Management Accounting for Business Practice Exam
Course Introduction
Management Accounting for Business explores the fundamental concepts, techniques, and tools used by managers to make informed financial decisions within organizations. The course emphasizes the role of management accounting in planning, controlling, and evaluating business operations, focusing on topics such as cost behavior, budgeting, performance measurement, and decision-making processes. Through case studies and practical exercises, students will learn how to analyze financial data, allocate resources efficiently, and support strategic objectives, equipping them with the skills necessary to contribute effectively to organizational success.
Recommended Textbook
Management Accounting for Business 6th Edition by Colin Drury
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Page 2
Chapter 1: Introduction to Management Accounting
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Sample Questions
Q1) The primary objective of management accounting is
A) to provide shareholders and potential investors with useful information for decision making.
B) to provide banks and other creditors with information useful in making credit decisions.
C) to provide management with information useful for planning and control of operations.
D) to provide the relevant taxation authorities with information about taxable income.
Answer: C
Q2) Inspecting units produced to determine if they meet specifications is an example of A) planning.
B) control.
C) decision making.
D) both a and c
Answer: B
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Chapter 2: An Introduction to Cost Terms and Concepts
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Sample Questions
Q1) Which of the following costs is an indirect product cost?
A) property taxes on plant facilities
B) wages of assembly workers
C) materials used
D) president's salary
Answer: A
Q2) Which of the following costs incurred by a chair manufacturer would be traced to the product cost through direct tracing?
A) the depreciation on factory equipment
B) the supervisor's salary
C) the insurance on the factory building
D) the woodmaker's salary
Answer: D
Q3) Mixed costs
A) are step costs
B) in total, remain constant within a relevant range
C) have a fixed and variable component
D) on a per unit basis, are constant as activity increases or decreases
Answer: C
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Page 4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The break-even point is
A) the volume of activity where all fixed costs are recovered.
B) where fixed costs equal total variable costs.
C) where total revenues equal total costs.
D) where total costs equal total contribution margin.
Answer: C
Q2) A decrease in the sales price in the basic cost-volume-profit model would
A) require a recomputation of the gross profit per unit.
B) be offset by an increase in unit costs.
C) decrease the break-even volume.
D) increase the break-even volume.
Answer: D
Q3) Which of the following items would NOT be considered in cost-volume-profit analysis?
A) units of production
B) fixed costs
C) product mix
D) gross profit margin
Answer: D
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Page 5
Chapter 4: Measuring Relevant Costs and Revenues for Decision-Making
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Sample Questions
Q1) Which of the following is a qualitative factor that should be considered when evaluating a make-or-buy decision?
A) the quality of the outside supplier's product
B) whether the outside supplier can provide the needed quantities
C) whether the outside supplier can provide the product WHEN it is needed
D) all of the above
Q2) Zandy Beverage Company plans to eliminate a branch that has a contribution margin of £50,000 and fixed costs of £75,000. Of the fixed costs, £55,000 cannot be eliminated. The effect of eliminating this branch on net income would be a(n)
A) decrease of £25,000
B) increase of £25,000
C) decrease of £30,000
D) increase of £30,000
Q3) An important qualitative factor to consider regarding a special order is the
A) variable costs associated with the special order.
B) avoidable fixed costs associated with the special order.
C) effect the sale of special-order units will have on the sale of regularly priced units.
D) incremental revenue from the special order.
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Chapter 5: Pricing Decisions and Profitability Analysis
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Sample Questions
Q1) Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2004 when 30,000 were projected. Sales for 2005 look no better. At £100 per game, it is not a hot seller. Direct costs of the board game are £56 variable cost and £100,000 fixed. John is considering several options. Option One: Cut the price to £70 and perhaps sell 15,000 units. Option Two: Cut the price to £60, reduce material costs by £10, and cut advertising by £60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to £80 and include a £10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Which option is preferred?
