Accounting for Planning and Control Test Bank
Course Introduction
Accounting for Planning and Control focuses on the role of accounting information in managerial decision-making, particularly in the areas of budgeting, performance evaluation, and strategic planning. The course explores key concepts such as cost behavior, responsibility accounting, variance analysis, and the implementation of financial controls to ensure organizational objectives are met efficiently. Students learn how to prepare and analyze budgets, utilize both financial and non-financial performance metrics, and apply various tools to identify and address deviations from planned outcomes. Emphasizing real-world applications, the course equips students with the analytical skills necessary for effective planning and control in contemporary business environments.
Recommended Textbook
Managerial Accounting 2nd Edition by Charles E. Davis
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Page 2
Chapter 1: Accounting As a Tool for Management
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Q1) Which of the following is not a component of the IMA Statement of Ethical Professional Practice standards?
A)Reliability
B)Confidentiality
C)Integrity
D)Credibility
Answer: A
Q2) Which of the following is a not a consequence of unethical behavior?
A)It can lead to illegal activity.
B)It can lead to the destruction of the firm.
C)It can lead to inferior financial performance.
D)All of these ans choices are consequences of unethical behavior.
Answer: D
Q3) Which of the following is not a way managers use managerial accounting?
A)Provide information used in planning,evaluation and controlling functions within an organization.
B)To assure appropriate use of its resources
C)To assure accountability for its resources
D)To communicate information to stockholders
Answer: D
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Chapter 2: Cost Behavior and Cost Estimation Summary of
Questions by Objectives and Blooms Taxonomy
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Q1) An example of a committed fixed cost is when a company signs a 10-year lease on an office building.
A)True
B)False
Answer: True
Q2) The high-low method differs from the scattergraph in that the high-low method
A)Is simple to prepare and interpret whereas the scattergraph requires the use of statistical techniques.
B)Is less costly than the scattergraph method.
C)Uses a statistical technique to estimate the cost components.
D)Requires only two data points - the lowest point of activity and the highest point of activity.
Answer: D
Q3) Operating income = Sales revenue Variable cost per unit Total fixed costs.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Cost-Volume-Profit Analysis and Pricing
Decisions
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Sample Questions
Q1) As volume changes,which of the following items do \(\textbf{ not }\) change?
A)Total sales revenue
B)Total variable costs
C)Total fixed costs
D)Total contribution margin
Answer: C
Q2) Bonita Corporation produces only one product.Monthly data include: selling price per unit, $42; unit variable expenses, $14; total fixed expenses, $84,000; actual sales for the month of June, 4,000 units. What is the margin of safety?
A)$84,000
B)$42,000
C)$126,000
D)$1,000
Answer: B
Q3) The margin of safety represents the volume of sales that it takes to break even.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Product Costs and Job Order Costing
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Q1) The predetermined overhead rate is calculated as
A)Budgeted total manufacturing overhead divided by budgeted activity level of application base.
B)Budgeted total manufacturing overhead divided by actual activity level of application base.
C)Actual total manufacturing overhead divided by budgeted activity level of application base.
D)Actual total manufacturing overhead divided by actual activity level of application base.
Q2) When too much overhead cost is charged to products as they are made,the result is A)Overapplied overhead.
B)Underapplied overhead.
C)Understatement of Cost of Goods Sold.
D)Inventory cost is too low.
Q3) The cost of goods manufactured
A)Is always the same as the total direct costs.
B)Is recorded as a debit to the Cash or Accounts Receivable account.
C)Is recorded as a debit to the Finished Goods Inventory account.
D)Is also referred to as the cost of goods sold.
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Page 6
Chapter 5: Planning and Forecasting
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Q1) Both the top-down and bottom-up approaches to budgeting are linear,with budget information flowing in a single direction.
A)True
B)False
Q2) Phillip Co.manufactures decorative pillows designed for use on outdoor patios.Phillip requires that 30 percent of next month's sales be on hand at the end of each month.The following information is available regarding budgeted sales of pillows:
\[\begin{array}{|l|l|l|l|l|l|}
\hline & \text { February } & \text { March } & \text { April } & \text { May } & \text { June } \\
\hline \text { Budgeted unit sales } & 25,000 & 22,000 & 30,000 & 44,000 & 60,000 \\
\hline
\end{array}\] What is budgeted production for May?
A) 44,000
B) 48,800
C) 62,000
D) 30,800
Q3) What is budgetary slack and why is it an issue in budget preparation?
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Page 7
Chapter 6: Performance Evaluation: Variance Analysis
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Q1) Which of the following is not a factor that managers use in deciding whether to investigate a variance?
