Advanced Management Accounting
Final Test Solutions
Course Introduction
Advanced Management Accounting delves into sophisticated techniques and concepts used to support strategic decision-making and performance management within organizations. The course covers topics such as activity-based costing, strategic cost management, performance measurement systems, and budgeting approaches, emphasizing their roles in planning, control, and organizational strategy. Students will analyze real-world business cases to evaluate cost behaviors, allocate resources effectively, and implement value-driven management accounting practices. The integration of contemporary issues such as sustainability, global competition, and technological innovation is explored to equip students with skills essential for addressing complex managerial challenges in diverse business environments.
Recommended Textbook
Cost Management Measuring Monitoring and Motivating Performance 2nd Canadian Edition by
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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) (CMA)When comparing strategic planning with operational planning, which one of the following statements is most appropriate?
A)Strategic planning is performed at all levels of management
B)Operational planning results in budget data
C)Strategic planning focuses on authority and responsibility
D)Operational planning is long-range in focus
Answer: B
Q2) Analyzing the strengths and weaknesses of different alternatives includes all of the following except:
A)Recognizing and evaluating assumptions
B)Drawing a conclusion about which alternative is best overall
C)Gauging the quality of information
D)Considering different viewpoints
Answer: B
Q3) Biases:
A)Inhibit anticipating all future conditions
B)Assist in the identification of relevant information
C)Do not affect the ability to identify irrelevant information
D)Are not a problem in ethical decision-making
Answer: A
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Chapter 2: Cost Concepts, Behaviour, and Estimation
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Sample Questions
Q1) Managers should be trained in engineering to calculate an engineered cost estimate.
A)True
B)False
Answer: True
Q2) After estimating a past cost function, managers:
I. May need to update it for future changes.
II. Have all of the information they need to predict future costs III. May or may not use it to estimate future costs.
A)I only
B)II only
C)II and III only
D)I and III only
Answer: D
Q3) Steel used in the production of automobiles would generally be classified as a direct cost.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) NTQ Corporation produces and sells a single product with a price of $12 per unit and variable costs of $8 per unit. Total fixed costs per month are $8,000.
a)Calculate NTQ's contribution margin per unit.
b)How many units must NTQ sell monthly to break even?
c)If fixed costs increase by $500 per month, how many extra units must NTQ sell each month to continue breaking even?
Answer: a)$4 = $12 - $8
b)$8,000 / 4 = 2,000 per month
c)125 = $500 / $4
Q2) Sales mix reflects:
A)The weighted average contribution margin per unit
B)The average price per product when there are a variety of products
C)The number of products and each product's proportional weight within total sales
D)Total number of units produced
Answer: A
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Chapter 4: Relevant Information for Decision Making
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Sample Questions
Q1) National Motors manufactures cars and currently uses only 50% of its manufacturing facility (20,000 cars). The company could utilize more of its facility by producing its own tires. It currently purchases tires at $30 per set of four. National would incur $12 per set for direct materials, $10 for direct labour, and $24 for overhead (which is 30% variable)if it produces the tires.
a)Should National Motors make or buy the tires? Provide calculations that support your answer.
b)Suppose National Motors could rent the unused portion of its plant and receive $1,500 a month. Should the company make or buy the tires? Provide calculations that support your answer
c)List two qualitative factors that could affect this decision.
Q2) List two qualitative factors that need to be considered when making a decision about whether to accept a special order.
Q3) In multi-product firms, managers need to consider the effect on demand for other products when they make a keep or drop decision about one product.
A)True
B)False
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) Asadi Company uses a job costing system and allocates overhead using an estimated overhead allocation rate based on direct labour hours. Information for 20x5 is as follows: Estimated Actual
Manufacturing overhead $166,500 $165,000
Direct labour hours 50,000 60,000
The overhead allocated to work in process during 20x5 before the year-end adjustment was:
A)$199,800
B)$165,000
C)$166,500
D)$198,000
Q2) Which of the following costs are charged to overhead?
I. Scrap traced to individual jobs
II. Normal spoilage occurring periodically as a regular part of all jobs
III. Scrap common to all jobs
A)I only
B)II only
C)I and III only
D)II and III only
Q3) 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 information is useful for measuring and monitoring production processes.
A)True
B)False
Q2) List one pro and one con that managers should identify when they consider the trade-offs between investing in quality improvements and incurring the costs of undetected spoiled units.