A) Option One
B) Option Two
C) Option Three
D) Options One and Three are equally preferred.
Q2) _____ on the international market is called dumping.
A) Price discrimination
B) Predatory pricing
C) Price skimming
D) Penetration pricing
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Chapter 6: Capital Investment Decisions
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Sample Questions
Q1) Which of the following is a capital investment criterion, but NOT captured in any of the basic capital budgeting models examined in the text?
A) the period of time required to recoup an initial investment
B) various non-quantitative factors
C) the time value of money
D) the company's discount rate
Q2) If a project has a net present value of £0 when a discount rate of 10 percent is used, what can be concluded about the rate of return of the project?
A) The rate of return is greater than 10 percent.
B) The rate of return is less than 10 percent.
C) The rate of return equals 10 percent.
D) The rate of return is 0.
Q3) The depreciation tax shield is:
A) the increase in taxes due to the deductibility of depreciation from taxable revenues.
B) the reduction in taxes due to the deductibility of depreciation from taxable revenues.
C) the fact that equipment is not depreciable for accounting purposes.
D) the fact that equipment is not depreciable for tax purposes.
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Page 8
Chapter 7: Cost Assignment
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Sample Questions
Q1) Why is it important to have an accurate and reliable product costing system?
Q2) For a labour-intensive manufacturing operation, which of the following would be the most appropriate cost driver?
A) machine hours
B) direct labour hours
C) number of employees
D) units of output
Q3) Which of the following characteristics is a consequence of the implementation of a plant-wide allocation rate?
A) The uniqueness of individual departments is not reflected in the cost numbers.
B) Allocations are first conducted among departments, and then aggregated for the plant as a whole.
C) Downstream costs are not measured at all.
D) Managers have absolutely no incentive to control costs.
Q4) Discuss how managerial product costing differs from product costing for financial reporting.
Q5) Explain the advantage of using multiple overhead rates instead of a single plantwide overhead rate to apply overhead.
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Chapter 8: Activity-Based Costing
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Sample Questions
Q1) Basing overhead allocation solely on volume
A) will undercost high-volume products and overcost low-volume products
B) will overcost high-volume products and undercost low-volume products
C) is the sole basis of the activity-based costing model
D) All of the above are correct.
Q2) Product costs can be distorted if a unit-based activity driver is used and A) nonunit-based overhead costs are a significant proportion of total overhead. B) the consumption ratios differ between unit-based and nonunit-based input categories.
C) both a and b.
D) neither a nor b.
Q3) More accurate product costing information is produced by assigning costs using A) a volume-based, plantwide rate.
B) volume-based, departmental rates.
C) activity-based pool rates.
D) all of the above.
Q4) Discuss how volume-based unit-level analysis underestimates and/or overestimates the cost of products.
Q5) The most critical step in activity-based costing is identifying cost drivers. Explain this statement.
Page 10
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Chapter 9: The Budgeting Process
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Sample Questions
Q1) Gerald Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2. Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two months. Based on this information, the number of units of A1 that needs to be purchased by Gerald during the first month is
A) 9,500 units.
B) 10,000 units.
C) 1,000 units.
D) 10,500 units.
Q2) Jiggy Company plans to sell 33,000 units during the month of May. The company plans to have 2,500 units on hand at the end of the month. If 1,200 units are on hand on May 1, how many units must be produced during May?
A) 33,000
B) 35,500
C) 34,300
D) 31,800
Q3) Describe activity-based budgeting.
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Page 11
Chapter 10: Management Control Systems
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Sample Questions
Q1) Which of the following departments would NOT be classified as a profit centre?
A) the accounting department of a large PLc
B) the automotive division of a large PLc
C) the hardware department of a department store
D) the men's shoe department of a department store
Q2) What is budgetary slack? Why does it occur? What is the primary indication that budgetary slack is occurring?
Q3) If the static budget variance for materials is £200 F and the budgeted cost for materials is £52,000, then the actual cost of materials is
A) £52,000.
