Multiple Choice Questions
1. Which of the following statements about
managerial accountants is false?
A. Managerial accountants more and more are
considered "business partners."
B. Managerial accountants often are part of
cross-functional teams.
C. An increasing number of organizations are
segregating managerial accountants in separate managerial-accounting
departments.
D. In a number of companies, managerial
accountants make significant business decisions and resolve operating problems.
E. The role of managerial accountants has
changed considerably over the past decade.
Answer:
C LO: 1 Type: RC
2. The day-to-day work of management teams will
typically comprise all of the following activities except:
A. decision making.
B. planning.
C. cost minimizing.
D. directing operational activities.
E. controlling.
Answer:
C LO: 2 Type: RC
3. Which of the following functions is best
described as choosing among available alternatives?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Budgeting.
Answer:
A LO: 2 Type: RC
4. Which of the following managerial functions
involves a detailed financial and operational description of anticipated
operations?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Measuring.
Answer:
B LO: 2 Type: RC
5. Which of the following involves the
coordination of daily business functions within an organization?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Motivating.
Answer:
C LO: 2 Type: RC
6. Titan Company has set various goals, and
management is now taking appropriate action to ensure that the firm achieves
these goals. One such action is to
reduce outlays for overhead, which have exceeded budgeted amounts. Which of the following functions best
describes this process?
A. Decision making.
B. Planning.
C. Coordinating.
D. Controlling.
E. Organizing.
Answer: D LO: 2
Type: N
7. Which of the following is not an
objective of managerial accounting?
A. Providing information for decision making and
planning.
B. Assisting in directing and controlling
operations.
C. Maximizing profits and minimizing costs.
D. Measuring the performance of managers and
subunits.
E. Motivating managers toward the organization's
goals.
Answer:
C LO: 3 Type: RC
8. The role of managerial accounting information
in assisting management is a(n):
A. financial-directing role.
B. attention-directing role.
C. planning and controlling role.
D. organizational role.
E. problem-solving role.
Answer:
B LO: 3 Type: RC
9. Employee empowerment involves encouraging and
authorizing workers to take initiatives to:
A. improve operations.
B. reduce costs.
C. improve product quality.
D. improve customer service.
E. all of the above.
Answer:
E LO: 3 Type: RC
10. The process of encouraging and authorizing
workers to take appropriate initiatives to improve the overall firm is commonly
known as:
A. planning and control.
B. employee empowerment.
C. personnel aggressiveness.
D. decision making.
E. problem recognition and solution.
Answer:
B LO: 3 Type: RC
11. Which of the following business models
considers financial, customer, internal operating, and other measures in the
evaluation of performance?
A. Deterministic simulation.
B. Balanced scorecard.
C. Payoff matrix.
D. Decision tree.
E. Chart of operating performance (COP).
Answer:
B LO: 3 Type: RC
12. Which of the following perspectives is
normally absent in a balanced scorecard?
A. Financial.
B. Customer.
C. Internal operations.
D. Learning and innovation/growth.
E. None of the above.
Answer:
E LO: 3
Type: RC
13. Managerial accounting:
A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel
within the organization.
D. provides information for parties external to
the organization.
E. focuses on financial statements and other
financial reports.
Answer:
C LO: 4 Type: RC
14. Managerial accounting:
A. is unregulated.
B. produces information that is useful only for
manufacturing organizations.
C. is based exclusively on historical data.
D. is regulated by the Securities and Exchange
Commission (SEC).
E. generally focuses on reporting information
about the enterprise in its entirety rather than by subunits.
Answer:
A LO: 4 Type: N
15. Which of the following would likely be
considered an internal user of accounting information rather than an external
user?
A. Stockholders.
B. Consumer groups.
C. Lenders.
D. Middle-level managers.
E. Government agencies.
Answer:
D LO: 4 Type: RC
16. All of the following entities would have a
need for managerial accounting information except:
A. Dell Computer.
B. The Los Angeles Dodgers baseball club.
C. Office Depot.
D. The Federal Bureau of Investigation (FBI).
E. None of the above responses is correct, as
all of these entities would use managerial accounting information.
