1. When comparing management accounting and financial accounting, which of the following statements is FALSE?
A) Management accounting has a future orientation whereas financial accounting has a past orientation.
B) Management accounting prepares detailed reports whereas financial accounting prepares summary reports.
C) Management accountants are constrained by the principles of reporting promulgated by the Institute of Management Accountants whereas financial accountants are constrained by Generally Accepted Accounting Principles.
D) Behavioral considerations are of primary importance in management accounting, but not in financial accounting.
2. As cost-driver level decreases in the relevant range, fixed costs per unit of cost driver _______, but total fixed costs ________.
A) increase; do not change
B) decrease: do not change
C) do not change; increase
D) do not change; decrease
3. Who provides assurance to external users about the reliability of a company's financial statements?
A) Certified Management Accountants and Certified Public Accountants
B) Chartered Management Accountants and Certified Management Accountants
C) Certified Public Accountants and Chartered Management Accountants
D) Certified Public Accountants and Chartered Accountants
4. An increase in total variable costs usually indicates that ________.
A) the cost-driver activity level is decreasing
B) the cost-driver activity level is increasing
C) variable costs per unit is decreasing
D) fixed costs per unit is increasing
5. The static budget is based on the ________ level of output and the flexible budget is based on the ________ level of output.
A) actual; expected
B) expected; actual
C) expected; planned
D) actual; projected
6. External users of financial reports need ________ measures of inventory and cost of goods sold. Internal users of financial reports need ________ cost information about products.
A) strategic; operational
B) operational; strategic
C) aggregate; detailed
D) detailed; aggregate
7. The ________ is the juncture in manufacturing where the joint products become individually
A) joint processing juncture
B) split-off point
C) common point
D) joint processing point
8. Which of the following statements about budgets and budgeting is FALSE?
A) Budgets help coordinate financial and operational activities.
B) The vast majority of managers use budgeting as an effective cost management tool.
C) Budgeting is the process of formulating an organization's plans.
D) Managers do not use budgets for performance evaluation.
9. A(n) ________ starts with the assumption that current activities in a company will not automatically continue in the next period.
A) activity-based budget
B) strategic budget
C) master budget
D) zero-base budget
10. Which of the following item is irrelevant to the decision whether to process joint products beyond the split-off point?
A) separable costs
B) additional costs from further processing beyond the split-off point
C) additional revenue from further processing beyond the split-off point
D) joint costs
11. On a cost-volume-profit graph, at the point where the Total Revenue line intersects the Total Cost line, ________.
A) net income is positive
B) net income is negative
C) net income is zero
D) not enough information is given
12. Which of the following statements is FALSE?
A) Flexible budgets are prepared for a range of activity.
B) Flexible budgets are matched to actual levels of activity.
C) A flexible budget is also called a variable budget.
D) Flexible budgets are based on different assumptions about cost behavior than those used for static budgets.
13. According to the Institute of Management Accountants, management accountants should follow several ethical principles that include ________.
A) honesty, fairness, respect and compassion
B) honesty, fairness, responsibility and objectivity
C) honesty, competence, confidentiality and integrity
D) competence, confidentiality, integrity and honesty
14. Relevant information refers to ________ that will differ among the alternative courses of action.
A) future costs only
B) future revenues only
C) past costs and revenues
D) future costs and revenues
15. Which of the following items is usually NOT important to special order decisions?
A) affect of special order on regular business
B) whether idle capacity is available
C) total fixed costs
D) increase in variable costs per unit due to special order
16. How do managers obtain the target cost for a new product under consideration? Assume the market price per unit is known and it cannot be influenced by management.
A) the sum of all production and nonproduction costs
B) the sum of all production costs
C) price per unit minus gross profit per unit
D) the sum of all variable costs
17. A major drawback of using historical results for judging current performance is that ________.
A) past results may be inaccurate
B) results may refer to a different manager
C) inefficiencies may be concealed in past results
D) managers may have cooked the books
18. The static budget variance is the difference between the ________ and the ________.
A) amounts for the flexible budget; amounts for the static budget
B) flexible budget variance; activity level variance
C) actual results; amounts for the static budget
D) actual results; amounts for the flexible budget
19. Ernie Company is considering replacing a machine that is currently used in the production process. The ________ is irrelevant to the replacement decision.
A) cost of the new machine
B) disposal value of old machine
C) book value of old machine
D) annual operating cost of old machine (2 years left)
20. Many managers set prices by cost plus pricing. What is cost plus pricing? Assume it is a long run decision.
A) average cost per unit plus markup per unit
B) average target cost plus markup per unit
C) average cost per unit minus markup per unit
D) average target cost minus markup per unit
21. Price elasticity measures the ________.
A) effect of sales volume changes on prices
B) effect of cost changes on prices
C) effect of price changes on sales volume
D) customers' attitudes toward price changes
22. The quantity variance for direct materials can be computed by multiplying the standard price by the difference between the ________.
