Management Accounting Exam Solutions
Course Introduction
Management Accounting explores the principles, techniques, and tools used to provide financial and non-financial information for internal business decision-making. The course covers topics such as cost behavior, budgeting, performance evaluation, variance analysis, and strategic planning. Students will learn how management accounting supports organizational planning, coordination, and control by supplying relevant data for short-term and long-term decisions. Real-world case studies and practical exercises enable students to analyze financial information and apply management accounting methods to improve operational efficiency and achieve business objectives.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 16th Edition by Srikant M. Datar
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23 Chapters
4116 Verified Questions
4116 Flashcards
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Chapter 1: The Manager and Management Accounting
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195 Verified Questions
195 Flashcards
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Sample Questions
Q1) Generally, companies follow one of two broad strategies: offering a quality product at a low price, or offering a unique product or service priced higher than the competition. Assume you are opening a small food outlet across the street from your campus. How might that business be operated under each of the two broad strategies? Consider the following specific operational areas:
a.target customers
b.products offered
c.product pricing
d.location choice
e.advertising content
f.advertising media
Answer: The purpose of this question is to explore some of the differences in business operations as a result of a broad strategic choice. Answers will differ from student to student, but you should see some specific themes.
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Q2) A budget is a qualitative expression of a plan.
A)True
B)False
Answer: False
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) The most likely cost driver of distribution costs is the ________.
A) number of parts within the product
B) number of miles driven
C) number of products manufactured
D) number of production hours
Answer: B
Q2) Period costs ________.
A) are treated as expenses in the period they are incurred
B) are directly traceable to products
C) are treated as expenses in the following period they are incurred
D) are also referred to as manufacturing overhead costs
Answer: A
Q3) Which of the following statements is true?
A) Product costs and design costs are interchangeable terms.
B) Inventoriable costs are assigned to inventories under GAAP.
C) Manufacturing costs are a special case of period costs.
D) Intangible costs refer to a particular cost of a product.
Answer: B
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4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) If a company has a degree of operating leverage of 4.0, that means a 10% increase in sales will result in a 40% increase in operating income.
A)True
B)False
Answer: True
Q2) When a greater proportion of costs are fixed costs, then ________.
A) a small increase in sales results in a small decrease in operating income
B) when demand is low the risk of loss is high
C) a decrease in sales reduces the total fixed cost per unit
D) a decrease in sales reduces the cost per unit
Answer: B
Q3) If the contribution margin ratio is 0.60, targeted operating income is $50,000, and fixed costs are $75,000, then sales volume in dollars is ________. (Round the final answer to the nearest dollar.)
A) $312,500
B) $208,333
C) $125,000
D) $83,333
Answer: B
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Page 5
Chapter 4: Job Costing
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Sample Questions
Q1) Actual costing helps managers get information earlier and take corrective measures to improve labor efficiency.
A)True
B)False
Q2) Rally Company manufactures garage storage systems for homeowners. It uses a normal costing system with two direct cost categories - direct materials and direct labor - an one indirect-cost pool, manufacturing overhead costs. For 2018:
Budgeted manufacturing overhead costs $1,000,000
Budgeted manufacturing labor-hours 20,000 hours
Actual manufacturing overhead costs $1,100,000
Actual direct manufacturing labor-hours 22,000
Actual direct material costs $10,000
Actual direct manufacturing labor hours 200
Actual direct manufacturing labor rate $20 per hour
Required:
Calculate the total manufacturing costs using normal costing.
Q3) What is the difference between an actual cost system and a normal cost system?
Q4) Differentiate between a cost pool and a cost-allocation base.
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Chapter 5: Activity-Based Costing and Activity-Based Management
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176 Flashcards
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Sample
Questions
Q1) ABC costing systems cannot be used in marketing decisions.
A)True
B)False
Q2) ABC systems create ________.
A) one large cost pool
B) homogeneous activity-related cost pools
C) activity-cost pools with a broad focus
D) activity-cost pools containing many direct costs
Q3) Activity-based costing information can be used for ________.
A) product-mix decisions
B) pricing decisions
C) advertisement decisions
D) inventory valuation
Q4) Refining a cost system involves which of the following?
