Basic Concepts (Cost Accounting)

Basic Concepts

MODULE 1 BASIC CONCEPTS IN MANAGEMENT ACCOUNTING 1. The major functions of management is (are): A. strategic management and long-range planning. B. planning and decision making. C. identifying threats and opportunities for the firm. D. all of the above.

financial accounting? A. Managerial accounting places more emphasis on precision than financial accounting. B. Both are highly dependent on timely information. C. Both rely on the same accounting information system. D. Managerial accounting is concerned with external decision makers. Bobadilla 8. Which of the following is true of managerial accounting rather than financial accounting? A. The outputs of this accounting system are the primary financial statements. B. The methods of this accounting system are established by an overseeing board. C. The accounting methods are standardized to allow comparisons among companies. D. The accounting system would be unique to each company. Bobadilla

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2. The process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization's goals is called A. managerial accounting C. management B. financial accounting D. promotional activities Bobadilla

9. Management accounting’s role in the control processes is to provide A. managers with information that can be used to determine customer satisfaction levels. B. investors and creditors information on the financial stability of the company. C. managers with relevant information to compare with expectations. D. input to managers on the best ways to achieve continuous improvement in the production process. Bobadilla

3. The primary objective of management accounting is A. to provide stockholders and potential investors with useful information for decision making. B. to provide banks and other creditors with information useful in making credit decisions. C. to provide management with information useful for planning and control of operations. D. to provide supervising government agencies with information about the company’s management affairs. Bobadilla

10. Which of the following statements are true regarding financial and managerial accounting? I. Both are mandatory. II. Both rely on the same underlying financial data. III. Both emphasize the segments of an organization, rather than just looking at the organization as a whole. IV. Both are geared to the future, rather than to the past. A. I, II, III, and IV C. Only II and III B. Only II, III and IV D. Only II Bobadilla

4. Management accounting information A. uses historical cost as the basis for reports to managers who are making decisions about future courses of action. B. should be developed and provided only if its benefits exceed its costs. C. does not reflect the financial criteria of verifiability or consistency. D. should serve the basic needs of investors and creditors. Bobadilla

11. Managerial accounting activity adds value to an organization by pursuing five major objectives, which include A. providing information for decision making and planning. B. measuring the performance of activities within an organization. C. assisting managers in directing and controlling operational activities. D. all of them Bobadilla

5. Which of the following is included in the day-to-day work of the management team? A. decision making C. controlling B. planning D. all of the above Bobadilla 6. Paying rent, purchasing supplies, and purchasing inventory are which of the day-to-day work activities of the management team? A. decision making C. directing operational activities B. planning D. only A and B Bobadilla

12. Managerial accounting places considerable weight on: A. generally accepted accounting principles. B. the financial history of the entity.

7. Which of the following statements is true when comparing managerial accounting to 1

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C. ensuring that all transactions are properly recorded. D. detailed segment reports about departments, products, and customers.

the practice of management consulting. D. Included in the practice of consulting is the provision of confidential service in which the identity of the client is concealed. (RPCPA)

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13. Which of the following statement is FALSE? A. Managerial accounting need not conform to GAAP. B. Financial accounting reports focus on subunits of the organization. C. Managerial accounting is not required D. Managerial accounting focuses on the needs of internal users.

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14. For internal uses, managers are more concerned with receiving information that is: A. completely objective and verifiable. B. completely accurate and precise. C. relevant, flexible, and immediately available. D. relevant, completely accurate, and precise.

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18. The primary purpose of management advisory services is A. To conduct special studies, preparation of recommendations, development of plans and programs, and provision of advice and assistance in their implementation. B. To provide services or to fulfill some social needs. C. To improve the client’s use of its capabilities and resources to achieve the objectives of the organization. D. To earn the best rate of return on resources entrusted to its care with safety of investment being taken into account and consistent with firm’s social and legal responsibilities. Bobadilla 19. Managerial accounting information: A. pertains to the entity as a whole and is highly aggregated. B. pertains to subunits of the entity and may be very detailed. C. is prepared only once a year. Bobadilla D. is constrained by the requirements of generally accepted accounting principles.

15. Which of the following statements is correct? A. A certified public accountant can readily render management advisory services to the public. B. A CPA with MBA and DBM degrees is automatically qualified to render management advisory services. C. Competence as a standard in the rendition of management advisory services by a CPA may be equated to having excellent scholarly preparation to include the usual baccalaureate degree, an MBA and other post graduate studies. D. Adequate training and experience in both the analytical approach and process in a particular undertaking are requisites for the CPA to be involved in a management advisory service engagement. (RPCPA) 16. The following characterize management advisory services except A. It involves decision for the future B. It broader in scope and varied in nature C. It utilizes more junior staff than senior members of the firm D. It relates to specific problems where expert help is required

20. Managerial accounting is primarily concerned with: A. segments of a company rather than the company as a whole. B. the data needs of stockholders and creditors. C. meeting the requirements of generally accepted accounting principles. D. the company as a whole rather than a segment of the organization.

