Accounting Theory
Chapter Exam Questions
Course Introduction
Accounting Theory explores the fundamental principles and concepts that underpin the practice of accounting. The course examines various accounting frameworks, the development of accounting standards, and the conceptual foundations that guide accounting practices and policies. Students will analyze the objective and subjective factors influencing accounting decisions, ethical considerations, and the impact of regulatory environments. Theoretical perspectives, including positive and normative accounting theories, are discussed to provide a comprehensive understanding of the role of accounting in the broader economic and social context. This course equips students with critical thinking skills necessary to evaluate and apply accounting standards in real-world scenarios.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 8th Canadian Edition by
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Page 2
Srikant M. Datar
Chapter 1: The Accountants Vital Role in Decision Making
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Q1) 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.
Q2) Management accountants have important ethical responsibilities that are related to competence, duty of care, objectivity, and professionalism.
A)True
B)False
Answer: True
Q3) Home office changes stock option plans.
Answer: Answers: A
Q4) TQM is a method for improving quality.
A)True
B)False
Answer: True
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Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) What is the meaning of the term "cost object"? Give an example of a cost object that would be used in a manufacturing company, a merchandising company, and a service sector company?
Answer: A cost object is anything for which a measurement of costs is desired.An example of a cost object for a manufacturing company might be the cost of manufacturing a particular product.An example of a cost object for a merchandising company might be a particular department of a retail store.An example of a cost object for a service sector company might be the cost to serve or supply a particular customer.
Q2) What is the unit cost for the direct materials for 2019 assuming direct materials are for the production of 507,000 units?
A)$0.80
B)$0.95
C)$2.00
D)$1.08
E)$1.10
Answer: C
Q3) lubricants for machines
Answer: Answers: B
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) The contribution margin method of CVP analysis uses the equation: break-even units = unit contribution margin/fixed costs.
A)True
B)False
Answer: False
Q2) Which of the following formulae is correct when using the contribution margin method to determine the break-even point?
A)Revenues less operating income equal variable costs plus fixed costs.
B)Unit contribution margin times unit variable cost equals the break-even number of units.
C)Unit contribution margin times the break-even number of units equals total variable costs.
D)Selling price less unit contribution margin equals unit fixed cost for all values below or at the break-even number of units.
E)Unit contribution margin times the break-even number of units equals fixed costs.
Answer: E
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Chapter 4: Job Costing
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Q1) What is the total manufacturing cost of Job 892 using normal costing?
A)$9,900
B)$12,300
C)$12,080
D)$12,255
E)$12,075
Q2) Cost assignment includes cost allocation for indirect costs and direct costs.
A)True
B)False
Q3) What is the total manufacturing cost of Job 892 using actual costing?
A)$9,900
B)$12,300
C)$12,080
D)$12,255
E)$12,075
Q4) Cost pools are defined as groupings of individual cost items which can range from broad, company-wide categories to very narrow categories.
A)True
B)False
Q5) cost of goods sold
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Chapter 5: Activity-Based Costing and Management
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Q1) Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.
A)True
B)False
Q2) Provided a single allocation base is used, jobs are typically overcosted if
A)jobs consume proportionately less of the indirect activity but is reported to have higher cost.
B)jobs require more employees.
C)jobs consume proportionately more of the indirect activity and is reported to have higher cost.
D)jobs consume proportionately more of the indirect activity but is reported to have lower cost.
E)jobs cannot be overcosted; only products or service can be overcosted.
Q3) An ABC system results in a better measure of the nonuniformity of a company's resources by jobs, products, or services than by using broad averages to assign costs.
A)True
B)False
Q4) Explain how a top-selling product may actually result in losses for the company.
Q5) List four ways that activity-based management can be effective.
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Chapter 6: Master Budget and Responsibility Accounting
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Q1) Manufacturing overhead costs for the budget include
A)factory utility costs.
B)direct materials and supervision.
C)direct labour and direct materials.
D)sales supervisors' salaries.
E)direct labour and indirect labour.
Q2) How many chests should be budgeted to be produced in the first quarter of 2019?