Answer:
E LO: 4 Type: N
17. Which of the following choices correctly
depicts whether Bank of America, Microsoft, and Florida State University would
have a need for managerial accounting?
|
|
Bank
of America
|
Microsoft
|
Florida State
University
|
|
A.
|
Yes
|
Yes
|
No
|
|
B.
|
Yes
|
No
|
Yes
|
|
C.
|
Yes
|
Yes
|
Yes
|
|
D.
|
No
|
Yes
|
No
|
|
E.
|
No
|
Yes
|
Yes
|
Answer:
C LO: 4 Type: N
18. Financial accounting focuses primarily on
reporting:
A. to parties outside of an organization.
B. to parties within an organization.
C. to an organization's board of directors.
D. to financial institutions.
E. for financial institutions.
Answer:
A LO: 4 Type: RC
19. Which of the following statements represents
a similarity between financial and managerial accounting?
A. Both are useful in providing information for
external users.
B. Both are governed by GAAP.
C. Both draw upon data from an organization's
accounting system.
D. Both rely heavily on published financial
statements.
E. Both are solely concerned with historical
transactions.
Answer:
C LO: 4 Type: N
20. Which of the following employees at American
Airlines would not be considered as holding a line position?
A. Pilot.
B. Chief financial officer (CFO).
C. Flight attendant.
D. Ticket agent.
E. Baggage handler.
Answer:
B LO: 5 Type: N
21. Which of the following employees would be
considered as holding a line position?
A. The controller of Exxon Corporation.
B. The vice-president for government relations
of Microsoft.
C. The manager of food and beverage services at
Disney's Magic Kingdom.
D. A secretary employed by Hewlett-Packard.
E. None of the above.
Answer:
C LO: 5 Type: N
22. Which of the following employees at Starbucks
would likely be considered as holding a staff position?
A. The company's chief operating officer (COO).
B. The manager of a store located in Kansas
City, Missouri.
C. The company's lead, in-house attorney.
D. The company's chief financial officer (CFO).
E. Both the company's lead, in-house attorney
and the chief financial officer.
Answer:
E LO: 5 Type: N
23. The chief managerial and financial accountant
of an organization is the:
A. chief executive officer (CEO).
B. treasurer.
C. vice-president of accounting.
D. internal auditor.
E. chief financial officer (CFO).
Answer:
E LO: 5 Type: RC
24. Which of the following typically does not
relate to the role of a controller?
A. A controller supervises the accounting
department.
B. A controller safeguards an organization's
assets.
C. A controller oversees the preparation of reports
required by governmental authorities.
D. A controller normally assumes a narrow role
within the organization, often preventing the individual's rise to top
management ranks.
E. Choices "B" and "D"
above.
Answer: E LO: 6
Type: RC
25. A controller is normally involved with:
A. preparing financial statements.
B. managing investments.
C. raising capital.
D. safeguarding assets.
E. managing the firm's credit policy.
Answer:
A LO: 6 Type: RC
26. Which of the following is not a
function of the treasurer?
A. Safeguarding assets.
B. Managing investments.
C. Preparing financial statements.
D. Being responsible for an entity's credit
policy.
E. Raising capital.
Answer:
C LO: 6 Type: RC
27. Managerial accountants:
A. often work on cross-functional teams.
B. are located throughout an organization.
C. are found throughout an organization and work
on cross-functional teams.
D. are found primarily at lower levels of the
organizational hierarchy.
E. are found primarily at higher levels of the
organizational hierarchy.
Answer:
C LO: 6 Type: RC
28. The two dimensions of managerial accounting
are:
A. a decision-facilitating dimension and a
decision-influencing dimension.
B. a decision-facilitating dimension and a
financial-influencing dimension.
C. a decision-influencing dimension and a
cost-minimizing dimension.
D. a cost-minimizing dimension and a
profit-maximizing dimension.
E. a decision-influencing dimension and a
profit-maximizing dimension.
Answer:
A LO: 7 Type: RC
29. Much of managerial accounting information is
based on:
A. a cost-benefit theme.
B. profit maximization.
C. cost minimization.
D. the generation of external information.
E. effectiveness but not efficiency.
Answer:
A LO: 7 Type: N
30. Which of the following is not normally
considered to be an element of e-business?
