Introduction to Accounting Exam Materials
Course Introduction
Introduction to Accounting provides students with a foundational understanding of the principles and practices of financial accounting. The course covers key topics such as the accounting cycle, recording financial transactions, preparation of financial statements, and the use of accounting information for decision-making. Emphasis is placed on understanding the structure and purpose of balance sheets, income statements, and cash flow statements, as well as the ethical and regulatory framework governing accounting practices. By the end of the course, students will have developed the necessary skills to analyze and interpret financial data, which are essential for further study in business and finance.
Recommended Textbook
Management Accounting for Business 6th Edition by Colin Drury
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15 Chapters
1373 Verified Questions
1373 Flashcards
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Page 2
Chapter 1: Introduction to Management Accounting
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78 Flashcards
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Sample Questions
Q1) Setting the selling price of a company's product is an example of A) planning.
B) control.
C) decision making.
D) all of the above.
Answer: C
Q2) What is the role of management accounting information in strategic cost management?
Answer: Firms generally choose a strategy of cost leadership and product differentiation. Cost leadership involves providing better value to customers at a lower cost than its competitors. Through activity-based costing, product costs are more accurate by first tracing costs to activities and then to products and customers. Process value analysis tries to determine the nature of activities, monitors the costs of the activities to more efficiently perform the activities that add value to the product, and eliminates the activities that do not add value. Management accounting information plays a key role in strategic cost management. This information is used to accumulate and monitor costs to achieve cost leadership. Product differentiation needs management accounting information to determine whether the cost of added value to the customer exceeds the firm's cost to provide the differentiation.
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Chapter 2: An Introduction to Cost Terms and Concepts
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Sample Questions
Q1) Which of the following costs would be included as part of factory overhead?
A) depreciation of plant equipment
B) paint used for product finish
C) depreciation on the corporation's office building
D) paper used in the production of books
Answer: A
Q2) Whether a cost is fixed or variable depends on the time horizon. In the long run, all costs are
A) fixed
B) variable
C) mixed
D) step
Answer: B
Q3) All of the following are product costs EXCEPT
A) direct materials
B) direct labour
C) manufacturing overhead
D) selling and administrative costs
E) none of the above
Answer: D
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Explain the limitation of basic cost-volume-profit analysis as it relates to an organization's sales mix.
Answer: Sales mix refers to the relative portion of unit or pound sales that are derived from each product. One of the limiting assumptions of the basic cost-volume-profit model is that the analysis is for a single product or the sales mix is constant. When the sales mix is constant, managers of multiple-product organizations can use the average unit contribution margin, or the average contribution margin ratio, to determine the break-even point or sales volume required for a desired profit. Often, however, management is interested in the effect of a change in the sales mix rather than a change in sales volume at a constant mix.
Q2) Total contribution margin is calculated by subtracting
A) cost of goods sold from total revenues.
B) fixed costs from total revenues.
C) total manufacturing costs from total revenues.
D) total variable costs from total revenues.
Answer: D
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Chapter 4: Measuring Relevant Costs and Revenues for Decision-Making
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82 Flashcards
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Sample Questions
Q1) An important qualitative factor to consider regarding a special order is the A) variable costs associated with the special order.
B) avoidable fixed costs associated with the special order.
C) effect the sale of special-order units will have on the sale of regularly priced units.
D) incremental revenue from the special order.
Q2) Which of the following BEST describes relevant costs?
A) present costs with similar decision alternatives
B) future costs that differ between competing decision alternatives
C) past costs that correspond solely on competing decision alternatives
D) present costs that differ between competing decision alternatives
Q3) Which item is not an example of a sunk cost?
A) materials needed for production
B) purchase cost of machinery
C) depreciation
D) All are sunk costs.
Q4) What is a sunk cost? Under what circumstances are sunk costs relevant to a decision? Construct an example of a sunk cost. Briefly discuss why you think financial reports for investors and managerial reports for mangers may or may not differ in their treatment of sunk costs.
Page 6
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Chapter 5: Pricing Decisions and Profitability Analysis
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Sample Questions
Q1) World-class organizations operating in competitive markets are more likely to take which one of the following approaches toward pricing?
