufacturing overhead are charged directly to conversion costs
D)Only raw materials cannot exceed a threshold target
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Page 16
Chapter 15: Measuring and Assigning Costs for Income Statements
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Sample Questions
Q1) Throughput contribution is computed as:
A)Sales - variable costs
B)Sales - cost of direct materials purchased
C)Number of units sold × (price per unit - material cost per unit)
D)Sales - period costs
Q2) Distinguish between variable costing and throughput costing.
Q3) Which of the following types of capacity can result in an unrealistically small fixed overhead allocation rate if used as an allocation base?
A)Normal capacity
B)Theoretical capacity
C)Budgeted capacity
D)Practical capacity
Q4) On a variable costing income statement, costs are grouped according to their behaviour.
A)True
B)False
Q5) For which of the following costing method(s)would managers calculate a fixed overhead allocation rate? Absorption costing, variable costing, and throughput costing. Explain why this is required.
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Chapter 16: Performance Evaluation and Compensation
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Sample Questions
Q1) Which type of knowledge is most costly to transfer within an organization?
A)Centralized
B)Decentralized
C)Financial
D)Specific
Q2) Teresa's Taco Co. had the following results during the most recent year: Sales
$500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The capital investment was:
A)$1,250,000
B)$75,000
C)$170,000
D)$200,000
Q3) Residual income measures a company's profits given a required rate of return. A)True
B)False
Q4) Technical details about complex manufacturing processes are examples of specific knowledge.
A)True
B)False
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Chapter 17: Strategic Performance Measurement
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Sample Questions
Q1) Stanley's Shoe Company is using the measure "number of employee suggestions". This measure is most likely associated with which of the balanced scorecard perspectives?
A)Financial
B)Customer
C)Internal business processes
D)Learning and growth
Q2) The steps and cycles in the value chain are most closely associated with which balanced scorecard perspective?
A)Financial
B)Customer
C)Internal business process
D)Learning and growth
Q3) Following are some of the steps in implementing a balanced scorecard. Which one of these steps would be performed before the others?
A)Collect and analyze scorecard data
B)Communicate and refine measures
C)Establish performance targets and action plans
D)Develop performance measures and objectives
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Page 19
Chapter 18: Sustainability Management
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Sample Questions
Q1) Which of the following is not a strategic objective from the perspective of an internal business process?
A)Improve processes for admission, treatment and discharge
B)Optimize staff scheduling
C)Support employee professional development
D)Reduce negative environmental impact
Q2) In sustainability management accounting, life cycle costing involves summing the costs of the activities involved in the design, development, production, sale, transportation, and disposal of a product or service throughout internal and external value chains.
A)True
B)False
Q3) Which of the following statements regarding material flow accounting is false?
A)It is also called input-output analysis
B)It is the process of analyzing the movement of all physical materials through an organization's operations
C)It assumes that total inputs exceed total outputs
D)It can be used to demonstrate compliance with laws and regulations
Q4) Describe what is meant by "building a business case" for sustainable management.
Q5) How can companies reduce accusations of greenwashing?
Page 20
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