B) £52,200.
C) £51,200.
D) £51,800.
Q4) Controllable costs are those that a manager
A) has no authority over.
B) cannot avoid.
C) does not participate in authorizing.
D) can influence through decision making.
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Chapter 11: Standard Costing and Variance Analysis
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Sample Questions
Q1) Refer to Figure 6. The variable overhead efficiency variance would be
A) £1,000 favorable
B) £600 favorable
C) £400 favorable
D) £200 favorable
Q2) Refer to Figure 6. The standard rate for total overhead is
A) £14
B) £13
C) £10
D) £4
Q3) The two variances for variable overhead are
A) spending (expenditure) and efficiency variances
B) spending and budget variances
C) budget and volume variances
D) budget and efficiency variances
Q4) Refer to Figure 1. Max's materials price variance would be
A) £50,000 favorable
B) £50,000 unfavorable
C) £10,000 unfavorable
D) £10,000 favorable
Page 13
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Chapter 12: Divisional Financial Performance Measurement
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Sample Questions
Q1) Refer to Figure 1. Return on investment for the Clark Division is
A) 50.0%
B) 40.0%
C) 33.3%
D) 20.0%
Q2) The sales in the Components Division last year totaled £600,000, and its ROI was 15 percent. If the company's operating margin was 5 percent, then its average operating assets must have been
A) £4,000,000
B) £200,000
C) ££60,000
D) It cannot be determined from the information given.
Q3) Discuss the differences between centralized and decentralized decision making. Why would a firm decentralize its operations?
Q4) Refer to Figure 2. Dartmouth, SA.'s margin for the current year is
A) 7.0%
B) 7.2%
C) 4.0%
D) 2.5%
Q5) Why do firms decentralize?
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Chapter 13: Transfer Pricing in Divisionalized Companies
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Sample Questions
Q1) What is the role of transfer pricing in a decentralized firm?
Q2) _____ is when the transfer price is computed equal to a sales price received by the reseller less an appropriate markup.
A) Advance pricing agreement
B) Comparable uncontrolled price approach
C) Cost-plus approach
D) Resale price method
Q3) When an outside market exists for an intermediate product that is perfectly competitive, the ideal method of transfer pricing is often:
A) market price.
B) the one that creates the highest margin to the selling unit.
C) one that is higher than what the outside market is quoting.
D) based on management accounting numbers.
Q4) The optimal transfer price from the viewpoint of the company is
A) variable cost.
B) absorption cost plus markup.
C) variable cost plus opportunity cost.
D) absorption cost plus selling expenses.
Q5) Discuss the advantages of decentralization in a multinational company.
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Chapter 14: Cost Management
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Sample Questions
Q1) _____ are the resources consumed by the activity in producing its output.
A) Activity inputs
B) Activity outputs
C) Cost driver analysis
D) Value-added activities
Q2) A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average £4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor's carrying costs average £2,000 per day. The nonvalue-added costs for the company are
A) £80,000.
B) £40,000.
C) £20,000.
D) £-0-.
Q3) Which of the following process dimensions of the activity-based management model deals with "why"?
A) resources
B) cost driver analysis
C) activities
D) performance measures
Q4) What is kaizen costing? How does activity analysis help reduce costs?
Page 16
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Chapter 15: Strategic Performance Management
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Sample Questions
Q1) _____ are outcome measures that can be readily quantified and verified.
A) Objective measures
B) External measures
C) Financial measures
D) Lag measures
Q2) Unlike tangible products, services have the characteristic of perishability. This means that services
A) may lose their value over time
B) may lose their value due to improper conservation
C) cannot be stored for future use
D) none of the above
Q3) _____ is the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage.
A) Strategic decision making
B) Strategic cost management
C) Competitive advantage
D) Customer value
Q4) Describe the basic features of the Balanced Scorecard.
Q5) List three benefits of a value chain perspective.
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