Management Accounting Exam Practice Tests
Course Introduction
Management Accounting focuses on the process of preparing, analyzing, and interpreting financial information for internal use by management within organizations. The course covers key concepts such as budgeting, cost behavior, cost allocation, performance evaluation, and decision-making techniques, enabling students to understand how accounting information aids in planning, controlling, and improving business operations. Emphasis is placed on delivering relevant, timely, and accurate data to support strategic and operational decisions, equipping future managers and accountants with the skills necessary to contribute effectively to the achievement of organizational goals.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 16th Edition by Srikant M. Datar
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2
Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Which of the following deals with management accounting?
A) identifying the costs of acquiring the resources of the company
B) developing budgets
C) preparing the income statement
D) preparing the statement of cash flows
Answer: B
Q2) Cost management not only helps reduce costs but also improve customer satisfaction and the quality of a firm's products.
A)True
B)False Answer: True
Q3) Staff management, such as management accountants and information technology and human-resources management, provides advice, support, and assistance to line management.
A)True
B)False Answer: True
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Exceptional Manufacturing Co. wants to classify costs for the product produced at its facility. The company produces only one product at the facility and operates continually. The cost categories are:
Product cost
Prime cost
Conversion cost
Period cost
The following costs are found in the accounting records:
a.Quality control inspection wages
b.Raw material purchases
c.Sales commissions
d.Factory depreciation
e.Assembly wages
Required:
Assign each of the above costs to the most appropriate cost categories.
Answer: Product cost includes a, b, d, e.
Prime cost includes a, b, e.
Conversion cost includes a, d, e.
Period cost includes c.
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) In CVP analysis, focusing on target net income rather than operating income
A) will increase the breakeven point
B) will decrease the breakeven point
C) will not change the breakeven point
D) will help managers construct a better capital policy
Answer: C
Q2) Which option should Patrick choose to maximize income assuming there is a 40% probability that 70 units will be sold and a 60% probability that 40 units will be sold?
A) Option 1
B) Option 2
C) Option 3
D) All options maximize income equally.
Answer: C
Q3) In multiproduct situations, when sales mix shifts toward the product with the lowest contribution margin, the operating income will be lower.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Job Costing
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Sample Questions
Q1) Explain the procedure how overhead indirect costs become a part of work-in process inventory.
Q2) A company would use multiple cost-allocation bases ________.
A) if managers believed the benefits exceeded the additional costs of that costing system
B) because there is more than one way to allocate overhead
C) because this is a simpler approach than using one cost allocation base
D) if managers believe that using multiple cost-allocation bases is the only acceptable method
Q3) When a job is complete ________.
A) actual indirect manufacturing labor is excluded from the total cost of the job
B) Finished Goods Control is debited
C) the cost of the job is transferred to Manufacturing Overhead Control
D) it is reduced from Manufacturing Overhead Control account
Q4) Cost objects may be jobs, products, or customers.
A)True
B)False
Q5) Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) ABC reveals opportunities to reduce costs on nonvalue added activities.
A)True
B)False
Q2) Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called activity based costing.
A)True
B)False
Q3) Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity?
A) $0.16
B) $0.32
C) $1.16
D) $6.25
Q4) How are cost drivers selected in activity-based costing systems?
Q5) ABC costing systems cannot be used in marketing decisions.
A)True
B)False
7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Responsibility accounting focuses on control, NOT on information and knowledge.
A)True
B)False
Q2) Which of the following is a financial budget?
A) budgeted balance sheet
B) cash receivables budget
C) production budget
D) cost of goods sold budget
Q3) Kaizen budgeting encourages dramatic improvements and substantial reduction in costs.
A)True
B)False
Q4) It is best to compare this year's performance with last year's actual performance rather than this year's budget.
A)True
B)False
Q5) The manufacturing labor budget depends on wage rates, production methods, and hiring plans.
