Management Accounting Exam Preparation Guide
Course Introduction
Management Accounting is an essential course that explores the use of accounting information in managerial decision-making processes within organizations. The course covers key topics such as cost behavior, budgeting, performance evaluation, variance analysis, and the strategic application of financial and non-financial data. Students will learn how management accounting supports planning, controlling, and decision-making activities, enabling managers to formulate strategies, allocate resources efficiently, and achieve organizational objectives. Practical case studies and real-world examples are emphasized to enhance analytical skills and understanding of how management accounting tools drive business success.
Recommended Textbook Managerial Accounting 2nd Edition by
Charles E. Davis
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17 Chapters
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Page 2
Chapter 1: Accounting As a Tool for Management
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Sample Questions
Q1) Which of the following might be measures of performance for a balanced scorecard?
A)Stock price
B)Sales revenue
C)Customer satisfaction
D)All of these ans choices are correct
Answer: D
Q2) Which of the following is not a duty of a management accountant under the IMA Statement of Ethical Professional Practice's confidentiality standard?
A)Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
B)Keep information confidential except when disclosure is authorized or legally required.
C)Inform all relevant parties regarding appropriate use of confidential information.Monitor subordinates' activities to ensure compliance.
D)Refrain from using confidential information for unethical or illegal advantage.
Answer: A
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Chapter 2: Cost Behavior and Cost Estimation Summary of
Questions by Objectives and Blooms Taxonomy
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Sample Questions
Q1) Suppose your cell phone company offers a plan under which you buy time per minute.A one-minute call costs you $0.10.If you talk 100 minutes it costs you $10.This is an example of a
A)Variable cost
B)Mixed cost.
C)Fixed cost.
D)Step cost.
Answer: A
Q2) A traditional GAAP income statement does not help managers predict the financial results of their decisions because the format of the statement is based on cost function rather than cost behavior.Which of the following is not classified as a cost behavior?
A)Product
B)Fixed
C)Variable
D)All of these ans choices are classified as cost behaviors.
Answer: A
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Page 4
Chapter 3: Cost-Volume-Profit Analysis and Pricing
Decisions
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Sample Questions
Q1) Assume total fixed costs of $160,000,variable costs per unit of $6, and contribution margin per unit of $4. How many units must be sold to meet a target net income of $50,000, assuming a tax rate of 20%?
A)55,625
B)52,500
C)50,000
D)35,000
Answer: A
Q2) 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
Q3) A drawback of cost-plus pricing is that it is a relatively difficult approach to pricing.
A)True
B)False
Answer: False
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Chapter 4: Product Costs and Job Order Costing
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Sample Questions
Q1) Work in Process Inventory decreases when
A)Raw materials are purchased.
B)Raw materials are used.
C)Products are finished.
D)Products are sold.
Q2) During November,Ironwood Manufacturing used 10,375 direct labor hours and paid direct labor wages of $166,000.The company incurred manufacturing overhead of $368,540 during this same time period.For the entire year,Ironwood estimated total manufacturing overhead would be $4,410,000,direct labor hours would be 126,000,and total direct labor wages would be $1,992,000.Company managers determined that manufacturing overhead would be applied based on direct labor hours.For the month of November,manufacturing overhead was
A) $1,040 overapplied
B) $5,415 underapplied
C) $5,415 overapplied
D) $1,040 underapplied
Q3) Explain the flow of a product through the production process.In your explanation include the events that increase and decrease each inventory account.In addition,discuss the effect of transactions related to the flow of products on the balance sheet and income statements.
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Chapter 5: Planning and Forecasting
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Sample Questions
Q1) Barry Co.manufactures leather briefcases and carryalls.Barry's production manager has provided the following production budget.Each briefcase or carryall requires 1.2 yards of leather fabric and Barry maintains an ending inventory of leather fabric equal to 25% of the next month's production needs.
\[\begin{array}{|l|l|l|l|l|l|}
\hline & \text { February } & \text { March } & \text { April } & \text { May } & \text { June } \\
\hline \text { Budgeted production } & 50,000 & 44,000 & 60,000 & 64,000 & 58,000 \\ \hline
\end{array}\] If each yard of leather fabric costs $6.40,how much should Barry budget for purchases of fabric in February?
A) $468,480
B) $372,480
C) $310,400
D) $384,000
Q2) The first component of the master budget is the cash budget.
A)True
B)False
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Page 7
Chapter 6: Performance Evaluation: Variance Analysis
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Sample Questions
Q1) An unfavorable variance is a variance that
A)Increases cash relative to the budgeted amount.
B)Decreases cash relative to the budgeted amount.
C)Increases operating income relative to the budgeted amount.
D)Decreases operating income relative to the budgeted amount.
Q2) In June,Indigo Manufacturing purchased 6,000 gallons of blue dye used to produce stone-washed denim clothing.The price per gallon was $1.24 and the company used 5,400 gallons of the dye during the month.The standard price for the dye is $1.26.What is the materials price variance for Indigo for June?
