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Chapter 1 Managerial Accounting and the Business Environment
True/False Questions
- Although financial and managerial accounting differ in many ways, they are similar in that both rely on the same underlying financial data.
Answer: True Level: Medium LO: 1
- Managerial accounting is a branch of financial accounting and serves essentially the same purposes as financial accounting.
Answer: False Level: Medium LO: 1
- Managerial accounting places greater emphasis on the future than financial accounting, which is primarily concerned with the past.
Answer: True Level: Easy LO: 1
- Managerial accounting is not needed in a non-profit or governmental organization.
Answer: False Level: Easy LO: 1
- When carrying out their planning activities, managers select a course of action and specify how the action will be implemented.
Answer: True Level: Easy LO: 2
- When carrying out their planning activities, managers obtain feedback to ensure that the plan is actually carried out and is appropriately modified as circumstances change.
Answer: False Level: Medium LO: 2
- The controller occupies a line position in an organization.
Answer: False Level: Easy LO: 2
- Decentralization means the delegation of decision-making authority throughout an organization by allowing managers at various operating levels to make key decisions relating to their own area of responsibility.
Answer: True Level: Easy LO: 2
Chapter 1 Managerial Accounting and the Business Environment
- A firm's organization chart will normally show both the formal and informal lines of reporting and communication.
Answer: False Level: Easy LO: 2
- The Chief Financial Officer of an organization is responsible for ensuring that line operations run smoothly.
Answer: False Level: Medium LO: 2
- Traditionally, companies have maintained large amounts of raw materials, work in process, and finished goods inventories to act as buffers so that operations can proceed smoothly even if there are unanticipated disruptions.
Answer: True Level: Medium LO: 3
- Process Reengineering is generally considered to be a more radical approach to improvement than Total Quality Management.
Answer: True Level: Easy LO: 3
- Process Reengineering emphasizes a team approach involving front-line workers, whereas Total Quality Management is usually implemented using outside specialists and is imposed from above.
Answer: False Level: Medium LO: 3
- If ethical standards were not generally followed, one of the results would probably be fewer goods and services available in the marketplace.
Answer: True Level: Medium LO: 4
- The Standards of Ethical Conduct for Management Accountants promulgated by the Institute of Management Accountants specifically state that management accountants' sole ethical responsibility is to not break any laws.
Answer: False Level: Easy LO: 4
Chapter 1 Managerial Accounting and the Business Environment
- Which of the following is not one of the three basic activities of a manager? A) Planning B) Controlling C) Directing and motivating D) Compiling management accounting reports
Answer: D Level: Easy LO: 2
- The delegation of decision making to lower levels in an organization is known as: A) the planning and control cycle. B) controlling. C) decentralization. D) none of these.
Answer: C Level: Easy LO: 2
- Which of the following statements are false concerning line and staff functions?
I. Persons occupying staff functions have authority over persons occupying line functions. II. Both line and staff functions are depicted on the organization chart. III. Line functions are directly related to the basic objectives of an organization.
A) Only I B) Only II C) Only I and II D) I, II, and III
Answer: A Level: Medium LO: 2
- Which of following would normally be found on a manufacturing company's organization chart? A) the layout of the factory assembly lines B) a list of the materials needed to produce each of the company's products C) the informal lines of reporting and communication D) none of the above
Answer: D Level: Easy LO: 2
Chapter 1 Managerial Accounting and the Business Environment
- For a hospital, what type of position (line or staff) is each of the following?
Emergency Room Manager Human Resources (Personnel) Manager A) Staff Staff B) Staff Line C) Line Staff D) Line Line
Answer: C Level: Easy LO: 2
- A detailed financial plan for the future is known as a: A) budget. B) performance report. C) organization chart. D) segment.
Answer: A Level: Easy LO: 2
- A performance report is: A) a detailed report comparing budgeted data to actual data for a specific time period. B) a formal statement of plans for the upcoming period. C) required to be filed monthly by the Securities and Exchange Commission. D) not used in decentralized organizations.
