Managerial Decision Making Review Questions
Course Introduction
Managerial Decision Making explores the processes and methodologies that managers use to make effective and informed choices in complex organizational environments. The course examines the psychological, behavioral, and analytical aspects of decision-making, emphasizing both individual and group dynamics. Topics include problem identification, risk assessment, decision-making models, cognitive biases, ethical considerations, and the use of quantitative tools. Students will engage with real-world scenarios and case studies to develop practical skills in identifying alternatives, evaluating outcomes, and implementing solutions, preparing them to lead and facilitate sound decision-making processes within their organizations.
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Cost Management Measuring Monitoring and Motivating Performance 2nd Canadian Edition by
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Chapter 1: The Role of Ethical Accounting Information in Management Decision Making
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Sample Questions
Q1) Biases:
A)Are issues about which managers have doubts.
B)Do not impact accounting information, which is highly objective and reliable
C)Are preconceived notions developed without careful thought
D)Are rarely a problem in business decision making
Answer: C
Q2) Which of the following is a type of external report produced by an organization?
A)Cash flow plan
B)Analysis of potential acquisition
C)News release
D)Bonus computations
Answer: C
Q3) Managers can make higher-quality decisions by relying on all of the following except:
A)More complete information
B)Better decision-making processes
C)Irrelevant information
D)Information having less uncertainty
Answer: C
Page 3
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Chapter 2: Cost Concepts, Behaviour, and Estimation
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Q1) Estimates of future costs can be used in budgeting.
A)True
B)False
Answer: True
Q2) Indirect costs are:
A)Costs that need to be assigned but cannot easily be traced to cost objects
B)Only variable costs
C)Costs that can easily be traced to cost objects
D)Only fixed costs
Answer: A
Q3) Uncertainties and information quality are evaluated when determining relevant costs, then not considered again.
A)True
B)False
Answer: True
Q4) Categorizing costs by their behaviour is one step in estimating relevant costs for a cost object.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Define operating leverage and explain its importance to managers and accountants when the business environment in which they operate becomes more risky.
Answer: Operating leverage reflects the degree to which costs are fixed in the current cost function. As the business environment becomes more risky, organizations' revenues might become more volatile. A lower (higher)degree of operating leverage leads to a lower (higher)breakeven point, so that lower (higher)revenues are needed to breakeven.
Q2) Information from CVP analysis helps with all of the following decisions except:
A)The appropriate volume of production
B)Which products to emphasize
C)Whether to lay off a specific employee
D)The most effective cost structure
Answer: C
Q3) The margin of safety can be expressed in units, dollars, or a percentage.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Relevant Information for Decision Making
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Q1) The managers of Adamson Apple Co. are considering dropping one of their product lines. The product line typically has the following revenue and costs: Sales $100,000
Variable costs 80,000
Contribution margin 20,000
Fixed costs 25,000
Operating loss $ (5,000)
If the product line is discontinued, $4,000 of the fixed costs would be avoided. Also, the freed-up capacity would generate $4,000 of additional contribution margin from the expansion of other product lines. If Adamson discontinues the product line, the effect on overall income will be:
A)$12,000 decrease
B)$8,000 decrease
C)$9,000 increase
D)$3,000 increase
Q2) Special order decisions are long-term decisions that may need to include the time value of money.
A)True
B)False
Q3) Describe the costs that are usually relevant to a make or buy decision.
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Page 6
Chapter 5: Job Costing
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Q1) The quarterly income statement for Largent is as follows: Sales $1,600
Less variable expenses:
Direct materials $280
Direct labour 300
Manufacturing overhead 60
Administrative expenses 30
Selling expenses 70 740
Contribution margin 860
Less fixed expenses:
Manufacturing overhead $180
Administrative expenses 440
Selling expenses 100 720
Income before taxes $ 140
What total amount represents the product costs?
A)$640
B)$820
C)$580
D)$900
Q2) Under a normal costing system, explain why the volume used to calculate the estimated allocation rate will not usually be equal to the actual volume.
