Introduction to Management Accounting Study Guide Questions
Course Introduction
Introduction to Management Accounting provides students with a foundational understanding of how accounting information is used within organizations to support decision-making, planning, and control. The course covers key concepts such as cost behavior, budgeting, variance analysis, and performance measurement. Emphasis is placed on the preparation and interpretation of internal reports, cost analysis for decision making, and the role of management accounting in strategic planning and operational efficiency. Students will gain practical skills in analyzing financial data, making informed business decisions, and understanding the ethical implications of management accounting practices.
Recommended Textbook Management Accounting for Business 6th Edition by
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Page 2
Colin Drury
Chapter 1: Introduction to Management Accounting
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Sample Questions
Q1) Management accounting is concerned with which kind of decision?
A) product costing and pricing
B) continuous operational improvement
C) financial control
D) all of the above
Answer: D
Q2) Inspecting units produced to determine if they meet specifications is an example of A) planning.
B) control.
C) decision making.
D) both a and c
Answer: B
Q3) The monitoring of a plan's implementation is called A) planning.
B) controlling.
C) decision making.
D) budgeting.
Answer: B
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Chapter 2: An Introduction to Cost Terms and Concepts
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Q1) Mulholland Company manufactures various wooden furniture products. If the cost object is a product, a chair, what costs would be considered direct?
A) manufacturing supervisor's salary
B) depreciation on the factory building
C) salary of the worker that glues the legs to the seat of the chair
D) insurance on the factory
Answer: C
Q2) Which of the following is an example of a possible cost object?
A) a product
B) a customer
C) a department
D) All of these could be possible cost objects.
Answer: D
Q3) Which of the following costs would be classified as variable costs with respect to volume?
A) property taxes on the manufacturing facility
B) the wheels on an automobile
C) the cost of installing production equipment
D) all of the above
Answer: B
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Baker Company sells its product for £60. In addition, it has a variable cost ratio of 40 percent and total fixed costs of £9,000. What is the break-even point in monetary sales for Baker Company?
A) £3,600
B) £5,400
C) £15,000
D) £9,000
Answer: C
Q2) A decrease in the sales price in the basic cost-volume-profit model would A) require a recomputation of the gross profit per unit.
B) be offset by an increase in unit costs.
C) decrease the break-even volume.
D) increase the break-even volume.
Answer: D
Q3) In a cost-volume-profit graph, the slope of the total revenue line represents A) the selling price per unit.
B) the contribution margin per unit.
C) the variable cost per unit.
D) total contribution margin.
Answer: A
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Chapter 4: Measuring Relevant Costs and Revenues for Decision-Making
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Q1) What is an opportunity cost? Under what circumstances are opportunity costs relevant to a decision? Construct an example of an opportunity cost. Briefly discuss why you think financial reports for investors and managerial reports for mangers may or may not differ in their treatment of opportunity costs.
Q2) Which of the following costs is NOT relevant to a special-order decision?
A) the direct labour costs to manufacture the special-order units
B) the variable manufacturing overhead incurred to manufacture the special-order units
C) the portion of the cost of leasing the factory that is allocated to the special order
D) All of the above costs are relevant.
Q3) Tactical decision-making relies
A) only on relevant cost information.
B) on qualitative factors.
C) on relevant costs as well as other qualitative factors.
D) on neither relevant costs or qualitative decisions.
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Chapter 5: Pricing Decisions and Profitability Analysis
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Q1) Spencer Manufacturing Company sells a product for £200 per unit. Its market share is 18 percent of the units sold. The marketing manager feels that the market share can be increased to 25 percent of the units sold with a reduction in price to £170. The product is currently earning a profit of £32 per unit. The president of Spencer Manufacturing Company feels that his company needs to maintain the same profit level per unit. The market share consists of £2,000,000 (10,000 units).
Required:
a.
How many pounds does Spencer Manufacturing Company currently sell of the product?
b.
What is the target price per unit?
c.
What is the original cost per unit?
d.