A)True
B)False
Page 8
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain the meaning of each of those levels and provide an example of a variance at each of those levels.
Q2) The following data for the Prender Company pertain to the production of 800 urns during August.
Direct Materials (all materials purchased were used):
Standard cost: $4.80 per pound of urn.
Total actual cost: $4,480.
Standard cost allowed for units produced was $4,800.
Materials efficiency variance was $96 unfavorable.
Direct Manufacturing Labor:
Standard cost is 2 urns per hour at $19.20 per hour.
Actual cost per hour was $19.60.
Labor efficiency variance was $288 favorable.
Required:
a.What is standard direct material amount per urn?
b.What is the direct material price variance?
c.What is the total actual cost of direct manufacturing labor?
d.What is the labor price variance for direct manufacturing labor?
Q3) Describe the purpose of variance analysis.
Page 9
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) Standard costing is a costing system that allocates overhead costs on the basis of the standard overhead-cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced.
A)True
B)False
Q2) When variances are immaterial, which of the following statements is true of the journal entry to write-off the variable overhead variance accounts?
A) Cost of Goods Sold account will always be debited.
B) Unfavorable efficiency variance will be credited.
C) Favorable efficiency variance will be credited.
D) Cost of Goods Sold account will always be credited.
Q3) When distribution costs are high, managers can use standard costing to analyze variances for spending and efficiency variances.
A)True
B)False
Q4) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.
Q5) What is a standard costing system?
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) The production-volume variance only exists under variable costing and not under absorption costing.
A)True
B)False
Q2) Should a company with high fixed costs and unused capacity raise selling prices to try to fully recoup its costs?
Q3) Which of the following costs will be treated as period costs under absorption costing?
A) raw materials used in the production
B) sales commission paid on sale of product
C) depreciation on factory equipment
D) rent for factory building
Q4) Top management at Gifford manufacturing are planning capacity levels and how to assign capacity costs for an upcoming period. Which of the following factors should be considered while developing this plan so that proper control can be achieved?
A) The IRS tax implications of such decisions
B) The level of uncertainty of expected costs and demand
C) The GAAP rules requiring absorption costing
D) The requirements of SFAS 151
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) In the cumulative average-time learning model, cumulative average time per unit declines by a constant percentage each time the cumulative quantity of units produced doubles.
A)True
B)False
Q2) In estimating a cost function using quantitative analysis, the dependent variable is the factor used to predict the independent variable.
A)True
B)False
Q3) Put the following steps in order for using the high-low method of estimating a cost function:
A = Identify the cost function
B = Calculate the constant
C = Calculate the slope coefficient
D = Identify the highest and lowest observed values
A) D C A B
B) C D A B
C) A D C B
D) D C B A
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Page 12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Managers are examining a possible replacement of a machine decision and generate the following numbers:
Book value of old machine $1,00,000
Current disposal value of old machine $50,000
Loss on disposal of old machine $300,000
Cost of new machine $600,000
In performing an analysis and in attempt to answer the question, "should we replace the old machine", which of the following statements would be true
A) the book value of the old machine is relevant
B) the book value of the old machine and the current disposal value of the old machine are both relevant
C) the cost of the new machine and the current disposal value of the old machine are relevant
D) the book value of the old machine and the current disposal value of the old machine are the only relevant items
Q2) Incremental revenue is the sum of differential revenues of two alternatives.
A)True
B)False
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13
Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) The cost leadership strategy is best for a company if the engineering staff is more skilled at creatively designing new products than at making process improvements.
A)True
B)False
Q2) Davis Company produced 159,000 sport jackets during 2015 and 530,000 direct manufacturing labor-hours were used at $3 per hour. The conversion costs were $1.20 per jackets produced.
What is the total factor productivity for Davis Company?
A) 0.089 units of output per dollar
B) 0.300 units of output per dollar
C) 0.298 units of output per dollar
D) 2.500 units of output per dollar
Q3) Which of the following focuses on these five factors: competitors, potential entrants to the market, equivalent products, bargaining power of customers, and bargaining power of suppliers?
