Management Accounting
Practice Questions
Course Introduction
Management Accounting is a course designed to introduce students to the principles and practices involved in providing financial and non-financial information to managers for the purpose of planning, controlling, and decision-making within organizations. The course covers topics such as cost behavior, budgeting, performance evaluation, variance analysis, and the use of management accounting tools and techniques in strategic decision-making. Emphasis is placed on how management accounting supports internal business processes, helps optimize resource allocation, and contributes to achieving organizational objectives in a dynamic business environment.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis16th Global Edition by Srikant M. Datar
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Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Bonuses given to employees based on performance is an example of extrinsic reward.
A)True
B)False
Answer: True
Q2) Which of the following statements is true of performance reports?
A)The performance report shows actual performance as compared to the budget.
B)The performance report depicts the performance of a firm's competitors.
C)The performance report compares only the budgeted performance over the years.
D)The performance report contains no actual results due to confidentiality.
Answer: A
Q3) A report showing the actual financial results for a period compared to the budgeted financial results for that same period would most likely be called a ________.
A)strategic plan
B)management forecast
C)performance report
D)revised plan
Answer: C
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Cost of goods sold for a manufacturer is calculated as follows: beginning finished goods + cost of goods manufacturered - ending finished goods.
A)True
B)False
Answer: True
Q2) A company reported revenues of $382,000,cost of goods sold of $125,000,selling expenses of $16,000,and total operating costs of $74,000.Gross margin for the year is
A)$257,000
B)$241,000
C)$167,000
D)$292,000
Answer: A
Q3) Indirect manufacturing costs are also referred to as manufacturing overhead costs or factory overhead costs.
A)True
B)False
Answer: True
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4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The classification of costs as variable and fixed depends on the relevant range,the length of the time horizon,and the specific decision situation.
A)True
B)False
Answer: True
Q2) Contribution margin = Total revenues - Total manufacturing costs
A)True
B)False
Answer: False
Q3) In a company with low operating leverage,________.
A)fixed costs are more than the contribution margin
B)contribution margin and operating income are inversely related
C)there is a higher possibility of net loss than a higher-leveraged firm
D)less risk is assumed than in a highly leveraged firm
Answer: D
Q4) Contribution margin per unit equals contribution margin divided by number of units sold.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Job Costing
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Sample Questions
Q1) The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________.
A)adjusted allocation-rate approach
B)proration approach
C)write-off to cost of goods sold approach
D)adjusted write-off approach
Q2) The formula for the predetermined indirect cost rate is:
A)Budgeted annual indirect costs divided by actual quantity of cost-allocation base
B)Budgeted annual indirect costs divided by budgeted annual quantity of cost-allocation base
C)Actual annual indirect costs divided by budgeted annual quantity of cost-allocation base
D)Actual annual indirect costs divided by actual annual quantity of cost-allocation base
Q3) Oil refining companies primarily use job costing to estimate costs.
A)True
B)False
Q4) Differentiate between a cost pool and a cost-allocation base.
Q5) What is the difference between an actual cost system and a normal cost system?
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) Product-cost cross-subsidization means that:
A)when one product is overcosted,it results in more than one other product being overcosted
B)when a company undercosts more than one of its products,it will overcost more than one of its other products
C)when a company undercosts one of its products,it will overcost at least one of its other products
D)when one product is overcosted it results in all other products being overcosted
Q2) Which of the following ordering of the levels best depicts the cost hierarchy within an ABC system?
A)batch-level,output unit-level,product-sustaining level,and facility-sustaining level
B)batch-level,output unit-level,facility-sustaining levels,product-sustaining levels
C)output unit-level,batch-level,product-sustaining level,and facility-sustaining level
D)facility-sustaining level,output unit-level,batch-level,product-sustaining level
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Activity-based budgeting,with its focus on cost drivers and the cost of activities,provides better decision-making information than budgeting based solely on output-based cost drivers (units produced,units sold,or revenues).
A)True
B)False
Q2) Which of the following is the basic formula of the direct materials usage budget?