What is the target cost per unit?
Q2) Provide a short critique of cost-based pricing. What are the four major drawbacks to this pricing approach?
Q3) List some of the pros and cons of target costing.
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Chapter 6: Capital Investment Decisions
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Sample Questions
Q1) What are the steps normally undertaken in an effective capital budgeting process?
Q2) The present value of £10,000 to be received five years from now and earning a 12 percent return is
A) £2,774
B) £5,670
C) £17,637
D) £36,050
Q3) The time required for a project to return its investment is the A) accounting rate of return
B) interest
C) net present value
D) payback period
Q4) Refer to Figure 6. JD's net present value of the project is
A) £40,480
B) £48,625
C) £50,625
D) £54,450
Q5) Explain what a capital investment decision is and distinguish between independent and mutually exclusive capital investment decisions.
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Chapter 7: Cost Assignment
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Q1) Traditional-based product costing uses which of the following procedures?
A) Overhead costs are traced to departments, then costs are traced to products.
B) Overhead costs are traced to activities, then costs are traced to products.
C) Overhead costs are traced directly to products.
D) All overhead costs are expensed as incurred.
Q2) The optimal level in the trade-off between measurement and error costs is when
A) measurement costs are greater than error costs.
B) measurement costs are less than error costs.
C) measurement costs equal error costs.
D) the total of measurement costs and error costs are maximized.
Q3) Refer to Figure 1 above. What was Harrison Company's unit manufacturing cost for product XY?
A) £10.00
B) £13.69
C) £3.69
D) £13.38
Q4) Discuss how managerial product costing differs from product costing for financial reporting.
Q5) Explain the advantage of using multiple overhead rates instead of a single plantwide overhead rate to apply overhead.
Page 9
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Chapter 8: Activity-Based Costing
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Sample Questions
Q1) The activity-based approach to break-even costing emphasizes
A) fixed and variable cost behaviour
B) unit and nonunit cost behaviour
C) product and period cost behaviour
D) value chain cost behaviour
Q2) Committed resources are
A) hard to purchase
B) purchased precisely at the time the resource is needed and have no unused capacity
C) supplied in advance of usage and may have unused capacity
D) none of the above
Q3) The activity-based resource usage model improves managerial control and decision making such as
A) the best way to use excess activity capacity in the system.
B) maximization of individual unit performance.
C) increasing the allocation of costs.
D) focusing on managing costs rather than activities.
Q4) Discuss how volume-based unit-level analysis underestimates and/or overestimates the cost of products.
Q5) What is cross-subsidization and when is it most likely to occur?
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Chapter 9: The Budgeting Process
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Q1) Activity-based budgeting
A) is a more powerful planning and control tool than a functional-based budget system
B) starts with sales and production budgets similar to a functional-based budget system
C) is simpler to construct than a functional-based budget system
D) Both a and b above are correct.
Q2) Continuous budgeting requires managers to
A) add a future month as the current month expires
B) constantly update the budget to include new information
C) continuously refer to the budget when making decisions
D) assign budgeting responsibilities to a defined group of employees
Q3) Depreciation on the production equipment would appear in which of the following budgets?
A) cash budget
B) production budget
C) selling and administrative expenses budget
D) manufacturing overhead budget
Q4) Describe zero-based budgeting.
Q5) Describe an activity-based budget.
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Chapter 10: Management Control Systems
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Sample Questions
Q1) When top management assumes total control of the budgeting process and seeks only superficial participation from lower-level managers, this practice is called
A) pseudoparticipation
B) false participation
C) participative budgeting
D) none of the above
Q2) The ideal budget system creates
A) extreme caution in managers.
B) drive and risk avoidance in managers.
C) drive and goal congruence in managers.
D) none of the above.
Q3) What is the best description listed below of a discretionary cost centre?
A) a cost centre with defined relationships between effort and employee pay
B) a cost centre that allows employees to define the centre's goals using their own discretion
C) a cost centre that does not have clearly defined relationships between effort and accomplishments
D) a cost centre that designates ten percent of its budgeted costs toward building employee morale.
