Issuu

Type:

Test Bank

Resource:

Managerial Accounting

Edition:

1st Edition

Author(s):

Ramji Balakrishnan Konduru Sivaramakrishnan Geoff Sprinkle Lynn Carty Maria Ferraro

CHAPTER 1 ACCOUNTING: INFORMATION FOR DECISION MAKING TRUE/FALSE 1. The Decision Framework applies to all business-related decisions, but not to personal decisions. LO1 – False The four-step process applies equally to all decisions, whether personal or businessrelated. 2. Business decisions generally have few options. LO1 – False Business decisions frequently have numerous options. 3. Every option in making a decision presents a unique trade-off between benefits and costs. LO1 – True 4. Effective decision makers ensure that the value of the chosen decision option exceeds its opportunity cost. LO1 –True 5. The value of an option must always be expressed in monetary terms. LO1 – False Even though most businesses measure value in terms of money, or profit, value need not be a monetary amount. 6. Unlike individuals whose goals might have several factors, organizations tend to have focused goals. LO2 – True 7. The key difference between individual and business decisions relate to Step 2 of the four-step framework, that is, identifying options. LO2 – False The key difference between individual and business decisions relates to step 1 of the four-step framework – that is, organizations need to ensure that the goals of individual employees mesh with the focused goals of the organization. 8. To accomplish their goals, organizations not only need to allocate resources effectively, but also need to motivate employees to focus on organizational goals. LO2 – True 9. A for-profit business usually specifies organizational goals according to profit motive. LO2 – False A for-profit business usually specifies organizational goals according to ownership. 10. Decisions that best attain individual goals may not necessarily agree with the organization’s goal of maximizing profit. LO2 – True 11. Control decisions relate to motivating, monitoring, and evaluating performance. LO3 – True 1-1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Balakrishnan & Wright Managerial Accounting, Canadian Edition 12. Examining past performance is not involved in control decisions. LO3 – False Many control decisions involve examining past performance, with the purpose of improving subsequent plans. 13. The planning and control cycle is a long-term cycle normally taking months to complete. LO3 – False The planning and control cycle could happen within moments or take months. 14. Planning decisions relate to choices about acquiring and using resources to deliver products and services to customers. LO3 – True 15. The planning and control cycle includes planning, implementing, evaluating, and revising. LO3 – True 16. Understanding finance is not crucial to organizations when identifying the costs and benefits of funding operations in different ways. LO4 – False Understanding finance is crucial when identifying the costs and benefits of funding operations in different ways. 17. Managerial accounting aims to satisfy the information needs of decision makers outside the firm. LO4 – False Managerial accounting aims to satisfy the information needs of decision makers inside the firm. 18. Firms satisfy the information needs of external makers by issuing a comprehensive set of financial statements at regular intervals that relate to the firm as a whole. LO4 – True 19. The primary role of accounting is to help measure the costs and benefits of decision options. LO4 – True 20. In Canada, firms follow generally accepted accounting principles (GAAP) as defined by the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) when preparing their financial statements. LO4 – True 21. Ethics relate primarily to the decision-making step of the Decision Framework. LO5 – False Ethics relates to every aspect of the Decision Framework. 22. Many firms conduct surprise audits to increase the odds of detecting unethical behaviour. LO5 – True 23. The Sarbanes-Oxley Act of 2002 mandates that the executives and financial officers certify, in writing, the truthfulness of reports filed with the IRS. LO5 – False The Sarbanes-Oxley Act of 2002 mandates that the executives and financial officers certify, in writing, the truthfulness of reports filed with the SEC. 1-2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Accounting: Information for Decision Making 24. Some firms impose ethical standards on their suppliers. LO5 – True 25. An organization’s board of directors usually delegates most decisions to the Chief Operating Officer. Appendix A – False An organization’s board of directors usually delegates most decisions to the Chief Executive Officer, the highest-ranking executive in the organization. 26. The chief financial officer (CFO) manages the internal audit function of a company. Appendix A – False The chief internal auditor manages the internal audit function. 27. The controller manages the day-to-day accounting for the firm and oversees corporate accounting policies. Appendix A – True 28. Division managers are responsible for ensuring that the firm has appropriate monitoring, performance evaluation and incentive systems in place to motivate employees to achieve organizational goals. Appendix A – False Division managers direct the day-to-day operations of product lines and markets. 29. While divisional controllers report to division managers, they also have a “dotted line” relationship with the corporate controller. Appendix A – True