A)Ending inventory of direct materials + direct materials purchased and used during the period = direct materials to be used this period
B)Beginning inventory of direct materials + direct materials purchased and used during the period = direct materials to be used this period
C)units used in production + target ending inventory - beginning inventory = purchases to be made for the budget period
D)units used in production + target beginning inventory - ending inventory = purchases to be made for the budget period
Q3) Discuss the importance of the sales forecast and items that influence its accuracy.
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Chapter 7: Flexible Budgets,direct-Cost Variances,and Management Control
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Sample Questions
Q1) If a sales-volume variance was caused by poor-quality products,then the ________ would be in the best position to explain the variance.
A)production manager
B)sales supervisor
C)financial supervisor
D)logistic manager
Q2) Give at least three good reasons why a favorable price variance for direct materials might be reported.
Q3) Direct material price variance is likely to be unfavorable if the purchasing manager switched to a lower-price supplier.
A)True
B)False
Q4) The flexible-budget variance is the total of price variance and efficiency variance. A)True
B)False
Q5) A favorable variance should be ignored by management. A)True
B)False
9
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Chapter 8: Flexible Budgets, overhead Cost Variances, and Management Control
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Sample Questions
Q1) Which of the following statements is true of variable overhead costs?
A)Variable overhead costs always have unused capacity.
B)Variable overhead costs have no production-volume variance.
C)Variable overhead costs have no spending variance.
D)Variable overhead costs have no efficiency variance.
Q2) The accounting for 3-variance analysis is simpler than the 4-variance analysis,but some information is lost because the variable and fixed overhead spending variances are combined into a single total overhead spending variance.
A)True
B)False
Q3) Wainwright has budgeted construction overhead for August of $435,000 for fixed costs.Actual costs for the month totaled for $450,000 for fixed.Allocated fixed overhead totaled $430,000.The company tracks each item in an overhead control account before allocations are made to individual jobs.The fixed overhead spending variance for August was $15,000 unfavorable for fixed.
Required:
a.Make journal entries for the actual costs incurred.
Page 10
b.Make journal entries to record the variances for August.
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) Switching production to products that absorb the highest amount of fixed manufacturing costs is also called ________.
A)cost reduction
B)cherry picking
C)producing for sales
D)throughput costing
Q2) If 800 units are produced and 1,200 units are sold,the costing method which will result in the greatest operating income is ________.
A)throughput costing
B)variable costing
C)absorption costing
D)period costing
Q3) If 1,000 units are produced and only 700 units are sold,________ results in the greatest amount of expense reported on the income statement.
A)throughput costing
B)variable costing
C)absorption costing
D)job costing
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11
Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) In a graphical display of a cost function,the steepness of a line represents the total amount of fixed costs.
A)True
B)False
Q2) Which cost estimation method uses a formal statistical method such as regression analysis to develop cost functions based on past data?
A)the cash accounting method
B)the conference method
C)the accrual accounting method
D)the quantitative analysis method
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 manufacturing labor is $15 per hour.
b.Direct materials cost $25.60 per cubic yard.
c.Utilities have a minimum charge of $500,plus a charge of $0.25 per kilowatt-hour.
d.Machine operating costs include $250,000 of machine depreciation per year,plus $100 of utility costs for each day the machinery is in operation.
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) What are opportunity costs? Explain why opportunity costs are not recorded in financial accounting systems.
Q2) Quantitative factors,such as direct material costs,are outcomes that are measured in numerical terms.
A)True
B)False
Q3) Sunk costs are ________.
A)costs incurred as a result of an investment position
B)costs that is the sum of all costs in a particular business function of the value chain
C)the contributions to operating income that is forgone by not using a limited resource in its next-best alternative use
D)costs that are unavoidable and cannot be changed no matter what action is taken
Q4) An incremental cost is
A)an additional total cost for an activity
B)a cost that has already been incurred
C)the difference in total costs between two alternatives
D)always related to fixed costs
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Chapter 12: Strategy,balanced Scorecard,and Strategic
Profitability Analysis
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Sample Questions
Q1) Balanced scorecards are almost exclusively utilized in profit-seeking organizations as nonprofits cannot benefit from focusing on financial perspectives such as net income and shareholder value.
