Management Accounting
Pre-Test Questions
Course Introduction
Management Accounting is a course designed to introduce students to the concepts, techniques, and applications of accounting information within organizations for internal decision-making purposes. The course covers essential topics such as budgeting, cost analysis, performance measurement, variance analysis, and strategic planning. Students will explore how management accountants support business operations by providing relevant data for planning, controlling, and evaluating different business activities. Emphasis is placed on the use of accounting information in decision-making processes to optimize resource allocation, enhance operational efficiency, and align organizational objectives with overall business strategies.
Recommended Textbook
Cost Management A Strategic Emphasis 5th Edition by Edward Blocher
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Chapter 1: Cost Management and Strategy
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Q1) A large company has recently been experiencing larger than normal inventories.Management would like to implement a lean manufacturing system to help control the company's inventories.Which of the following is not a benefit associated with a lean manufacturing system?
A)Reduced inventories.
B)Existing problems such as bottlenecks are highlighted.
C)Stronger supplier relationships.
D)Decreased waste.
E)Better product design.
Answer: B
Q2) Which of the following aspects of the contemporary business environment involves using statistical methods such as regression or correlation analysis to predict consumer behavior,to measure customer satisfaction,or to develop models for setting prices,among other uses?
A)Business Intelligence
B)Target Costing
C)Life Cycle Costing
D)Benchmarking
E)Business Process Improvement
Answer: A
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Sample Questions
Q1) Both cost leadership and differentiated firms can improve on execution through:
A)Improved automation and a higher output of products.
B)Benchmarking and total quality management.
C)Cost cutting and downsizing of personnel.
D)Improvements in product development.
Answer: B
Q2) In SWOT analysis,opportunities and threats are identified by:
A)Consultation with middle management.
B)Talking with the rank and file workers.
C)Looking outside the firm.
D)Brainstorming techniques.
E)Reviewing our corporate strategy.
Answer: C
Q3) In SWOT analysis,strengths and weaknesses are most easily identified by looking:
A)At the firm as a potential customer.
B)Inside the firm at its specific resources.
C)At the firm's competition.
D)At the firm's product.
E)Outside the firm from a consultant's perspective.
Answer: B
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Chapter 3: Basic Cost Management Concepts
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Sample Questions
Q1) Manufacturing firms use which of the following three inventory accounts?
A)Materials,Work-in-process,Transferred-out.
B)Materials,Work-in-process,Finished goods.
C)Materials,Finished goods,Transferred out.
D)Work-in-process,Finished goods,Transferred-out.
Answer: B
Q2) Variable costs within the relevant range for a firm are assumed:
A)Not to vary per unit.
B)Not to vary in total.
C)To be nonlinear.
D)To be curvilinear.
Answer: A
Q3) All indirect manufacturing costs are commonly combined into a single cost pool called:
A)Activity cost pools.
B)Value streams.
C)Resources.
D)Overhead.
E)Other manufacturing costs.
Answer: D
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Chapter 4: Job Costing
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Sample Questions
Q1) Which one of the following is used by the production department supervisor to request the materials for production?
A)Purchase order.
B)Material requisition.
C)Bill of materials.
D)Product job cost schedule.
E)Job cost sheet.
Q2) The following are types of rework except:
A)Rework on normal defective units common to all jobs.
B)Rework on abnormal defective units not falling within the normal range.
C)Rework on normal defective units for a particular job.
D)Rework on returned merchandise.
Q3) Rockingham Manufacturing Company builds highly sophisticated engine parts for cars competing in stock racing and drag racing.The company uses a normal costing system that applies factory overhead on the basis of direct labor-hours.For 2010 the company estimated that it would incur $256,000 in factory overhead costs and 16,000 direct labor-hours.The April 1,2010,balance in inventory accounts follow:
Q4) KLM Company listed the following data for 2010:
Q5) Jones and Jones CPA firm has the following budget for the year:
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Chapter 5: Activity-Based Costing and Customer
Profitability Analysis
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Sample Questions
Q1) Multistage ABC is used when:
A)There are many departments in the organization.
B)Management wants a higher level of accuracy from the ABC calculations.
C)There are complex relationships among the activities.
D)To simplify the ABC calculations.
E)There is no such thing as Multistage ABC.
Q2) All of the following statements regarding activity-based costing systems are true except they:
A)Can provide more accurate product costs.
B)Identify more costs as indirect costs than do traditional volume-based systems.
C)Are likely to be more time-consuming than volume-based systems.
D)Are used in both manufacturing and non-manufacturing companies.
E)Are likely to have more overhead rates than volume-based systems.
Q3) A measure of the quantity of resources consumed by an activity is:
A)Quantity driver.
B)Resource consumption cost driver.