Answer: A Level: Easy LO: 2
- A clustering of two or more machines at a single workstation is referred to as: A) a manufacturing cell. B) an activity center. C) a functional layout. D) a setup.
Answer: A Level: Medium LO: 3
- A focused factory is: A) a factory that makes only a single product. B) a factory that performs a single step in the production process and subcontracts the other steps. C) a plant layout in which all machines needed to make a particular product are brought together in one location. D) required to bid for defense contracts.
Answer: C Level: Easy LO: 3
Chapter 1 Managerial Accounting and the Business Environment
- According to the Theory of Constraints, improvement efforts should usually be focused on: A) work centers that are not constraints. B) the work center that is the constraint. C) the work center with the highest total cost. D) the work center with the most obsolete equipment.
Answer: B Level: Medium LO: 3
- Which of the following is true regarding the theory of constraints? A) The theory of constraints does not apply to companies with multiple products because of capacity measurement difficulties. B) In any profit-seeking company, there must be at least one constraint. C) Constraints or bottlenecks stop organizations from selling an infinite number of units or services. D) both B and C above.
Answer: D Level: Medium LO: 3
- Pizza World makes forty-three kinds of pizza for takeout and delivery. Which of the following could be the constraint at Pizza World? A) the person who makes the pizza crust. B) the person who puts toppings on the pizzas. C) the pizza oven. D) any of the above could be the constraint.
Answer: D Level: Medium LO: 3
- The Standards of Ethical Conduct for Management Accountants developed by the Institute of Management Accountants contain a policy regarding confidentiality that requires management accountants to refrain from disclosing confidential information acquired in the course of their work: A) except when authorized by management. B) in all situations. C) except when authorized by management, unless legally obligated to do so. D) in all cases not prohibited by law.
Answer: C Level: Hard LO: 4
Chapter 1 Managerial Accounting and the Business Environment
- Wide-spread adherence to ethical standards in an advanced market economy tends to result in all of the following except: A) higher prices. B) higher quality goods and services. C) greater variety of goods and services available for sale. D) safer products.
Answer: A Level: Medium LO: 4
- The Institute of Management Accountants (IMA) has developed ethical standards for management accountants. What four categories has the IMA classified these standards into? A) Reliability, Objectivity, Commitment, and Competence B) Objectivity, Integrity, Commitment, and Confidentiality C) Observation, Integrity, Closure, and Competence D) Competence, Objectivity, Integrity, and Confidentiality E) Reliability, Understandability, Flexibility, and Integrity
Answer: D Level: Medium LO: 4
- Samantha Galloway is a managerial accountant in the accounting department of Mustang Industries, Inc. Samantha has just discovered evidence that some of the corporation's marketing managers have been wrongfully inflating their expense reports in order to obtain higher reimbursements from the firm. According to the Institute of Management Accountants' Standards of Ethical Conduct, what should Samantha do upon discovering this evidence? A) notify the controller. B) notify the marketing managers involved. C) notify the president of the corporation. D) ignore the evidence because she is not part of the Marketing Department.
Answer: A Level: Hard LO: 4
Chapter 2 Cost Terms, Concepts, and Classifications
- Variable costs per unit are affected by changes in activity.
Answer: False Level: Easy LO: 5
- A cost is either direct or indirect. The classification will not change if the cost object changes.
Answer: False Level: Medium LO: 6
- The amount that a manufacturing company could earn by renting unused portions of its warehouse is an example of an opportunity cost.
Answer: True Level: Easy LO: 7
- Labor fringe benefits may be charged to direct labor or manufacturing overhead while overtime premiums paid usually are considered a part of manufacturing overhead.
Answer: True Level: Easy LO: 8 Appendix: 2A
- The cost of idle time should be charged as direct labor of the job that is in process when the breakdown occurs.
Answer: False Level: Medium LO: 8 Appendix: 2A
- Internal failure costs result from identification of defects during the appraisal process. Such costs may include scrap, rejected products, rework, and downtime.