A) classifying as many costs as indirect costs as is feasible
B) creating as many cost pools as possible to capture all costs
C) identifying the activities involved in a process and understanding how those activities consume resources
D) Seeking an easier and more cost effective way to calculate average costs
Q5) How are cost drivers selected in activity-based costing systems?
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) ________ is the usual starting point for budgeting.
A) The revenues budget
B) The estimated net income
C) The production budget
D) The cash budget
Q2) A rolling budget is the same as a continuous budget.
A)True
B)False
Q3) A stretch budget is a budget that ________.
A) crosses more than one responsibility center
B) represents a challenging, but achievable level of performance
C) is impossible to implement in a cost center
D) is designed to include the effects of exchange rate fluctuations
Q4) Budgetary slack results because management sets challenging but achievable levels of expected performance.
A)True
B)False
Q5) What is budgetary slack? What are the pros and cons of building slack into the budget from the point of view of (a) an employee and (b) a senior manager?
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) With disregard to all other factors, the use of high-quality raw materials is likely to result in a favorable efficiency variance and an unfavorable price variance.
A)True
B)False
Q2) A flexible-budget variance pertaining to revenues is often called a sales-volume variance.
A)True
B)False
Q3) Which of the following statements is true of benchmarking?
A) It is a systematic approach of optimizing business processes.
B) It fails to help to improve organizational performance as benchmarking data does not provide insight into why costs or revenues differ across companies.
C) It is difficult to ensure that the benchmark numbers are comparable due to the existence of differences across companies.
D) It considers four major business aspects such as financial, customer, internal business processes, and learning and growth.
Q4) Describe the purpose of variance analysis.
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) Variable overhead has no production-volume variance.
A)True
B)False
Q2) The variable overhead flexible-budget variance can be further explained by calculating the:
A) price variance and the efficiency variance
B) static-budget variance and sales-volume variance
C) spending variance and the efficiency variance
D) sales-volume variance and the spending variance
Q3) If fixed overhead cost variances are always written off to Cost of Goods Sold, operating income can be manipulated for either financial reporting or income tax purposes.
A)True
B)False
Q4) Most of the decisions determining the level of fixed overhead costs to be incurred will be made ________.
A) by the end of a budget period
B) by the middle of a budget period
C) on a day-to-day ongoing basis
D) at the start of a budget period
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) Under both variable and absorption costing, research and development costs are period costs.
A)True
B)False
Q2) Which of the following statements is true?
A) When production is equal to sales, operating income will be greater under variable costing than under absorption costing.
B) When production is greater than sales, operating income will be lower under variable costing than absorption costing.
C) When production is less than sales, operating income is higher under absorption costing than variable costing.
D) When production is greater than sales, operating income is greater under absorption cost than under variable costing.
Q3) ________ reduces theoretical capacity for unavoidable operating interruptions.
A) Practical capacity
B) Theoretical capacity
C) Master-budget capacity utilization
D) Normal capacity utilization
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11
Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) An "economy of scale" function is an example of a linear cost function.
A)True
B)False
Q2) The advantages of the high-low method to estimate a cost function is that it is easy and accurate.
A)True
B)False
Q3) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.
a.Direct materials cost is $2.70 per pound
b.Total cost is fixed at $800 per month regardless of the number of units produced.
c.Auto rental has a fixed fee of $90.00 per day plus $1.75 per mile driven.
d.Machine operating costs include $1,000 of maintenance per month, and $15.00 of coolant usage costs for each day the machinery is in operation.
Q4) In a cost function y = 18,000, the slope coefficient is zero.
A)True
B)False
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12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Unit cost data can most mislead decisions by ________.
A) not computing fixed overhead costs
B) computing labor and materials costs only
C) computing administrative costs
D) not computing unit costs at the same output level
Q2) Assume you are a sophomore in college and are committed to earning an undergraduate degree. Your current decision is whether to finish college in four consecutive years or take a year off and work for some extra cash.
a.Identify at least two revenues or costs that are relevant to making this decision. Explain why each is relevant.
b.Identify at least two costs that would be considered sunk costs for this decision.
c.Identify at least two opportunity costs for this decision.
d.Comment on at least one qualitative consideration for this decision.
