Accounting for Decision Making
Textbook Exam Questions
Course Introduction
Accounting for Decision Making introduces students to the essential concepts and tools of accounting that support effective business decisions. The course emphasizes the use of both financial and managerial accounting information, focusing on analyzing and interpreting financial statements, budgeting, cost analysis, and performance evaluation. Through real-world case studies and practical exercises, students learn how to apply accounting data in planning, controlling, and making strategic decisions, equipping them with the skills needed to contribute to organizational success in various business environments.
Recommended Textbook
Cost Accounting A Managerial Emphasis 6th Canadian Edition by Charles T. Horngren
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Page 2
Chapter 1: The Accountants Vital Role in Decision Making
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Sample Questions
Q1) A profession is distinguished by certain characteristics. "An independent, neutral, objective perspective" is one of these characteristics.
A)True
B)False
Answer: True
Q2) Staff management includes
A) manufacturing managers.
B) human-resource managers.
C) purchasing managers.
D) distribution managers.
E) sales persons.
Answer: B
Q3) Discuss the cost-benefit approach guideline management accountants use to provide value in strategic decision making.
Answer: Management accountants continually face resource allocation decisions. The cost-benefit approach should be used in making these decisions. Resources should be spent if the expected benefits to the company exceed the expected costs. The expected benefits and costs may not be easy to quantify, but it is a useful approach for making resource allocation decisions.
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) What is the amount of Payton's gross profit?
A) $995,000
B) $1,000,000
C) $1,791,000
D) $796,000
E) $896,000
Answer: D
Q2) Operating income does not include interest expense and income taxes.
A)True
B)False
Answer: True
Q3) Inventoriable costs
A) include administrative and marketing costs.
B) are expensed in the accounting period in which the products are sold.
C) are particularly useful in management accounting.
D) are also referred to as nonmanufacturing costs.
E) are similar to period costs.
Answer: B
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4
Chapter 3: Cost-Volume-Profit Analysis
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Q1) CVP analysis assumes that the behaviour of total costs is non-linear.
A)True
B)False
Answer: False
Q2) What would target operating income be when fixed costs equal $6,000, unit contribution margin equals $40.00, and the number of units equals 400?
A) $6,000
B) $10,000
C) $16,000
D) $20,000
E) $60,000
Answer: B
Q3) What is the "operating income" assuming 250 people attend and option two is chosen?
A) $7,000
B) $2,900
C) $2,750
D) $4,620
E) $5,080
Answer: D
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Chapter 4: Job Costing
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Sample Questions
Q1) The objective of allocating indirect costs is to measure the underlying usage of indirect resources by jobs.
A)True
B)False
Q2) What is the total manufacturing cost of Job 787 using budget costing?
A) $17,100
B) $14,960
C) $12,800
D) $15,500
E) $14,300
Q3) What are three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method.
Q4) In the service sector,
A) direct labour costs are always easy to trace to jobs.
B) a budgeted direct labour cost rate may be used to apply direct labour to jobs.
C) normal costing may not be used.
D) overhead is always applied using an actual cost allocation rate.
E) cost of goods sold includes beginning service inventory.
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) Which of the following does not characterize an ABC system, as compared to a traditional costing system?
A) smaller cost pools
B) more cost drivers
C) more homogeneous cost pools
D) focus on activities
E) less expensive to set up and maintain
Q2) A four-part cost hierarchy includes
A) market-sustaining costs.
B) research and development costs.
C) manufacturing-level costs.
D) output unit-level costs.
E) period costs.
Q3) A product that consumes a relatively low level of resources but is reported to have a relatively high cost, may result in
A) increased market share.
B) product marketing.
C) product undercosting.
D) product overcosting.
E) product sub-optimization.
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) The process of getting a company's objectives understood and accepted by all departments and functions is known as
A) communication.
B) compilation.
C) continuity.
D) coordination.
E) administration.
Q2) What is the ending balance of accounts receivable at the end of September assuming uncollectible balance is written off in the third month after the sale?
A) $199,000
B) $97,000
C) $89,800
D) $93,000
E) $88,000
Q3) Describe operating and financial budgets and give at least two examples of each discussed in the textbook.