Balakrishnan & Wright Managerial Accounting, Canadian Edition MULTIPLE CHOICE 30. Which of the following is not one of the four steps in the decision making process? A. Specify the decision problem, including the decision maker’s goals. B. Identify options. C. Separate routine decision problems from non-routine decision problems. D. Measure benefits and costs to determine the value of each option. E. Make the decision, choosing the option with the highest value. LO1 – C 31. The value of an option equals its: A. Benefits plus its costs. B. Benefits less its costs. C. Costs. D. Profit. E. None of the above. LO1 – B 32. The opportunity cost of any decision option is: A. The value to the decision maker of the least-best option. B. The total profit of the best option. C. The total costs of the least option. D. The value to the decision maker of the next best option. E. None of the above. LO1 – D 33. The concepts of value and opportunity cost emphasize that every decision involves: A. Eliminating any risks of making the decision. B. Estimating the time value of money. C. Trading off what the decision maker gets with what the decision maker gives up. D. Comparing the current period’s opportunity costs with the previous period’s opportunity costs. E. None of the above. LO1 – C 34. Which of the following statements is false? A. Decisions help us accomplish goals. B. When determining their goals, individuals generally agree on the factors they consider and the importance they attach to the various factors. C. Some decisions involve a small number of options. D. For most businesses, identifying the set of options is one of the more important tasks of management. E. Value is the contribution of an option to the decision maker’s goals. LO1 – B

Accounting: Information for Decision Making 35. Managerial accounting is a branch of accounting which: A. Provides financial information to creditors and stockholders. B. Summarizes financial information. C. Assists in predicting future profits. D. Assists in making business decisions. LO1 – Self-Test – D 36. John has three options for summer work. He can do lawn work for $100 per week, babysit for $125 per week, or work at the local pool for $175 per week. All of the options would require approximately 20 hours of work per week. In addition, if he chooses to work at the pool, he will incur $20 in gas costs per week. The opportunity cost if he chooses to babysit is: A. $100 B. $175 C. $155 D. $105 LO1 – Self-Test – C 37. Greg, a college student, knows that the opportunity cost of taking a class this summer is $1,200. This means that: A. Instead of taking the class, Greg could earn $1,200 by working instead. B. Greg will need to pay $1,200 to take the class. C. The difference between what he would earn working less the cost of the class is $1,200. D. By taking the class, Greg will have the opportunity to earn $1,200 more in a job than he would without taking the class. LO1 – Self-Test – A 38. Which of the following is the best example of an opportunity cost? A. The cost of filling up the company car with gasoline. B. The time incurred in reviewing expense reports of key employees in the company. C. Taking two days vacation at the end of the month instead of completing a project for a client. D. Asking the President of the company for a raise. LO1 – Post-Test – C 39. In applying the four-step decision-making framework, which of the following is a difference in individuals’ and organizations’ decision making process? A. Individuals’ goals might have several factors whereas organizations tend to have focused goals. B. Individuals’ goals tend to be clear, whereas organizations’ goals tend to be unclear. C. Individuals’ goals tend to be long-term, whereas organizations’ goals tend to be short-term. D. Individuals’ goals’ may be monetary or nonmonetary, whereas organizations’ goals are always monetary. E. All of the above are differences in individual and organizational decisions. LO2 – A

Balakrishnan & Wright Managerial Accounting, Canadian Edition 40. Which of the following is something owners might do to influence employees to achieve organizational goals? A. Maintain policies and procedures to define acceptable behaviour. B. Have incentive schemes and performance evaluations to motivate employees to consider organizational goals. C. Monitor to enforce policies and procedures. D. Both A and B. E. A, B and C are things owners might do. LO2 – E 41. Which of the following is a reason for forming an organization? A. To help individuals in need. B. To increase one’s wealth. C. To maximize shareholder value. D. To serve the public. E. All of the above are reasons for forming an organization. LO2 – E 42. Monitoring to enforce policies and procedures might include: A. Perform random drug and alcohol tests on employees. B. Routinely walk around and make sure employees are doing their jobs. C. Keep attendance records to discourage employees from claiming payment for time not worked. D. Both A and B. E. A, B and C are methods of monitoring. LO2 – D 43. Firms promote goal congruence by: A. Requiring all employees to participate in the budgeting process. B. Assuring that all decisions have a small number of options. C. Reducing opportunity cost to a minimum. D. Tailoring policies and procedures to fit the organization’s specific needs. E. None of the above promotes goal congruence. LO2 – D 44. The owner of a driving range is trying to determine the value of hiring additional part time help. If she is able to hire someone to work in the shop for 15 hours per week for $10 per hour, she estimates that she can teach approximately 10 additional lessons for which she charges $40 per lesson. The value of hiring a new employee is: A. $400 B. $250 C. $150 D. $100 LO2 – Self-Test – B

Managerial Accounting, Canadian Edition , Ramji Balakrishnan , Konduru Sivaramakrishnan, Geoff Sprin