A)True
B)False
Q2) Conversion costs are an example of ________.
A)direct engineered costs
B)indirect engineered costs
C)discretionary costs
D)unused capacity costs
Q3) Which of the following is the correct mathematical expression to calculate total factor productivity?
A)Sales value of output produced ÷ Quantity of all inputs used
B)Quantity of output produced ÷ Quantity of the input used
C)Quantity of output produced ÷ Costs of all inputs used
D)Sales value of output produced ÷ Cost of inputs required to produce current year production in previous year
Q4) Can a company identify unused capacity and,if so,how can unused capacity be managed?
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) Managing environmental costs is an example of life-cycle costing and value engineering.
A)True
B)False
Q2) Value engineering cannot decrease value-added costs.
A)True
B)False
Q3) Which of the following is true of target pricing?
A)it is used for short-term pricing decisions.
B)it is one form of cost-based pricing.
C)a price is an estimate of customers' perceived value of the product.
D)a price is calculated by adding a markup component to the cost base.
Q4) 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
Q5) Markups tend to be higher in more competitive markets.
A)True
B)False
Page 15
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Chapter 14: Cost Allocation,
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Sample Questions
Q1) Salary of top management and general-administration costs is an example of which of the following?
A)customer output unit-level costs
B)customer batch-level costs
C)distribution-channel costs
D)corporate-sustaining costs
Q2) Which of the following is true of corporate-sustaining costs?
A)are common to all individual customers
B)have a clear cause-and-effect relationship with several cost-allocation bases
C)should be allocated for decisions regarding reducing customer costs
D)evaluates the effectiveness of sales personnel
Q3) Advances in information-gathering technology make it more likely that multiple cost-pool systems will pass the cost-benefit test.
A)True
B)False
Q4) Costs in a homogeneous cost pools have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base.
A)True
B)False
Page 16
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Sample Questions
Q1) Why do organizations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions? Explain.
Q2) Harbor Corp currently leases a corporate suite in an office building for a cost of $360,000 a year.Only 80% of the corporate suite is currently being used.A start-up business has proposed a plan that would use the other 20% of the suite and increase the overall costs of maintaining the space by $20,484.If the incremental method were used,what amount of cost would be allocated to the start-up business?
A)$20,484
B)$380,484
C)$76,097
D)$88,387
Q3) Allocating common costs can best be achieved by using the stand-alone cost-allocation method.
A)True
B)False
Q4) Describe and discuss the two methods of allocating revenues of a bundled package to the individual products in that package.Describe any special problems associated with the method.
Page 17
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) List the reasons that the sales value at split-off method of joint cost allocation should be used.
Q2) An example of allocating joint costs using physical measures is allocating joint costs based on the ________.
A)sales value at split-off point
B)volume of the products produced
C)constant gross-margin percentage
D)net realizable value
Q3) Which of the following would not be a GAAP or managerial accounting reason for allocating joint costs?
A)to calculate cost of goods sold
B)to analyze the profitability of various products
C)for reimbursement of costs under a federal contract
D)to evaluate the performance of division managers
Q4) Physical measures such as weight or volume are the best indicators of the benefits received for allocating joint costs.
A)True
B)False
Q5) Explain why some companies choose not to allocate joint costs to products.
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Chapter 17: Process Costing
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Sample Questions
Q1) The weighted-average process costing method does not distinguish between units started in the previous period but completed during the current period and units started and completed during the current period.
A)True
B)False
Q2) An operation-costing system is a hybrid-costing system applied to batches of similar,but NOT identical,products.
A)True
B)False
Q3) Which of the following best describes transferred-in costs?
A)they are the cost of transferring products from a vendor
B)they are value-added costs that are only considered in the first-in,first out process costing system
C)costs incurred in a previous department or process that are carried forward as the product's cost as that product moves to another department or process in the production cycle
D)they are the shipping costs related to finished goods that are transported to a customer's location
Q4) List and describe the five steps in process costing.
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Chapter 18: Spoilage, rework, and Scrap
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Sample Questions
Q1) Spoilage that is not inherent in a particular production process and would not arise under efficient operating conditions is referred to as ________.