A) balanced scorecard
B) product differentiation analysis
C) industry analysis
D) business process reengineering
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) Which of the following statements is true of costs and pricing decisions?
A) Companies get profit from selling products only when they are the price makers.
B) Companies supply products as long as the price the customer is willing to pay for its products exceeds the price that is charged by the competitor.
C) Companies supply products as long as there is a demand for the product in the market regardless of the price at which the products are sold.
D) Companies supply products as long as the revenues from selling the additional units exceed the cost of producing them.
Q2) Which of the following is an example of price discrimination?
A) Larry's offers a 30% discount to buyers making repeat purchases within 30 days.
B) Enrique Corp sells different kind of goods at different prices.
C) Chang sells his wares at different prices based on the market conditions.
D) Nathan sells his ice-creams for a discount during winter season.
Q3) Two different approaches to pricing decisions are market based and cost-plus.
A)True
B)False
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) Customer-sustaining costs is the costs of activities to support individual customers, regardless of the number of units or batches of product delivered to the customer.
A)True
B)False
Q2) Additional insight can be gained by dividing the sales-volume variance into the sales-mix variance and the sales-quantity variance.
A)True
B)False
Q3) Which of the following classifications would be the most relevant for the costs incurred to process orders?
A) customer output unit-level cost
B) customer batch-level cost
C) customer-sustaining cost
D) corporate-sustaining cost
Q4) Advances in information-gathering technology make it more likely that multiple cost-pool systems will pass the cost-benefit test.
A)True
B)False
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Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Sample Questions
Q1) The step-down method allocates support department costs to only operating departments in a sequential manner.
A)True
B)False
Q2) Under which allocation method are one-way reciprocal support services recognized?
A) direct method
B) artificial cost method
C) reciprocal method
D) step-down method
Q3) When allocating the revenues between a bundled product offering, management judgement can be used in issuing revenue-allocation weights.
A)True
B)False
Q4) The stand-alone method uses the product in the bundle with the most sale and then uses this ranking to allocate bundled revenues to individual products.
A)True
B)False
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) A company produces three products from a joint production process:: A, B, and C. As a percentage of total sales value, a represents 50%, B 49.5%, and C .5%. Product C could be considered a ________.
A) primary product
B) main product
C) byproduct
D) waste product
Q2) Which of the following is not true of the joint allocation methods?
A) the sales value at the split-off method is the best measure of benefits received
B) when selling prices of all products at the split-off are unavailable, the NRV method is the best alternative
C) the constant gross-margin percentage NRV method treats the joint products as though they comprise a single product
D) when selling prices are at the split-off point are available but further processing is necessary, the NRV method is the preferred allocation method
Q3) What are the two methods to account for byproducts. Which is the more appropriate method to use and why?
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18
Chapter 17: Process Costing
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Sample Questions
Q1) Transferred-in costs are costs incurred in previous departments that are carried forward as the product's cost when it moves to a subsequent process in the production cycle.
A)True
B)False
Q2) From an accounting standpoint, favorable cost variances are debit entries, while unfavorable ones are credits.
A)True
B)False
Q3) Which of the following statements is true of conversion costs?
A) Estimating the degree of completion is usually easier for direct material costs than for conversion costs.
B) The calculation of equivalent units is relatively easy for the textile industry.
C) The conversion cost needed for a completed unit and the conversion cost in a partially completed unit can be measured accurately.
D) If conversion costs are added evenly during the assembly we can conclude that there are more than one indirect-cost category.
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) When spoiled goods have a disposal value, the net cost of the spoilage is computed by ________.
A) deducting disposal value from the costs of the spoiled goods accumulated to the inspection point
B) adding the costs to complete a saleable product to the costs accumulated to the inspection point
C) deducting the costs to complete a saleable product from the costs accumulated to the inspection point
D) adding disposal value to the costs of the good units transferred
Q2) To simplify calculations under FIFO, spoiled units are accounted for as if they were started in the current period.