A)37,000 chests
B)44,800 chests
C)41,800 chests
D)38,800 chests
E)48,400 chests
Q3) The reason for tracing a cost in responsibility accounting is to determine which of the following?
A)whether it is fixed or variable
B)who has the best knowledge about why the costs arose
C)what activity caused the costs to be incurred
D)either who has the best knowledge about why the costs arose or, what activity caused the costs to be incurred
E)whether it is production or administration
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Q1) June's direct manufacturing labour rate variance is A)neither favourable or unfavourable.
B)$62.50 favourable.
C)$128.00 unfavourable.
D)$62.50 unfavourable.
E)$128.00 favourable.
Q2) Explain the difference between a static budget and a flexible budget.Explain what is meant by a static budget variance and a flexible budget variance.
Q3) In a manufacturing area of an organization; poor product design, problems with the quality of materials, and scheduling conflicts could result in
A)a favourable materials efficiency variance.
B)a favourable labour efficiency variance.
C)a favourable materials effectiveness variance.
D)an unfavourable materials effectiveness variance.
E)an unfavourable materials efficiency variance.
Q4) The sales-volume variance of operating income is a measure of efficiency.
A)True
B)False
9
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Q1) What is the variable manufacturing overhead efficiency variance?
A)$80,000 favourable
B)$80,000 unfavourable
C)$101,200 favourable
D)$101,200 unfavourable
E)$181,200 favourable
Q2) Human capital refers to the intangible skills provided by people and is an inventoriable cost under ASPE/IFRS.
A)True
B)False
Q3) The budgeted fixed overhead rate per output unit is computed by dividing budgeted fixed overhead costs by the level of input units.
A)True
B)False
Q4) Fixed Manufacturing Overhead Variances that are not material should only be written off to Cost of Goods Sold.
A)True
B)False
Page 10
Q5) How is a budgeted fixed overhead cost rate calculated?
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Q1) The production-volume variance is
A)$2,000.
B)$900.
C)$2,400.
D)$0.
E)$1,500.
Q2) Practical capacity is based on which of the following assumptions?
A)that absorption costing is used
B)that variable costing is used
C)Production will occur at peak efficiency all the time.
D)Production will occur at peak capacity where feasible (e. g., except for maintenance downtime, repairs, holidays, etc.).
E)Production can never occur at peak capacity.
Q3) What are Western Technologies' appropriate period costs for September if variable costing is used?
A)$668,380
B)$726,500
C)$632,500
D)$687,500
E)$637,500
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Chapter 10: Analysis of Cost Behaviour
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Q1) What is the constant for the estimating cost equation?
A)$125,000
B)$225,000
C)$25,000
D)$0
E)$12,500
Q2) Supplier evaluations are an example of
A)appraisal costs.
B)prevention costs.
C)internal failure costs.
D)design costs.
E)external failure costs.
Q3) Manufacturing lead time is a combination of order receipt time and order manufacturing time.
A)True
B)False
Q4) The selection of the best measure of benefit will depend upon the corresponding change in the cost pool.
A)True
B)False
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Chapter 11: Decision Making and Relevant Information
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Q1) A cafe specializes in short order meals; and, morning and afternoon snack breaks.It is open from 9:00 am until 4:00 pm.An office manager in a nearby high rise office building offers the owner a contract to provide her 50 employees with afternoon snack breaks for $2.00 each.Each employee would receive a drink and a snack item.The shop has an hourly capacity of 50 customers.The owner estimates that the variable costs of the afternoon breaks would be $1.20 each.Currently the afternoon service, starting at 2:00, is running at only 50 percent capacity, although the morning and noon activities are near capacity.At the present level of operations each meal/snack served is allocated a fixed cost of $0.25.Required:
a.What nonfinancial factors should be considered by the owner?
b.Given your concerns listed in part a.and quantitative analysis, should the offer be accepted? Why or why not?
Q2) If Harry Inc.doesn't use one of its limited resources in the best possible way, the lost contribution to income could be called
A)an alternative cost.