Q3) Which of the following is an assumption of linear programming?
A) Average variable costs remain constant throughout the year.
B) Opportunity costs are irrelevant in decision making.
C) Few sunk costs are relevant in decision making.
D) All costs are either variable or fixed for a single cost driver.
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) BarGraphs Corp. had capacity to produce 12,000 units of L3 using 30,000 kg of direct materials. BarGraphs produced 11,650 units of L3 by processing 25,500 kg of direct materials. Conversion cost per unit is $7.50. BarGraphs can add or reduce manufacturing capacity in increments of 4500 kgs. What is the cost of unused capacity for conversion costs of BarGraphs?
A) $3000
B) $4500
C) $13,500
D) $2625
Q2) One advantage of the total factor productivity is that operations managers can use it to easily understand specific labor productivity issues.
A)True
B)False
Q3) Cost effect of productivity for fixed costs is calculated by multiplying the difference in units of capacity (current year capacity units minus the previous year capacity units) by price per unit of capacity of the previous year.
A)True
B)False
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) Which of the following examples would have as its purpose the allocation of costs to motivate employees?
A) deciding on a selling g price for a product
B) encouraging sales representatives to emphasize high-margin products
C) to cost products a a "fair" price under a government contract
D) to cost inventories for reporting to external parties
Q2) In long-run pricing, decisions should consider all manufacturing and non-manufacturing costs but should consider all future direct and indirect costs as irrelevant.
A)True
B)False
Q3) Value engineering can have undesirable effects if the product remains in development for a long time as the reengineering team repeatedly evaluates alternative designs.
A)True
B)False
Q4) Two different approaches to pricing decisions are market based and cost-plus.
A)True
B)False
Q5) What is the primary reason a firm would adopt target costing?
Page 15
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) Price discounts must be uniform among all customers.
A)True
B)False
Q2) What are the two components of the sales-quantity variance?
Q3) Briefly describe the four criteria used to guide cost-allocation decisions.
Q4) Tracking price discounts by customer and by salesperson helps improve customer profitability.
A)True
B)False
Q5) The sales-mix variance can be explained in terms of the budgeted contribution margin per composite unit of the sales mix.
A)True
B)False
Q6) A customer cost hierarchy may include distribution-channel costs.
A)True
B)False
Q7) Corporate brand advertising and general administration costs are examples of corporate costs.
A)True
B)False Page 16
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Page 17
Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Sample Questions
Q1) When using the dual-rate method, the fixed cost allocation is based on ________.
A) actual rate
B) budgeted usage
C) incremental cost allocation
D) prime cost allocation
Q2) The step-down method allocates support department costs to only operating departments in a sequential manner.
A)True
B)False
Q3) Which of the following is a disadvantage of a dual-rate method?
A) It allocates fixed costs on the basis of budgeted long-run usage, which may tempt some managers to underestimate their planned usage.
B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
C) It allocates fixed and variable-cost pool using the same cost-allocation base, which will mislead managers in making decisions.
D) It does not guide department managers to make decisions that benefit both the organization as a whole and each department.
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) A company manufactures three products, A, B, and C from a single raw material input. Product C can be sold at the split-off point for total revenues of $60,000 or it can be processed further at a total cost of $16,000 and then sold for $78,000. Product C:
A) should be sold at the split-off point, rather than processed further.
B) would increase the company's overall net income by $18,000 if processed further and then sold.
C) would increase the company's overall net income by $78,000 if processed further and then sold.
D) would increase the company's overall net income by $2000 if processed further and then sold.
Q2) Which of the following would explain why a company might need to follow very stringent rules that specify the way in which joint costs are assigned to products?
A) to satisfy a federal contract reimbursement stipulations
B) So that cost of goods sold is accurate for income tax purposes
C) to satisfy FASB
D) to increase market share
Q3) What are the reasons for allocating joint costs to individual products or services?
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Page 19
Chapter 17: Process Costing
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Sample Questions
Q1) In the weighted-average costing method, the costs of direct materials in beginning inventory are NOT included in the cost per unit calculation since direct materials are almost always added at the start of the production process.
A)True
B)False
Q2) The accuracy of the completion estimate of conversion costs depends on the care, skill, and experience of the estimator and also the nature of the conversion process.
