Management Accounting Exam Review
Course Introduction
Management Accounting is a course designed to introduce students to the use of accounting information for internal decision-making within organizations. It covers key topics such as cost behavior, budgeting, performance evaluation, and variance analysis, enabling students to understand how managers use financial data to plan, control, and evaluate business operations. The course emphasizes the role of management accounting in strategy formulation, resource allocation, and operational efficiency, providing practical tools and techniques that support effective business management. Through case studies and real-world examples, students gain insights into how accounting information drives decision-making processes and contributes to achieving organizational goals.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis16th Global Edition by
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Srikant M. Datar
Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Which of the following statements about customer value is true?
A)Customer value is shown in a corporation's balance sheet.
B)Creating value for customers is an important part of planning and implementing strategy.
C)Customer value is the only focus that helps managers to formulate strategies.
D)Customer value is lost with increase in costs of the product.
Answer: B
Q2) Cost accounting is the process of measuring,analyzing,and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization.
A)True
B)False
Answer: True
Q3) The increasing pace of technological information has resulted in longer product life cycles.
A)True
B)False
Answer: False
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Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) At a plant where a union agreement sets annual salaries and conditions,annual labor costs usually ________.
A)are considered a variable cost
B)are considered a fixed cost
C)depend on the scheduling of floor workers
D)depend on the scheduling of production runs
Answer: B
Q2) For external reporting ________.
A)costs are classified as either inventoriable or period costs
B)costs reflect current values
C)there are no prescribed rules since no one is exactly sure how investors and creditors will use these numbers
D)costs include amounts that reflect both current and future benefits
Answer: A
Q3) Period costs are included in the cost of goods sold.
A)True
B)False
Answer: False
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4
Chapter 3: Cost-Volume-Profit Analysis
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Q1) Stones Manufacturing sells a marble slab for $1,100.Fixed costs are $33,000,while the variable costs are $550 per slab.The company currently plans to sell 210 slabs this month.What is the margin of safety assuming 85 slabs are actually sold? (Round interim calculations and final calculations to the nearest whole number. )
A)$165,000
B)$49,500
C)$27,500
D)$33,000
Answer: C
Q2) The breakeven point is .
A)where selling one more unit will not increase income
B)where contribution margin equals fixed costs
C)where total revenues equal contribution margin
D)fixed costs divided by revenues equals zero
Answer: B
Q3) Contribution margin and gross margin are terms that can be used interchangeably.
A)True
B)False
Answer: False
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Chapter 4: Job Costing
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Sample Questions
Q1) A local accounting firm employs 28 full-time professionals.The budgeted annual compensation per employee is $41,000.The average chargeable time is 430 hours per client annually.All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis. Other costs are included in a single indirect-cost pool,allocated according to professional labor-hours.Budgeted indirect costs for the year are $787,000,and the firm expects to have 95 clients during the coming year.
What is the budgeted indirect-cost rate per hour?
A)$6.86 per hour
B)$65.37 per hour
C)$28.10 per hour
D)$19.27 per hour
Q2) Under the proration approach,the sum of the amounts shown in the subsidiary ledgers will not match the amounts shown in the general ledger because no adjustments from budgeted to actual manufacturing overhead rates are made in the individual job-cost records.
A)True
B)False
Q3) Differentiate between a cost pool and a cost-allocation base.
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Page 6
Chapter 5: Activity-Based Costing and Activity-Based Management
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Q1) ABC system are likely to provide the most benefits to a company with significant amounts of indirect costs that are allocated using just one or two costs pools and products that make diverse demands on resources.
A)True
B)False
Q2) Using department indirect-cost rates to allocate costs will result in results similar to ABC if:
A)a single activity accounts for a sizable portion of the costs of the department
B)several activities cause a sizable portion of the costs of the department
C)a single activity accounts for a small portion of the costs of the department
D)several activities cause a small portion of the costs of the department
Q3) Identification of a cost-allocation base is not a critical element when using a strategy that will refine a costing system.
A)True B)False
Q4) ABC systems attempt to trace more costs as indirect costs.
A)True
B)False
7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) A packaging department is most likely a profit center.
A)True
B)False
Q2) The budgeting process is most strongly influenced by ________.
A)the capital budget
B)the budgeted statement of cash flows
C)the sales forecast
D)the production budget
Q3) ERP systems store vast quantities of information about the materials,machines and equipment,labor,power,maintenance,and setups needed to manufacture different products.This helps simplify the budgeting process as ERP systems ________.