A. E-budgeting.
B. Supply-chain management.
C. E-commerce.
D. Balanced scorecards.
E. Choices "B" and "D"
above.
Answer:
D LO: 7 Type: RC
31. Managerial accounting has changed in recent
years because of:
A. the growth of e-business.
B. increased global competition.
C. the emergence of new industries.
D. an increased focus on the customer.
E. all of the above factors.
Answer:
E LO: 7 Type: RC
32. Managerial accounting has changed in recent years
because of:
A. a growing service economy in the United
States.
B. the growing popularity of cross-functional
teams.
C. computer-integrated manufacturing (CIM).
D. time-based competition.
E. all of the above factors.
Answer:
E LO: 7 Type: RC
33. Which of the following statement(s) about
just-in-time (JIT) inventory management is (are) true?
I.
The
emphasis of JIT is on "pull" manufacturing.
II.
Raw
materials are purchased just in time to be used in production.
III.
JIT
is an inventory technique that focuses on reduction of both inventory and
related inventory costs.
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.
Answer:
E LO: 7 Type: RC
34. Ohio Corporation recently implemented a
just-in-time (JIT) production system along with a series of continuous
improvement programs. If the firm is now
considering adopting a total quality management (TQM) program, it would likely
find that TQM:
A. is consistent with both JIT and continuous
improvement.
B. is consistent with JIT but inconsistent with
continuous improvement.
C. is consistent with continuous improvement but
inconsistent with JIT.
D. is inconsistent with both JIT and continuous
improvement.
E. is an antiquated management technique.
Answer:
A LO: 7 Type: N
35. Cost management systems tend to focus on an
organization's:
A. machines.
B. employees.
C. activities.
D. customers.
E. rules and regulations.
Answer:
C LO: 7 Type: RC
36. The value chain of a manufacturer would tend
to include activities related to:
A. manufacturing.
B. research and development.
C. product design.
D. marketing.
E. all of the above.
Answer:
E LO: 8 Type: RC
37. Which of the following choices correctly
depicts activities that would be included in a manufacturer's value chain?
|
|
Research and
Development
|
Marketing
|
Distribution
|
|
A.
|
Yes
|
Yes
|
No
|
|
B.
|
Yes
|
No
|
Yes
|
|
C.
|
Yes
|
Yes
|
Yes
|
|
D.
|
No
|
Yes
|
No
|
|
E.
|
No
|
Yes
|
Yes
|
Answer:
C LO: 8 Type: RC
38. Which of the preceding activities would
likely not be considered part of The Gap clothing company’s value chain?
A. Designing a new product line.
B. Locating and then negotiating terms with a clothing
manufacturer.
C. Marketing an existing product line.
D. Distributing goods from regional warehouses to local
stores.
E. All of the above activities would be an element in the
company’s value chain.
Answer: E LO:
8 Type: RC
39. The activities performed by a manufacturing
organization could be categorized as pre-production (such as research and
development and product design), production-related, and post-production (such
as marketing and customer service).
Which activities should the firm focus on if management understands the
value chain concept and desires to meet organizational goals?
A. Pre-production activities.
B. Production-related activities.
C. Post-production activities.
D. Pre-production, production-related, and
post-production activities.
E. Pre-production and production-related
activities.
Answer:
D LO: 8 Type: N
40. In order for a company to achieve a
sustainable competitive advantage, it must perform value chain activities:
A. at the same quality level as competitors, at
the same cost.
B. at the same quality level as competitors, but
at a lower cost.
C. at a higher quality level than competitors,
at a higher cost.
D. at a higher quality level than competitors,
but at no greater cost.
E. at either the same quality level as
competitors, but at a lower cost, or at a higher quality level than
competitors, but at no greater cost.
Answer:
E LO: 8 Type: RC
41. The process of managing the various
activities in the value chain, along with the associated costs, is commonly
known as:
A. activity-based costing.
B. strategic cost management.
C. total quality management.
D. computer-integrated costing.
E. sound management practices (SMP).
Answer:
B LO: 8 Type: RC
42. A company has a bottleneck operation that
slows production. Which of the following
tools or approaches could the firm use to determine the most cost-effective
ways to eliminate this problem?
