Deck 1: Managerial Accounting Concepts and Principles

Question 1

Managerial accounting is an activity that provides financial and nonfinancial information to an organization's managers and other internal decision makers.

Answer 1

True

Question 2

Financial accounting relies on accepted principles that are enforced through an extensive set of rules and guidelines; managerial accounting systems are flexible.

Answer 2

True

Question 3

The management concept of customer orientation encourages a company to set up its production system to produce large quantities of the same product for all customers.

Answer 3

False

Question 4

The main principle of the lean business model is the elimination of waste of every kind while satisfying the customer and providing a positive return to the company.

Question 5

The Lean Business Model should have no effect on cost in a modern manufacturing environment.

Question 6

The management concept of customer orientation causes a company to spend large amounts on advertising to convince customers to buy the company's standard products.

Question 7

The orientation of just-in-time manufacturing is that products are "pulled" through the manufacturing process by the orders received from customers.

Question 8

Both financial and managerial accounting affect people's decisions and actions.

Question 9

Control is the process of setting goals and determining ways to achieve them.

Question 10

The concept of total quality management focuses on continuous improvement.

Question 11

Both financial and managerial accounting report monetary information; managerial accounting also reports considerable nonmonetary information.

Question 12

Much of managerial accounting is directed at gathering useful information about costs for planning and control decisions.

Question 13

One difference between financial and managerial accounting is that the external users that use financial information must plan a company's future, but the internal users of managerial accounting information generally must decide whether to invest in or lend to a company.

Question 14

Managerial accounting information can be forwarded to the managers of a company quickly since external auditors do not have to review it, and estimates and projections are acceptable.

Question 15

The focus of financial accounting is on an organization's projects, processes, and subdivisions, and the focus of managerial accounting is on the whole organization.

Question 16

When the attitude of continuous improvement exists throughout an organization, every manager and employee seeks to continuously experiment with new and improved business practices.

Question 17

Under a just-in-time manufacturing system, large quantities of inventory are accumulated throughout the factory to be certain that needed components are available each time that they are needed.

Question 18

The balanced scorecard aids in continuous improvement by augmenting financial measures with drivers or indicators of future financial performance.

Question 19

One of the usual differences between financial and managerial accounting is the time dimension of the information reported.

Question 20

Total quality management and just-in-time manufacturing are two modern systems designed to improve the quality of management and the products and services offered.

Question 21

Direct costs are incurred for the benefit of more than one cost object.

Question 22

Direct materials are not usually easily traced to a product.

Question 23

An opportunity cost requires a future cash outlay and is relevant for decision making.

Question 24

A sunk cost has already been incurred and cannot be avoided or changed, so it is irrelevant to decision making.

Question 25

Period costs are incurred by purchasing merchandise or manufacturing finished goods.

Question 26

Fraud affects all business.

Question 27

An out-of-pocket cost requires a future cash outlay and is relevant for decision making.

Question 28

The cost of partially completed products is included in the balance of the Goods in Process Inventory account.

Question 29

Costs may be classified by many different cost classifications.

Question 30

Manufacturers usually have three inventories: raw materials, goods in process, and finished goods.

Question 31

Product costs can be classified as one of three types: direct materials, direct labor, or overhead.

Question 32

Whether a cost is controllable or not controllable by an employee depends on the employee's level of responsibility.

Question 33

Raw materials that become part of a product and are identified with specific units or batches of a product are called direct materials.

Question 34

Indirect materials are accounted for as factory overhead because they are not easily traced to specific units or batches of production.

Question 35

Although direct labor and raw materials costs are treated as manufacturing costs and therefore make up part of the finished goods inventory cost, factory overhead is charged to expense as it is incurred because it is a period cost.

Question 36

Fraud involves the deliberate or accidental misuse of the employer's assets.

Question 37

Cost concepts such as variable, fixed, mixed, direct, and indirect apply only to manufacturers and not to service companies.

Question 38

Selling and administrative expenses are normally product costs.

Question 39

Product costs are expenditures necessary and integral to finished products.

Question 40

A variable cost changes in proportion to changes in the volume in activity.

Question 41

A management concept that encourages all managers and employees to be in tune with the wants and needs of customers, and which leads to flexible product designs and production processes, is called:

A)Continuous improvement.
B)Customer orientation.
C)Just-in-time.
D)Theory of constraints.
E)Total quality management.

Question 42

Prime costs consist of direct labor and factory overhead.

Question 43

Newly completed units are combined with beginning finished goods inventory to make up total ending goods in process inventory.

Question 44

The manufacturing statement is also known as the schedule of manufacturing activities or the schedule of cost of goods manufactured.

Question 45

Flexibility of practice when applied to managerial accounting means that:

A)The information must be presented in electronic format so that it is easily changed.
B)Managers must be willing to accept the information as the accountants present it to them, rather than in the format they ask for.
C)The managerial accountants need to be on call 24 hours a day.
D)The design of a company's managerial accounting system largely depends on the nature of the business and the arrangement of the internal operations of the company.
E)Managers must be flexible with information provided in varying forms and using inconsistent measures.

Question 46

A manufacturer's cost of goods manufactured is the sum of direct materials, direct labor, and factory overhead costs incurred in producing products.

Question 47

The Malcolm Baldrige Award was established by:

A)The United Nations.
B)The U.S.Chamber of Commerce.
C)The Malcolm Baldrige Foundation.
D)The U.S.Congress.
E)The SEC.