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Page 7
Chapter 6: Process Costing
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Sample
Questions
Q1) Mojdehi Manufacturing Co. uses a weighted average process costing system. During the current period 4,800 units were transferred in (cost $150,000)to Department Q. In Department Q materials were added costing $20,000 and conversion costs of $55,000 were incurred. A total of 4,400 good units were transferred to finished goods. Normal spoilage is 2% of the units inspected, and the inspection occurs at the end of the process. Direct materials are added at the beginning of the process. Additionally:
Beginning WIP: 1,000 units, 40% complete
Direct materials costs = $4,070
Conversion costs = $6,008
Transferred-in costs = $10,080
Ending WIP: 1,200 units, 30% complete
Prepare a complete process costing report for the current period)
Q2) A costing system that determines an average cost for all units of product in a particular time period is:
A)Job costing system
B)Batch costing system
C)Process costing system
D)Direct costing system
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Chapter 7: Activity-Based Costing and Management
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Q1) Quick Start Engines has two departments, Assembly and Testing. You are given the following information about the costs of 5 activities that occur at the manufacturing plant monthly: Activity Total Costs Volume of Cost Driver
Material handling $100,000 200,000 parts
Supervision of direct labour 105,000 70 employees
Janitorial and cleaning 150,000 3,000 hours
Machining 240,000 6,000 machine hours
Total costs $595,000
The above activities are used by the two departments as follows: Assembly Testing
Material handling 150,000 parts 50,000 parts
Supervision of direct labour 30 employees 40 employees
Time spent cleaning 2,000 hours 1,000 hours
Number of machine hours 4,000 machine hours 2,000 machine hours
How much of the material handling cost will be allocated to Assembly?
A)$75,000
B)$25,000
C)$66,667
D)$33,333
Q2) Describe activity based management.
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Page 9
Chapter 8: Measuring and Assigning Support Department
Costs
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Q1) The accountant for Milton, Inc. is preparing the budgets for operating department support service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are allocated based on number of employees. The following data have been collected: Support Departments Operating Departments
Maintenance Cafeteria Cutting Packaging
Direct costs $50,000 $45,000 $275,000 $300,000
Number of employees 15 10 150 250 Square metres 1,500 2,000 3,500 4,000 If the direct method is used, maintenance costs allocated to the cutting department will be:
A)$15,909
B)$23,333.33
C)$20,520
D)$43,750
Q2) Sometimes costs that include support department allocations are used in short-term decision-making, resulting in poor outcomes. Discuss ways to address the limitations inherent in single-rate support cost allocation information.
Q3) Distinguish between support department costs and manufacturing overhead costs.
Q4) List two advantages of the dual-rate method.
Page 10
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Chapter 9: Joint Product and By-Product Costing
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Q1) Managers should choose a joint cost allocation method to avoid giving the impression that one or more products are sold at a loss when they actually contribute to profitability.
A)True
B)False
Q2) For what types of products is the physical output method appropriate? Explain.
Q3) The value of a by-product can be recognized at the time:
I. Of production
II. Of its sale
III. Joint products are sold
A)I and II only
B)I and III only
C)II and III only
D)I, II, and III
Q4) Joint costs are allocated to individual products primarily to meet requirements for:
A)Ethical decision making
B)Financial accounting
C)Variance analysis
D)Budgeting
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Chapter 10: Static and Flexible Budgets
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Q1) When evaluating actual results at the end of an accounting period, the static budget provides an appropriate benchmark for actual operations.
A)True
B)False
Q2) Managers need information from current beginning inventories and required ending inventories to prepare the production budget.
A)True
B)False
Q3) Static budgets:
I. Are based on specific volumes of products
II. May hide variances caused by operational inefficiencies
III. Do not include fixed costs
A)I and III only
B)II and III only
C)I and II only
D)I, II, and III
Q4) List two methods that organizations could use to minimize budgetary slack.
Q5) Discuss the similarities and differences between annual budgets and rolling budgets.
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Chapter 11: Standard Costs and Variance Analysis
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Sample Questions
Q1) If a variance is investigated and determined to be random, managers should:
A)Write off the variance against cost of goods sold
B)Do nothing
C)Identify and discipline the employee(s)responsible
D)Write off the variance against work in process
Q2) Dem Mfg. has gathered the following data in preparing to record their direct labour payroll costs for the week: Actual hours worked 18,500
Standard hours allowed 20,000
Total direct labour variance $8,300 F
Direct labour price variance $3,700 U
The standard direct labour price was:
A)$8.00
B)$8.20
C)$3.07
D)$3.05
Q3) (Appendix 11A)All of the following are profit related variances except:
A)Sales price variance
B)Fixed overhead production volume variance
C)Contribution margin variance
D)Revenue sales quantity variance
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Chapter 12: Strategic Investment Decisions
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Sample Questions
Q1) Arnold Company is acquiring a new machine with a life of 5 years for use on its production line. The following data relate to this purchase: Cost of new machine $100,000
Annual cost savings in cash expenses 45,000
Terminal value 8,000
Maintenance required in the 4th year 5,000
Book value of the old machine 20,000
The new machine would replace an old fully-amortized machine. The old machine can be sold for $15,000 at the time the new equipment is acquired. The income tax rate is 30%, and the discount rate is 12%. Arnold uses the straight-line method for amortization on all machines (ignore the half-year convention). Note: some amounts are rounded.