A)Materiality.
B)The existence of a trend.
C)Whether combining several accounts with large offsetting variances results in a small variance.
D)All of these ans choices are correct..
Q2) When a manager is investigating and understanding the cause of the variable overhead spending variance,he will most likely want to talk to the A)Controller.
B)Production manager.
C)Purchasing manager.
D)Design engineer.
Q3) The direct labor rate variance arises when
A)Actual wage rates differ from the standard wage rate.
B)Actual hours worked differ from budgeted hours.
C)Standard wage rates do not match last year's rates.
D)Last year's actual hours worked do not match this year's hours worked.
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8
Chapter 7: Activity-Based Costing and Activity Based Management
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Q1) A&W Manufacturing uses an activity-based costing system for its cutting department.The activity cost totals $148,000.The number of cuts is the cost driver.The cutting department processed a total of 9,000 batches with an average cuts per batch of 6 and total cuts of 46,250.What is the activity rate for the cutting department?
A) $1,500 per cut
B) $247 per cut
C) $16.45 per batch
D) $3.20 per cut
Q2) The process of using activity-based costing information to manage a business's activities,and thus its costs,is called total quality management.
A)True
B)False
Q3) The greatest use of activity-based costing information is for product costing and cost control.
A)True
B)False
Q4) What is an activity cost pool and how are activity cost pool rates calculated?
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Chapter 8: Using Accounting Information to Make Managerial Decisions
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Q1) A characteristic of irrelevant information is that
A)The information is the same among the alternatives.
B)Differences will occur in the future.
C)Differences among the alternatives must have occurred in the past and must occur in the future.
D)None of these ans choices are correct.
Q2) If a company produces its products in a constrained resource environment,the company should
A)Always produce the product with the lowest contribution margin per constrained resource.
B)Always produce the product with the highest contribution margin per constrained resource.
C)Produce a mix of products such that opportunity cost is minimized.
D)Produce a mix of products so that customer service needs and customer preferences are met.
Q3) List the two criteria information meet to be considered relevant to decision making and explain the difference between sunk cost and opportunity cost and indicate whether they can be considered relevant.
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Chapter 9: Capital Budgeting
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Q1) Woods Manufacturing is considering the purchase of a new sewing machine that costs $16,000.The machine,because of its efficiency,will save about $4,000 in cost each year.The machine is expected to have a salvage value of $3,000 and a life of 6 years.Woods' required rate of return is 12%.What is the machine's net present value?
A) $34
B) $1,966
C) $15,000
D) $24,000
Q2) Minor Company is going to invest in a new product line.Minor estimates that the net cash flows from the new line will be $25,000 per year.The initial investment required to implement the new line will be $500,000.The company requires a rate of return of 8% and the new product line is expected to span a time period of 15 years.What is the payback period for the new product line?
A) 1.6 years
B) 12.5 years
C) 20 years
D) 25 years
Q3) What are the three factors needed to determine the present value of any future amount?
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Page 11
Chapter 10: Decentralizing and Performance Evaluation
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Q1) An organizational structure in which decision-making authority for the entire organization rests in the hands of one person or a small group of people in a single location is called centralization.
A)True
B)False
Q2) A cost center manager should be evaluated by
A)Examination of actual costs against budgeted costs.
B)A review of both revenues and expenses,with a focus on operating income.
C)How well assets have been used to generate income.
D)None of these ans choices are correct.
Q3) To calculate the weighted-average cost of capital we need to know
A)The relative percentage of capital provided by each source.
B)The required rate of return.
C)Both the relative percentage of capital provided by each source and the required rate of return.
D)Neither the relative percentage of capital provided by each source nor the required rate of return.
Q4) What is the minimum acceptable transfer price for a division that has excess operating capacity?
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Chapter 11: Performance Evaluation Revisited: a Balanced Approach
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Q1) Traditionally,organizations have evaluated their performance using only financial measures.However,many other performance indicators should be considered.The balanced scorecard was developed to assist managers in measuring performance across several perspectives.
Required
a.Identify and discuss each of the perspectives used in the balanced scorecard.
b.Provide three measures of performance used in each perspective.
Q2) Which of the following is \(\textbf{ not }\) a measure that relates to the customer perspective?
A)Customer satisfaction
B)Customer loyalty index
C)Customer profitability
D)Response time to customer request
Q3) After selecting the appropriate measures,managers should
A)Set a limit on the measure.
B)Select a committee to enforce the use of the measures.
C)Set a target for each measure.
D)Select a manager to evaluate each measure.