A)True
B)False
Q3) Process-costing systems using standard costs record standard direct material costs in Direct Materials Control and standard conversion costs in Conversion Costs Control.
A)True
B)False
Q4) Conversion costs include direct materials and direct labor but excludes all other manufacturing and non-manufacturing costs.
A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) Spoilage that is an inherent result of the particular production process and arises even under efficient operating conditions is referred to as ________.
A) incremental spoilage
B) normal spoilage
C) irregular spoilage
D) direct spoilage
Q2) Which of the following is true of the calculation of the cost per good unit (a unit that is completed and transferred out) under the weighted-average process costing method?
A) the equivalent units in the denominator include goods completed and transferred out and all units that were spoiled
B) the numerator only includes the materials and conversion costs of good units and excludes the costs of spoiled units
C) the equivalent units in the denominator include goods completed and transferred out and excludes the units that were spoiled
D) the calculation is total costs transferred out divided by the good units that were transferred out
Q3) What is the advantage and disadvantage of early inspections?
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Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Premier Corp expects to spend $800,900 in 2017 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $60,500 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,500 in training costs and an additional $150,300 in annual equipment rental.
Internal failure costs average $250 per failed unit of finished goods. During 2016, 6% of all completed items had to be reworked. External failure costs average $450 per failed unit. The company's average external failures are 2% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
What would be the change in the external failure budget, if 600,300 units are used and assuming external failures are reduced by 12%.
A) $48,054 increase
B) $250,150 decrease
C) $648,324 decrease
D) $304,342 decrease
Q2) Manufacturing cycle times affect both revenues and costs. Explain.
Q3) 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) 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
Q2) JIT purchasing and production systems can be used in service industries as supplies and the labor to manage those supplies can be a significant cost element in some service organizations.
A)True
B)False
Q3) The EOQ model is solved using calculus but the key intuition is that relevant total costs are minimized when relevant ordering costs equal relevant carrying costs.
A)True
B)False
Q4) What are the implications of JIT and backflush costing systems for activity-based costing (ABC) systems?
Q5) Freight in charges forms part of purchasing costs of inventory.
A)True
B)False
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) Ambinu Flower Company provides flowers and other nursery products for decorative purposes in medium to large sized restaurants and businesses. The company has been investigating the purchase of a new specially equipped van for deliveries. The van has a value of $133,750 with a six-year life. The expected additional cash inflows are $52,500 per year. What is the payback period for this investment?
A) 1.5 years
B) 2.5 years
C) 6 years
D) 3.5 years
Q2) The minimum annual acceptable rate of return on an investment is the ________.
A) accrual accounting rate of return
B) hurdle rate
C) internal rate of return
D) net present value
Q3) The nominal rate of return is made up of a risk-free element when there is no expected inflation, a business-risk element, and an inflation element.
A)True
B)False
Q4) 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 using negotiated transfer price?
A) It requires each division manager to put forth effort to increase division operating income.
B) Negotiated transfer prices take away the divisional autonomy as prices depend on bargaining strength.
C) Negotiations usually require much time and energy thereby consuming precious managerial time.
D) It may lead to divisional enmity because negotiation process may cause frictions among departments.
Q2) Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $19 per pound. Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $6.50 per pound. Which of the following formulas correctly reflects the company's operating income per pound?
A) $19 - ($1.25 + $6.50) = $11.25
B) $19 - ($3.25 + $6.50) = $9.25
C) $19 - ($1.25 + $9.75) = $8.00
D) $19 - ($0.75 + $3.25 + $3.25) = $5.50
Q3) Why is decentralization costly?
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Q1) Many common performance measures, such as customer satisfaction, rely on internal financial accounting information.
A)True
B)False
Q2) ________ would be an uncontrollable factor that a firm would need to consider when evaluating the return on investment of an international division.
A) Manager's experience
B) Manager's compensation
C) Pricing decisions
D) Custom duties
Q3) An excessive focus on diagnostic control systems and critical performance variables can cause an organization to ignore emerging threats and opportunities.
A)True
B)False
Q4) Companies are increasingly using nonfinancial measures to evaluate performance. Why? Since these numbers do not come from the company's financial records, why are they used?
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