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Chapter 11: Standard Costing and Variance Analysis
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Sample Questions
Q1) Refer to Figure 5. Ebola's materials usage variance would be
A) £120,000 favorable
B) £120,000 unfavorable
C) £80,000 unfavorable
D) £80,000 favorable
Q2) Which of the following is NOT true about currently attainable standards?
A) They are based on an efficiently operating work force.
B) They are based on ideal conditions.
C) They allow for downtime and rest periods.
D) They are based on present production processes and technology.
Q3) Refer to Figure 8. Noelle's fixed overhead spending (expenditure) variance would be
A) £10,000 unfavorable
B) £11,000 unfavorable
C) £21,000 favorable
D) £31,000 favorable
Q4) Discuss the advantages and disadvantages of both ideal or currently attainable standards.
Q5) How are standards developed? What is the difference between ideal and currently attainable standards?
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Chapter 12: Divisional Financial Performance Measurement
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Sample Questions
Q1) Compare and contrast return on investment (ROI) and economic value added (EVA).
Q2) Goal congruence refers to
A) the goals of the firm being consistent with the goals of its customers
B) the goals of the suppliers being consistent with the goals of the firm
C) the goals of the individual investment centres being consistent with the goals of the firm
D) none of the above
Q3) Advantages of decentralization include all of the following EXCEPT
A) divisional management is able to react to changing market conditions more rapidly than top management
B) divisional management is a source of personnel for promotion to top management positions
C) decentralization can motivate divisional managers
D) decentralization permits divisional management to concentrate on firmwide problems and long-range planning
Q4) Which of the following is a disadvantage of both residual income and ROI?
A) They are both absolute measures of return.
B) They both are difficult to calculate.
C) They both do not discourage myopic behaviour.
D) All of the above are disadvantages of both ROI and residual income.
Page 14
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Chapter 13: Transfer Pricing in Divisionalized Companies
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Q1) What is the role of transfer pricing in a decentralized firm?
Q2) Refer to Figure 3 above. The maximum transfer price that the West Division would be willing to pay is
A) £90
B) £60
C) £48
D) £38
Q3) In a negotiated transfer price,
A) market prices may not be suitable
B) opportunity costs could be used to set boundaries
C) buyers and sellers influence the transfer price set
D) all of the above are true
Q4) _____ is when the transfer price is computed equal to a sales price received by the reseller less an appropriate markup.
A) Advance pricing agreement
B) Comparable uncontrolled price approach
C) Cost-plus approach
D) Resale price method
Q5) Discuss the advantages of decentralization in a multinational company.
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Chapter 14: Cost Management
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Sample Questions
Q1) Describe activity-based performance measurement.
Q2) _____ are the costs of activities performed after discharging contaminants and waste into the environment.
A) Environmental prevention costs
B) Environmental detection costs
C) Environmental internal failure costs
D) Environmental external failure costs
Q3) Which of the following is NOT a prevention activity?
A) evaluating and selecting supplies
B) evaluating and selecting pollution control equipment
C) auditing environmental activities
D) designing processes
Q4) Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time to 1 hour. Setup labour is £6 per hour. The nonvalue-added costs are
A) £72.
B) £66.
C) £12.
D) £6.
Q5) Discuss cycle time (and its components) and its importance in JIT.
Page 16
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Chapter 15: Strategic Performance Management
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Sample Questions
Q1) Define value chain. What is the relationship among a value chain, processes, and activities?
Q2) _____ is the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage.
A) Strategic decision making
B) Strategic cost management
C) Competitive advantage
D) Customer value
Q3) Which of the following is not a step in developing the Balanced Scorecard?
A) setting balanced objectives
B) outlining control procedures
C) setting target values
D) rewards
Q4) From the customer perspective, which of the following might be considered a core objective rather than a performance value?
A) decrease price
B) increase customer retention
C) improve image
D) improve product quality
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