Q3) Equivalent units reflect:
A)All of the units produced in a period
B)The amount of work that could have been completed if all effort had gone to complete whole units instead of partially completed units
C)Only the units that are partially complete at the end of the period
D)Only the units that are partially complete at the beginning of the period
Q4) Normal spoilage can be defined as:
A)Controllable spoilage
B)Spoilage that results from inefficient operations
C)A percentage of the units surviving inspection
D)A loss in the period in which it occurred
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8
Chapter 7: Activity-Based Costing and Management
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Sample Questions
Q1) ABC systems allow managers to focus on measurement at the activity level.
A)True
B)False
Q2) (CMA)Flagler Corporation is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be assigned to the individual product lines from the information given as follows: Wall Mirrors Specialty Windows
Units produced 25 25
Material moves per product line 5 15
Direct labour hours per unit 200 200
Budgeted materials handling costs are $50,000.
Under a costing system that assigns overhead on the basis of direct labour hours, the materials handling costs allocated to one unit of wall mirrors would be:
A)$1,000
B)$500
C)$2,000
D)$5,000
Q3) Explain why ABM might be helpful in determining environmental costs.
Q4) List the four types of quality-related activities and give one example of each.
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Chapter 8: Measuring and Assigning Support Department
Costs
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Sample Questions
Q1) Which of the following is least likely to be a reason for allocating support department costs?
A)For internal reporting purposes
B)To motivate managers
C)To assist in strategic or operating decisions
D)For financial statements prepared according to GAAP
Q2) The personnel department provides service to operating departments A and B. Personnel's budget is based on 250 employees (100 in department A and 150 in department B). The budget calls for $40,000 in fixed costs, plus $140 per employee.
During a recent month the personnel department incurred $41,000 in fixed costs and $42,200 in variable costs. The two operating departments, A and B, had 120 and 140 employees, respectively. The CEO of the company described above wants to gather information for a decision to outsource the HR function. Which of the following allocation methods would provide useful information?
A)A job costing system
B)A dual-rate support department allocation system
C)A single-rate support department allocation system
D)A process costing system
Q3) List two advantages of the dual-rate method.
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Q4) Distinguish between support department costs and manufacturing overhead costs.
Chapter 9: Joint Product and By-Product Costing
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Sample Questions
Q1) Which joint cost allocation methods are preferred because they are based on a product's ability to pay for its allocated cost?
I. Constant gross margin NRV
II. Physical output
III. Net realizable value
A)I and II only
B)I and III only
C)II and III only
D)III only
Q2) For what types of products is the physical output method appropriate? Explain.
Q3) When joint production processes include a sales mix, the sales mix should be incorporated into the allocation method.
A)True
B)False
Q4) A decision about processing a product further should not be influenced by joint cost allocation, but should be based on incremental costs and qualitative factors. Explain.
Q5) Describe the split-off point and explain its significance for joint product costing.
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Chapter 10: Static and Flexible Budgets
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Sample Questions
Q1) How are budgets related to organizational strategies?
Q2) The manufacturing overhead budget:
I. Compares revenue to overhead
II. Forecasts overhead costs per unit for cost of goods sold calculations
III. Forecasts total overhead costs
A)I and III only
B)I and II only
C)I, II, and III
D)II and III only
Q3) Budget assumptions are gathered from:
I. Last year's budgets
II. Department heads with information about next year's plans
III. Future expectations
A)I only
B)I and II only
C)I, II, and III
D)II only
Q4) Master budgets contain both operating components and financial components. List three specific budgets included in each component.
Q5) How are the master budget and flexible budget related?
Page 12
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Chapter 11: Standard Costs and Variance Analysis
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Sample Questions
Q1) Variances are usually investigated when they are:
A)Material in amount
B)Unfavourable
C)Favourable
D)Incurred, no matter how large or small they are
Q2) Pardee, Inc. completed operations for the week and the accountant was preparing to make journal entries necessary to prepare a set of interim financial statements. Unfortunately, he discovered some of the data concerning direct materials had been lost. He was able to find the following: Efficiency variance $4,500 Unfavourable
Standard price $10 per unit
Actual units purchased 9,000
Inventory decrease 1,000 units
Budget variance $900 Favourable
The standard cost of the direct materials used was:
A)$90,000
B)$95,500
C)$100,000
D)$94,000
Q3) Provide one pro and one con for building waste into cost standards.
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Page 13
Chapter 12: Strategic Investment Decisions
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Sample Questions
Q1) Cash flows to be considered in capital budgeting decisions generally fall into three major groups: initial investment, incremental operating cash flows, and terminal cash flows.
