Strategic Management Accounting
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Course Introduction
Strategic Management Accounting explores the integration of accounting information into business strategy to enhance decision-making and achieve competitive advantage. The course covers advanced cost management techniques, performance measurement systems, and the use of financial and non-financial data for planning and control. Students learn how to analyze market and competitor information, develop balanced scorecards, and support strategic initiatives such as pricing, product development, and value chain management. Emphasis is placed on real-world case studies and the evolving role of management accountants as strategic business partners.
Recommended Textbook
Cost Accounting A Managerial Emphasis 6th Canadian Edition by Charles T. Horngren
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Chapter 1: The Accountants Vital Role in Decision Making
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Q1) When a company works with its supplier to reduce material-handling costs, this is an example of
A) the customer-driven approach.
B) a conflict of interest.
C) a key success factor.
D) a strategic marketing focus.
E) total value chain or supply chain analysis.
Answer: E
Q2) ________ is the generation of, and experimentation with, ideas related to new products, services, or processes.
A) Research and development
B) Design of products, services, or processes
C) Production
D) Marketing
E) Quality control
Answer: A
Q3) Learning arises from comparing actual performance to expected performance.
A)True
B)False
Answer: True
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Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) A manufacturing company contracts with the labour union to guarantee full employment for all employees with at least 10 years seniority. The Company expects to be working at capacity for the next 2 years (the life of the contract), so this was seen as a bargaining concession without any cost to the company. On average, an employee earns $30 per hour, including benefits. The work force consists of 800 employees, with seniority ranging from 1 year to 18 years.
Required:
Analyze the direct labour cost in term of variable costs, fixed costs, and the relevant range.
Answer: Usually, we think of direct labour as a variable cost, since it increases in proportion to the increases in output. However in this case, the manufacturer has converted a portion of the direct labour cost into a fixed cost, since the union contract appears to require the company to pay full wages to all employees with at least 10 years seniority, regardless of the level of production. The direct labour costs in excess of this amount would still be a variable cost. The relevant range would be the number of employees with at least 10 years seniority, times the wage for a regular work week. This will be the case until the contract expires.
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) If unit sales exceed the break-even point when using the graph method,
A) there is a loss because the total cost line exceeds the total revenue line.
B) total sales exceed total costs.
C) there is a profit because the total cost line exceeds the total revenue line.
D) expenses are extremely high relative to revenues.
E) operating income is negative (an operating loss).
Answer: B
Q2) Berhannan's Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500.
Required:
a. What is the contribution margin per phone?
b. What is the break-even point in phones?
c. How many phones must be sold to earn pretax income of $7,500?
Answer: a. CM per phone = $100 - $50 - 0.1($100) = $40
b. N = Break-even in phones
11ea8545_3ccb_d39b_a343_4f2129342be1_TB2722_00 c. N = Phones to be sold
11ea8545_3ccb_faac_a343_0bfa38d5acbc_TB2722_00
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Chapter 4: Job Costing
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Q1) In the service sector,
A) direct labour costs are always easy to trace to jobs.
B) a budgeted direct labour cost rate may be used to apply direct labour to jobs.
C) normal costing may not be used.
D) overhead is always applied using an actual cost allocation rate.
E) cost of goods sold includes beginning service inventory.
Q2) A machine shop has direct materials cost of $1,800,000 direct labour of $4,200,000 (direct labour rate is $50 per hour) and budgeted indirect manufacturing costs of $850,000. Management believes that indirect manufacturing costs increase with direct labour hours. What is the budgeted indirect manufacturing cost rate?
A) $2.12
B) $2.33
C) $4.94
D) $10.12
E) $17.00
Q3) Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.
Q4) Explain how a budgeted indirect cost allocation rate is determined.
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Chapter 5: Activity-Based Costing and Management
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Q1) Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?
A) $300 per change, $80 per setup, $2.50 per inspection
B) $250 per change, $80 per setup, $3.75 per inspection
C) $210 per change, $2.50 per setup, $26.25 per inspection
D) $300 per change, $125 per setup, $4.00 per inspection
E) $300 per change, $2.50 per setup, $80 per inspection
Q2) Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?
A) $200 per change, $64 per setup, $5 per inspection
B) $180 per change, $76 per setup, $4 per inspection
C) $150 per change, $64 per setup, $4 per inspection
D) $180 per change, $76 per setup, $5 per inspection
E) $200 per change, $5 per setup, $64 per inspection
Q3) Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.
A)True
B)False
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Chapter 6: Master Budget and Responsibility Accounting
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Q1) A budget is a quantitative expression for a set time period of a proposed future plan of action by management.