Answer: True Level: Easy LO: 9 Appendix: 2B
- ISO 9000 certification is relatively easy to achieve because little documentation on quality control procedures is needed.
Answer: False Level: Easy LO: 11 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
Multiple Choice Questions
- Indirect labor is a part of: A) Prime cost. B) Conversion cost. C) Period cost. D) Nonmanufacturing cost.
Answer: B Level: Medium LO: 1,2 Source: CPA, adapted
- The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n): A) period cost. B) direct material cost. C) indirect material cost. D) none of the above.
Answer: C Level: Easy LO: 1,
- The salary paid to the president of King Company would be classified on the income statement as a(n): A) administrative expense. B) direct labor cost. C) manufacturing overhead cost. D) selling expense.
Answer: A Level: Easy LO: 1
- Direct labor cost is a part of:
Conversion cost Prime cost A) No No B) No Yes C) Yes Yes D) Yes No
Answer: C Level: Easy LO: 1 Source: CPA, adapted
Chapter 2 Cost Terms, Concepts, and Classifications
- Depreciation on a personal computer used in the marketing department of a manufacturing firm would be classified as: A) a product cost that is fixed with respect to the company's output. B) a period cost that is fixed with respect to the company's output. C) a product cost that is variable with respect to the company's output. D) a period cost that is fixed with respect to the company's output.
Answer: B Level: Medium LO: 2,
- The nursing station on the fourth floor of Central Hospital is responsible for the care of patients who have undergone orthopedic surgery. The costs of drugs administered by the nursing station to patients would be classified as: A) direct costs of the patients. B) indirect costs of the patients. C) overhead costs of the nursing station. D) period costs of the hospital.
Answer: A Level: Hard LO: 2,
- All of the following would be classified as product costs except: A) property taxes on production equipment. B) insurance on factory machinery. C) salaries of the advertising staff. D) wages of machine operators.
Answer: C Level: Easy LO: 2
- Product costs appear on the balance sheet: A) only if goods are partially completed at the end of the period. B) only if goods are unsold at the end of a period. C) only if goods are partially completed or are unsold at the end of a period. D) only in merchandising firms.
Answer: C Level: Medium LO: 2
Chapter 2 Cost Terms, Concepts, and Classifications
- Ross Corporation shipped finished goods to a customer on credit, but the sale was not recorded and the costs of the finished goods were incorrectly included on the period's balance sheet as part of the finished goods inventory. Which one of the following statements is correct concerning the effects of this error? A) Accounts receivable was not affected, inventory was overstated, sales were understated, and cost of goods sold was understated. B) Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold was understated. C) Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was overstated. D) Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was understated.
Answer: D Level: Easy LO: 3 Source: CMA, adapted
- Data for Cost A and Cost B are as follows:
Number of Units Produced Unit Cost Total Cost Cost A 1? $ 10? $ 100? $1, 1,000? $10,
Cost B 1 $5,000? 10 $500? 100 $50? 1,000 $5?
Which of the above best describes the behavior of Costs A and B? A) Cost A is fixed, Cost B is variable. B) Cost A is variable, Cost B is fixed. C) Both Cost A and Cost B are variable. D) Both Cost A and Cost B are fixed.
Answer: B Level: Medium LO: 5
Chapter 2 Cost Terms, Concepts, and Classifications
- The term that refers to costs incurred in the past that are not relevant to a decision is: A) marginal cost. B) indirect cost. C) period cost. D) sunk cost.
Answer: D Level: Easy LO: 7
- Lathe operators at KF Manufacturing are hourly employees who are paid time and a half for hours worked in excess of 40 hours per week. Lester is a lathe operator who worked 45 hours during the current week and had no idle time. The correct accounting for the amounts paid to Lester would be: A) charge only the overtime premium earned to the overhead account. B) charge the hourly wage earned plus the overtime premium earned to the overhead account. C) charge only the overtime premium earned to the direct labor cost for the project Lester was working on when the overtime was incurred. D) charge the hourly wage earned plus the overtime premium earned to the direct labor cost for the project Lester was working on when the overtime was incurred.