A) Begin with cost data as given and determine price by adding a reasonable mark-up.
B) Determine price based on the amount management believes customers are willing to pay.
C) Employ a cost-based approach to pricing.
D) Determine the price that keeps the facilities fully utilized.
Q2) Which of the following is a FALSE statement about target costing?
A) Target costing is a method of determining the cost of a product or service based on the price that customers are willing to pay.
B) The cost is calculated by subtracting the desired profit from the target price.
C) Target costing is an interactive process.
D) Target costing is cost driven.
Q3) Discuss the limitation of profit measurement.
Q4) Provide a short critique of cost-based pricing. What are the four major drawbacks to this pricing approach?
Q5) List some of the pros and cons of target costing.
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Page 7
Chapter 6: Capital Investment Decisions
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Sample Questions
Q1) Why do the NPV method and the IRR method sometimes produce different rankings of mutually exclusive investment projects?
A) The NPV method does not assume reinvestment of cash flows, while the IRR method assumes the cash flows will be reinvested at the internal rate of return.
B) The NPV method assumes a reinvestment rate equal to the discount rate, while the IRR method assumes a reinvestment rate equal to the internal rate of return.
C) The IRR method does not assume reinvestment of the cash flows, while the NPV method assumes the reinvestment rate is equal to the discount rate.
D) The NPV method assumes a reinvestment rate equal to the bank loan interest rate, while the IRR method assumes a reinvestment rate equal to the discount rate.
Q2) The internal rate of return model assumes that all net cash inflows are reinvested at the:
A) project's internal rate of return
B) discount rate
C) prime rate
D) none of the above
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Chapter 7: Cost Assignment
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Sample Questions
Q1) The optimal level in the trade-off between measurement and error costs is when
A) measurement costs are greater than error costs.
B) measurement costs are less than error costs.
C) measurement costs equal error costs.
D) the total of measurement costs and error costs are maximized.
Q2) Which of the following would be the most appropriate base for allocating the costs of the maintenance department?
A) machine hours
B) direct labour hours
C) number of employees
D) square feet
Q3) Define the terms cost objectives, cost pools, and allocation bases.
Q4) Service departments:
A) are responsible for manufacturing the products sold to customers.
B) work directly on the firm's products.
C) provide services directly to customers.
D) provide support services to the producing departments.
Q5) Explain the differences between direct assignment, driver assignments, and cost allocations.
Q6) Why is it important to have an accurate and reliable product costing system?
Page 9
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Chapter 8: Activity-Based Costing
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108 Flashcards
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Sample Questions
Q1) If activity-based costing is used, insurance on the plant would be classified as a A) unit-level activity.
B) batch-level activity.
C) product-level activity.
D) facility-level activity.
Q2) In a pure activity-based cost system, which of the following might be treated as period costs?
A) facility-level costs
B) product-level costs
C) batch-level costs
D) unit-level costs
Q3) Refer to Figure 4. If Wheat Manufacturing used activity-based cost drivers to assign overhead and the company's bid is full cost plus 15 percent, the company's bid would be
A) £12,696.00
B) £13,965.60
C) £10,120.00
D) £9,936.00
Q4) Explain how the activity resource usage model is used in assessing relevancy.
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Chapter 9: The Budgeting Process
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Sample Questions
Q1) Gerald Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2. Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two months. Based on this information, the number of units of A1 that needs to be purchased by Gerald during the first month is
A) 9,500 units.
B) 10,000 units.
C) 1,000 units.
D) 10,500 units.
Q2) Refer to Figure 1. According to Sommers' production budget, how many units should be produced?
A) 54,000
B) 46,000
C) 62,000
D) 38,000
Q3) Discuss the role of budgeting in planning, control, and decision making.
Q4) Discuss the features of an ideal budgetary process.
Q5) In what ways does a department orientation hinder traditional budgeting?
Page 11
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Chapter 10: Management Control Systems
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Sample Questions
Q1) Which of the following facets of a responsibility accounting system is most likely to lead employees to distrust the entire budgeting and performance evaluation system?