C)Not a cost driver.
D)Activity consumption cost driver.
E)Consumption cost driver.
Page 7
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Chapter 6: Process Costing
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Sample Questions
Q1) Durable Tractor Company manufactures small tractors on an assembly-line basis.The units are started in Department Y.On January 1 of this year,the Work-in-Process inventory of department Y consisted of 400 units 100% complete as to materials and 20% complete as to conversion.During the month,800 units were started and 600 units were completed and transferred out.The Work-in-Process on January 31 was 100% complete as to materials and 40% complete as to conversion. Costs in process at the beginning of the period amounted to $100,000 for materials and $25,000 for conversion.Costs added during the period were materials costs of $200,000 and conversion costs of $143,000.
Required: Prepare a production cost report using the weighted-average method.
Q2) In a production cost report using process costing,transferred-in costs are similar to:
A)Materials costs added at the end of the process.
B)Materials costs added at the beginning of the process.
C)Conversion costs added during the process.
D)Conversion costs transferred to the next process.
E)Conversion costs included in beginning inventory.
Q3) Each of the following cases is independent.Use the FIFO method.
Q4) Williams Corporation's Department A has the following information:
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Chapter 7: Cost Allocation: Departments, Joint Products, and
By-Products
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Sample Questions
Q1) The direct method of departmental cost allocation ignores:
A)The managers' bias.
B)Accrual accounting.
C)Tax implications
D)Long-term implications.
E)Reciprocal flows.
Q2) Dual allocation is a cost allocation approach that separates direct and indirect costs,tracing the direct costs directly to the department that:
A)Can bear the cost.
B)Relates best to the cost.
C)Is first identified with the cost.
D)Caused the cost.
E)Is most impacted by the cost.
Q3) Cost allocation of shared facilities cost is intended to remind managers of:
A)The cost of using a shared resource.
B)Both the cost and value of using shared resources.
C)How much capacity a firm has.
D)Why the firm invests in these facilities.
E)How dependent the managers are for these facilities.
Page 9
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Chapter 8: Cost Estimation
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Sample Questions
Q1) Selection and employment of the correct estimation method is:
A)Easy once the data is gathered.
B)Relatively easy because only two effective methods exist.
C)Dependent on the precision/cost tradeoff for the estimation objectives.
D)Primarily subjective in nature.
E)Difficult because so many effective methods are available.
Q2) A data point that is outside the normal distribution of data,called an "outlier," is often removed from the data set before analysis because it:
A)Is obviously due to an inaccuracy in the calculations.
B)Can distort the results of the data analysis.
C)Has an upward bias on the statistical measures in regression.
D)Will always add bias to the results of a high-low analysis.
Q3) School Kids' Compact Disc Store expanded the size of its store in Westfield,NJ two months ago.The owner,Montgomery Brown,has asked you to develop an analysis of the cost structure in his store,as a basis for assessing the profitability of his business.He provides you with account data for the most recent month,which he explains is representative of what these costs are in most months of the year;there is not much seasonality in his business.Last month,May,890 compact discs were sold.This month Montgomery expects to sell 1,100 CDs.
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Chapter 9: Profit Planning: Cost-Volume-Profit Analysis
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Sample Questions
Q1) In order to determine the sales volume necessary to achieve a desired profit level,CVP analysis would be applied for:
A)Target costing.
B)Cost planning.
C)Profit planning.
D)Revenue planning.
E)Activity-based costing.
Q2) Operating leverage is equal to:
A)(Profit - fixed expenses)/sales.
B)(Sales - variable expenses)/profit.
C)Profit / (fixed expenses - variable expenses).
D)Sales / (fixed expenses - profit).
Q3) CVP analysis with multiple products assumes that sales will continue at the same mix of products,expressed in either sales units or sales dollars.This assumption is essential,because a change in the product mix will probably change:
A)The average sales price.
B)The average variable cost.
C)The weighted-average contribution margin.
D)The total fixed cost.
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Chapter 10: Strategy and the Master Budget
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Q1) Brownsville Novelty Store prepared the following budget information for the month of May:
- Sales are budgeted at $360,000.All sales are on account and a provision for bad debts is made
Monthly at three percent of sales.
- Inventory was $84,000 on April 30 and an increase of $12,000 is planned for May 31.
-All inventory is marked to sell at cost plus fifty percent.
- Estimated cash disbursements for selling and administrative expenses for the month are $48,000.
- Depreciation for May is projected at $6,000.
Budgeted Cost of Goods Purchased in May is:
A)$120,000.
B)$180,000.
C)$198,000.
D)$252,000.
E)$240,000.
Q2) Explain benefits of implementing a master budgeting system.
Q3) List some internal factors that need to be considered by a budget unit in preparing an initial budget proposal.