A)True
B)False
Q2) The process that managers use when they evaluate multi-year investments is called
A)Capital budgeting
B)Activity-based budgeting
C)Short-term decision making
D)Breakeven analysis
Q3) The payback method is:
I. A long-term decision-making method
II. Uses the time value of money
III. Uses accounting earnings in the calculation
A)I only
B)III only
C)I and II only
D)II only
Q4) Distinguish between NPV and IRR. Give one pro and one con for each method.
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Chapter 13: Pricing Decisions
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Sample Questions
Q1) BLG Corporation produces and sells yachts for wealthy customers. BLG's accountants produced the data shown below as a basis for client negotiations for the coming year: Big Winner Sport Star CEO
Basic yacht $ 600 $ 600 $ 600
Customization costs 300 500 200
Marketing costs 100 400 300
Total costs $1,000 $1,500 $1,100
Assume that all the preceding costs are avoidable. The company will incur an additional $800 in unavoidable costs during the coming year. BLG's managers want to achieve a profit margin of 80% based on total costs.
If unavoidable costs are allocated as a percentage of avoidable costs, the total cost of Sport Star's yacht will be:
A)$1,500
B)$2,300
C)$1,833
D)$1,167
Q2) An ideal transfer price would be the opportunity cost of internal transfers.
A)True
B)False
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15
Chapter 14: Strategic Management of Costs
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Sample Questions
Q1) Activities in the value chain are classified as value-added or non-value-added in many organizations.
A)True
B)False
Q2) Which of the following terms is typically associated with just-in-time systems?
A)Demand-push system
B)Manufacturing cells
C)Non-value-added activities
D)Linear regression
Q3) 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
Q4) Compare and contrast target costing with kaizen costing.
Q5) Target costing works best when production processes are simple, rather than complex.
A)True
B)False
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Chapter 15: Measuring and Assigning Costs for Income Statements
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Sample Questions
Q1) Throughput costing assumes that product costs other than materials tend to be fixed in the short run.
A)True
B)False
Q2) Musa Company's inventory balances for the beginning and ending of 2008, using both variable costing and absorption costing, are shown below: 12/31/08 1/1/08
Variable costing $1,200 $1,200
Absorption costing 1,420 1,260
Variable costing income for 2004 was $3,460. If absorption costing had been used, income for 2008 would be:
A)$3,420
B)$3,620
C)$3,500
D)$3,660
Q3) Throughput costing income statements help managers determine the most efficient uses of resources in the short term.
A)True B)False
Q4) Distinguish between variable costing and throughput costing.
Page 17
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Chapter 16: Performance Evaluation and Compensation
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Sample Questions
Q1) In a profit centre, managers' primary goal is to maximize revenues.
A)True
B)False
Q2) The location of decision authority in an organization depends on:
A)The size of the organization
B)Whether specific or general knowledge is most important in successful decision-making
C)Whether the organization is for-profit or not-for-profit
D)Whether the organization uses a lot of technology
Q3) For 2005, Aberdeen's return on sales was 10% and its investment turnover was 2.0. Return on investment for 2005 was:
A)5%
B)10%
C)12%
D)20%
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) The balanced scorecard may be inappropriate for:
A)Compensating employees
B)Motivating employees
C)Generating improved financial performance
D)Improving communication
Q2) Steps in the operations cycle of the value chain include:
A)Identifying customer preferences
B)Designing products and services
C)Building products and services
D)Providing customer service
Q3) Weaknesses of the balanced scorecard include all of the following except:
A)Expensive and time-consuming implementation
B)Inability to clarify vision and strategies
C)Lack of employee support
D)Doubt about links among the perspectives
Q4) Steps in the post-sales service cycle of the value chain include:
A)Identifying customer preferences
B)Designing products and services
C)Building products and services
D)Providing customer service
Page 19
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Chapter 18: Sustainability Management
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Sample Questions
Q1) How can companies reduce accusations of greenwashing?
Q2) The cost and availability of raw materials are external impacts for a manufacturer.
A)True
B)False
Q3) Internal Sustainability Reporting includes
I. Sustainability reports for shareholders
II. Support for Operating Plans
III. Support for Strategic Plans
A)I and II only
B)II and III only
C)I and III only
D)I, II, and III
Q4) Sustainable development is development that meets the needs of current generations without comprising the ability of future generations.
A)True
B)False
Q5) Describe greenwashing.
Q6) Differentiate between internal impacts and external impacts.
Q7) Describe what is meant by "building a business case" for sustainable management.
Page 20
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