Decision Making with Accounting Information Study Guide
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Course Introduction
This course explores how accounting information is utilized in business decision-making processes. Students will learn to interpret financial and managerial accounting reports, assess the relevance and reliability of various accounting data, and apply analytical techniques to solve real-world business problems. Emphasis is placed on using accounting information for planning, controlling, and evaluating organizational performance, with practical exercises involving budgeting, cost analysis, and performance measurement. The course prepares students to make informed, ethical decisions by understanding the impact of financial information on strategic and operational choices within an organization.
Recommended Textbook Managerial Accounting 6th Edition by
John J Wild
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16 Chapters
3269 Verified Questions
3269 Flashcards
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Page 2
Chapter 1: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) Expenditures necessary and integral to the manufacture of finished products are ________ costs.
Answer: product
Q2) The Tacky Company manufactures staples. Costs for October were direct labor, $84,000; indirect labor, $36,700; direct materials, $55,900; factory maintenance, $4,800; factory utilities, $3,200; and insurance on plant and equipment, $700. What is Tacky Company's factory overhead for October?
Answer: \[\begin{array} { | l | r | }
\hline \text { Indirect labor } & \$ 36,700 \\
\hline \text { Factory maintenance } & 4,800 \\
\hline \text { Factory utilities } & 3,200 \\
\hline \text { Insurance on plant and equipment } & 700 \\
\hline \text { Total factory overhead } & \$ 45,400 \\
\hline \end{array}\]
Q3) ________ inventory consists of products in the process of being manufactured but not yet complete.
Answer: Work in process or goods in process
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Page 3
Chapter 2: Job Order Costing and Analysis
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Sample Questions
Q1) The predetermined overhead rate is used to allocate overhead cost to jobs.
A)True
B)False
Answer: True
Q2) Under a job order costing system, individual jobs are always charged with actual overhead costs when they are transferred to finished goods.
A)True
B)False
Answer: False
Q3) A time ticket is a source document that an employee uses to report how much direct labor was performed for a job and is used to determine the amount of direct labor to charge to the job.
A)True
B)False
Answer: True
Q4) A company's predetermined overhead rate is applied at 150% of direct materials cost. How much overhead would be allocated to Job No. 325 if the total direct materials costs was $40,000?
Answer: $40,000 * 150% = $60,000
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Chapter 3: Process Costing and Analysis
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Sample Questions
Q1) In process costing, factory overhead incurred does not usually equal that applied, which yields either ________ or ________ overhead.
Answer: overapplied; underapplied
Q2) During March, the production department of a process operations system completed and transferred to finished goods 25,000 units that were in process at the beginning of March and 110,000 that were started and completed in March. March's beginning inventory units were 100% complete with respect to materials and 55% complete with respect to labor. At the end of March, 30,000 additional units were in process in the production department and were 100% complete with respect to materials and 30% complete with respect to labor. The production department incurred direct labor cost of $578,900 and its beginning inventory included labor cost of $54,700. Compute the direct labor cost per equivalent unit for the department using the weighted-average method.
A) $4.69.
B) $3.84.
C) $4.86.
D) $4.28.
E) $4.40.
Answer: E
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Page 5
Chapter 4: Activity Based Costing and Analysis
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Sample Questions
Q1) Consider the following activities that take place in a medical clinic.
(a.) Cleaning exam rooms.
(b)) Heating and air conditioning the clinic.
(c)) Sending blood work to a lab.
(d)) Dispensing medicine.
Which of the following statements is true?
A) Cleaning rooms and heating the clinic are both unit level activities.
B) Sending blood work to the lab is a batch level activity.
C) Sending blood work and dispensing medicine are both batch level activities.
D) Cleaning rooms and dispensing medication are both product or service level activities.
E) Heating the clinic and dispensing medication are both batch level activities.
Q2) Allocated overhead ________ vary depending upon the allocation method used.
Q3) The use of a plantwide overhead rate is not acceptable for external reporting under GAAP.
A)True
B)False
Q4) Overhead costs cannot be ________ in the same way that direct materials and direct labor can.
Q5) Name and briefly describe three overhead rate methods.
Page 6
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Chapter 5: Cost Behavior Cost-Volume-Profit Analysis
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Sample Questions
Q1) Scatter diagrams plot volume (units) on the horizontal axis and cost on the vertical axis.
A)True
B)False
Q2) Three important assumptions in cost-volume-profit analysis is that (1) ________ per unit is constant, (2) ________ per unit is constant, and (3) ________ are constant in total.
Q3) The following information describes a product expected to be produced and sold by Quark Corporation:
Selling price $33 per unit
Variable costs $27 per unit
Total Fixed costs $855,000 per year
Required:
(a) Calculate the contribution margin per unit.