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Chapter 11: Decision Making With a Strategic Emphasis
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Sample Questions
Q1) All the following are characteristic of relevant costs except:
A)They are generally variable.
B)They are not committed.
C)They are different in amount for different options.
D)They are in the future.
E)They are inventory costs.
Q2) The following unit cost information pertained to the trumpet division of WGN Music Co.and was based on monthly demand and sales of 100 units:
Q3) Which one of the following is correct for determining relevant costs?
A)Differential.
B)Integrative.
C)Long-term focus.
D)Subjective.
E)Opportunistic.
Q4) Special orders:
A)Are frequent.
B)Are infrequent.
C)Commonly represent a large part of a firm's overall business.
D)Can never be profitable to a firm.
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Chapter 12: Strategy and the Analysis of Capital Investments
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Q1) Green Leaf Inc.is considering the purchase of a new piece of equipment for $30,000.The projected after-tax net income per year on this investment is estimated to be $5,000.The firm uses straight-line depreciation.This asset is expected to have a useful life of 5 years and no salvage value at the end of its useful life.Management of the company considers a 10% return on investment to be satisfactory.The present value factor for 10%,5 years = 0.621,while the present value annuity factor for 5 years at 10% is 3.791.
Required:
1.What is the estimated net present value (NPV)of the machine?
2.What is the profitability index (or,present value index),PI,for this proposed investment?
3.For what purpose is the profitability index (PI)useful,in a capital budgeting context?
4.Use the built-in function in Excel to estimate this project's internal rate of return (IRR).
5.Use the built-in function in Excel to estimate the project's modified internal rate of return (MIRR)under the assumption that the interim cash flows from the investment generate a rate of return of: (a)10%,and (b)20%.
6.How does the MIRR measure differ from the conventional IRR calculation?
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Chapter 13: Cost Planning for the Product Life Cycle: Target
Costing,Theory of Constraints,and Strategic Pricing
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Q1) The sequence of activities within the firm which begins with research and development,followed by design,and manufacturing,marketing/distribution,and customer service is the:
A)Sales life cycle.
B)Target life cycle.
C)Market life cycle.
D)Critical life cycle.
E)Cost life cycle.
Q2) During the sales life cycle,which is an example of what happens during the growth phase?
A)Sales and price decline,as do the number of competitors.
B)Sales continue to increase but at a decreasing rate.The number of competitors and product variety decline.
C)Sales increase rapidly along with an increase in product variety.
D)Sales rise slowly as customers become aware of the new product or service.Product variety is limited.
Q3) Amanda Jones owns and operates Motorcycle Rentals Inc.(MRI).Customers can rent a motorcycle in one city and then return it at one of three designated cities.Following are the costs involved in providing this service each year:
Page 15
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Chapter 14: Operational Performance Measurement: Sales
and Direct-Cost Variances, and the Role of Nonfinancial
Performance Measures
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Sample Questions
Q1) A "standard cost" is a predetermined amount (e.g. ,cost)that:
A)Should be incurred under relatively efficient operating conditions.
B)Will be incurred for an operation or a specific objective.
C)Must occur for an operation or a specific objective.
D)Cannot be changed once it is established by management.
E)Is useful for planning and control but not inventory valuation purposes.
Q2) Which of the following is not considered a basic business process?
A)Operating processes.
B)Customer-management processes.
C)Innovation processes.
D)Social/regulatory processes.
E)Just-in-time (JIT)processes.
Q3) A flexible-budget variance measures the impact on short-term operating profit of:
A)Changes in sales volume.
B)Changes in output during the period.
C)Differences in sales mix-budgeted versus actual.
D)Selling price and cost differences-actual versus budgeted.
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E)Selling price,but not cost differences-actual versus budgeted.
Q4) Discuss some major differences between static and flexible budgets.
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Chapter 15: Operational Performance Measurement:
Indirect-Cost Variances and Resource- Capacity Management
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Q1) Dillard,Inc. ,has developed the following standard cost data based on a denominator volume of 60,000 direct labor hours (DLHs),which is 75% of the firm's capacity.Budgeted fixed overhead is $360,000 and budgeted variable overhead is $180,000 at this level of activity.
Q2) Which one of the following journal entries in a standard cost system is needed at the end of the period to close out to Cost of Goods Sold an unfavorable production-volume variance?
A)A credit to Finished Goods Inventory,at standard cost.
B)A credit to Cost of Goods sold,at standard cost.
C)A credit to Cost of Goods sold,at actual cost.
D)A debit to the Production-Volume Variance account.
E)A debit to Cost of Goods sold.