A)True
B)False
Q2) How many mattresses need to be produced in the first quarter (January, February, March) of 2013?
A) 18,500 mattresses
B) 19,400 mattresses
C) 20,900 mattresses
D) 22,400 mattresses
E) 18,000 mattresses
Q3) The objective of activity-based budgeting is
A) to allow multiple activities to be used as cost drivers rather than just one item such as direct labour hours.
B) to compute the cost of performing activities.
C) to refine the budgeting process by assigning indirect costs into activity cost pools.
D) to classify costs by functional area and assign them to related activities.
E) to classify costs as to whether they are value added or non-value added.
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Q1) Some financial variances show increases in operating income relative to a budgeted or allocated amount, and others show decreases in operating income. Respectively, these variances are
A) budgeted, standard.
B) favourable, unfavourable.
C) standard, budgeted.
D) unfavourable, favourable.
E) fixed, variable.
Q2) Which of the following reasons is unlikely to be related to an unfavourable variance for labour costs?
A) labour used was less skilled than usual
B) poor work scheduling
C) excessive equipment downtime
D) inappropriate standards
E) price variance in direct materials purchased at the standard quality
Q3) Give at least three good reasons why a favourable price variance for direct materials might be reported.
Q4) The terms, usage variances and efficiency variances mean the same thing.
A)True
B)False
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Q1) What is the variable manufacturing overhead rate variance?
A) $30,000 unfavourable
B) $28,500 favourable
C) $20,000 unfavourable
D) $16,000 favourable
E) $16,000 unfavourable
Q2) Capacity cost is a variable overhead cost.
A)True
B)False
Q3) Fixed Manufacturing Overhead Variances that are material should only be written off to Cost of Goods Sold.
A)True
B)False
Q4) For planning and control purposes, actual energy usage per machine hour compared with budgeted energy usage per machine hour, is a valid financial performance measure.
A)True
B)False
Page 10
Q5) How is a budgeted fixed overhead cost rate calculated?
Q6) Explain the meaning of a favourable production-volume variance.
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Q1) From the perspective of long-run product costing it is best to use
A) master-budget capacity utilization to highlight unused capacity.
B) normal capacity utilization for benchmarking purposes.
C) practical capacity for pricing decisions.
D) theoretical capacity for performance evaluation.
E) supply capacity to satisfy customer demand.
Q2) What is the theoretical capacity for the month of April?
A) 600,000 units
B) 720,000 units
C) 744,400 units
D) 576,000 units
E) 480,000 units
Q3) One of the biggest reasons variable costing is controversial involves
A) external reporting.
B) corporate goals and mission statements.
C) internal management control reports.
D) internal management reports.
E) foreign subsidiaries.
Q4) Should a company with high fixed costs and unused capacity raise selling prices to try to fully recoup its costs?
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Chapter 10: Quantitative Analyses of Cost Functions
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Q1) A nonlinear cost function adequately describes the changes in the levels of the cost driver due to changes in the behaviour of various costs.
A)True
B)False
Q2) The standard error of the estimated coefficient indicates whether a relationship exists between the predictor variable and the outcome variable that cannot be attributed to chance alone.
A)True
B)False
Q3) Which cost estimation method typically uses qualitative analysis rather than quantitative analysis?
A) the account analysis method
B) the conference method
C) the industrial-engineering method
D) the quantitative analysis method
E) the departmental analysis method
Q4) Discuss the potential use of nonlinear curves in cost functions and cost analysis. Give some examples.
Q5) What was the variable cost per unit sold for 2012?
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Chapter 11: Decision Making and Relevant Information
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Q1) If Konrade's Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating income will
A) increase by $13,000.
B) increase by $15,000.
C) decrease by $5,000.
D) decrease by $3,000.
E) decrease by $35,000.
Q2) When managers are faced with constraints the product line with the higher contribution margin per unit is always the best choice to make.
A)True
B)False
Q3) A customer can be considered to be a cost object, in the decision to add or drop a particular customer.
A)True
B)False
Q4) All fixed costs are irrelevant in relevant-cost analysis.
A)True
B)False
Q5) Explain what revenues and costs are relevant when choosing among alternatives.
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Q1) What is the target cost?
A) $800,000
B) $960,000
C) $1,440,000
D) $1,600,000
E) $768,000
Q2) What advice would you give a company to avoid the appearance of predatory pricing?
Q3) Which of the following is not a benefit of life cycle reporting?
A) The full set of revenues associated with each product becomes visible.
B) The full set of costs associated with each product becomes visible.
C) The differences between products in the percentage of their total costs incurred at earl stages in the life cycle are highlighted.