Q4) Budgeted financial statements are also referred to as pro forma statements.
A)True
B)False
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) The direct-labour efficiency variance for the month of January is
A) $630 unfavourable.
B) $560 unfavourable.
C) $630 favourable.
D) $560 favourable.
E) $70 favourable.
Q2) What is the price variance of the direct manufacturing labour, and the direct marketing labour, respectively?
A) $4,750 favourable; $12,500 favourable
B) $8,000 favourable; $10,000 favourable
C) $3,500 unfavourable; $6,750 unfavourable
D) 3,500 favourable; $6,750 favourable
E) $4,750 unfavourable; $12,500 unfavourable
Q3) A cost of a given activity decreases over continuous time periods. This is considered to be a continuous improvement variable cost.
A)True
B)False
Q4) Describe the purpose of variance analysis.
Q5) What is benchmarking, and how is it useful to a company?
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) Delivering value to the customer requires executing activities important to the value proposition. Many of the activities cannot be evaluated by financial measures of performance. List five non-financial measures of performance applicable to the hospitality industry.
Q2) Both financial and nonfinancial performance measures are key inputs when evaluating the performance of managers.
A)True
B)False
Q3) Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily add value
A) for the current shareholders.
B) for the customer using the products or services.
C) for plant employees.
D) for major suppliers of component parts.
E) for management.
Q4) Fixed overhead costs are a lump sum that does not change in total despite changes in the cost driver.
A)True
B)False
Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) In absorption costing, all nonmanufacturing costs are subtracted from gross margin. A)True
B)False
Q2) Both theoretical and practical capacity measure capacity in terms of demand for the output.
A)True
B)False
Q3) Advanced Lighting's total variable costs are $102 and total manufacturing costs are $98. Standard variable marketing/administrative costs constitute 20 percent of the total variable costs. Respectively, what are Advanced Lighting's standard variable manufacturing costs and standard fixed manufacturing costs?
A) $77.60 and $81.60
B) $78.40 and $98.00
C) $81.60 and $16.40
D) $81.60 and $77.60
E) $78.40 and $16.40
Q4) Should a company with high fixed costs and unused capacity raise selling prices to try to fully recoup its costs?
11
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Chapter 10: Quantitative Analyses of Cost Functions
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Sample Questions
Q1) Which cost estimation method would be described as a formal method to fit linear cost functions to past data observations?
A) the account analysis method
B) the conference method
C) the industrial-engineering method
D) the quantitative analysis method
E) the departmental analysis method
Q2) What would be their estimated cost per unit if Raymaster expects to sell 2,000 units next year?
A) $300
B) $312
C) $370
D) $498
E) $500
Q3) What is the constant for the estimating cost equation?
A) $2,080
B) $2,960
C) $3,970
D) $4,000
E) $8,000
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Chapter 11: Decision Making and Relevant Information
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Q1) Anticipated future costs that differ with alternative courses of action are known as relevant costs.
A)True
B)False
Q2) For short-term pricing decisions, what costs are relevant when there is available surplus capacity? When there is no available surplus capacity?
Q3) When replacing an old machine with a new machine, the purchase price of the old machine is a relevant cost.
A)True
B)False
Q4) Based on the above information only, should Day Star make or buy the product or rent its facilities out?
A) buy
B) make
C) either make or buy - indifferent
D) rent the facilities to the subsidiary
E) either make or rent - indifferent
Q5) Explain why sunk costs are not considered relevant when choosing among alternatives.
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) Locked-in costs are costs that have been incurred.
A)True
B)False
Q2) Decisions on the price to bid on a one-time-only special order should include
A) only cost data.
B) only the potential bids of competitors.
C) existing fixed manufacturing overhead.
D) cost data, and the use of variable costing income statements.
E) cost data and potential bids of competitors.
Q3) What is the Satellite Inc. life cycle budgeted revenue?
A) $500,000
B) $560,000
C) $1,620,000
D) $1,680,000
E) $1,500,000
Q4) The "plus" relates to the percentage target return on investment in cost-plus pricing.
A)True
B)False
Q5) What is the primary reason a firm would adopt target costing?
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Q1) ________ is an organization's ability to offer products or services that are perceived by its customers as being superior and unique relative to those of its competitors.