A. Linear programming.
B. Theory of constraints.
C. Decision-tree diagrams.
D. Payoff matrices.
E. Strategic path analysis (SPA).
Answer:
B LO: 8 Type: RC
43. Which of the following can be linked to the relatively
recent wave of corporate scandals?
A. Greedy corporate executives.
B. Managers who make over-reaching business
deals.
C. Lack of oversight by companies' audit boards
and boards of directors.
D. Shoddy work by external auditors.
E. All of the above.
Answer:
E LO: 9 Type: RC
44. Which of the following acts strives to
improve corporate governance and the quality of corporate accounting/reporting?
A. Robinson-Patman.
B. Taft-Hartley.
C. Sarbanes-Oxley.
D. Bush-Cheney.
E. Franks-Ashcroft.
Answer:
C LO: 9 Type: RC
45.
Which of the
following statements about the ethical climate of business is false?
A. Greedy corporate executives are, in part, to blame for
the relatively recent rash of corporate scandals.
B. Unethical business behavior can have a negative impact
on our economy.
C. The Sarbanes-Oxley Act strives to improve the overall
quality of corporate reporting.
D. The Robinson-Patman Act strives to improve the overall
quality of corporate reporting.
E. Corporate scandals have served as the accounting
profession’s wake-up call to pay increased attention to ethical issues in the
conduct of business.
Answer: D LO:
9 Type: RC
46. Which of the following is not an
ethical standard of managerial accounting?
A. Competence.
B. Confidentiality.
C. Efficiency.
D. Integrity.
E. Credibility.
Answer:
C LO: 9 Type: RC
47. Which of the following is not an
element of competency?
A. To develop appropriate knowledge about a
particular subject.
B. To perform duties in accordance with relevant
laws.
C. To perform duties in accordance with relevant
technical standards.
D. To refrain from engaging in an activity that
would discredit the accounting profession.
E. To prepare clear reports after an analysis of
relevant and reliable information.
Answer:
D LO: 9 Type: RC
48. Assume that a managerial accountant regularly
communicates with business associates to avoid conflicts of interest and
advises relevant parties of potential conflicts. In so doing, the accountant will have applied
the ethical standard of:
A. objectivity.
B. confidentiality.
C. integrity.
D. credibility.
E. unified behavior.
Answer: C LO: 9
Type: RC
EXERCISES
Managers and
Decisions
49. Present several examples of managerial
accounting information that could help a manager make each of the following
decisions:
A.
A
manufacturing company is currently making a part that is a production
headache. The firm is deciding whether
to abandon production and buy the part from an outside supplier.
B.
An
operator of fast-food restaurants is deciding whether to open a new store in
Dallas.
LO: 1 Type: N
Answer:
Note: Many
correct answers are possible.
A.
The
cost of each alternative (make vs. buy) would be needed along with information
about suppliers that pertains to reliability and product quality (e.g.,
testimonials from a supplier's current customers that cite any problems with
on-time deliveries, product stockouts, or abnormally high spoilage rates of
purchased goods). Given the company is
currently making the part, what would happen to the facilities if the firm
begins to purchase from outside suppliers?
Could the facilities be subleased, used for other profitable products,
or downsized (with equipment being sold)?
What would happen to existing employees—would there be any layoffs and
how much would the company save?
B.
The
manager needs information about construction or leasing costs along with
figures that focus on subsequent operating costs. Also, projected sales, market share figures,
and data about competitors would be helpful.
Balanced Scorecard
50. Continental Overnight
operates an overnight package delivery service that competes with Federal
Express and United Parcel Service (UPS).
Top management is considering the use of a balanced scorecard to
evaluate operations.
A.
What
is a balanced scorecard and other than customer-satisfaction measures, what are
its typical key components?
B.
List four
customer-satisfaction measures that Continental might use to evaluate
performance.
LO: 3 Type: RC, N
Answer:
A.
The
balanced scorecard is a business model that helps to assess a firm's
competitive position and ensures that the firm is progressing toward long-term
survival. Balanced scorecards differ
from organization to organization; however, in addition to
customer-satisfaction measures, most have a combination of financial measures,
internal operating measures, and measures of innovation/growth and learning.
B.