D) Upstream costs, such as R & D, are the only costs that are need to be added in when a life cycle report is complete.
E) Interrelationships among business function cost categories are highlighted.
Q4) What is the primary reason a firm would adopt target costing?
Q5) In target costing, what are at least two techniques used to achieve target costing goals?
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Q1) A disadvantage of total factor productivity over partial productivity is that
A) it focuses attention on a single input.
B) it compares multiple physical inputs with outputs.
C) the input is a fixed amount.
D) operations personnel find financial measures more difficult to understand than physical measures.
E) cause and effect relationships are more easily identified.
Q2) Ralph Company has been very aggressive in developing various types of financial and nonfinancial measurement schemes to help with the evaluation of its manufacturing processes. It appears that some of the managers are suboptimizing in that their decision processes are geared solely for their department's benefit, sometimes to the detriment of the organization as a whole.
Required:
What changes in the evaluation system could the company implement to help minimize the suboptimization of the managers' decision-making process?
Q3) What are the four key perspectives in the balanced scorecard?
Q4) Strategy requires integration of product and process development.
A)True
B)False
Page 16
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Chapter 14: Period Cost Allocation
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Q1) The cost pool is homogeneous if all included activities have the same or similar cause-and-effects or benefits received relationships between the cost driver and the costs of the activity.
A)True
B)False
Q2) Once a cost pool has been established, it should not need to be revisited or revised.
A)True
B)False
Q3) A matrix that is only one column of numbers is called a vector.
A)True
B)False
Q4) Which of the following terms describes a cost of operating a facility, operation, activity area, or like cost object that is shared by two or more users?
A) common cost
B) direct cost
C) fixed cost
D) varying cost
E) sunk cost
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Q1) What is the reason that accountants do not like to carry inventory at net realizable value?
A) NRV is the most difficult costing method.
B) NRV recognizes income after the sale is complete.
C) NRV recognizes income before sales are made.
D) NRV is acceptable to the taxing authorities.
E) NRV is normally known.
Q2) An advantage of the sales value at split off method is
A) the fact that it can be supported subjectively.
B) the fact that only a few assumptions are required beyond the split off point.
C) the fact that there may not be a ready market at the split off point.
D) it always yields the same results as the gross margin percentage method.
E) the cost allocation base is well understood.
Q3) What are the respective physical volume proportions for products X and Y?
A) 55.00% and 45.00%
B) 54.00% and 46.00%
C) 52.63% and 47.37%
D) 47.37% and 53.63%
E) 36.36 % and 63.64%
Q4) What are separable costs?
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) The cost of the manager of a retail distribution channel would MOST likely be classified as a
A) customer-sustaining cost.
B) distribution-channel cost.
C) customer batch-level cost.
D) corporate-sustaining cost.
E) customer output unit-level cost.
Q2) Metal Cabinet Company manufactures two and four drawer filing cabinets. The actual units sold (5,000) equalled the expected units to be sold for both products. The four drawer cabinets constitute 66 percent of the budgeted sales mix. The selling price is $30 for four drawer cabinets and $15 for two drawer cabinets. What is the sales-quantity variance?
A) $0
B) $25,500
C) $49,500
D) $99,000
E) $101,500
Q3) What actions might be taken with an unprofitable customer?
Q4) List at least three different levels of costs in a customer-cost hierarchy and an example of each.
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Chapter 17: Process Costing
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Q1) Excalibur Ltd. began operations on October 1 of the current year. Its production requires that direct materials are added at the beginning of the process and conversion costs are incurred uniformly. Direct materials costs for October were $380,000 and conversion costs were $1,750,000. There were 80,000 units started during the month. The ending inventory was 25,000 units which were 60% complete. The cost per equivalent unit for direct materials was:
A) $4.75
B) $15.20
C) $5.85
D) $5.43
E) $7.92
Q2) Calculate the equivalent units for conversion costs in January using the FIFO method.
A) 24,000 litres
B) 26,700 litres
C) 30,000 litres
D) 36,000 litres
E) 39,000 litres
Q3) What is meant by the term "prime cost pool"?
Q4) List and describe the five steps in process costing.
Page 20
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Spoilage can be attributed to a particular job in a process costing system.
A)True
B)False
Q2) Normal spoilage is usually computed on the basis of
A) the number of good units that pass inspection during the current period.
B) the number of units that pass the inspection point during the current period.
C) the number of units that are 100% complete as to materials.
D) the number of spoiled units that pass inspection during the current period.
E) the percentage of good units that passed inspection in the previous period.
Q3) Under efficient operating conditions, all spoilage is considered to be abnormal spoilage.
A)True
B)False
Q4) There is no cost attached to scrap.
