Accounting for Managers Practice Questions
Course Introduction
Accounting for Managers introduces students to the essential principles and practices of accounting as they apply to decision-making in business management. The course covers the interpretation and analysis of financial statements, cost classification, budgeting, and performance evaluation, equipping managers with the tools needed to make informed financial decisions. Emphasis is placed on understanding the role of accounting information in planning, controlling, and strategic decision-making, as well as the ethical considerations managers face in using accounting data. Through real-world examples and case studies, students gain practical skills to analyze financial health and drive organizational success.
Recommended Textbook Management Accounting for Business 6th Edition by Colin Drury
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Chapter 1: Introduction to Management Accounting
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Sample Questions
Q1) You are a management accountant for the Eugene Division of Lowden Company. Your longtime friend, David Orth, is the Eugene Division manager. David was instrumental in helping you obtain your current position. Because the manager's annual bonus is based on the amount of profit the Eugene Division reports for the year, David has asked you to "massage the numbers" to make the Eugene Division appear more profitable. Considering the Standards of Ethical Conduct for Management Accountants, how would you respond to David Orth's request?
Answer: According to the Standards of Ethical Conduct for Management Accountants, management accountants have a responsibility to "perform their professional duties in accordance with relevant laws, regulations, and technical standards." Therefore, if "massaging the numbers" involves violating any laws, regulations, or technical standards, it would violate the Standards of Ethical Conduct for Management Accountants. In addition, the Standards of Ethical Conduct for Management Accountants indicate that management accountants have a responsibility to communicate information fairly and objectively and to communicate unfavorable as well as favorable information.
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Chapter 2: An Introduction to Cost Terms and Concepts
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Sample Questions
Q1) Mulholland Company manufactures various wooden furniture products. If the cost object is a product, a chair, what costs would be considered direct?
A) manufacturing supervisor's salary
B) depreciation on the factory building
C) salary of the worker that glues the legs to the seat of the chair
D) insurance on the factory
Answer: C
Q2) Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis?
A) total direct material costs
B) a consultant paid £75 per hour with a maximum fee of £1,200
C) employees who are paid £10 per hour and guaranteed a minimum weekly wage of £200
D) rent on exhibit space at a convention
Answer: D
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) In 2004, Angel's Bath and Body Shop had variable costs of £27,000, fixed costs of £18,000, and a net loss of £4,500. The annual sales volume required for Angel's to have a before-tax income of £18,000 is
A) £126,000.
B) £84,000.
C) £73,500.
D) £42,000.
Answer: A
Q2) Cost behaviour is necessary in providing cost information for A) budgeting
B) cost control
C) decision making
D) all of the above
Answer: D
Q3) A profit-volume graph
A) measures profit or loss on the horizontal axis.
B) illustrates total revenues, total cost, and profits at various sales volumes.
C) is not subject to the same limiting assumptions as cost-volume-profit graphs.
D) illustrates the relationship between volume and profits.
Answer: D
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Chapter 4: Measuring Relevant Costs and Revenues for Decision-Making
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Q1) For a cost or revenue to be relevant to a particular decision, the cost or revenue must
A) differ between the alternatives being considered
B) be a past cost
C) be a future cost
D) Both a and c above are correct.
Q2) If a cost is identical under each alternative under consideration within a given decision context, the cost is considered:
A) an alternative cost.
B) a discounted cost.
C) an irrelevant cost.
D) a procedural cost.
Q3) Relevant costs are
A) past costs.
B) future costs.
C) full costs.
D) cost drivers.
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Chapter 5: Pricing Decisions and Profitability Analysis
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Sample Questions
Q1) Refer to Figure 1 above, what amount of order-filling costs would be allocated to the large customer if these costs are allocated using an activity-based costing approach?
A) £10,000
B) £350,000
C) £28,800
D) £331,200
Q2) Which of the following markets is characterized by the following: many buyers and sellers, a homogeneous product, easy entry into and exit from the industry, and all firms are price takers?
A) perfectly competitive market
B) monopolistic competition
C) monopoly
D) oligopoly
Q3) Which of the following could be considered a segment?
A) division
B) product-line
C) sales territory
D) all of the above
Q4) Discuss the limitation of profit measurement.
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Chapter 6: Capital Investment Decisions
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Sample Questions
Q1) Refer to Figure 4. The net present value of the project using a 6 percent discount rate is
A) £40,960
B) £43,950
C) £53,160
D) £35,040
Q2) Refer to Figure 2. The net present value of the project is
A) £24,500
B) £36,411
C) £44,200
D) £46,220
Q3) Which of the following is included in calculating the weighted average cost of capital?
A) interest rate paid on borrowed money
B) average return earned by stockholders
C) taxes
D) all of the above
Q4) What types of non-quantitative factors can influence the final decision concerning approval of capital expenditures?
Q5) Describe capital investment in the advanced manufacturing environment.
Page 8
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Chapter 7: Cost Assignment
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Q1) 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
Q2) Which of the following is a reason to accumulate and separately assign costs by departments?
A) The company wants to reduce the complexity of its cost accounting system.
B) The company is comprised of multiple departments, each of which exhibit unique cost behaviour patterns.
C) The company wishes to implement an activity based costing system.
D) The company has a large amount of capital invested in human resource training.
Q3) For a labour-intensive manufacturing operation, which of the following would be the most appropriate cost driver?
A) machine hours
B) direct labour hours
C) number of employees
D) units of output
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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) Figure 1 A company usually processes 20,000 orders at a total cost of £300,000. During the year, only 16,000 orders were processed. Refer to Figure 1. What is the cost of unused activity?
