Accounting for Managers Exam Preparation Guide
Course Introduction
Accounting for Managers is designed to equip students with a comprehensive understanding of accounting principles and their practical application in managerial decision-making. The course covers fundamental financial and managerial accounting concepts, interpretation of financial statements, budgeting, cost analysis, and performance evaluation. Emphasis is placed on the role of accounting information in planning, controlling, and guiding strategic business decisions. By the end of the course, students will be able to analyze financial data, assess organizational performance, and apply accounting tools to solve real-world business problems, thereby supporting effective management and leadership within an organization.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 16th Edition by Srikant M. Datar
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2
Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Which item is an indication of integrity under the Standards of Ethical Conduct?
A) Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
B) Communicate information fairly and objectively.
C) Keep information confidential except when disclosure is authorized or legally required.
D) Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.
Answer: A
Q2) Financial accounting ________.
A) focuses on the future and includes activities such as preparing next year's operating budget
B) must comply with GAAP (generally accepted accounting principles)
C) is the process of measuring, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization
D) is prepared for the use of department heads and other employees
Answer: B
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Outside the relevant range, variable costs, such as direct material costs ________.
A) will decrease proportionately with changes in sales volumes
B) will remain the same with changes in production volumes
C) will not change proportionately with changes in production volumes
D) will increase proportionately with changes in sales volumes
Answer: C
Q2) Product costs for financial statements are:
A) inventoriable costs for external reporting purposes
B) exchange costs incurred during transportation
C) only the costs incurred along the supply chain
D) opportunity costs incurred for the decisions forgone
Answer: A
Q3) When 25,000 units are produced, fixed costs are $21.00 per unit. Therefore, when 20,000 units are produced, fixed costs will ________.
A) increase to $26.25 per unit
B) remain at $21.00 per unit
C) decrease to $16.80 per unit
D) total $420,000
Answer: A
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Page 4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The margin of safety is the difference between ________.
A) budgeted expenses and breakeven expenses
B) budgeted revenues and breakeven revenues
C) actual operating income and budgeted operating income
D) actual sales margin and budgeted sales margin
Answer: B
Q2) There is a difference between a good decision and a good outcome and one can exist without the other.
A)True
B)False
Answer: True
Q3) If the sales mix shifts to one unit of Product X and two units of Product Y, then the breakeven point will ________.
A) increase
B) stay the same
C) decrease
D) will be greater than the original breakeven point
Answer: C
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Chapter 4: Job Costing
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Sample Questions
Q1) The method that restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than budgeted cost rates is called ________.
A) the adjusted allocation rate approach
B) the proration approach
C) the write-off of cost of goods sold approach
D) the weighted-average cost approach
Q2) Assigning direct costs to a cost object is called ________.
A) cost allocation
B) cost assignment
C) cost pooling
D) cost tracing
Q3) Whether a company chooses to use either a job ob costing system or process costing system depends on the nature of the product or service - whether the products or services are heterogeneous or homogeneous.
A)True
B)False
Q4) Differentiate between a cost pool and a cost-allocation base.
Q5) What is the difference between an actual cost system and a normal cost system?
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) Managers consider the accuracy gained by converting from a traditional cost accounting system to the cost of implementation and measurement required by ABC.
A)True
B)False
Q2) Lavender Company is a logistics company and has recently implemented ABC system. Using activity-based information, it decides to reduce the bulkiness of the packages delivered, thereby reducing costs. This suggests that ABC system helps managers in ________ decisions.
A) pricing
B) product-mix
C) process-improvement
D) product-design
Q3) Companies often use costing systems that have features of ABC systems but that do not emphasize individual activities.
A)True
B)False
Q4) How are cost drivers selected in activity-based costing systems?
Q5) How does ABC costing system help service companies?
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Q6) Explain how a top-selling product may actually result in losses for the company.
Chapter 6: Master Budget and Responsibility Accounting
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226 Flashcards
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Sample Questions
Q1) Financial planning software packages assist management with ________.
A) assigning responsibility to various levels of management
B) identifying the target customer
C) sensitivity analysis in their planning and budgeting activities
D) achieving greater commitment from lower management
Q2) Which of the following statements is true about responsibility accounting statements?