A)True
B)False
Q5) All spoilage costs are related to the units completed during the period using the unit costs of the current period under FIFO.
A)True
B)False
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Q1) In order for management to initiate quality improvement programs and projects, a complete cost-benefit analysis (including a projection of how the improvement will incrementally affect total costs and total revenues) is necessary.
A)True
B)False
Q2) Conformance quality is the performance of a product or service relative to its design and product specifications.
A)True
B)False
Q3) Regarding the means by which relevant costs and benefits are evaluated when evaluating quality improvement, the key question is:
A) Which alternative solution will make the customer happiest?
B) How will total costs and total revenues change under each alternative solution?
C) Will the employees of the company be able to implement the change?
D) How long will it take for the improvement program to be fully functional?
E) How long will the training period be?
Q4) Discuss the methods used to identify quality problems.
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Chapter 20: Inventory Cost Management Strategies
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Q1) The economic-order-quantity decision model aids in the calculation of the optimal quantity of inventory to order.
A)True
B)False
Q2) The Economic Order Quantity increases with demand and ordering costs and decreases with carrying costs.
A)True
B)False
Q3) If Ferry Company has a safety stock of 160 units and the average daily demand is 20 units, how many days can be covered if the shipment from the supplier is delayed by 12 days?
A) 12.0 days
B) 10.0 days
C) 8.0 days
D) 6.7 days
E) 13.33 days
Q4) Purchasing costs consist of the costs of preparing and issuing a purchase order.
A)True
B)False
Q5) The costs associated with storage are an example of which cost category?
Page 23
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Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Q1) In NPV analysis, if the IRR exceeds the RRR,
A) the project should be rejected.
B) the NPV will be negative (when discounted at the IRR).
C) the NPV is positive when project cash flows are discounted at the IRR.
D) the NPV is positive when project cash flows are discounted at the RRR.
E) the NPV is negative when project cash flows are discounted at the RRR.
Q2) The accrual accounting rate of return for evaluating performance is often a stumbling block when implementing capital-budgeting decisions.
A)True
B)False
Q3) Net present value is calculated using the
A) internal rate of return.
B) required rate of return.
C) rate of return required by the investment bankers.
D) after tax cost of debt.
E) coupon interest rate on the firm's debt.
Q4) "Faster response to market changes" is a benefit of computer-integrated technology.
A)True
B)False
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Chapter 22: Capital Budgeting: a Closer Look
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Q1) What is the CCA claim in year 2 from the investment?
A) $20,349
B) $44,100
C) $66,300
D) $53,550
E) $21,000
Q2) Wilf Company acquired an additional Class 10 (30% declining balance) asset for $60,000. The UCC at the beginning of the year was $100,000. CCA in the current year is
A) $48,000.
B) $24,000.
C) $45,000.
D) $37,500.
E) $39,000.
Q3) The Income Tax Act classifies every amortizable asset into one of several classes.
A)True
B)False
Q4) Explain why the term tax shield is used in conjunction with amortization.
Q5) How is inflation related to capital budgeting? Discuss.
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Q1) In analyzing transfer prices
A) the buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally.
B) the seller should not sell a product for less than the incremental costs incurred to make the product.
C) the buyer will willingly pay more than the ceiling transfer price.
D) the buyer will not pay less than the ceiling transfer price.
E) the buyer will not pay the incremental costs.
Q2) Division A sells soybean paste internally to Division B, which, in turn, produces soybean burgers that sell for $5 per kilogram. Division A incurs costs of $0.75 per kilogram, while Division B incurs additional costs of $2.50 per kilogram. What is Division B's operating income per kilogram assuming the transfer price of the soybean paste is set at $1.25 per kilogram?
A) $0.500
B) $0.875
C) $1.250
D) $1.625
E) $1.525
Q3) What is the purpose of the internal control system within an organization?
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Chapter 24: Multinational Performance Measurement and Compensation
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Q1) Team incentives encourage cooperation by
A) forcing people to work together on difficult tasks.
B) changing management style.
C) letting individuals help one another as they strive toward a common goal.
D) rewarding all teams members by the same amount.
E) rewarding team members individually.
Q2) The imputed cost of an investment is the required rate of return times the investment.
A)True
B)False
Q3) A company's weighted-average cost of capital [WACC] was 9.6% last year. The company has $6,000,000 of bonds payable (its only debt) with a 9.25% coupon, and has $9,000,000 in equity capital. The tax rate is 35%. What is the company's cost of equity capital? (two decimal places only)
A) 6.00%
B) 6.25%
C) 6.50%
D) 9.25%
E) 12.00%
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