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21. The major reporting standard for presenting managerial accounting information is A. relevance B. generally accepted accounting principles C. the cost principle D. the current tax law

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Bobadilla 22. With respect to the time dimension, performance evaluation? Bobadilla Managerial Decision Making External Performance

17. Which of the following statements is incorrect? A. CPAs provide management advisory services to go around the ethical constraints as mandated by the Accountancy Law. B. Businesses hire management consultants to help define specific problems and develop solutions. C. CPAs who are performing management advisory services may be considered to be in

how does managerial decision compare with external A. Past Past

B. Past Future

C. Future Past

23. Managerial accounting differs from financial accounting in that it is 2

D. Future Future

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A. B. C. D.

more concerned with segments of a company. less constrained by rules and regulations. more concerned with the future. all of the above.

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24. The distinction between traditional accounting and cost management is A. the focus of the former on accounting matters and the latter in support to management in making the right decisions for staying on a competitive position B. the emphasis of former on record keeping and the latter on reporting C. the focus of the former on cost cutting and the latter on product differentiation D. the focus of the former on efficiency and the latter on quality. Bobadilla 25. Which of the following activities is not usually performed by a management accountant? A. Assisting managers to interpret data in managerial accounting reports. B. Designing systems to provide information for internal and external reports. C. Gathering data from sources other than the accounting system. D. Deciding the best level of inventory to be maintained. Bobadilla

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30. Management accounting is similar to financial accounting in that A. both are governed by generally accepted accounting principles. B. both deal with economic events. C. both concentrate on historical data. D. both classify reported information in the same manner.

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31. How frequent is management accounting report when compared to report to external users? Management Accounting Report External Report A. More frequent Less frequent B. More frequent More frequent C. Less frequent Less frequent D. Less frequent More frequent Bobadilla

26. Which of the following statements correctly distinguishes financial and managerial accounting? A. managerial accounting reports on the whole organization B. financial accounting is oriented toward the future C. financial accounting is primarily concerned with providing information for internal users D. managerial accounting is oriented more toward the planning and control aspects of management Bobadilla

32. Managerial accounting differs from financial accounting in that financial accounting is A. more oriented toward the future. B. primarily concerned with external financial reporting. C. concerned with nonquantative information. D. heavily involved with decision analysis and implementation of decisions. Bobadilla

27. How does managerial decision making compare with external performance evaluation? Managerial Decision Making External Performance Evaluation A. Detailed Detailed B. Detailed More aggregated C. More aggregated Detailed D. More aggregated More aggregated Bobadilla 28. Management accountants would not A. assist in budget planning. B. prepare reports primarily for external users. C. determine cost behavior. D. be concerned with the impact of cost and volume on profits.

29. In the contemporary business environment, cost management focus is on A. financial reporting and cost analysis. B. common emphasis on standardization and standard costs. C. development and implementation of the business strategy. D. all of the above.

33. Managerial accounting provides data for all of the following major objectives except: A. planning and control of costs B. supporting management planning C. compliance with SEC reporting requirements D. determining the costs of products Bobadilla 34. Which statement is false? Managerial accounting information: A. involves planning for the future B. should be requested and used by management even if it is very costly to gather and analyze C. helps managers make financing decisions D. need not comply with generally accepted accounting principles Bobadilla

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35. Internal reports must be communicated A. daily B. monthly

C. annually D. as needed

36. Which of the following does not apply to the content of managerial reports? A. Reporting standard is relevant to the decision to be made. B. May extend beyond double-entry accounting system. C. Pertain to subunits of the entity and may be very detailed. D. Pertains to the entity as a whole and is highly aggregated.

42. The informational needs of internal users/management: A. are historical in nature B. emphasize the company as a whole C. emphasize accuracy over timeliness D. may require more customized reports than external financial statements

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43. The role of the managerial accountant in today’s corporate world includes all of the following except: A. interpreting financial information C. financial modeling B. financial planning D. bookkeeping Bobadilla

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37. Which consideration influences the frequency of an internal report? A. The wishes of the managers receiving the report. B. The frequency with which decisions are made that require the information in the report. C. The cost of preparing the report. D. All of the above. Bobadilla

44. Which of the following is most associated with managerial accounting? A. Must follow generally accepted accounting principles. B. May rely on estimates and forecasts. C. Is prepared for users outside the organization. D. Always reports on the entire entity.