A) Responsibility accounting excludes controllable costs.
B) Responsibility accounting segregates fixed costs and variable costs.
C) Responsibility accounting excludes fixed costs and variable costs.
D) Responsibility accounting segregates uncontrollable costs from controllable costs.
Q3) The revenues budget is prepared after all other operating budgets are prepared as it is at that point that the amount of projected expenses are known and so a target revenue can be calculated to cover those expenses and provide a target profit.
A)True
B)False
Q4) Describe some of the drawbacks of using the operating budget as a control device.
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8
Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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181 Verified Questions
181 Flashcards
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Sample Questions
Q1) The following data for the Prender Company pertain to the production of 800 urns during August.
Direct Materials (all materials purchased were used):
Standard cost: $4.80 per pound of urn.
Total actual cost: $4,480.
Standard cost allowed for units produced was $4,800.
Materials efficiency variance was $96 unfavorable.
Direct Manufacturing Labor:
Standard cost is 2 urns per hour at $19.20 per hour.
Actual cost per hour was $19.60.
Labor efficiency variance was $288 favorable.
Required:
a.What is standard direct material amount per urn?
b.What is the direct material price variance?
c.What is the total actual cost of direct manufacturing labor?
d.What is the labor price variance for direct manufacturing labor?
Q2) Expected performance is also called budgeted performance.
A)True
B)False
Q3) What is benchmarking, and how is it useful to a company?
Page 9
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) Allocated fixed overhead can be expressed in terms of allocation-base units or in terms of the budgeted fixed cost per unit.
A)True
B)False
Q2) Which of the following is a true statement of energy costs?
A) Energy costs are not controllable
B) Strategies to reduce energy costs will not impact variable cost budgets.
C) Energy costs are a fixed cost of doing business for a manufacturer.
D) Energy costs are a growing component of variable overhead costs.
Q3) Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance is always zero.
A)True
B)False
Q4) Favorable overhead variances are always recorded with credits in a standard cost system.
A)True
B)False
Q5) Explain why there is no efficiency variance for fixed manufacturing overhead costs.
Page 10
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) Freetown Corporation incurred fixed manufacturing costs of $26,000 during 2017. Other information for 2017 includes:
The budgeted denominator level is 2,800 units.
Units produced total 1,500 units.
Units sold total 1,300 units.
Beginning inventory was zero.
The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total ________. (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)
A) $12,077
B) $22,533
C) $26,000
D) $0
Q2) Throughput margin equals revenues minus all product costs.
A)True
B)False
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11
Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) The t-value of a coefficient measures how large the value of the estimated coefficient is relative to its standard error.
A)True
B)False
Q2) The account analysis method estimates cost functions ________.
A) by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis
B) using time-and-motion studies
C) at a high cost, which renders it seldom used
D) in a manner that cannot be usefully combined with any other cost estimation methods
Q3) Multicollinearity exists in multiple regression when two or more independent variables are highly correlated with each other.
A)True
B)False
Q4) When choosing among cost drivers, managers trade off level of detail, accuracy, feasibility, and costs of estimating functions.
A)True
B)False
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) The rent paid for an already existing facility is an example of a sunk cost.
A)True
B)False
Q2) Each of the following are true of relevant information except:
A) Past costs are helpful when making predictions but not relevant when making decisions
B) Different alternatives can be compared by examining differences in expected future revenues and expected total future costs
C) significant past investment amounts are relevant to decision making
D) Not all future revenues and expenses are relevant
Q3) Quantitative factors ________.
A) include financial information, but not nonfinancial information
B) include both financial and nonfinancial information
C) are always relevant when making decisions
D) include employee morale
Q4) Unit cost data can most mislead decisions by ________.
A) not computing fixed overhead costs
B) computing labor and materials costs only
C) computing administrative costs
D) not computing unit costs at the same output level
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Direct material cost is an example of ________.
A) conversion costs
B) discretionary costs
C) engineered costs
D) downsized costs
Q2) The balanced scorecard uses financial and nonfinancial performance measures to evaluate short-run and long-run performance in a single report.
A)True
B)False
Q3) When analyzing the change in operating income, the strategy component of growth will increase when more units are sold.