A)incremental spoilage
B)usual spoilage
C)abnormal spoilage
D)indirect spoilage
Q2) Line operators and other plant personnel generally can decrease or eliminate normal spoilage by identifying the reasons for machine breakdowns,operator errors.
A)True
B)False
Q3) Abnormal spoilage is spoilage inherent in a particular production process. A)True
B)False
Q4) How does inspecting at various stages of completion affect the amount of normal and abnormal spoilage?
Q5) Costs of abnormal spoilage are separately accounted for as losses of the period. A)True B)False
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Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Acme Janitor Service has always taken pride in the fact that it had one of the highest customer response times in the home cleaning service industry.However,as the products manufactured for this industry have become more complex,the company's customer response time has declined.
Required:
Why do you think that response time declined if all other quality factors have remained the same?
Q2) Which of the following is the mathematical expression for calculating manufacturing cycle efficiency (MCE)?
A)MCE = Manufacturing cycle time ÷ Value-added manufacturing time
B)MCE = Manufacturing time ÷ Value-added manufacturing time
C)MCE = Value-added manufacturing time ÷ Manufacturing cycle time
D)MCE = Value-added manufacturing time ÷ Manufacturing time
Q3) Cost of Quality (COQ)reports provide more insight about quality improvements and allow managers to compare trends over time.
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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Q1) A system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities is known as a(n)________.
A)economic order quantity (EOQ)system
B)enterprise resource planning (ERP)system
C)just-in-time (JIT)system
D)material requirements planning (MRP)system
Q2) Which of the following statements best defines lean accounting?
A)an accounting system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities
B)a costing method that supports creating value for the customer by costing the entire value stream thereby eliminating waste in the accounting process
C)an accounting system that omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods
D)an integrated costing system covering a company's accounting,distribution,manufacturing,purchasing,human resources,and other functions
Q3) What are five features of a just-in-time manufacturing system?
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Page 22
Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) A "what-if" technique that examines how a result will change if the original predicted data are NOT achieved or if an underlying assumption changes is called ________.
A)sensitivity analysis
B)net present value analysis
C)internal rate-of-return analysis
D)adjusted rate-of-return analysis
Q2) The net present value method accurately assumes that project cash flows can only be reinvested at the company's required rate of return.
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) How is inflation related to capital budgeting? Discuss.
Q5) What are the relevant cash inflows and outflows for capital budgeting decisions?
Q6) Discuss a range of factors that managers may have to consider when making capital budgeting decisions that are strategic in nature.
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Chapter 22: Management Control Systems, transfer Pricing, and Multinational Considerations
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Q1) What are distress prices and which transfer prices should be used for judging performance if distress prices prevail?
Q2) One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.
A)it is illegal as well as unethical to do so
B)the tax authorities may suspect manipulation of records
C)it is almost impossible to keep the records straight and hard to reconcile the books
D)the shareholders do not approve of such methods and the market prices will decline
Q3) Which of the following transfer-pricing methods always achieves goal congruence?
A)a market-based transfer price
B)a cost-based transfer price
C)a negotiated transfer price
D)full-cost plus a standard profit margin
Q4) "Management control systems consist of formal and informal control systems." Briefly explain the formal and informal management systems and enlist their components.
Q5) What are transfer prices and what are its criteria?
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Chapter 23: Performance Measurement, compensation, and
Multinational Considerations
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Q1) The weighted-average cost of capital (WACC)equals ________.
A)the after-tax average cost of all the long-term and short-term sources of funds
B)the after-tax average cost of all the long-term source of funds
C)the pre-tax average cost of all the short-term sources of funds
D)the pre-tax average cost of all the long-term and short-term sources of funds
Q2) Historical costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures.
A)True
B)False
Q3) The proponents of using net book value as an investment base maintain that it is less confusing because it is consistent with the amount of total assets shown in the conventional balance sheet.
A)True
B)False
Q4) Using net book value as an investment base will result in a lower ROI than using gross book value as an investment base.
A)True
B)False
Page 25
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