Accounting for Decision Making
Mock Exam
Course Introduction
Accounting for Decision Making is designed to equip students with the fundamental concepts and tools of accounting that support effective business decision-making. The course covers the interpretation and analysis of financial statements, cost behavior, budgeting, and performance evaluation, with a special emphasis on how accounting information can be leveraged to plan, control, and make strategic decisions within an organization. Through real-world case studies and practical exercises, students learn to critically assess financial data, communicate results to stakeholders, and apply accounting techniques to solve managerial problems. This course is essential for anyone seeking to understand how accounting information drives value creation and strategic choices in business.
Recommended Textbook
Fundamental Managerial Accounting Concepts 9th Edition by Thomas P Edmonds
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Chapter 1: Management Accounting and Corporate Governance
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Sample Questions
Q1) Financial accounting information is reported periodically,primarily at the end of each fiscal year.When is managerial accounting information reported to managers of an organization?
Answer: Managerial accounting information is reported as needed,much more often than financial accounting.Managerial accounting information is delivered on a continuous basis.
Q2) If product costs are misclassified as selling costs,the average cost per unit will be understated.
A)True
B)False
Answer: True
Q3) Costs associated with holding inventory often include:
A) theft, damage, and obsolescence.
B) financing.
C) warehouse space.
D) supervision.
E) All of these.
Answer: E
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Chapter 2: Cost Behavior, operating Leverage, and Profitability Analysis
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Q1) What is meant by the phrase,"relevant range"? How does the concept of relevant range affect fixed costs?
Answer: The relevant range is a range of activity over which definitions of fixed and variable costs are valid.For a fixed cost,the relevant range is the range of activity over which the cost does not change.
Q2) Pickard Company pays its sales staff a base salary of $4,500 a month plus a $3.00 commission for each product sold.If a salesperson sells 800 units of product in January,the employee would be paid:
A) $6,900.
B) $4,500.
C) $2,300.
D) $2,700.
Answer: A
Q3) The total variable cost increases in direct proportion to volume.
A)True
B)False
Answer: True
Q4) How does total fixed cost behave when volume increases?
Answer: Total fixed cost is constant (does not change)when volume increases.
Page 4
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Chapter 3: Analysis of Cost, volume, and Pricing to Increase Profitability
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Q1) Gamble Company has a contribution margin of $20 per unit and a break-even point of 10,000 units.If Gamble sells 9,999 units,what would be its net income or loss? Explain how you calculated your answer.
Answer: The company would be one unit below the break-even point,so its net loss would equal the contribution margin provided by one unit of product or $20.
Q2) Select the correct statement regarding the contribution margin ratio.
A) The contribution margin ratio can be calculated using either total amounts or per unit amounts.
B) The contribution margin ratio equals contribution margin per unit divided by variable cost per unit.
C) Total fixed costs divided by the contribution margin ratio equals the break-even point in units.
D) An increase in variable cost per unit will cause the contribution margin ratio to increase.
Answer: A
Q3) Explain how to calculate contribution margin per unit.
Answer: Unit contribution margin can be calculated by subtracting variable cost per unit from the sales price of one unit.
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Chapter 4: Cost Accumulation,tracing,and Allocation
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Sample Questions
Q1) Inaccurate allocation of joint costs to the individual products could cause an unprofitable product to appear to be profitable.
A)True
B)False
Q2) Select the false statement from the following.
A) Only direct costs are traced to cost objects.
B) The same cost may be assigned to more than one cost object.
C) General, selling, and administrative costs cannot be assigned to a cost object.
D) A given cost can be driven by more than one cost driver.
Q3) Custom Quilters makes decorative comforters,quilted garments,and other products in a small sewing factory.The company expects to make 2,000 comforters during the current year.With respect to the comforters,how would the hourly wages of sewing machine operators be classified?
A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed
Q4) What should a company consider when pooling indirect costs?