A)True
B)False
Q4) Can a company identify unused capacity and, if so, how can unused capacity be managed?
Q5) The productivity component measures the amount by which operating income increases by using inputs efficiently to lower costs.
A)True
B)False
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $300 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Jack's Back Porch's policy to add a 70% markup to full costs.
Jack's Back Porch is invited to bid on a one-time-only special order to supply 150 rustic tables. What is the lowest price Jack's Back Porch should bid on this special order?
A) $45,000
B) $18,000
C) $27,000
D) $76,500
Q2) Which of the following statements is true of the cost of producing a product?
A) It controls pricing in highly competitive markets.
B) It affects the willingness of a company to supply a product.
C) It includes manufacturing costs, but not product design costs for pricing decisions. D) It is not a factor to be taken into account while pricing a product.
Q3) What are the five steps that are followed while implementing target pricing and target costing?
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Page 15
Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) To guide cost allocation decisions, the ability to bear criterion ________.
A) is the primary criterion used in activity-based costing
B) allocates cost among the beneficiaries in proportion to the benefits each receives.
C) results in subsidizing products that are not profitable D) is used more frequently than any other criteria
Q2) Which of the following classifications would costs incurred to handle each unit sold fit into?
A) customer output unit-level cost
B) customer batch-level cost
C) customer-sustaining cost
D) corporate-sustaining cost
Q3) When corporate-sustaining costs are fully allocated to distribution channels, then the sum of the operating income from each distribution-channel is ________.
A) greater than company wide operating income
B) equal to company wide operating income
C) equal to customer-level operating income
D) greater than customer-level operating income
Q4) Briefly describe the four criteria used to guide cost-allocation decisions.
Page 16
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Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Sample Questions
Q1) The dual-rate cost-allocation method provides better information for decision making than the single-rate method as it differentiates between fixed and variable costs and its allocation.
A)True
B)False
Q2) The Pitt Corporation has been outsourcing data processing in the belief that such outsourcing would reduce costs and increase corporate profitability. In spite of this, there has been no meaningful increase in corporate profitability. Previously, Pitt used a single-rate method to allocate data processing costs. A per unit cost for data processing was computed and compared to the price of the outside supplier. The price of the outside supplier was lower and thus, the outside bid was accepted.
Required:
Formulate a possible reason why Pitt's profitability has not shown improvement in terms of the cost allocation method used.
Q3) Describe methods which may be used to allocate support costs within organizations containing multiple support departments. Discuss advantages and disadvantages of the various methods.
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) The sales method for recognizing byproducts is conceptually correct because it is consistent with the matching principle.
A)True
B)False
Q2) Paragon University operates an extensive and an expensive registration, testing, and counseling center, through which all students are required to pass through when they enter the university. The registration effort's costs (for the most part) are almost impossible to allocate based upon which students require time, effort, etc. The cost of this center is approximately 15% of the total costs of Paragon. This department engages in no other activities than the registration of students. Paragon is interested in determining the profitability of the three technical departments it operates. Paragon has the perception that some departments are more profitable than others, and it would like to determine an appropriate method of allocating the costs of this registration center. Required:
Recommend to Paragon University a method (or methods) of allocating the costs of registration to the three departments.
Q3) What are the reasons for allocating joint costs to individual products or services?
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Page 18
Chapter 17: Process Costing
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Sample Questions
Q1) List and describe the five steps in process costing.
Q2) The first-in, first-out process-costing method assumes that the earliest equivalent units in work in process are completed first.
A)True
B)False
Q3) Activity -based costing plays a more significant role in job costing as compared to process costing as companies using process costing have homogeneous products.
A)True
B)False
Q4) What is the difference between a weighted-average method of process costing and a first-in, first-out method of process costing?
Q5) Underestimating the degree of completion of ending work in process leads to increase in operating income.
A)True
B)False
Q6) Why do we need to accumulate and calculate unit costs in process costing (and also job costing)?
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Page 19
Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) An item classified as spoilage has no value.