B)a total alternative cost.
C)an opportunity cost.
D)a resource cost.
E)a constraining factor.
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Q1) When the firm uses the target-costing approach to pricing, the target cost per unit is the difference between the per unit target price and the per unit target
A)contribution margin.
B)operating income.
C)production costs.
D)gross margin.
E)fixed costs.
Q2) Relevant costs for pricing decisions include manufacturing costs, but not costs from other value-chain functions.
A)True
B)False
Q3) What is the target cost if target profit is 25 percent of the competitor's selling price?
A)$75
B)$90
C)$225
D)$270
E)$280
Q4) List three advantages for including unitized fixed costs for pricing decisions.
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Q1) Total factor productivity (TFP)is easy to compute for a single-product company.When dealing with a multiproduct company, one of two adjustments must be made.What are these potential adjustments?
Q2) Referring to Luke Company, which of the following is a measure of the internal business process perspective?
A)return on investment
B)market share in the high-end appliance market
C)timely delivery
D)production cycle time
E)number of employees trained in quality management
Q3) Downsizing often means eliminating jobs, which can have an adverse effect on employee morale.
A)True
B)False
Q4) What is the Luke Company's cost effect of price-recovery component?
A)$126,000 favourable
B)$126,000 unfavourable
C)$241,000 unfavourable
D)$420,000 favourable
E)$238,000 unfavourable
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Chapter 14: Period Cost Allocation
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Q1) If a single-rate cost allocation method is used, what amount of copying facility costs will be allocated to the Marketing Department? Assume actual usage is used to allocate copying costs.
A)$16,800
B)$18,000
C)$12,000
D)$9,600
Q2) When choosing between using budgeted rates, and actual rates, which of the following is TRUE?
A)Actual rates let users know in advance what their costs are.
B)When budgeted rates are used, users must wait till the end of the budget period to know what their costs are.
C)With actual rates, a support department, rather than a user department, bears the risk of unfavourable cost variances.
D)Budgeted rates based on user department estimates may lead to outsourcing needed work, rather than relying on an internal support department.
E)Budgeted rates may help the manager of a support department to improve efficiency.
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Q1) Two finished products, [A & B], are sold for $16 a unit and $24 a unit, respectively.Each product can also be sold at the splitoff point.Product A can be sold for $10 and Product B for $8.Joint costs for the two products totalled $8,000 for January for 600 units of A and 500 units of B.What are the respective joint costs assigned to each unit of products A and B if the sales value at splitoff method is used?
A)$5.92 and $8.88
B)$6.40 and $14.40
C)$6.40 and $9.10
D)$8.00 and $9.10
E)$8.00 and $6.40
Q2) Land and Sea Corporation processes frozen chicken.The company has not been pleased with its profit margin per product because it appears that the high value items have too few costs assigned to them while the low value items have too many costs assigned to them.The processing results in several products, the primary one of which is frozen small hens.Other products include frozen parts such as wings and legs, byproducts such as skin and bones, and unused scrap items.Required: What may be the cost assignment problem if a key consideration is the value of the products being sold?
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) What is the total static-budget variance in terms of the contribution margin?
A)$900,000 F
B)$700,000 F
C)$200,000 U
D)$360,000 U
E)$500,000 F
Q2) ________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received)relationships.
A)Customer profitability analysis
B)Customer revenues
C)Customer cost hierarchy
D)Price discounting
E)Customer allocation
Q3) The stand-alone revenue allocation method is a weighted-average method.
A)True
B)False
Q4) Why would businesses want to sell bundled products? What benefits, if any, are there for the consumer?
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Chapter 17: Process Costing
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Q1) What is the total amount of the work-in-process ending inventory for Department A at the end of February?
A)$ 385,970
B)$619,900
C)$ 315,571
D)$ 276,157
E)$315,571
Q2) What are the Townsend Company equivalent units for direct materials and conversion costs, respectively, for April?
A)1,350 units; 1,350 units
B)1,850 units; 1,690 units
C)1,600 units; 1,550 units
D)250 units; 200 units
E)1,600 units; 1,350 units
Q3) What is the balance in ending work-in-process inventory?