A)can quickly calculate the manufacturing and nonmanufacturing costs based on a given sales quantity
B)automatically identify and record changes in processes involved in producing products
C)identify which underlying assumptions are likely to change
D)always use a rolling budget ensuring that a budget is always available for a specified future period
Q4) Describe the benefits of preparing an operating budget to an organization.
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Chapter 7: Flexible Budgets,direct-Cost Variances,and Management Control
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Sample Questions
Q1) Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget?
A)A firm's inefficiencies will be part of the data.
B)They are not based on realized benchmarks and can be unrealistic
C)The expected future changes are not included in the standards.
D)The flexible-budget amounts are difficult to determine.
Q2) Benchmarking is a process ________.
A)in which overhead costs are absorbed into units of output,or 'jobs'
B)in which a firm's performance levels are compared against the best levels of performance in competing companies or in companies having similar processes
C)which is based on calculating the breakeven point and analyzing the consequences of changes in various factors calculating the breakeven point
D)in which the underlying processes of an organization is optimized using a systematic approach to achieve more efficient goals
Q3) An unfavorable variance is conclusive evidence of poor performance.
A)True
B)False
Q4) What is benchmarking,and how is it useful to a company?
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 cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the standard quantities of the allocation bases allowed for the actual outputs produced.
A)True
B)False
Q2) The fixed overhead cost variance can be further subdivided into the ________.
A)price variance and the efficiency variance
B)spending variance and flexible-budget variance
C)production-volume variance and the efficiency variance
D)flexible-budget variance and the production-volume variance
Q3) At the end of the fiscal year,the fixed overhead spending variance is always prorated among work-in-process control,finished goods control,and cost of goods sold on the basis of the fixed overhead allocated to these accounts.
A)True
B)False
Q4) Can the variable overhead efficiency variance
a.be computed the same way as the efficiency variance for direct-cost items?
b.be interpreted the same way as the efficiency variance for direct-cost items? Explain.
Page 10
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Chapter 9: Inventory Costing and Capacity Analysis
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Q1) Practical capacity is the denominator-level concept that ________.
A)reduces theoretical capacity for unavoidable operating interruptions
B)is the maximum level of operations at maximum efficiency
C)is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year
D)is based on anticipated levels of capacity utilization for the coming budget period
Q2) In variable costing,all nonmanufacturing costs are subtracted from contribution margin.
A)True
B)False
Q3) ________ method includes fixed manufacturing overhead costs as inventoriable costs.
A)Variable costing
B)Absorption costing
C)Throughput costing
D)Activity-based costing
Q4) Absorption costing is also referred to as super-variable costing.
A)True
B)False
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) Explain the difference between the cumulative average-time learning model and the incremental unit-time learning model.
Q2) The coefficient of determination (r<sup>2</sup>)measures the percentage of variation in X (the independent variable)explained by Y (the dependent variable).
A)True
B)False
Q3) If machine maintenance is scheduled at a time when production is at a low level,then ________.
A)low production is the cost driver of high repair costs
B)an understanding of operations is needed to determine an appropriate cost driver
C)low production should be avoided since it is the cause of machine maintenance
D)machine maintenance cannot be accurately predicted
Q4) Which of the following is the mathematical expression to calculate the coefficient of determination?
A)Coefficient of determination = 1 - (Unexplained variation / Total variation)
B)Coefficient of determination = (1 + Total variation )/ Unexplained variation)
C)Coefficient of determination = (1 - Unexplained variation )/ Total variation)
D)Coefficient of determination = 1 - Unexplained variation + Total variation)
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) In linear programming,a constraint is a mathematical inequality or equality that must be satisfied by the variables in a mathematical model.
A)True
B)False
Q2) Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.
A)True
B)False
Q3) Under what conditions might a manufacturing firm sell a product for less than its long-term price? Why?
Q4) If a company has excess capacity,the most it would pay for buying a product that it currently makes would be the ________.
A)total variable cost of producing the product
B)full cost of producing the product
C)total cost of producing the product
D)business function cost of the product
Q5) Why is the depreciation of an old equipment irrelevant to decision making?
Q6) Explain the five-step decision process that managers can use to make decisions.