A) £300,000
B) £240,000
C) £30
D) £60,000
Q3) Products might consume overhead in different proportions due to A) differences in product size.
B) differences in setup times.
C) differences in product complexity.
D) all of the above.
Q4) The overhead rates of the traditional-based approach to product costing use
A) nonunit-based cost drivers
B) unit-based cost drivers
C) process costing
D) job-order costing
Q5) Describe the unit level approach to cost behaviour analysis. Discuss the appropriateness of this approach.
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Chapter 9: The Budgeting Process
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Sample Questions
Q1) Jiggy Company plans to sell 33,000 units during the month of May. The company plans to have 2,500 units on hand at the end of the month. If 1,200 units are on hand on May 1, how many units must be produced during May?
A) 33,000
B) 35,500
C) 34,300
D) 31,800
Q2) Refer to Figure 1. How many pounds of material would Sommers need to purchase?
A) 216,000
B) 225,000
C) 207,000
D) 201,000
Q3) In the production budget, the total units to be produced is computed as
A) Expected sales - Desired ending inventory - Beginning inventory
B) Expected sales + Desired ending inventory + Beginning inventory
C) Expected sales - Desired ending inventory + Beginning inventory
D) Expected sales + Desired ending inventory - Beginning inventory
Q4) Discuss the role of budgeting in planning, control, and decision making.
Q5) Describe an activity-based budget.
Q6) Discuss the features of an ideal budgetary process.
Page 11
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Chapter 10: Management Control Systems
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Sample Questions
Q1) Which of the following is not an essential element of responsibility accounting?
A) assigning responsibility
B) establishing performance measures
C) evaluating performance
D) ridiculing poor performers
Q2) Which of the following is NOT a key feature of a budgetary system that promotes positive managerial performance?
A) frequent feedback on performance
B) a single measure of performance
C) monetary and nonmonetary incentives
D) participative budgeting
Q3) Identify and discuss the key features that a budgetary system should have to encourage managerial, goal-congruent behaviour.
Q4) _____ refers to a global incentive that encourages employees to contribute to the overall financial well-being.
A) Bonuses
B) Demotion
C) Profit sharing
D) Gain sharing
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Chapter 11: Standard Costing and Variance Analysis
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Q1) If variable overhead is applied based on direct labour hours and there is an unfavorable labour efficiency variance,
A) the materials usage variance will be unfavorable
B) the labour rate variance will be favorable
C) the variable overhead efficiency variance will be unfavorable
D) the variable overhead spending (expenditure)variance will be unfavorable
Q2) The materials price variance is calculated as
A) (Actual price - Standard price) x Actual quantity
B) (Actual price - Standard price) x Standard quantity
C) (Actual quantity - Standard quantity) x Actual price
D) (Actual quantity - Standard quantity) x Standard price
Q3) A favorable materials usage variance may be caused by
A) excessive rework
B) a special price offered by suppliers
C) use of experienced workers
D) none of the above
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?
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Chapter 12: Divisional Financial Performance Measurement
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Sample Questions
Q1) Investment centre managers would be evaluated based on A) operating income of the profit centre
B) return on investment
C) economic value added
D) all of the above
Q2) Dizzy Company's Asian Division employed capital of £250,000 last year. If the weighted average cost of capital is 15 percent and if last year's after-tax income was £50,000, then EVA for the Asian Division last year was
A) £2,500
B) £37,500
C) £12,500
D) £7,500
Q3) What is an advantage of using economic value added (EVA) in performance measurement over return on investment (ROI)?
A) It is easier to calculate.
B) It encourages investments that are profitable to the company.
C) both a and b
D) none of the above
Q4) Compare and contrast decentralization and centralization.
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Chapter 13: Transfer Pricing in Divisionalized Companies
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Sample Questions
Q1) Refer to Figure 6 above. Assume the Jones Division can sell 4,000 units at £420. Any excess capacity will be unused unless the units are purchased by the Thomas Division, which could use up to 200 units. The minimum transfer price that the Jones Division would be willing to accept would be
A) £400
B) £200
C) £420
D) £360
Q2) 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.
Q3) Discuss the advantages of decentralization in a multinational company.
Q4) Explain why it is important for the multinational company to separate the evaluation of the manager of the division from the evaluation of the division.
Q5) What is the role of transfer pricing in a decentralized firm?
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Chapter 14: Cost Management
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Sample Questions
Q1) JIT avoids shutdowns due to materials shortages in all of the following ways EXCEPT A) using total preventive maintenance
B) holding inventory
C) using total quality control to reduce defective materials
D) working with suppliers to ensure the availability of materials
Q2) For nonvalue-added activities that are unnecessary, the standard quantity is A) one.
B) zero.
C) actual quantity minus standard price.
D) actual quantity plus standard price.
Q3) A firm's warranty costs are £125,000 per year. A competitor's warranty costs are £25,000 per year. The nonvalue-added costs are A) £125,000.
B) £100,000.
C) £25,000.
D) £0.
Q4) Define activity-based management. In your answer, present the activity-based management model in good form.
Q5) Discuss cycle time (and its components) and its importance in JIT.
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Chapter 15: Strategic Performance Management
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Sample Questions
Q1) 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
Q2) Unlike tangible products, services have the characteristic of perishability. This means that services
A) may lose their value over time
B) may lose their value due to improper conservation
C) cannot be stored for future use
D) none of the above
Q3) Briefly discuss the three major categories of cost drivers and how they relate to an organization's internal value chain.
Q4) _______________ look backward at historical data.
A) Leading measures
B) Trailing measures
C) Financial measures
D) All of the above
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