A) Strategy
B) Product differentiation
C) Cost leadership
D) The balanced scorecard
E) Cost differentiation
Q2) To achieve a cost leadership strategy companies may need to improve their internal production processes to increase yield.
A)True
B)False
Q3) The average number of student credit hours taught per faculty member is an example of
A) an expected performance measure.
B) a budgeted productivity measure.
C) a standard productivity measure.
D) a partial productivity measure.
E) a total factor productivity measure.
Q4) What are the four key perspectives in the balanced scorecard?
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Chapter 14: Period Cost Allocation
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Q1) What is the Capping Department's total cost if both service departments are allocated using the complete reciprocated cost method and their costs for the year were $375,000 for Plant Maintenance and $100,000 for Data Processing?
A) $412,766
B) $321,898
C) $196,898
D) $191,053
E) $184,132
Q2) Which of the following does NOT apply to support departments?
A) A support department is not an operating department.
B) Support departments create special accounting problems when they provide reciprocal support to each other.
C) An example of a support department would be a personnel department.
D) To obtain accurate product costs requires the inclusion of support department costs.
E) Direct support costs are always traced, indirect support department costs are allocated.
Q3) Should a company allocate its corporate costs to divisions?
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Q1) A byproduct is one or more products of a joint production process that have low total sales value compared to the total sales value of the main product or joint products.
A)True
B)False
Q2) What are the approximate joint costs assigned to the paper ending inventory if joint costs are allocated using the sales value at split off method?
A) $14.29
B) $50.00
C) $428.55
D) $435.00
E) $750.00
Q3) A byproduct has a minimal sales value.
A)True
B)False
Q4) Recognition of byproducts in the financial statements at the time of sale usually occurs when the dollar amounts of the byproducts are immaterial.
A)True
B)False
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) If the market-size variance is $650 F, the sales-mix variance is $500 F, the flexible budget variance is $9,250 F, and the static budget variance is $8,000 U, which of the following is true?
A) The market share variance is $18,400 U.
B) The sales volume variance is $17,250 F.
C) The sales-quantity variance is $18,400 U.
D) The sales volume variance is $17,750 U.
E) The market share variance is $17,250 U.
Q2) What is the market-share variance?
A) $1,000 F
B) $1,100 F
C) $500 U
D) $1,500 U
E) $1,000 U
Q3) What is the STP total flexible-budget variance for revenues?
A) $50 favourable
B) $50 unfavourable
C) $900 favourable
D) $800 favourable
E) $250 unfavourable
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Chapter 17: Process Costing
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Q1) Universal Industries operates a division in Brazil, a country with very high inflation rates. Traditionally, the company has used the same costing techniques in all countries so as to facilitate reporting to corporate headquarters. However, the financial accounting reports from Brazil never seem to match the actual unit results of the division. Management has studied the problem and it appears that beginning inventories may be the cause of the unmatched information. The reason is that the inventories have a different financial base because of the severe inflation.
Required: How can process costing assist in addressing the problem facing Universal Industries?
Q2) Standard costing is not possible in a firm that uses process costing.
A)True
B)False
Q3) What is the conversion cost per equivalent unit in April?
A) $1,250.00
B) $900.00
C) $575.00
D) $581.25
E) $1,241.94
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) What is the direct material cost assigned to good units completed when spoilage units are recognized?
A) $150,000
B) $120,000
C) $112,500
D) $90,000
E) $77,000
Q2) One of the major aspects of accounting for scrap is inventory costing, which includes when and how scrap affects operating income.
A)True
B)False
Q3) The costs from Abnormal Spoilage should appear
A) on the balance sheet as part of finished goods inventory.
B) as a separate inventory item.
C) as a detailed item on the income statement.
D) as part of cost of goods manufactured.
E) either on the balance sheet as part of finished goods inventory, or as a separate inventory item.
Q4) What are the objectives in accounting for spoilage?
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Q1) Which of the following are not nonfinancial measures for evaluating customer satisfaction?
A) total sales per customer
B) customer response time
C) number of customer complaints per month
D) ratio of defective units to good units shipped to customers
E) timeliness of delivery
Q2) Producing more non-bottleneck output increases throughput contribution.