(b) Calculate the break-even point in units.
Q4) Total fixed costs change in proportion to changes in volume of activity. A)True B)False
Q5) What is the high-low method? Briefly describe how it is applied.
Q6) Briefly describe a CVP chart, including its major components.
Page 7
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Chapter 6: Variable Costing and Analysis
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Sample Questions
Q1) Assuming fixed costs remain constant, and a company sells more units than it produces, then income under absorption costing is less than income under variable costing.
A)True
B)False
Q2) Pact Company had net income of $972,000 based on variable costing. Beginning and ending inventories were 7,800 units and 5,200 units, respectively. Assume the fixed overhead per unit was $3.61 for both the beginning and ending inventory. What is net income under absorption costing?
A) $962,614
B) $1,018,923
C) $925,077
D) $969,400
E) $981,379
Q3) To convert variable costing income to absorption costing income, management will need to add fixed overhead cost deferred in ending inventory and subtract fixed overhead cost recognized from beginning inventory.
A)True
B)False
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Page 8
Chapter 7: Master Budgets and Performance Planning
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Sample Questions
Q1) Webster Corporation is preparing its cash budget for April. The March 31 cash balance is $36,400. Cash receipts are expected to be $641,000 and cash payments for purchases are expected to be $608,500. Other cash expenses expected are $27,000 selling and $33,500 general and administrative. The company desires a minimum cash balance at the end of each month of $30,000. If necessary, the company borrows enough cash to meet the minimum using a short-term note. Webster's preliminary cash balance before loan activity for April is expected to be:
A) $8,400.
B) $21,600.
C) $30,000.
D) ($28,000).
E) $68,900.
Q2) What are rolling budgets? Why are rolling budgets prepared?
Q3) The central guidance of the budget process is the responsibility of the:
A) Chief Accounting Officer.
B) Chief Executive Officer (CEO).
C) Chief Financial Officer (CFO).
D) Budget Committee.
E) Board of Directors.
Q4) What is activity-based budgeting?
Page 9
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Chapter 8: Flexible Budgets and Standard Costs
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Sample Questions
Q1) What is the overhead volume variance? What would be the cause of a favorable volume variance?
Q2) A fixed budget is also called a ________ budget.
Q3) Lavoie Company planned to use 18,500 pounds of material costing $2.50 per pound to make 4,000 units of its product. In actually making 4,000 units, the company used 18,800 pounds that cost $2.54 per pound. Calculate the direct materials quantity variance.
Q4) A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The variable costs expected if the company produces and sells 16,000 units is:
A) $48,000.
B) $64,000.
C) $40,000.
D) $24,000.
E) $18,000.
Q5) Companies promoting continuous improvement strive to achieve ________ standards by eliminating inefficiencies and waste.
Q6) Identify and explain the primary differences between fixed and flexible budgets.
Q7) Define standard costs. How do they assist management?
Page 10
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Chapter 9: Performance Measurement and Responsibility Accounting
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Sample Questions
Q1) A system of performance measures, including nonfinancial measures, used to assess company and division manager performance is:
A) Hurdle rate.
B) Return on investment.
C) Balanced scorecard.
D) Residual income.
E) Investment turnover.
Q2) What is a profit center and how is its performance evaluated?
Q3) Differential Chemical produced 10,000 gallons of Preon and 20,000 gallons of Paron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Preon if the value basis is used.
A) $2,500
B) $3,000.
C) $4,500.
D) $5,625.
E) $1,500.
Q4) A ________ generates revenues and incurs costs.
Q5) What is the purpose of a departmental accounting system?
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Chapter 10: Relevant Costing for Managerial Decisions
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Sample Questions
Q1) Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $10; direct labor, $14, variable overhead $3 and fixed overhead, $8. An outside supplier has offered to sell the product to Paxton for $32. Compute the net incremental cost or savings of buying the component.
A) $5.00 savings per unit.
B) $3.00 cost per unit.
C) $0 cost or savings per unit.
D) $5.00 cost per unit.
E) $3.00 savings per unit.
Q2) Wheeler Company can produce a product that incurs the following costs per unit: direct materials, $10; direct labor, $24, and overhead, $16. An outside supplier has offered to sell the product to Wheeler for $45. If Wheeler buys from the supplier, it will still incur 45% of its overhead cost. Compute the net incremental cost or savings of buying.
A) $4.00 savings per unit.
B) $4.00 cost per unit.
C) $2.20 cost per unit.
D) $3.80 cost per unit.
E) $2.20 savings per unit.