38. Which of the following statements about internal reports is not true? A. The content of internal reports may extend beyond the double-entry accounting system. B. Internal reports may show all amounts at market values. C. Internal reports may discuss prospective events. D. Most internal reports are summarized rather than detailed. Bobadilla

45. Which statement about the extent of detail in a management accounting report is true? A. It may depend on the frequency of the report. B. It depends on the type of manager receiving the report. C. It depends on the level of the manager receiving the report. D. All of the above. Bobadilla

39. Management accountants help develop and maintain reporting systems that are aligned with organizational structures and that provide useful information on an organization’s performance. Management decision processes fall into three categories that consist of A. Nonrepetitive, nonprogrammed, and nonstrategic. B. Repetitive, nonprogrammed, and strategic. C. Repetitive, programmed, and strategic. D. Nonrepetitive, nonprogrammed, and strategic. Bobadilla

46. Managerial accounting information A. pertains to the entity as a whole and is highly aggregated. B. pertains to subunits of the entity and may be very detailed. C. is prepared only once a year. Bobadilla D. is constrained by the requirements of generally accepted accounting principles.

40. Internal reports are generally A. aggregated B. detailed

C. regulated D. unreliable

41. Managerial accounting reports can be described as: A. general-purpose C. classified financial statements B. special purpose D. macro-report

47. Which of the following characteristics is inherent to management accounting? A. Reporting of historical information B. Compliance to generally accepted accounting principles C. Contribution approach income statement D. External users of financial report

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48. In order to be useful to managers, management accounting reports should possess all of the following characteristics except: A. Provide objective measures of past operations and subjective estimates about future decisions.

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B. Be prepared in accordance with generally accepted accounting principles. C. Be provided at any time management needs information. D. Be prepared to report information for any unit of the business to support decision making. Bobadilla

53. Under which ethical standard of conduct does the managerial accountant have the responsibility to prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information? A. competence C. integrity B. confidentiality D. objectivity Bobadilla

49. The following are inherent to either management accounting or financial accounting: 1. External report 2. Historical information 3. Contribution approach income statement 4. Generally accepted accounting principles 5. Prospective financial statements Which of the foregoing are related to management accounting and financial accounting, respectively? Bobadilla A. B. C. D. Management Accounting 1, 2, 5 3, 5 2, 3 3 Financial Accounting 3, 4 1, 2, 4 1, 4, 5 1, 2, 4, 5

54. Under which ethical standard of conduct does the managerial accountant have the responsibility to communicate information fairly and objectively? A. competence C. integrity B. confidentiality D. objectivity Bobadilla 55. Under which ethical standard of conduct does the managerial accountant have the responsibility to refuse any gift, favor, or hospitality that would influence or appear to influence his or her decision? A. competence C. integrity B. confidentiality D. objectivity Bobadilla

50. Which of the following is an incorrect statement? A. There is no overlap between financial and managerial accounting. B. Managerial accounting sometimes relies on past information. C. Managerial accounting does not need to conform to generally accepted accounting principles. Bobadilla D. Financial accounting must conform to generally accepted accounting principles.

56. Under which ethical standard of conduct does the managerial accountant have the responsibility to refrain from either actively or passively subverting the attainment of an organization's legitimate and ethical objectives? A. integrity C. objectivity B. competence D. confidentiality Bobadilla 57. Under which ethical standard of conduct does the managerial accountant have the responsibility to disclose fully all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, comments, and recommendations presented? A. objectivity C. confidentiality B. competence D. integrity Bobadilla

51. For managerial reports, the accounting data used: A. must be the same accounting data for reporting to shareholders, but may use different data for tax purposes. B. must be the same accounting data for tax purposes, but may use different data for reporting to shareholders. Bobadilla C. must be the same accounting data for both tax purposes and reporting to shareholders. D. may be different accounting data for both tax purposes and reporting to shareholders.

58. For managerial decision purposes, the volume of information should be evaluated on the basis of A. cost-benefit relationship. B. A cost, but not benefit. C. A benefit, but not cost. D. Neither costs nor benefits, but some other criteria. Bobadilla

52. Which of the following is an ethical standard of conduct for managerial accountants? 1. competence 2. confidentiality 3. integrity 4. objectivity A. All of them C. 1, 2, 3 only B. 1, 3, 4 only D. 1 and 3 only Bobadilla

59. What is the primary criterion for the preparation of managerial accounting reports? 5

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A. Relevance of the reports. B. Meet the manager’s needs.