Q3) Redtop Co.uses a standard cost system and flexible budgets.The following flexible budget was prepared at the 80% operating level for the year:
Q4) Erie Co.uses machine hours to apply standard overhead cost to production.The following data pertain to October:
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Q5) Ben Simon Corp.has the following information about its standards and production activity for the month of November:
Chapter 16: Operational Performance Measurement:
Further Analysis of Productivity and Sales
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Q1) Broha Company manufactured 1,500 units of its only product during 2011.The inputs for this production are as follows:
450 pounds of Material A at a cost of $1.50 per pound
300 pounds of Material H at a cost of $2.75 per pound
300 direct labor hours at $20 per hour
The firm manufactured 1,800 units of the same product in 2010 with the following inputs:
500 pounds of Material A at a cost of $1.20 per pound
360 pounds of Material H at a cost of $2.50 per pound
400 direct labor hours at $18 per hour
In 2011,the partial operational productivity of Material H is: (round all calculations to two significant digits)
A)0.20.
B)0.55.
C)1.82.
D)3.33.
E)5.00.
Q2) Taylor,Inc.has the following information for the two most recent years of operations.
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Chapter 17: The Management and Control of Quality
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Q1) Regardless of the differences in format,a common feature that should be present in any Cost-of-Quality (COQ)Report is that the report:
A)Promotes the management and control of quality-related costs.
B)Classifies costs by product line.
C)Classifies costs by cost center or profit center.
D)Classifies costs by behavior (e.g. ,fixed versus variable).
E)Classifies costs by the external value stream.
Q2) Within the context of managing and controlling quality,the term "tolerance" refers to all of the following except:
A)An approach to defining quality expectations for a process or output.
B)An acceptable range for a given quality characteristic,such as diameter or thickness.
C)An input to defining product specifications (i.e. ,"product specs").
D)1 minus the cost coefficient,k,in the Taguchi loss function.
Q3) In a lean accounting system,costs are assigned to products by:
A)Tracing costs to product value streams as much as possible.
B)Allocating common costs to various individual products.
C)Directly tracing costs to a single product as much as possible.
D)Assigning the appropriate standard costs to individual value streams.
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Chapter 18: Strategic Performance Measurement: Cost
Centers, Profit Centers, and the Balanced Scorecard
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Q1) The Daniels Tool & Die Corporation has been in existence for a little over three years;its sales have been increasing each year as it has built a reputation.The company manufactures dies to its customers' specifications;as a consequence,a job order cost system is employed.Factory overhead is applied to the jobs based on direct labor hours.Actual variable overhead is the same as applied variable overhead.Overapplied or underapplied overhead is treated as an adjustment to cost of goods sold.The company's income statements for the last two years are presented below.Daniels used the same predetermined overhead rate in applying overhead to production orders in both 2010 and 2011.The rate was based on the following estimates:
Q2) For production and support departments,a method of implementing cost centers that is input-oriented is the:
A)Budget slack.
B)Cost shifting approach.
C)Outsourcing approach.
D)Discretionary-cost method.
E)Engineered-cost approach.
Q3) Tyler Company had the following manufacturing information for the current year.
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Chapter 19: Strategic Performance Measurement: Investment Centers
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Q1) Transfer prices based on actual costs of the selling division as opposed to standard costs:
A)Are preferred by the purchasing division.
B)Often fail to provide the selling division with an incentive to control costs.
C)Often encourage the selling division to control costs.
D)Are required by international financial reporting standards.
E)Often encourage the purchasing division to control costs.
Q2) The greatest advantage of using a negotiated transfer price is:
A)It is generally the most efficient method of determining transfer prices.
B)This may be the most practical approach when conflicts exist between selling and buying divisions.
C)The method produces transfer prices that are acceptable under international financial reporting standards.
D)Tax problems are avoided because the method is considered "arm's-length."
E)It is required for federal income tax purposes.
Q3) What special problems and opportunities arise in setting transfer prices in an international setting (i.e. ,for transfers between subunits that operate in different countries)? Hint: In terms of special problems,make sure you reference OECD requirements and practical implementation alternatives for general OECD requirements. )
Page 21
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Chapter 20: Management Compensation, Business
Analysis, and Business
Valuation
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Q1) The balanced scorecard critical success factors (CSFs)provide strong motivation in bonus compensation plans if the non-controllable factors are:
A)Emphasized.
B)Separated.
C)Recognized.
D)Excluded.
E)Controlled.
Q2) Which one of the following develops the value of the firm as the discounted present value of the firm's net free cash flows?
A)Discounted cash flow method.
B)Liquidity method.
C)Multiples-based method.
D)Profitability method.
E)Purchasing power method.
Q3) Salary is:
A)A fixed payment that includes a bonus.
B)A fixed payment that includes benefits.
C)A benefit that includes a bonus.
D)A fixed payment.
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