The present value of the maintenance cost in year 4 is:
A)$2,226
B)$3,180
C)$954
D)$420
Q2) (Appendix 12A)The real discount rate can be decomposed into two pieces. Describe each one.
Q3) List one pro and one con for using the payback method.
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Chapter 13: Pricing Decisions
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Q1) Which of the following is most likely to be the highest transfer price?
A)Variable cost
B)Dual-rate
C)Market price
D)Activity-based cost
Q2) The Machining Division has a capacity of 2,000 units. Its sales and cost data are:
Selling price per unit $100
Variable manufacturing costs per unit $25
Variable administrative costs per unit $5
Total fixed manufacturing overhead $20,000
Total fixed administrative costs $5,000
The Machining Division is currently selling 1,900 units to outside customers, and the Assembly Division wants to purchase 300 units from Machining. If the transaction takes place, the variable administrative costs per unit on the units transferred to Assembly will be $2/unit, not $5/unit. What should be the transfer price?
A)$73.67
B)$76.67
C)$97.00
D)$100.00
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Chapter 14: Strategic Management of Costs
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Sample Questions
Q1) Kaizen costing is concerned with continuous improvement in product cost, quality, and functionality.
A)True
B)False
Q2) Give a complete but concise explanation of the target costing cycle.
Q3) Consumer surveys, focus groups, and market research are:
A)Value-added activities
B)Information sources for target costing projects
C)Always part of a company's value chain
D)Information sources for cost-based pricing
Q4) Which of the following is an example of a value-added activity?
A)Accounting
B)Human resources
C)Manufacturing
D)Budgeting
Q5) Target costing works best when production processes are simple, rather than complex.
A)True
B)False
Q6) Compare and contrast target costing with kaizen costing.
Page 16
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Chapter 15: Measuring and Assigning Costs for Income Statements
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Q1) For the month ended October 31<sup>st</sup>, there are no finished goods or work in process inventories at the beginning of the month for the Fleetfoot Company. Net sales
$8,400
Product costs:
Variable 3,780
Fixed 1,890
Selling and Administrative costs:
Variable 588
Fixed 840
Units manufactured 210
Units sold 180
What would Fleetfoot's finished goods inventory cost be at December 31<sup>st</sup> under the absorption costing method?
A)$540
B)$624
C)$810
D)$1,014
Q2) Can the use of variable costing eliminate the build-up of ending finished goods inventories that often occurs under absorption costing? Why, or why not?
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Chapter 16: Performance Evaluation and Compensation
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Sample Questions
Q1) Bellingham Division has a required rate of return by corporate headquarters of 20%. The weighted average cost of capital is 12%. You are given the following information for Bellingham's operations for a two-year period: 2005 2004
Current assets $ 50,000 $ 60,000
Long-term assets 200,000 204,000
Accumulated amortization 60,000 44,000
Current liabilities 40,000 20,000
Long-term debt 100,000 140,000
Operating income for the year 19,000 21,000
Tax rate 40% 40%
The EVA for 2005 was:
A)($18,600)
B)($12,840)
C)($9,600)
D)($6,600)
Q2) Specific knowledge is:
A)Not necessary in today's business operations
B)Not very costly to transfer
C)The same as general knowledge
D)Detailed technical knowledge about specific processes
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Chapter 17: Strategic Performance Measurement
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Sample Questions
Q1) Max Manufacturing is using the measure "number of steps in production". This measure is most likely associated with which of the balanced scorecard perspectives?
A)Financial
B)Customer
C)Internal business processes
D)Learning and growth
Q2) A balanced scorecard often contains four perspectives: customer, financial, internal business process, and learning and growth.
A)True
B)False
Q3) Strengths of the balanced scorecard related to communication and linkages include:
I. Encouraging clarification of vision and strategies
II. Improving organizational consensus
III. Selecting measures that reflect the only strengths of the organization
A)I and II only
B)I and III only
C)II and III only
D)I, II, and III
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Chapter 18: Sustainability Management
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Sample Questions
Q1) In 2008, the top two motivations to explain sustainability reporting were:
A)Ethical considerations and economic considerations
B)Reputation or brand and innovation & learning
C)Employee motivation and risk management
D)Strengthened supplier relationships and access to capital
Q2) Firms that report GRI core indicators are more likely to:
I. Improve sustainability
II. Establish programs to reach targets for metrics reported
III. Conform with laws
A)I and II only
B)II and III only
C)I and III only
D)I, II, and III
Q3) Fines, lawsuits and clean up costs are an example of hidden costs.
A)True
B)False
Q4) Most companies are motivated to issue sustainability reports by ethical considerations.
A)True
B)False
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