Page 13
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Chapter 12: Strategy,balanced Scorecard,and Strategic
Profitability Analysis
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Sample Questions
Q1) To achieve success,it is important to set nonfinancial objectives as well as financial objectives.
A)True
B)False
Q2) Ralph Company has been very aggressive in developing various types of financial and nonfinancial measurement schemes to help with the evaluation of its manufacturing processes.It appears that some of the managers are suboptimizing in that their decision processes are geared solely for their department's benefit,sometimes to the detriment of the organization as a whole.
Required:
What changes in the evaluation system could the company implement to help minimize the suboptimization of the managers' decision-making process?
Q3) Successful implementation of a cost leadership strategy will result in ________.
A)large favorable growth and price-recovery components
B)large favorable price-recovery and productivity components
C)large favorable productivity and growth components
D)only a large favorable growth component
Q4) What are the four key perspectives in the balanced scorecard?
Q5) Define engineered and discretionary costs and give two examples of each.
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Chapter 13: Pricing Decisions and Cost Management
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Q1) Markups tend to be higher in more competitive markets.
A)True
B)False
Q2) Crimpson Company has invested $2,200,000 in a plant to make commercial juicer machines.The target operating income desired from the plant is $303,000 annually.The company plans annual sales of 7000 juicer machines at a selling price of $500 each. What is the markup percentage as a percentage of cost for Crimpson Company?
A)8)7%
B)13.8%
C)9)5%
D)0)9%
Q3) The cost-plus pricing approach is generally in the form ________.
A)Cost base + Markup component = Prospective selling price
B)Prospective selling price - Cost base = Markup component
C)Cost base + Gross margin = Prospective selling price
D)Variable cost + Fixed cost + Contribution margin = Prospective selling price
Q4) When is a company said to be engaged in predatory pricing? What are the primary conditions to be satisfied to prove predatory pricing?
Q5) What factors may influence the level of markups?
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Chapter
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Sample Questions
Q1) Price discounts must be uniform among all customers.
A)True
B)False
Q2) Which of the following classifications would be the most appropriate for the cost of the manager of a retail distribution channel?
A)customer-sustaining cost
B)distribution-channel cost
C)customer batch-level cost
D)corporate-sustaining cost
Q3) The static-budget variance is the difference between ________.
A)an actual result and the corresponding budgeted amount in the static budget
B)the budget amount in the static budget and the amount in the flexible budget
C)an actual result and the flexible budget amount
D)the static budget amount and the sales-volume variance
Q4) Discontinuing an unprofitable customer should be solely done on the basis of profitability.
A)True
B)False
Page 16
Q5) What are the two components of the sales-volume variance?
Q6) How can a company's revenues and costs differ across customers?
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Sample Questions
Q1) The dual-rate cost-allocation method classifies costs in each cost pool into a
A)budgeted-cost pool and an actual-cost pool
B)variable-cost pool and a fixed-cost pool
C)direct-cost pool and an indirect-cost pool
D)direct-cost pool and a reciprocal-cost pool
Q2) When allocating the revenues between a bundled product offering,management judgement can be used in issuing revenue-allocation weights.
A)True
B)False
Q3) The step-down method allocates support department costs to only operating departments in a sequential manner.
A)True
B)False
Q4) Allocating variable costs on the basis of budgeted usage would provide the user departments with no incentive to control their consumption of support services.
A)True
B)False
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) Firms should be wary of using the full cost of a joint product as the basis for making pricing decisions.Why?
Q2) In joint costing,which method assumes that all the markup is attributable to the joint process costs?
A)sales value at split-off method
B)NRV method
C)constant gross-margin percentage method
D)physical measures method
Q3) Under the benefits-received criterion,the physical-measure method is much less desirable than the sales value at split-off method.Why?
Q4) Which method of accounting recognizes byproducts in the financial statements at the time their production is completed?
A)gross margin method
B)sales method
C)production method
D)market value method
Q5) What are joint costs,separable costs,and a split-off point?
Q6) Explain why some companies choose not to allocate joint costs to products.
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Chapter 17: Process Costing
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Questions
Q1) Assembly department of Zahra Technologies had 200 units as work in process at the beginning of the month.These units were 45% complete.It has 300 units which are 35% complete at the end of the month.During the month,it completed and transferred 500 units.Direct materials are added at the beginning of production.Conversion costs are allocated evenly throughout production.Zahra uses weighted-average process-costing method.Calculate the total equivalent units in ending inventory for assignment of conversion costs?