A)True
B)False
Q3) To complete the first setup on a new machine took an employee 200 minutes. Using an 80% cumulative average-time learning curve indicates that the second setup on the new machine is expected to take
A) 160 minutes.
B) 120 minutes.
C) 80 minutes.
D) 60 minutes.
E) 128 minutes.
Q4) What is the net change in the budget of prevention costs if the procedures are automated?
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Chapter 20: Inventory Cost Management Strategies
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Q1) Which of the following factor(s) would not cause a reduction in the EOQ?
A) long-run purchasing arrangements, fixing price and quality
B) electronic commerce
C) increasing use of purchase order cards
D) labour-intensive procurement methods
E) increase in carrying cost [C]
Q2) The management accountant must design performance measures to evaluate and control JIT production. One of the dominant sources of information that the management accountant might use for this would be the personal observations of production line workers and team leaders. Another dominant source of information would be
A) inventory turnover ratio.
B) nonfinancial measures of time, inventory and quality.
C) material cost variances.
D) number of units sent to scrap / total scrap costs.
E) total setup time for machines / total number of units started and completed.
Q3) Carrying costs arise when a customer demands a unit of product and that unit is not readily available.
A)True
B)False
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Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Q1) Wagner Ltd. is considering investing in a new piece of equipment for its factory. It estimates that annual cash flows would be $17,000 and the equipment would last for 8 years. The company's required rate of return is 12%. What is the most that the company should be willing to invest in this equipment? (Ignore income taxes.)
A) $84,450
B) $136,000
C) $61,280
D) $128,115
E) $94,580
Q2) The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate.
A)True
B)False
Q3) The rate of return is the ratio of net future cash flows to the investment outflow.
A)True
B)False
Q4) Briefly describe the processes in the Capital Budgeting Decision Process Model.
Page 23
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Chapter 22: Capital Budgeting: a Closer Look
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Q1) Discounted cash flow analysis can be applied in a non-profit organization.
A)True
B)False
Q2) Explain why the term tax shield is used in conjunction with amortization.
Q3) A new machine will cost $500,000. It is in a CCA class pool that uses a declining balance rate of 30%. The company's tax rate is 40% and it requires a 15% rate of return on investments. Calculate the cash savings from the tax shield the first year assuming the savings occur at year end.
A) $126,998.42
B) $78,214.34
C) $132,445.53
D) $119,765.22
E) $26,086.96
Q4) The nominal rate of return would be .38 if
A) the real rate was .20, and the inflation rate was .18.
B) the real rate was .18, and the inflation rate was .20.
C) the real rate was .20, and the inflation rate was .15.
D) the real rate was .20, and the required rate was .15.
E) the real rate was .18 and the inflation rate was .15.
Q5) How is inflation related to capital budgeting? Discuss.
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Q1) If the Assembly Division sells 1,000 air conditioners at a price of $750.00 per air conditioner to customers, what is the operating income of both divisions together?
A) $200,500
B) $207,000
C) $194,000
D) $165,750
E) $230,500
Q2) Explain what transfer prices are, and what are the four criteria used to evaluate them?
Q3) All of the following are benefits of decentralization EXCEPT
A) it creates greater responsiveness to local needs.
B) it decreases management and worker morale.
C) it leads to quicker decision making.
D) it sharpens the focus of managers.
E) it leads to better supplier relationships.
Q4) Suboptimal decision making is also called congruent decision making.
A)True
B)False
Q5) What is the purpose of the internal control system within an organization?
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Chapter 24: Multinational Performance Measurement and Compensation
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Q1) If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to
A) restate the results of operations using the cash basis method of accounting.
B) use GAAP for all reporting and calculations.
C) restate the results of all operations in dollars.
D) identify the rate of inflation in the most inflationary division and restate the other divisions' results using that rate.
E) do nothing, the ROIs are comparable without adjustments.
Q2) What are Wheels's and Assembly's residual incomes based on current values, respectively?
A) $70,000; $28,500
B) $94,000; $28,500
C) $94,000; $70,000
D) $28,500; $94,000
E) $61,800; $70,000
Q3) Briefly explain each of the four levers of control. Why does a company need to implement more than a diagnostic control system?
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