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Chapter 5: Cost Management in an Automated Business
Environment: ABC, ABM, and TQM
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Q1) All of the following quality costs are directly controllable by management except: A) Repair and rework
B) Product design
C) Training costs
D) Reliability testing
Q2) Which of the following statements is incorrect?
A) An activity-based costing system uses more cause-and-effect relationships in tracing costs than does a traditional cost allocation system.
B) An activity-based costing system first assigns or traces costs to the departments in which products are made.
C) The hierarchical categories into which activities are grouped are unit-level, batch-level, product-level, and facility-level activities.
D) The total amount of unit-level costs changes in proportion to the number of units of product made.
Q3) What is the likely consequence of using a single overhead rate rather than activity-based costing?
Q4) Discuss how an increase in one or more quality cost(s)can decrease others.
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Chapter 6: Relevant Information for Special Decisions
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Sample Questions
Q1) The cost that is avoided when a company eliminates a single item of a product or service is a:
A) Unit-level cost.
B) Facility-level cost.
C) Product-level cost.
D) Batch-level cost.
Q2) For purposes of decision making,avoidable costs are costs that:
A) were incurred in the past.
B) will not be incurred in the future, regardless of the alternative chosen.
C) differ among alternatives.
D) None of these answers are correct.
Q3) Select the incorrect statement regarding sunk costs.
A) Sunk costs cannot be avoided.
B) Sunk costs are relevant if they differ among the alternatives.
C) Sunk costs are costs that have been incurred in past transactions.
D) Sunk costs include historical costs such as equipment acquisition costs.
Q4) A company's compensation system for its managers should provide incentives for the managers to maximize the company's long-term profitability.
A)True
B)False
Page 8
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Chapter 7: Planning for Profit and Cost Control
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Q1) Which of the following would not be included in the cash budget?
A) Receipts from customers
B) Ending cash balance
C) Interest expense
D) Depreciation expense
Q2) Stuart's Electronics is a relatively small company that provides computer-assisted technology to manufacturing companies.During the last few years,the company has begun to take budgeting seriously.Each year,the budget is developed during a two-day retreat of the company's top management.Lower-level employees say that the budget reflects unrealistic targets that they cannot meet even with their best efforts.What problems are there with Stuart's budgeting process,and what can be done about them?
Q3) Proper handling of human relations is essential to the establishment of an effective budgeting system.There is a natural tendency for people to be uncomfortable with budgets.Describe how participative budgeting helps create a healthy atmosphere surrounding the budgeting process.
Q4) How do budget expectations influence a company's employees?
Q5) How might a company develop sales estimates to be used in preparing a sales budget?
Q6) Why is cash management important to a business?
Page 9
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Chapter 8: Performance Evaluation
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Sample Questions
Q1) The total sales variance includes both price and volume variances.
A)True
B)False
Q2) In general,budget variances should not be used to single out managers for praise or punishment.
A)True
B)False
Q3) The best standards to include in a standard cost system are ideal standards.
A)True
B)False
Q4) Volume variances are computed for which of the following costs?
A) Fixed manufacturing costs only
B) Variable selling and administrative costs only
C) Variable manufacturing and selling and administrative costs
D) Variable manufacturing costs only
Q5) Which manager is generally held responsible for the sales volume variance?
A) Purchasing agent
B) Marketing manager
C) Plant manager
D) Production manager
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Chapter 9: Responsibility Accounting
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Sample Questions
Q1) The process of evaluating the performance of individual managers is known as:
A) Responsibility accounting.
B) Management by exception.
C) Responsibility management.
D) Performance management.
Q2) Which of the following is an advantage of decentralization?
A) Decentralization encourages lower-level managers to focus on strategic decisions.
B) Authority and responsibility is not clear.
C) Decentralization motivates managers to improve productivity.
D) None of these answers are correct.
Q3) Which of the following statements is incorrect?
A) Turnover is calculated by dividing sales by average operating assets.
B) Margin is a measure of the profits generated from sales.