A) $120 unfavorable
B) $120 favorable
C)$108 favorable
D)$108 unfavorable
Q3) Variable overhead cost consists of indirect production costs that are expected to vary with production activity.How is the variable overhead spending variance calculated and list potential causes of the variance?
Q4) The master budget is an example of a flexible budget.
A)True
B)False
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Chapter 7: Activity-Based Costing and Activity Based Management
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Sample Questions
Q1) Clover Manufacturing Company makes two products. The companys budget includes $200,000 of overhead. Using the traditional allocation method, the company has allocated overhead based on estimated total direct labor cost of $125,000. Clover recently implemented an activity-based costing system and had determined that overhead can be broken into three overhead pools: cutting, machine setups, and good shipped. The following is a summary of company information: \[\begin{array}{lrll}
& \underline{\textbf {Estimated Cost}} && \underline{\textbf {Estimated Activities}} \\
\text { Cutting } & \$ 24,000 && 500 \text { cuts } \\
\text { Machine setups } & 8,000 && 200 \text { machine hours } \\ \text { Shipping } & \underline{20,000} && 40,000 \text { shipments } \\ & \underline{\underline{\$ 52,000}} && \end{array}\]
a.Calculate the company's overhead rate as a percentage of direct labor cost.
b.Calculate the company's overhead rates using the activity-based costing pools.
Q2) The first step in developing activity-based product costs is to develop activity cost pools.
A)True
B)False
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Chapter 8: Using Accounting Information to Make Managerial Decisions
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Sample Questions
Q1) Why would a movie theater with some seats still available not sell tickets at a reduced price to moviegoers that show up at the last minute?
Q2) Your professor is considering retirement.Which of the following will not be relevant in his decision?
A)The amount of retirement benefits he will receive if he retires
B)The amount of salary he will receive if he does not retire
C)The cost of commuting to and from school
D)All of these ans choices are relevant in making his decision.
Q3) The costs that should be included in an outsourcing decision are the:
A)Sunk costs.
B)Recurring costs.
C)Relevant costs.
D)All of these ans choices are correct.
Q4) Incremental analysis helps decision makers to understand
A)The sunk costs involved in their decision.
B)The impact of their choices.
C)The classification of costs.
D)None of these ans choices are correct.
Page 10
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Chapter 9: Capital Budgeting
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Sample Questions
Q1) Bend Manufacturers is considering investing in a new truck that will be used to deliver its custom-made furniture.Ron Shop,Controller of Bend Manufacturers,is considering a truck which will cost $80,000 and which has a useful life of 5 years.The new truck will save $9,600 per year in operating costs which are realized at the end of each year.Ron believes if the new truck is purchased it could be sold for $64,500 at the end of its useful life.Bend's required rate of return is 10%.What is the new truck's net present value?
\[\begin{array}{lllr}
\text{Type of cash flow} & \text{n Periods} & \text{i Interest rate} & \text{ Factor } \\
\hline \text{PV of \$ 1} & 5 & 10 \% & .62092 \\
\text{FV of \$ 1} & 5 & 10 \% & 1.61051 \\
\text{PV ordinary annuity} & 5 & 10 \% & 3.79079 \\
\text{FV ordinary annuity} & 5 & 10 \% & 6.10510 \\
\text{PV annuity due} & 5 & 10 \% & 4.16986
\end{array}\]
A) $80
B) $8,049
C) $3,559
D) $18,658
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11
Chapter 10: Decentralizing and Performance Evaluation
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Sample Questions
Q1) In a decentralized organization, upper managers need a way to evaluate the performance of unit managers. Based on factors under the unit managers control, organizational units are categorized as cost centers, profit centers, or investment centers. Classify each of the following centers by placing an X in the appropriate column. \[\begin{array}{|l|l|l|l|}
\hline & \textbf{Cost} & \textbf{Profit} & \textbf{Investment} \\
\hline \text{Accounting department} & & & \\
\hline \text{North division with decision-making authority for all areas} & & & \\
\hline \text{Generally uses ROI or residual to evaluate unit managers} & & & \\
\hline \text{Children's department in retail store} & & & \\
\hline \text{Customer service department} & & & \\
\hline \end{array}\]
Q2) Which of the following activities might you find in retail product segment?
A)Selling
B)Importing
C)Delivering
D)All of these ans choices are correct.
Q3) What is a transfer price? List the four ways of determining a transfer price.
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Page 12
Chapter 11: Performance Evaluation Revisited: a Balanced Approach
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Sample Questions
Q1) Perfect manufacturing cycle efficiency would yield a ratio equal to A)Zero.
B)One.
C)Less than one.
D)More than one.
Q2) Which of the following does benchmarking \(\textbf{ not }\) focus on?