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Chapter 11: Capital Budgeting and Investment Analysis
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Sample Questions
Q1) All capital investment evaluation methods use the time value of money concept.
A)True
B)False
Q2) A company can buy a machine that is expected to have a three-year life and a $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be received at the end of each year. If a table of present values of $1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%?
A) $118,855
B) $583,676
C) $629,788
D) $705,391
E) $1,918,855
Q3) A capital budgeting method that considers how quickly a project recovers costs is known as ________. An enhancement to this method that also considers the time value of money is called ________.
Q4) The ________ is computed by dividing a project's annual after-tax net income by the annual average amount invested.
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Chapter 12: Reporting Cash Flows
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Sample Questions
Q1) The cash flows from operating activities section of an indirect method of cash flows begins with net income or loss.
A)True
B)False
Q2) All of the following statements related to preparation of the statement of cash flows under U.S. GAAP and IFRS are true except:
A) Both U.S. GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method.
B) IFRS permits classification of cash outflows for interest expense under operating or financing based on which one results in better cash flows from operating activities.
C) U.S. GAAP requires cash outflows for income tax be classified as operating activities.
D) IFRS permits the splitting of income tax cash flows among operating, investing, and financing depending on the sources of that tax.
E) IFRS permits classification of interest expense under operating or financing activities provided it is consistently applied across periods.
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14
Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) Refer to the following selected financial information from Shakley's Incorporated. Compute the company's return on total assets for Year 2. \[\begin{array} { | l | r | r | }
\hline & \text { Year 2 } & \text { Year 1 } \\
\hline \text { Net sales } & \$ 478,500 & \$ 426,250 \\
\hline \text { Cost of goods sold } & 276,300 & 250,120 \\
\hline \text { Interest expense } & 9,700 & 10,700 \\
\hline \text { Net income before tax } & 67,250 & 52,680 \\
\hline \text { Net income after tax } & 46,050 & 39,900 \\
\hline \text { Total assets } & 317,100 & 288,000 \\
\hline\text { Total liabilities } & 181,400 & 167,300 \\
\hline \text { Total equity } & 135,700 & 120,700 \\
\hline \end{array}\]
A) 9.6%.
B) 15.2%.
C) 2.6%.
D) 22.2%.
E) 14.5%.
Q2) Identify and explain the four building blocks of financial statement analysis. To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Time Value of Money
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Sample Questions
Q1) The present value of four $10,000 semiannual payments invested for 2 years at 12% compounded semiannually is $43,746. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
A)True
B)False
Q2) Jackson has a loan that requires a $17,000 lump sum payment at the end of four years. The interest rate on the loan is 5%, compounded annually. How much did Jackson borrow today? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
A) $16,150
B) $13,600
C) $11,504
D) $13,986
E) $15,343
Q3) Present and future value computations enable companies to measure or estimate the interest component of holding assets or liabilities over time.
A)True
B)False
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Chapter 15: Analyzing for Business Transactions
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Sample Questions
Q1) List the four steps in recording transactions.
Q2) List the steps in processing transactions.
Q3) The financial statement that summarizes the changes in the retained earnings account is called the balance sheet.
A)True
B)False
Q4) Expenses always decrease equity.
A)True
B)False
Q5) All of the following are asset accounts except:
A) Accounts Receivable.
B) Buildings.
C) Supplies expense.
D) Equipment.
E) Prepaid insurance.
Q6) When a company provides services for which cash will not be received until some future date, the company should record the amount billed as accounts receivable.
A)True
B)False
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Chapter 16: Partnership Accounting
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Sample Questions
Q1) Wallace, Simpson, and Prince are partners and share income and losses in a 3:4:3 ratio. The partnership's capital balances are Wallace, $68,000; Simpson, $90,000; and Prince, $42,000. Royal is admitted to the partnership on July 1 with a 20% equity and invests $50,000. The partnership would record the admission of Royal into the partnership as:
A) Debit Wallace, Capital $15,000; debit Simpson, Capital, $20,000; debit Prince, Capital $15,000; credit Royal, Capital $50,000.
B) Debit Cash $20,000; credit Prince, Capital $20,000.
C) Debit Cash $40,000; debit Wallace, Capital $3,000; debit Simpson, Capital, $4,000; debit Prince, Capital $3,000; credit Royal, Capital $50,000.
D) Debit Cash $50,000; credit Royal, Capital $50,000.
E) Debit Cash $50,000; credit Simpson, Capital $10,000, credit Royal, Capital $40,000.
Q2) Total partnership income is reported to the IRS on Form 1065.
A)True B)False
Q3) When a partner leaves a partnership, the present partnership ends.
A)True
B)False
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