A) standard inputs allowed and expected inputs allowed at actual output
B) quantity of inputs actually used and the quantity of inputs that should have been used for the expected output
C) standard inputs allowed and expected inputs allowed for expected output
D) quantity of inputs actually used and the quantity of inputs that should have been used for actual output
23. A cost management system provides ________.
A) measures of inventory value and cost of goods sold for financial reporting
B) cost information for strategic management decisions
C) cost information for operational control
D) all of the above
24. Herman Loebl Company, a producer of salsa, has the following information:
Income tax rate 30%
The contribution margin per unit is ________.
25. One way to reduce negative attitudes of managers toward budgets is by ________.
A) zero-based budgeting
B) activities-based budgeting
C) long range planning
D) participative budgeting
26. In the long run, the selling price of a product should cover ________.
A) all variable costs only
B) all variable costs and some fixed costs
C) all fixed costs only
D) all variable costs and all fixed costs
27. In perfect competition, additional sales will be profitable if ________.
A) the marginal cost is less than marginal revenue
B) sales price exceeds the variable product cost
C) total variable cost is less than sales price
D) the fixed cost equals the contribution margin
28. The financial budget is used by managers to ________.
A) manage financial affairs
B) manage employee hiring patterns
C) manage the cash balance
D) plan for future stock dividends
29. What is Six Sigma?
A) a process improvement to eliminate waste from the entire enterprise
B) a process improvement to reduce the time products spend in the production process
C) a process improvement to reduce the time products spend in activities that do not add value
D) a data-driven approach to eliminate defects in any process
30. When allocating indirect production costs to cost objects, which of the following is/are a costallocation base(s)?
A) some measure of input or output that determines the amount of cost to be allocated to a cost object
B) a measure used to assign indirect costs to cost objects
C) a measure used to assign direct costs to cost objects
D) A and B
31. When assigning indirect costs to a cost object, an ideal cost-allocation base measures ________.
A) the proportion of indirect costs to direct costs
B) the extent a particular cost is caused by a cost object
C) multiple cost drivers
D) the proportion of direct costs to indirect costs
32. The ________ budget focuses on the budgeted income statement and the supporting schedules.
C) operating expense
D) purchases and cost of goods sold
33. Kaprelian Company sells desks at $480 per desk. The variable costs are $300 per desk. Total fixed costs for the period are $400,000. The contribution margin ratio is ________.
34. Key Company has a targeted sales volume of 62,300 units. Total fixed costs are $31,200. The
contribution margin per unit is $1.20. What is targeted net income?
35. If the direct labor price variance is $800 Favorable and the direct labor usage variance is $700 Unfavorable, then ________.
A) the flexible budget variance for direct labor is $100 Favorable
B) actual total wages paid were $800 more than expected
C) actual labor hours were less than expected
D) actual material prices were less than expected
36. ________ is the relative proportions or combinations of quantities of different products that comprise total sales.
A) Sales mix
B) Constant mix
C) Fluctuating mix
D) Variable cost ratio
37. The Todd Dolhun Company has the following information available:
Targeted after-tax net income $120,000
Total fixed costs $300,000
Contribution margin per unit $2
Tax rate 40%
How many units should be sold to achieve the targeted after-tax net income?
38. In a manufacturing area of a firm, poor product design and problems with the quality of materials will, more than likely, result in a(n) ________ variance or ________ variance.
A) unfavorable material efficiency; unfavorable labor usage
B) favorable material efficiency; unfavorable labor price
C) unfavorable material price; unfavorable labor rate
D) unfavorable material price; unfavorable labor usage
39. Joint products should be processed beyond the split-off point if ________.
A) sale of the products are guaranteed
B) additional revenue from further processing exceeds additional expenses from further processing
C) additional revenue from further processing exceeds the joint costs
D) the marginal revenue of the joint products before the split-off point exceeds the marginal cost of the joint products
40. Activity-based costing systems should be adopted when ________.
A) indirect costs represent a small proportion of a product's total costs
B) indirect costs represent a large proportion of a product's total costs
C) a company makes one simple product
D) a company has a simple manufacturing process
Answer: True / False Questions
41. The essence of the just-in-time philosophy is to eliminate waste.
42. An equipment's book value is the original cost plus accumulated depreciation.
43. The contribution margin per unit of a given product guides managers when deciding which product to emphasize in a sales mix.
44. Budgetary slack helps buffer managers from budget cuts imposed by higher-level management.
45. The wages of the janitor in the factory are direct costs for a manufactured product.
46. The Sarbanes-Oxley Act requires companies to disclose whether the company has adopted a code of ethics for senior financial officers.
47. The direct materials price variance is based on the standard quantity of inputs allowed for the actual output.
48. Activity-based budgets are an example of functional budgeting.
49. The break-even point is when enough units are sold that total contribution margin equals total variable costs.