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Chapter 12: Financial Statement Analysis
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Q1) Which of the following is the formula for calculating the percentage change in the horizontal analysis of a financial statement?
a.\(\frac{Current\;year\;account\;balance\;-\;total\;assets}{Previous\;year\;account \;balance}\)
b.\(\frac{Total\;assets\;-\;previous\;year\;account\;balance}{Previous\;year\;accou nt\;balance}\)
c.\(\frac{Current\;year\;account\;balance\;-\;previous\;year\;account\;balance}{Pr evious\;year\;account\;balance}\)
d.\(\frac{Total\;assets\;-\;previous\;year\;account\;balance}{Current\;year\;accoun t\;balance}\)
Q2) Gant Wholesale Company has $2,000 in cash,$20,000 in accounts receivable,$34,000 in inventory,and $1,600 in prepaid expenses.Liabilities totaled $120,000,with $36,000 current and $84,000 long-term.What is Gant's current ratio?
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Page 14
Chapter 13: Statement of Cash Flows
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Q1) The statement of cash flows explains the change in the Cash account balance between the beginning of the period and showing how cash was generated and spent.
A)True
B)False
Q2) Investing activities include purchases and sales of property and equipment,loans made and collected,and purchases and sales of another company's stock.
A)True
B)False
Q3) Which of the following is \(\textbf{ not }\) a source of cash?
A)Gain on sale of investment
B)Interest received on investment
C)Issuing long-term bonds
D)All of these ans choices are sources of cash
Q4) Activities that involve external funding are called financing activities.
A)True
B)False
Q5) On the cash flow statement,issuing new debt is an example of a use of cash.
A)True
B)False
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Chapter 14: Topic Focus: Process Costing
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Q1) Companies that mass-produce similar products or employ a continuous production process typically use which of the following costing systems?
A)Process
B)Job order
C)Either process or job order
D)Neither process nor job order
Q2) In a process costing system, all product costs for the period are accumulated and divided evenly over all units produced during the period.
A)True
B)False
Q3) Which of the following types of entities would probably use a process costing system?
A)Oil refiner
B)Construction company
C)Airplane manufacturer
D)CPA firm
Q4) List three goods or services likely to use a process costing system and three that are likely to use a job order costing system.
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Chapter 15: Topic Focus Variable and Absorption Costing
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Q1) The difference between absorption and variable costing is the timing difference in the expensing of variable overhead costs.
A)True
B)False
Q2) Walkers Manufacturing began its operations on January 1 of the current year. Walker produced 10,000 units during the year, sold 8,000 units at an average cost of $22 per unit, and had 2,000 units in ending inventory. Variable production cost were $14 per unit, variable selling expenses were $2 per unit, fixed overhead totaled $12,000, and fixed selling and administrative expenses totaled $30,000. Under variable costing, what was Walkers ending inventory on the balance sheet?
A) $8,000
B) $28,000
C) $30,000
D) $30,400
Q3) When production volume exceeds sales volume,net income will be higher when using absorption costing than when using variable costing.
A)True
B)False
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Chapter 16: Topic Focus Standard Costing Systems
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Q1) When using a standard costing system,the direct materials price variance is recorded at the time direct materials are purchased.
A)True
B)False
Q2) When using a standard costing system,all product costs are recorded at standard cost while the products are being made.
A)True
B)False
Q3) Wolfe Manufacturing has provided the following information related to fixed overhead.
\(\begin{array}{ll}
\text { Standard hours per unit of production } & 5 \text { hours } \\
\text { Fixed overhead rate } & \$ 12 \text { per hour } \\
\text { Budgeted units of production } & 1,500 \text { units } \\
\text { Actual fixed overhead cost } & \$ 85,000 \\
\text { Actual units of production } & 1,440
\end{array}\)
a.Calculate the fixed overhead spending variance for the period.
b.Calculate the fixed overhead volume variance for the period.
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Chapter 17: Topic Focus Customer Profitability
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Q1) If a customer \(\textbf{ cannot }\) be returned to profitability and the customer is dropped,
A)The company's overall profit will increase.
B)The company's revenue will decrease in the short-run.
C)The managers will have more resources to serve profitable customers
D)All of these ans choices are correct.
Q2) Calculations to measure customer profitability include customer net profit and customer profit margin.
A)True
B)False
Q3) Which of the following is \(\textbf{ not }\) a step in using activity-based costing to estimate customer profitability?
A)Develop activity cost pools
B)Calculate equivalent
C)Allocate selling costs to customers
D)Calculate customer profitability
Q4) Customer net profit divides customer net profit by customer revenues.
A)True B)False
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