C) Return on investment can be improved by increasing sales, decreasing expenses, or increasing the asset base.
D) If return on investment increases when sales increase, that change usually is due at least in part to the effect of fixed costs (operating leverage).
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Chapter 10: Planning for Capital Investments
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Q1) Neighbors Company is considering the purchase of new equipment that will cost $130,000.The equipment will save the company $38,000 per year in cash operating costs.The equipment has an estimated useful life of five years and a zero expected salvage value.The company's cost of capital is 10%. (PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.)
Required:
1)Ignoring income taxes,compute the net present value and internal rate of return.Round net present value to the nearest dollar and round internal rate of return to the nearest whole percent.
2)Should the equipment be purchased? Why or why not?
Q2) The assumption regarding ordinary annuities is that cash flows occur at the end of each period.
A)True
B)False
Q3) An annuity is a series of equal payments over equal time intervals that earn a constant rate of return.
A)True
B)False
Q4) Describe what is meant by the time value of money.
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Chapter 11: Product Costing in Service and Manufacturing
Entities
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Sample Questions
Q1) The accounting records for Eisner Manufacturing Company included the following cost information relating to its first year of operations: \(\begin{array}{lrr}
\text { Direct materials} &\$60,000\\
\text { Direct labor } &\$80,000\\
\text { Fixed manufacturing overhead} &\$100,000\\
\text {Variable manufacturing overhead } &\$20,000\\ \end{array}\)
Assume the company produced 10,000 units of inventory and sold 6,000 of these units during the year for $192,000.The cost per unit under variable and absorption costing would be,respectively:
A) $5.00 and $11.00.
B) $16.00 and $26.00.
C) $14.00 and $10.00.
D) $19.00 and $30.00.
Q2) Absorption costing provides incentives for a company to hold excess inventory,which may increase the company's costs.
A)True
B)False
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Chapter 12: Job-Order, process, and Hybrid Costing Systems
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Q1) Which of the following is not a component of process costing systems?
A) Multiple Work in Process accounts.
B) Cost of production report.
C) Job cost sheet.
D) None of these answers are correct.
Q2) In a job-order costing system,the inventory accounts generally are maintained on a perpetual basis.
A)True
B)False
Q3) Select the incorrect statement regarding cost flows through a process costing system.
A) The process costing system is patterned after the physical flow of products as they move through the production process.
B) The three inventory accounts used are maintained on a perpetual basis.
C) Product costs are accumulated separately by job.
D) A separate Work in Process account is maintained for each department or process.
Q4) Describe how accumulation of costs in a job-order costing system parallels the manufacturing process.
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?
A) Debt to assets ratio
B) Earnings per share
C) Return on investment
D) Number of times interest is earned
Q2) Common methods of financial statement analysis include all of the following except:
A) Incremental analysis.
B) Horizontal analysis.
C) Vertical analysis.
D) Ratio analysis.
Q3) Vertical analysis always involves comparing financial statement elements over a span of time.
A)True
B)False
Q4) Describe the factors involved in communicating useful financial information.
Q5) The quick ratio,although similar to the current ratio,is more conservative.
A)True
B)False
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Chapter 14: Statement of Cash Flows
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Q1) Income tax expense was $137,500 for the year.The balance of the Income Tax Payable account was $7,500 at the beginning of the year and $10,000 at the end of the year.Cash payments for income tax reported on the cash flow statement using the direct method equal:
A) $130,000.
B) $137,500.
C) $147,500.
D) $135,000.
Q2) Hansen Corporation reported net income of $328,000 for the current year.In addition,accounts payable increased $24,000 during the year,inventory increased by $15,000,and accounts receivable decreased by $20,000.Using the indirect method,what is the net cash flow from operating activities?
A) $387,000
B) $357,000
C) $328,000
D) $317,000
Q3) Cash from the sale of treasury stock would be classified as an investing cash flow.
A)True
B)False
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