Answer: A Level: Medium LO: 8 Appendix: 2A
- The controller of the recently organized Crandall Company is considering the two methods listed below for accounting for labor fringe benefits. Which of the two methods is considered acceptable?
Method A: Treat all labor fringe benefits as indirect labor by adding them in total to manufacturing overhead.
Method B: Treat labor fringe benefits that relate to direct labor as additional direct labor cost and fringe benefits relating to indirect labor as part of manufacturing overhead.
A) Only Method A is acceptable. B) Only Method B is acceptable. C) Both Method A and Method B are acceptable. D) Neither Method A nor Method B is acceptable; labor fringe benefits should be treated as period expenses and should be charged off as incurred.
Answer: C Level: Medium LO: 8 Appendix: 2A
Chapter 2 Cost Terms, Concepts, and Classifications
- Which of the following would be classified as a prevention cost on a quality cost report? A) Disposal of defective products. B) Net cost of spoilage. C) Depreciation of test equipment. D) Technical support provided to suppliers.
Answer: D Level: Medium LO: 9,10 Appendix: 2B
- Which of the following would be classified as a prevention cost on a quality cost report? A) Debugging software errors. B) Quality training. C) Test and inspection of incoming materials. D) Cost of field servicing and handling complaints.
Answer: B Level: Medium LO: 9,10 Appendix: 2B
- Which of the following would be classified as a prevention cost on a quality cost report? A) Supplies used in testing and inspection. B) Debugging software errors. C) Quality improvement projects. D) Lost sales arising from a reputation for poor quality.
Answer: C Level: Medium LO: 9,10 Appendix: 2B
- Which of the following would be classified as an appraisal cost on a quality cost report? A) Final product testing and inspection. B) Net cost of spoilage. C) Repairs and replacements beyond the warranty period. D) Rework labor and overhead.
Answer: A Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
- Which of the following would be classified as an internal failure cost on a quality cost report? A) Rework labor and overhead. B) Cost of field servicing and handling complaints. C) Technical support provided to suppliers. D) Lost sales arising from a reputation for poor quality.
Answer: A Level: Medium LO: 9,10 Appendix: 2B
- Which of the following would be classified as an external failure cost on a quality cost report? A) Reentering data because of keying errors. B) Customer returns arising from quality problems. C) Test and inspection of in-process goods. D) Rework labor and overhead.
Answer: B Level: Medium LO: 9,10 Appendix: 2B
- Which of the following would be classified as an external failure cost on a quality cost report? A) Repairs and replacements beyond the warranty period. B) Technical support provided to suppliers. C) Quality improvement projects. D) Rework labor and overhead.
Answer: A Level: Medium LO: 9,10 Appendix: 2B
- Which of the following would be classified as an external failure cost on a quality cost report? A) Final product testing and inspection. B) Disposal of defective products. C) Supervision of testing and inspection activities. D) Cost of field servicing and handling complaints.
Answer: D Level: Medium LO: 9,10 Appendix: 2B
- Inspection of products would be classified as a(n): A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost.
Answer: B Level: Medium LO: 9 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
- The cost of warranty repairs would be classified as a(n): A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost.
Answer: D Level: Easy LO: 9 Appendix: 2B
- The cost of quality training would be classified as a(n): A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost.
Answer: A Level: Easy LO: 9 Appendix: 2B
- The cost of labor time required to rework defective units would be classified as a(n): A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost.
Answer: C Level: Easy LO: 9 Appendix: 2B
- Which of the following is (are) categorized as internal failure cost(s)?
I. Rework. II. Responding to customer complaints. III. Statistical quality control procedures.
A) I only. B) II only. C) III only. D) I, II, and III.
Answer: A Level: Medium LO: 9 Source: CPA, adapted Appendix: 2B