A)200 units
B)105 units
C)195 units
D)300 units
Q2) In a series of interdepartmental transfers,each department is regarded as separate and distinct for accounting purposes.
A)True
B)False
Q3) The last step in a process-costing system is to compute cost per equivalent unit.
A)True
B)False
Q4) List and describe the five steps in process costing.
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Chapter 18: Spoilage, rework, and Scrap
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Q1) Recognizing the value of scrap in the accounting records is always done at the time the scrap is produced.
A)True
B)False
Q2) Excluding spoiled units in the equivalent-unit calculation results in ________.
A)lower cost per good unit.
B)higher cost per good unit
C)better management information
D)higher cost for spoiled units
Q3) A company produces 11,000 units of which 600 are spoiled units because the process,even though carefully and efficiently executed is unable to produce good units 100% of the time.Another 80 units are spoiled because machines broke down and there also were operator errors.What is the normal spoilage rate (round to two decimal places)
A)6)18%
B)5)81%
C)5)45%
D)0)73%
Q4) How do job-costing systems account for spoilage?
Q5) What are the objectives in accounting for spoilage?
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) The amount of time from when a customer places an order for a product to when the product or service is delivered to the customer is referred to as ________.
A)manufacturing lead time
B)delivery time
C)customer-response time
D)a time driver
Q2) An illustration that resembles the bone structure of a fish and identifies potential reasons why a problem exists is called ________.
A)control chart
B)Pareto diagram
C)cause-and-effect diagram
D)time-series graphs
Q3) Two common operational measures of time are customer-response time and on-time performance.
A)True
B)False
Q4) One of the most direct financial measures of quality is the costs of quality.
A)True
B)False
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Q1) 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
Q2) Which of the following is not a reason why a company would adopt JIT purchasing practices?
A)high shrinkage costs
B)low ordering costs
C)low carrying costs of inventory
D)reliable supply chains
Q3) A company's inventory levels are dependent on a number of variables including the demand for the product,supplier relationships,and supplier relationships with their manufacturers.
A)True
B)False
Q4) Backflush costing does not strictly adhere to generally accepted accounting principles.Explain why.Also,describe the types of businesses that might use backflush costing.
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) Deducting depreciation from operating cash flows would result in counting the initial investment twice in a discounted cash flow analysis.
A)True
B)False
Q2) While calculating terminal recovery of working capital there are no tax consequences as there is no gain or loss on working capital.
A)True
B)False
Q3) The net present value method can be used in situations where the required rate of return varies over the life of the project.
A)True
B)False
Q4) The three common discounted cash flow methods are net present value,internal rate of return,and payback.
A)True
B)False
Q5) Explain why the term tax shield is used in conjunction with depreciation.
Q6) How is inflation related to capital budgeting? Discuss.
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Chapter 22: Management Control Systems, transfer Pricing, and
Multinational Considerations
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Q1) Which of the following is a disadvantage of dual pricing?
A)It strongly preserves the autonomy of divisions,and the division managers are motivated to put forth effort to increase the operating income of their respective divisions,causing inefficiencies.
B)The price arrived by using dual pricing has no specific relationship to either costs or the market price.
C)It insulates managers from the realities of the marketplace because costs,not market prices,affect the revenues of the supplying division.
D)It assumes that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer minus the opportunity cost per unit to the selling division.
Q2) Briefly describe the conditions that should be met for market-based transfer pricing to lead to optimal decision making among subunits of a large organization.
Q3) When using transfer prices based on costs rather than market prices,management can better determine profitability of the investment made in the intermediate producing division.
A)True
B)False
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Chapter 23: Performance Measurement, compensation, and Multinational Considerations
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Q1) Which of the following is a performance measure?
A)retained earnings
B)market value
C)present value of cash flows
D)economic value added
Q2) Which of the following is the formula for investment assuming that total assets employed is the measure?
A)total assets available minus the sum of idle assets
B)total assets available minus the sum of idle assets and assets purchased for future expansion
C)total assets available minus assets purchased for future expansion
D)total assets minus current liabilities
Q3) The DuPont method recognizes the two basic ingredients in profit making: increasing the income per dollar of revenues and using assets to generate more revenues.
A)True
B)False
Q4) What targets should companies use,and when should they give feedback to managers regarding their performance relative to the targets?
Page 26
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