A)Identifying best practices
B)Studying best practices
C)Analyzing best practices
D)Eliminating non-value-added processes
Q3) The balanced scorecard includes one or two measures in each of six perspectives.
A)True
B)False
Q4) Which of the following is \(\textbf{ not }\) a measure that relates to the financial perspective?
A)Net income
B)Percentage of revenue from new customers
C)Earnings per share
D)Revenue growth
Page 13
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Debt is not a free resource because
A)The use of debt funds is restricted as designated by the debt instrument.
B)Companies must pay interest on the borrowings.
C)Companies must restrict cash flow until the debt is repaid.
D)None of these ans choices are correct.
Q2) Most companies use a combination of debt and equity to obtain the assets needed to fund their operations.Two leverage ratios are the debt ratio and the debt-to-equity ratio.What do each of these measure,and how are they each calculated?
Q3) The formula for the return on assets is a. \(\frac{\text{Net Income + Interest Expense × 1- tax rate}}{\text{ Average Total Assets }}\)
b. \(\frac{\text { Operating income × 1-tax rate }}{\text { Average Total Assets }}\)
c. \(\frac{\text { Net Income + Interest Expense × 1 - tax rate }}{\text { Long-term Assets }}\)
d. \(\frac{\text {Operating income × 1-tax rate }}{\text { Long-term Assets }}\)
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Which of the following cash flows results from a financing activity?
A)Receiving dividends on investment in another company
B)Repaying long-term debt
C)Purchasing an investment in another company
D)Receiving payment from a customer
Q2) During the current year,ABC Corporation purchased a warehouse for $1,200,000.In order to pay for the warehouse,ABC sold its investment in another company's common stock costing $900,000 for $1,400,000.What amount is reported in ABC's investing section of its statement of cash flows?
A) $0
B) $1,200,000 use of cash
C) $900,000 source of cash
D) $200,000 net cash provided by investing activities
Q3) Which of the following items would \(\textbf{ not }\) be included in the calculation of cash flows provided by operating activities using the indirect method?
A)Purchasing supplies on account
B)Net income
C)Depreciation expense
D)Gain on the sale of equipment
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Page 15
Chapter 14: Topic Focus: Process Costing
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Sample Questions
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) Identify which costing method is more likely to be used to accumulate costs for the following products or services by marking an "X" in the appropriate column.
\[\begin{array} { | l | l | l | }
\hline & \text { Process} & \text { Job Order } \\
\hline \text { Movies } & & \\
\hline \text { Cotton fabric } & & \\
\hline \text { Sculptures } & & \\
\hline \text { Rice-A-Roni } & & \\
\hline \text { Auto repair } & & \\
\hline
\end{array}\]
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Chapter 15: Topic Focus Variable and Absorption Costing
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Sample Questions
Q1) Variable costing is acceptable for which of the following purposes?
A)GAAP reporting
B)Internal reporting
C)Reporting to the IRS
D)All of these ans choices are correct
Q2) When using variable costing,fixed manufacturing overhead is treated as which of the following types of costs?
A)Product
B)Mixed
C)Period
D)Variable
Q3) The matching principle states that
A)Expenses should be matched with specific jobs.
B)Expenses should be matched with revenues they generate.
C)Revenues should be recorded in the period in which the payment is received.
D)Expenses should be matched to assets which generated the expenses.
Q4) The only difference between variable and absorption costing is the treatment of variable overhead costs.
A)True
B)False
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Chapter 16: Topic Focus Standard Costing Systems
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Q1) When using a normal costing system,only over- or under-applied overhead cost needs to be adjusted to the actual overhead cost.
A)True
B)False
Q2) When using a standard costing system,which of the following should be recorded when recording the purchase of direct materials?
A)Debit raw materials inventory at the standard price and credit accounts payable at the standard price
B)Debit raw materials inventory at the standard price and credit accounts payable at the actual price with a debit or credit to direct materials price variance
C)Credit raw materials inventory at the standard price and debit accounts payable at the actual price with a debit or credit to direct materials price variance
D)Credit raw materials inventory at the standard price and debit accounts payable at the standard price
Q3) What is the difference between a normal costing system and a standard costing system?
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Chapter 17: Topic Focus Customer Profitability
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Sample Questions
Q1) Which of the following would \(\textbf{ not }\) be a selling expense?
A)Rent on warehouse space
B)Advertising on local TV station
C)Indirect labor
D)Depreciation on delivery truck
Q2) Customer profit margin is calculated as customer net profit divided by customer gross profit.
A)True
B)False
Q3) If an unprofitable customer \(\textbf{ cannot }\) be turned into a profitable one,the company should consider
A)Lowering its selling price for the customer
B)Dropping the customer
C)Increasing the selling price until the customer become profitable
D)None of these ans choices are correct
Q4) As long as the sales revenue a customer generates exceeds the cost of goods sold,the customer is profitable.
A)True
B)False
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