A)True
B)False
Q2) Assume the following:
WIP, beginning 4500 units (100% complete as to direct materials, 40% complete as to conversion costs)
Started 12,500 units during the period
Total spoilage is 800 with normal spoilage is calculated to be 350 units
Completed and transferred out during the period 10,000 units
WIP, ending 6200 units (100% complete as to direct materials, 50% complete as to conversion costs)
Spoiled units 800 and inspection happens when the process is 30% complete
All materials are added at the start of the process
Under the weighted average method, would would be the equivalent units of work done for the period?
A) 9405
B) 10,000
C) 6200
D) 13,340
Q3) What are the objectives in accounting for spoilage?
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Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Which of the following is an opportunity cost?
A) lost sales
B) cost of production
C) marginal cost
D) cost of sales
Q2) Ventaz Corp manufactures small windows for back yard sheds. Historically, its demand has ranged from 30 to 50 windows per day with an average of 41. Alex is one of the production workers and he works eight hours a day, five days a week. Each order is one window and each window takes 10 minutes.
What is the cycle time for an order?
A) 10 minutes per window
B) 100.00 minutes per window
C) 39.29 minutes per window
D) 500.00 minutes per window
Q3) Discuss the means by which a company goes about evaluating and installing a new quality improvement program.
Q4) A control chart identifies potential causes of failures or defects.
A)True
B)False
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Chapter 20: Inventory Management, Just-in-Time, and Simplified Costing Methods
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Q1) Which of the following statements best defines a just-in-time production system?
A) a push-through system that manufactures finished goods for inventory on the basis of demand forecasts
B) a push-through system in which each component in a production line is produced immediately as needed by the next step in the production line
C) a demand-pull system that manufactures finished goods for inventory on the basis of demand forecasts
D) a demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line
Q2) A successful implementation of a JIT production system should result in a lowering of the inventory turnover ratio.
A)True
B)False
Q3) Discuss considerations that should be fully taken into account when developing inventory related relevant costs for use in an economic order quantity (EOQ) model.
Q4) Lean accounting is much simpler than traditional product costing. Why?
Q5) What are five features of a just-in-time manufacturing system?
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) Investment A requires a net investment of $604,021 The required rate of return is 12% for the three-year annuity. What are the annual cash inflows if the net present value equals 0? (rounded)
A) $2,416,084
B) $251,466
C) $604,016
D) -$1,812,063
Q2) Discuss a range of factors that managers may have to consider when making capital budgeting decisions that are strategic in nature.
Q3) Forge Company wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual cash inflows of $140,000. The required rate of return is 10% and the current machine is expected to last for seven years. Of the following choices, which is the dollar amount the company would be willing to spend for the machine, assuming its life is also seven years? Income taxes are not considered.
A) $1,328,180
B) $882,000
C) $702,660
D) $681,520
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational Considerations
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Sample Questions
Q1) Super Shoes Company manufactures sneakers. The Athletic Division sells its socks for $18 a pair to outsiders. Sneakers have manufacturing costs of $6.00 each for variable and $6.00 for fixed. The division's total fixed manufacturing costs are $315,000 at the normal volume of 70,000 units.
The European Division has offered to buy 15,000 Sneakers at the full cost of $12. The Athletic Division has excess capacity and the 15,000 units can be produced without interfering with the current outside sales of 70,000. The 85,000 volume is within the division's relevant operating range.
Explain whether the Athletic Division should accept the offer.
Q2) Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $19 per pound. Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $6.50 per pound.
Which of the following formulas correctly reflects the company's operating income per pound?
A) $19 - ($1.25 + $6.50) = $11.25
B) $19 - ($3.25 + $6.50) = $9.25
C) $19 - ($1.25 + $9.75) = $8.00
D) $19 - ($0.75 + $3.25 + $3.25) = $5.50
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Q1) Reducing the investment base to improve ROI involves decreasing idle cash, paying down debt, determining proper inventory levels, and spending carefully on long-term assets.
A)True
B)False
Q2) Using net book value as an investment base will result in a lower ROI than using gross book value as an investment base.
A)True
B)False
Q3) Measures which monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are collectively called diagnostic control systems.
A)True
B)False
Q4) An example of a performance measure with a long time horizon is ________.
A) direct materials efficiency variances
B) overhead spending variances
C) number of new patents developed
D) quality of room service
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