A)$82,000
B)$120,000
C)$200,000
D)$170,000
E)$174,000
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Defective jeans sold as seconds
Q2) Companies that attempt to achieve zero defects in the manufacturing process treat all spoilage as which of the following?
A)scrap
B)reworked units
C)normal spoilage
D)abnormal spoilage
E)production costs added to inventory
Q3) When rework is normal and NOT attributable to a specific job, the costs of rework are charged to manufacturing overhead and are spread, through overhead allocation, over all jobs.
A)True
B)False
Q4) There are two alternative points in time for recognizing scrap in the accounting records.What are these two points in time? Explain why a company might choose one over the other.
Q5) Complex defective products such as semiconductors
Q6) There is no cost attached to scrap.
A)True
B)False
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Chapter 19: Inventory Cost Management Strategies
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Q1) The opportunity cost of the stockout includes lost contribution margin on the sale NOT made plus any contribution margin lost on future sales due to customer ill will.
A)True
B)False
Q2) The term, supply-chain, describes the flow of goods, services and information from cradle to grave, regardless of whether those activities occur in the same organization or in other organizations.
A)True
B)False
Q3) A system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities is known as a(n)
A)economic order quantity (EOQ)system.
B)enterprise requirements planning (ERP)system.
C)just-in-time (JIT)system.
D)material requirements planning (MRP)system.
E)total quality management (TQM).
Q4) What are the principles of lean accounting? Are there any limitations? Discuss.
Q5) What are five features of a just-in-time manufacturing system?
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Chapter 20: Capital Budgeting: Methods of Investment Analysis
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Q1) If the internal rate of return is less than the hurdle rate, the net present value of the project will be negative.
A)True
B)False
Q2) Net present value can be used to examine the effects of alternative ways of increasing customer loyalty.
A)True
B)False
Q3) The net present value method can on occasion indicate erroneous decisions as it implicitly assumes that project cash flows can be reinvested at the project's rate of return.
A)True
B)False
Q4) Describe the purpose, features and benefits of a post investment audit for a capital budgeting project.
Q5) Capital Cost Allowance (CCA)is a cash flow.
A)True
B)False
Q6) Explain why the term tax shield is used in conjunction with amortization.
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Chapter 21: Transfer Pricing and Multinational Management
Control Systems
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Q1) The Mill Flow Company has two divisions.The Cutting Division prepares timber at its sawmills.The Assembly Division prepares the cut lumber into finished wood for the furniture industry.No inventories exist in either division at the beginning of the year.During the year, the Cutting Division prepared 60,000 cords of wood at a cost of $660,000.All the lumber was transferred to the Assembly Division, where additional operating costs of $6 per cord were incurred.The 60,000 cords of finished wood were sold for $2,500,000.Required:
a.Determine the operating income for each division if the transfer price from Cutting to Assembly is at cost.
b.Determine the operating income for each division if the transfer price is $9 per cord.
c.Since the Cutting Division sells all of its wood internally to the Assembly Division, does the manager care what price is selected? Why? Should the Cutting Division be a cost centre or a profit centre under the circumstances?
Q2) Full-cost transfer prices are adequate and lead to goal congruence for decisions that require knowledge of short-run variable costs.
A)True
B)False
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Chapter 22: Multinational Performance Measurement and Compensation
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Q1) The benefits of tying performance measures more closely to a manager's efforts encourage the use of A)financial measures.
B)nonfinancial measures.
C)nonfinancial and financial measures.
D)performance input measures.
E)moral measures.
Q2) A company's weighted-average cost of capital [WACC] was 9.6% last year.The company has $6,000,000 of bonds payable (its only debt)with a 9.25% coupon, and has $9,000,000 in equity capital.The tax rate is 35%.What is the company's cost of debt funding?
A)6.01%
B)6.25%
C)6.50%
D)9.25%
E)12.00%
Q3) Many common performance measures rely on internal financial and accounting information.
A)True
B)False
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