C. Timing of the reports. D. Cost of the reports.

60. The first step in managerial decision making is to A. specify the standard or expected outcome. B. gather information about the consequence of each alternative. C. identify a problem. D. list alternative courses of action.

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61. In a broad sense, cost accounting can be defined within the accounting system as A. internal and external reporting that may be used in making nonroutine decisions and in developing plans and policies. B. external reporting to government, various outside parties, and stockholders. C. internal reporting for use in management planning and control, and external reporting to the extent its product-costing function satisfies external reporting requirements. D. internal reporting for use in planning and controlling routing operations. Bobadilla 62. The cost management function is usually under A. the chief information officer. C. purchasing manager. B. treasurer. D. controller.

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67. Management accounting reports are prepared A. to meet the needs of decision makers within the firm B. whenever stockholders request them C. according to guidelines prepared by the SEC D. by CPAs

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68. Which of the following is true of managerial accounting rather than financial accounting? A. The outputs of this accounting system are the primary financial statements B. The methods of this accounting system are established by an overseeing board. C. The accounting methods are standardized to allow comparisons among companies D. The accounting system would be unique to each company Bobadilla

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63. If a distinction is made between cost accounting and managerial accounting, managerial accounting is more oriented toward A. valuation of inventory. B. analysis of variances including spoilage. C. financial reporting to third parties. D. the planning and controlling aspects of the management process. Bobadilla 64. Management accounting and financial accounting differ in that management accounting information A. is prepared following prescribed rules B. is prepared using whatever methods the company finds beneficial C. is prepared for stockholders D. is prepared following Generally Accepted Accounting Principles Bobadilla 65. Which of the following does not describe managerial accounting? A. internally focused C. externally focused B. emphasis on the future D. detailed information

66. Management accounting A. reports are always objective B. provides information to external users C. generates general purpose financial statements and reports D. has few externally imposed standards

69. Traditional managerial accounting systems are often criticized for: A. not focusing on the activities that actually drive the costs. B. only looking at historical data. C. being too GAAP oriented. D. not emphasizing cost control.

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70. The managerial function of controlling A. is performed only by the controller of a company. B. is only applicable when the company sustains a loss. C. is concerned mainly with a operating a manufacturing segment. D. includes performance evaluation by management.

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71. Planning is a function that involves A. hiring the right people for a particular job. B. coordinating the accounting information system. C. setting goals and objectives for an entity. D. analyzing financial statements.

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72. In determining whether planned goals are being met, a manager is performing the function of A. planning C. motivating

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B. controlling

D. follow-up

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called A. planning B. controlling

C. decision making D. performance evaluation

73. Which of the following is not a separate management function? A. Motivating C. Controlling B. Planning D. Decision-making

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74. Total quality management emphasizes A. zero defects B. continual improvement

81. Which of the following best describes what performance evaluation should be designed to do? A. Modify goal and objectives each month C. Compare actual results to plan B. Establish sales goals and targets D. Establish blame Bobadilla

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82. In the planning and control process, what is the proper sequence of events? A. Set goals, set objectives, develop plans, implement plans, evaluate performance B. Establish a master budget, set standard costs, develop variance analysis Bobadilla C. Develop engineered costs, develop pricing targets, calculate contribution margins D. Identify variable costs, identify fixed costs, project the sales mix, determine breakeven

C. elimination of waste D. all of the above

75. Automation of the manufacturing process increases A. the quantity of information C. the number of production employees B. the timeliness of information D. both a and b Bobadilla 76. Which of the following emerging themes in cost accounting deals with managers striving to create and environment which will enable workers to manufacture perfect (zero defect) products? A. customer orientation C. total quality management Bobadilla B. global competition D. advance in information technology

83. Which of the following is a staff position? A. vice-president of production B. vice-president of marketing

C. vice-president of finance D. plant foreman

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84. Which management position is responsible for raising capital? A. Internal auditor C. Controller B. Treasurer D. CFO

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85. All of the following would be considered staff functions EXCEPT: A. the vice-president of finance B. the vice-president of corporate planning C. the vice-president of research and development D. the vice president of marketing

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86. Management accountants generally exercise which type of authority? A. Company. C. Line. B. Functional. D. Staff.

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79. Which of the following functions is most directly related to management by objective? A. Reporting C. Control B. Decision making D. Planning Bobadilla

87. The treasurer function is usually not concerned with A. investor relations. B. financial reports. C. short-term financing. D. credit extension and collection of bad debts.