Customer-satisfaction
measures could include number of packages delivered, market share, number of
packages lost or damaged, number of customer complaints, average wait time when
calling and scheduling a package pickup, and response time to customer
problems.
Financial and Managerial Accounting
51. Consider
the descriptors that follow.
1. Is heavily
involved with the recordkeeping and reporting of assets, liabilities, and
stockholders’ equity.
2. Focuses on
planning, control, decision making, and performance evaluation.
3. Is heavily
regulated.
4. A field that
is becoming more "cross-functional" in nature.
5. Much of the
field is based on costs and benefits.
6. Is involved
almost exclusively with past transactions and events.
7. Much of the
information provided is directed toward stockholders, financial analysts,
creditors, and other external parties.
8. Tends to
focus more on subunits within an entity rather than the organization as a
whole.
9. May become
involved with measures of customer satisfaction, and the amount of actual cost
incurred vs. budgeted targets.
Required:
Determine whether the descriptors are most closely
associated with financial accounting or managerial accounting.
LO: 2, 3, 4, 6 Type: RC
Answer:
1. Financial accounting 6. Financial accounting
2. Managerial
accounting 7. Financial accounting
3. Financial
accounting 8. Managerial accounting
4. Managerial
accounting 9. Managerial accounting
5. Managerial
accounting
Management Decision,
Ethics
52. Ken Franklin is the sales manager of Davidson
Enterprises, a very profitable distributor of office furniture to local
businesses. A recent economic downturn
has created an extremely tight cash position, and the company has been hurt by
the bankruptcy of two key customers.
In
late October, anticipating an economic recovery, Franklin began an extensive
remodeling of the company's sales floor.
Construction costs, decorating, and equipment purchases are projected to
cost $250,000.
Davidson
has a policy that individual expenditures in excess of $200,000 must be
approved by the firm's board of directors.
Franklin, unfortunately, missed the deadline to have the board consider
this project at its regular September meeting.
Not wanting to wait until the next meeting in December, he subdivided
the project in two parts—construction and decorating ($190,000) and equipment
purchases ($60,000)—neither of which needed board approval because of the
dollar amounts involved.
The
project was recently completed and sales have begun to recover. Customers have raved about the new sales
area, noting that it is far superior to those of Davidson's competitors.
Required:
A.
Would
Franklin's approach of subdividing the project in two parts have any effect on
the company's financial statements?
Briefly explain.
B.
Briefly
discuss whether Franklin behaved in an ethical manner.
C.
Which,
if any, of the following standards of conduct would have applicability to
Franklin's conduct: competence, confidentiality, integrity, or credibility? Briefly explain.
LO: 9 Type: N
Answer:
A.
Although
some extra processing is involved because of the "separate" projects,
the same total costs will be incurred for the same assets. Thus, there is no impact on the financial
statements, which serve to summarize financial activity.
B.
Franklin
behaved in an unethical manner. Even
though business is recovering and customers seem more than satisfied with the
new sales area, Franklin knowingly bypassed stated company policy. The project is being done in a single phase,
and is comprised of construction, decorating, and equipment acquisition. This is really one project; yet his
accounting treatment implies otherwise.
C.
Two
standards are relevant here. Integrity
holds that managers refrain from engaging in any conduct that would prejudice
the ethical performance of duties.
Additionally, credibility recognizes that managers have a responsibility
to communicate information fairly and objectively, and disclose all relevant
information that could reasonably be expected to influence a user's understanding
of the reports and data presented.
Possible Ethics Issues
53. Many
professions have adopted a series of ethical standards to provide guidance for
their memberships. The Institute of
Management Accountants (IMA), for example, has published standards that focus
on competence, confidentiality, integrity, and credibility. In light of these standards, consider the
three cases that follow.
Case A—Leston
Corporation has experienced serious financial difficulties in recent
years. John Young, the company’s chief
financial officer, has just learned that a major competitor was likely to file
for bankruptcy; however, he failed to disclose this information at a board
meeting held later that day when a plant closure decision was being discussed. The board evaluated several proposals during
the session that focused on improving Leston’s financial position.
Case B—QBX
Company manufactures fertilizer from various raw materials, including a raw
material know as Felstar. Paul Kelly,
the firm’s purchasing manager, purposely acquired a lower grade of Felstar than
normal because of a very attractive price.