A) tight standards
B) well-defined standards
C) budget participation
D) static qualifiers
Q2) If production was budgeted at 400 units and the actual production was 420 units, what would be the flexible budget variance for materials if the actual cost of materials was £4,150 and the budgeted cost per unit is £10?
A) £50 F
B) £200 U
C) £100 F
D) £150 U
Q3) Myopic behaviour occurs when
A) actions improve budgetary performance in the short-run but are harmful in the long run.
B) there is uncertainty.
C) there is focus on immediate costs.
D) actions improve budgetary performance in the distant time horizon.
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Page 12
Chapter 11: Standard Costing and Variance Analysis
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Sample Questions
Q1) Refer to Figure 6. The standard rate for total overhead is
A) £14
B) £13
C) £10
D) £4
Q2) Refer to Figure 7. Orient's materials price variance would be
A) £22,000 unfavorable
B) £18,000 unfavorable
C) £6,000 unfavorable
D) £4,000 unfavorable
Q3) Refer to Figure 8. Noelle's fixed overhead spending (expenditure) variance would be
A) £10,000 unfavorable
B) £11,000 unfavorable
C) £21,000 favorable
D) £31,000 favorable
Q4) How are standards developed? What is the difference between ideal and currently attainable standards?
Q5) Discuss the advantages and disadvantages of both ideal or currently attainable standards.
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Chapter 12: Divisional Financial Performance Measurement
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Sample Questions
Q1) What problems do owners face in encouraging goal congruence of managers? What is a stock option? How can stock options encourage goal congruence?
Q2) Explain why an organization should not use only financial measures to monitor performance.
Q3) Return on investment can be broken into two components:
A) profit margin and asset turnover
B) contribution margin and asset turnover
C) segment margin and asset turnover
D) profit margin and inventory turnover
Q4) Decentralization occurs when
A) the firm's operations are located over a large geographic area to reduce risk
B) authority for important decisions is delegated to lower segments of the organization
C) important decisions are made at the upper levels and the lower levels of the organization are responsible for implementing the decisions
D) None of the above are correct.
Q5) Discuss the differences between centralized and decentralized decision making. Why would a firm decentralize its operations?
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14
Chapter 13: Transfer Pricing in Divisionalized Companies
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Sample Questions
Q1) The objective of a transfer pricing system should be
A) to maximize the transfer price
B) to minimize the transfer price
C) to maintain goal congruence between the divisions and the entire firm
D) none of the above
Q2) Refer to Figure 2. Assume the Fahl Division can sell all that it produces for £100 each.
The Melton Division needs 100 units. What is the correct transfer price?
A) £120
B) £110
C) £100
D) £60
Q3) 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.
Q4) Discuss the advantages of decentralization in a multinational company.
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) Which of the following is NOT a detection activity?
A) inspecting products and processes
B) developing environmental performance measures
C) testing for contamination
D) operating pollution control equipment
Q2) How can JIT avoid shutdowns?
A) increase in defective inventory
B) increase in the number of workers
C) preventive maintenance
D) short-term contracts with suppliers
Q3) Which of the following focuses on the relationship of activity inputs to activity outputs?
A) activity reduction
B) quality
C) time
D) efficiency
Q4) Describe activity-based performance measurement.
Q5) What is responsibility accounting? Compare and contrast financial-based responsibility accounting with activity-based responsibility accounting.
Page 16
Q6) What is kaizen costing? How does activity analysis help reduce costs?
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Chapter 15: Strategic Performance Management
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Sample Questions
Q1) _____ is the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage.
A) Strategic decision making
B) Strategic cost management
C) Competitive advantage
D) Customer value
Q2) Delivery performance can be improved by
A) decreasing cycle time.
B) increasing cycle time.
C) decreasing velocity.
D) increasing turnover.
Q3) The five key core objectives of the customer perspective of the Balanced Scorecard do NOT include which of the following?
A) increase market share
B) increase customer satisfaction
C) increase customer retention
D) increase customer contact
Q4) Strategic-based performance measures are balanced measures. Give examples of four types of balanced measures.
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