A)True
B)False
Q3) Companies that attempt to achieve zero defects in the manufacturing process treat spoilage as ________.
A) scrap
B) reworked units
C) abnormal spoilage
D) indirect spoilage
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Page 20
Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Which of the following is true of a bottleneck?
A) It occurs in an operation when the work to be performed approaches or exceeds the capacity available to do it.
B) It occurs in an operation when there is excess capacity to complete the work given.
C) It is the uncertainty about when customers will order products or services.
D) It is the time taken by a manufacturing department to produce a finished product.
Q2) When manufacturing cycle increases, ________.
A) sunk costs will decrease
B) opportunity costs will increase
C) opportunity costs will decrease
D) inventory carrying costs will increase
Q3) Customer response time is the time it takes from the time a customer places an order for a product or service to the time the product or service is delivered to the customer.
A)True
B)False
Q4) What are control charts and how can inferences be drawn from them?
Q5) What are ISO 9000 and ISO 14000?
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Chapter 20: Inventory Management, Just-in-Time, and Simplified Costing Methods
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Sample Questions
Q1) If Premium Company has a safety stock of 480 units and the average daily demand is 68 units, how many days can be covered if the shipment from the supplier is delayed by 4 days?
A) 7 days
B) 4 days
C) 11 days
D) 3 days
Q2) A "push-through" system, often described as a materials requirement planning system, focuses first on the forecasted amount and timing of finished goods and then determines the demand for materials components and subassemblies at each of the prior stages of production.
A)True
B)False
Q3) Proponents of lean accounting argue that the lack of individual product cost information is irrelevant because most decisions about products are made at the product line level making value stream costs more relevant than product costs.
A)True
B)False
Q4) What are five features of a just-in-time manufacturing system?
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) The net present value method assumes that project cash flows can be reinvested at the company's ________.
A) internal rate of return
B) required rate of return
C) growth rate
D) accounting rate of return
Q2) What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?
Q3) In nominal rate of return, the inflation element is the premium above the real rate.
A)True
B)False
Q4) Post-investment audits prevent managers from overstating the expected cash inflows from projects and accepting projects they should reject.
A)True
B)False
Q5) What are the strengths and weaknesses of the accrual accounting rate-of-return (AARR) method for evaluating long-term projects?
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Page 23
Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Sample Questions
Q1) Soft Cushion Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase stuffing, a key component, from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $40 per pound for the next year. The Production Division recently increased its unit price to $58. The manager of the Production Division presented the following information - variable cost $40 and fixed cost $8 -to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 20,600 pounds of stuffing per month.
What would be the monthly operating advantage (disadvantage) of purchasing the goods internally, assuming the external supplier increased its price to $82 per pound and the Production Division is able to utilize the facilities for other operations, resulting in a monthly cash-operating savings of $34 per pound?
A) $1,689,200
B) $865,200
C) $(164,800)
D) $(206,000)
Q2) What is decentralization and what are its benefits?
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Sample Questions
Q1) Which of the following is a difference between a diagnostic control system and an interactive control system?
A) A diagnostic control system focuses on meeting expectations, while an interactive control system focuses on standards of ethical behavior.
B) A diagnostic control system focuses on standards of ethical behavior while an interactive control system focuses on meeting expectations.
C) A diagnostic control system focuses on meeting expectations, while an interactive control system focuses on organizational attention and learning on key strategic issues.
D) A diagnostic control system focuses on organizational attention and learning on key strategic issues, while an interactive control system focuses on meeting expectations.
Q2) Inflation and fluctuations in foreign-currency exchange rates affect performance measurement.
A)True
B)False
Q3) Briefly explain each of the four levels of control. Why does a company need to implement more than a diagnostic control system?
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