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80. The setting of objectives and the identification of methods to achieve those objectives is

88. Which of the following duties is usually assigned to the controller?

77. Managerial accounting creates value by: A. by forcing managers to analyze historical figures and interpret the results B. by eliminating all pricing and costing errors C. by focusing managers attention on the relationship between financial and non-financial factors D. all of the above Bobadilla 78. Systems implemented to reduce defects in finished products with the goal of achieving zero defects are A. activity-based costing systems. B. enterprise resource planning systems. C. value chain systems. D. total quality management systems. Bobadilla

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A. B. C. D.

directing the granting of credit to clients investing the organization’s funds tax planning independently evaluating the firm’s financial statements

96. Items that prevent the organization from attaining a higher level of achievement within its value chain are called the A. theory of constraints C. strategic costs management B. value chain D. cost management systems Bobadilla

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89. Developing a company strategy for responding to anticipated new markets is an example of: A. decision making C. planning B. controlling D. motivating Bobadilla 90. Strategic cost management has emerged from a blending of: A. cost driver analysis C. value chain analysis B. strategic position analysis D. all of the above 91. Strategic cost management includes all of the following tools except: A. standard cost variance analysis C. activity based management B. value chain analysis D. all of the above

97. The overall recognition of the importance of cost relationships among the activities in the value chain and the process of managing those cost relationships among the activities in the value chain is called A. the theory of constraints C. activity-based management of activities B. the value chain D. strategic cost management Bobadilla

Bobadilla 98. The set of processes that transform raw materials into finished products is known as a A. value chain C. lowest cost strategy Bobadilla B. differentiation strategy D. flexible manufacturing system Bobadilla 99. The period that begins with the arrival of materials and ends with the shipment of a completed goods refers to A. performance period. C. manufacturing cell. B. computer-integrated manufacturing. D. cycle time. Bobadilla

92. Strategic planning is different from operational planning in that operational planning: A. involves large sums of money B. would be involved in determining production levels for next quarter C. involves only long range goals D. operational and strategic planning are the same Bobadilla

100.Conventional and just-in-time manufacturers differ in that the conventional manufacturer is likely to A. have a longer production cycle than its JIT competitors. B. need less storage space than its JIT competitors. C. have a flexible manufacturing system. D. a high degree of quality control. Bobadilla

93. Which of the following might be a performance measure for the financial perspective of a balanced scorecard? A. percentage of on-time deliveries by the organization B. percentage of product defects C. return on assets D. percentage of market share held by the organization Bobadilla

101.A form of strategy that a management may adopt in order to attempt in creating a perception of uniqueness that will permit a higher selling price. A. Value chain. C. Lead time. B. Lowest cost. D. Differentiation. Bobadilla

94. The initiative to reduce non-value added activity is meeting which balanced scorecard objective? A. internal operations perspective C. financial perspective Bobadilla B. customer perspective D. learning and growth perspective 95. The balanced scorecard internal operations perspective includes A. customer complaints C. market share B. number of engineering changes D. inventory turnover

102.Deciding whether to sell a product or process it further is an example of a(n): A. controlling activity C. planning activity B. operating activity D. none of the above

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103.The benefits lost or forfeited as a result of selecting one alternative over another are called A. Differential costs C. Opportunity costs

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B. Sunk costs

D. Indirect costs

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A. determine who in the industry performs similar processes most effectively. B. determine the processes that have high value-to-cost relationships. C. compare certain internal processes, services and activities to those of other companies in order to identify strengths and weaknesses. D. reproduce another company’s product design and manufacturing processes to eliminate competitive advantage. Bobadilla

104.Obtaining feedback is generally identified most directly with which of the functions of management? A. Planning C. Controlling B. Directing and motivating D. Decision making Bobadilla 105.A staff position: A. relates directly to the carrying out of the basic objectives of the organization. B. is supportive in nature, providing service and assistance to other parts of the organization. C. is superior in authority to a line position. D. none of these. Bobadilla 106.The controller occupies: A. a line position. B. a staff position. C. neither a line nor a staff position, since the accounting department must be independent. D. both a line and a staff position. Bobadilla 107.“Racing with no finish” refers to A. developing the best selling product. B. research and development. C. benchmarking and continuous improvement. D. designing the highest quality product in a given segmented market.

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108.A company’s value chain reflects the A. organizational levels of authority and responsibility. B. stages of production from raw materials to finished goods. C. linked set of activities that increase the value of products or services. D. sales distribution network for the company’s products and services.

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109.The process of comparing, investigating, and evaluating the company’s processes or products against the best level of performance is known as A. attestation. C. product review. B. feedback. D. benchmarking. Bobadilla 110.Benchmarking allows managers to: 9