The lower-grade product resulted in increased usage during the
manufacturing process but had no effect on the fertilizer’s overall
quality. An end-of-period report showed
that QBX profited from Kelly’s actions, with the overall savings in purchase
price more than offsetting the cost of added consumption.
Case C—Central
Distributing has a participative budgeting process, allowing employees to have
a say in projected sales targets for the upcoming period. These targets are reflected in a series of
performance reports that compare actual sales achieved against targeted
amounts. Hillary Baxter submitted very
low sales targets because, as she confided in a colleague, "I always want
to look good in terms of meeting targets, even if anticipated sales and
closures don’t materialize."
Required:
Evaluate the three cases and determine the ethical
issues, if any, that are involved. Cite
the IMA’s standards if appropriate.
LO: 9 Type: N
Answer:
Case A:
Young had an obligation to inform the other board members about the likely
bankruptcy, particularly in light of the company’s financial situation and the
topics under discussion at the meeting.
The information could have affected the board’s thinking on several
matters. Two of the IMA standards are
relevant here: competence and credibility.
Competence notes, in part, that members provide decision-support
information that is accurate and timely.
Additionally, credibility holds that members disclose all relevant
information that could influence a user’s understanding of an analysis. Young’s silence violates both of these
ethical standards.
Case B:
Kelly did not violate any ethical standards.
The acquisition of sub-par material was a sound business decision,
particularly since QBX prospered financially and quality of the end product did
not suffer.
Case C:
Baxter engaged in a somewhat common practice known as padding the budget;
nevertheless, one can conclude that such a practice is inconsistent with the
ethical standards of credibility and competence. Baxter is not providing full knowledge of the
sales situation by setting targets that are purposely low, thus possibly misleading
managers who attempt to analyze her performance. Additionally, competence is involved because
the information provided in setting the sales targets is inaccurate.
DISCUSSION
QUESTIONS
Managerial Accounting
vs. Financial Accounting
54. Briefly distinguish between managerial accounting
and financial accounting. Be sure to
comment on the general focus, users, and regulation related to the two fields.
LO: 4 Type: RC
Answer:
Managerial
accounting is concerned with providing information to personnel within an
organization so that they can plan, make decisions, evaluate performance, and
control operations. There are no rules
and regulations associated with this field since the information is intended
solely for use within the firm.
Financial
accounting, in contrast, focuses on financial statements and other financial
reports. This area deals with reporting
to groups outside of an organization (e.g., stockholders, lenders, government
agencies) so that some assessment of profitability and overall financial health
can be made. Given the large number of
firms in our economy and the varying level of user sophistication, the field is
heavily regulated (by the Financial Accounting Standards Board and, to a lesser
degree, by the Securities and Exchange Commission).
Cross-Functional Teams
and Time-Based Competition
55. Cross-functional teams and time-based
competition are two themes of contemporary management accounting. Briefly explain these two concepts.
LO: 7 Type: RC
Answer:
Cross-functional
teams involve bringing together individuals from a variety of different fields
(marketing, design, accounting, production, purchasing, human resources) for an
"interdisciplinary approach" to addressing management issues. Such an approach varies from that used in the
past when each of the individual disciplines tended to stick to their own
turf. Cross-functional teams add value
to the organization by meeting the firm and customer's needs in the most
effective manner possible.
Time-based
competition relates to "doing things faster" to gain a competitive
edge. Bringing a new product to market
faster than a rival firm, responding to customer concerns and problems faster
than the competition, and reducing production downtime are a few of its key
elements.
The Value Chain
56. The value chain is a key component of
contemporary management accounting.
Define the term "value chain" and explain how it would relate
to an airline.
LO: 8 Type: RC, N
Answer:
The value
chain is a set of activities that work together to create value for an
organization. With a manufacturer, for
instance, activities that range in scope from securing raw materials, to
production, to delivery of products will culminate in goods that boost a firm's
bottom-line profitability.
Activities
in a value chain for an airline would include reservations and ticketing,
maintenance, baggage handling, marketing, customer service, frequent-flyer
programs, and, of course, flight operations.
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