Question 48

The manufacturing statement must be prepared monthly as it is a required general-purpose financial statement.

Question 49

Managerial accounting is different from financial accounting in that:

A)Managerial accounting is more focused on the organization as a whole and financial accounting is more focused on subdivisions of the organization.
B)Managerial accounting never includes nonmonetary information.
C)Managerial accounting includes many projections and estimates whereas financial accounting has a minimum of predictions.
D)Managerial accounting is used extensively by investors, whereas financial accounting is used only by creditors.
E)Managerial accounting is mainly used to set stock prices.

Question 50

The Goods in Process Inventory account is found only in the ledgers of merchandising companies.

Question 51

Raw materials purchased plus beginning raw materials inventory equals the ending balance of raw materials inventory.

Question 52

The main difference between the income statement of a manufacturer and a merchandiser is that the merchandiser includes cost of goods manufactured rather than cost of goods purchased.

Question 53

Continuous improvement:

A)Is a measure of profits.
B)Is a measure of costs.
C)Rejects the notion of "good enough."
D)Is not applicable to most businesses.
E)Is possible only in service businesses.

Question 54

The series of activities that add value to a company's products or services is called a value chain.

Question 55

Raw materials inventory turnover equals raw materials used divided by average raw materials inventory.

Question 56

Managerial accounting information:

A)Is used mainly by external users.
B)Involves gathering information about costs for planning and control decisions.
C)Is generally the only accounting information available to managers.
D)Can be used for control purposes but not for planning purposes.
E)Has little to do with controlling costs.

Question 57

Indirect labor refers to the cost of the workers whose efforts are directly traceable to specific units or batches of product.

Question 58

Raw materials inventory includes only direct materials.

Question 59

Factory overhead includes selling and administrative expenses because they are indirect costs of a product.

Question 60

An attitude of constantly seeking ways to improve company operations, including customer service, product quality, product features, the production process, and employee interactions, is called:

A)Continuous improvement.
B)Customer orientation.
C)Just-in-time.
D)Theory of constraints.
E)Total quality measurement.

Question 61

Costs that are incurred as part of the manufacturing process but are not clearly associated with specific units of product or batches of production, including all manufacturing costs other than direct material and direct labor costs, are called:

A)Administrative expenses
B)Nonmanufacturing costs
C)Sunk costs
D)Factory overhead
E)Preproduction costs

Question 62

Labor costs that are clearly associated with specific units or batches of product because the labor is used to convert raw materials into finished products called are:

A)Sunk labor
B)Direct labor
C)Indirect labor
D)Finished labor
E)Supervisory labor

Question 63

Raw materials that physically become part of the product and can be traced to specific units or batches of product are called:

A)Raw materials sold
B)Chargeable materials
C)Goods in process
D)Indirect materials
E)Direct materials

Question 64

The Institute of Management Accountants has developed a code of ethics that requires management accountants to behave in certain ways.Which of the following behaviors is not required?

A)Competence.
B)Integrity.
C)Maintenance of confidentiality.
D)Communication of information in credible manner.
E)Timeliness.

Question 65

Which of the following statements regarding fraud is true?

A)Fraud is a deliberate act.
B)Fraud can be deliberate or unintentional.
C)A company with a strong code of ethics can eliminate fraud.
D)A company with strong internal controls can eliminate fraud.
E)The most common type of fraud is financial statement fraud.

Question 66

A fixed cost:

A)Requires the future outlay of cash and is relevant for future decision making.
B)Does not change with changes in the volume of activity within the relevant range.
C)Is directly traceable to a cost object.
D)Changes with changes in the volume of activity within the relevant range.
E)Has already been incurred and cannot be avoided so it is irrelevant for decision making.

Question 67

An approach to managing inventories and production operations such that units of materials and products are obtained and provided only as they are needed is called:

A)Continuous improvement.
B)Customer orientation.
C)Just-in-time manufacturing.
D)Theory of constraints.
E)Total quality management.

Question 68

The way of doing business whose goal is to eliminate waste while satisfying the customer and providing a positive return to the company is:

A)Total quality management.
B)Managerial accounting.
C)Customer orientation.
D)Continuous improvement.
E)Lean business model.

Question 69

The following costs are included in a recent summary of data for a company: advertising expense, $85,000; depreciation expense - factory building, $133,000; direct labor, $250,000; direct material used, $300,000; factory utilities, $105,000; and sales salaries expense, $150,000.Determine the dollar amount of prime costs.

A)$1,023,000
B)$550,000
C)$488,000
D)$235,000
E)$238,000

Question 70

The following costs are included in a recent summary of data for a company: advertising expense, $85,000; depreciation expense - factory building, $133,000; direct labor, $250,000; direct material used, $300,000; factory utilities, $105,000; and sales salaries expense, $150,000.Determine the dollar amount of conversion costs.

A)$1,023,000
B)$550,000
C)$488,000
D)$235,000
E)$238,000

Question 71

Which of the following is never included in direct materials costs? A)Invoice costs of direct materials.
B)Outgoing delivery charges.
C)Materials storage costs.
D)Materials handling costs.
E)Insurance on stored material.

Question 72

An opportunity cost is:

A)An uncontrollable cost.
B)A cost of potential benefit lost.
C)A change in the cost of a component.
D)A direct cost.
E)A sunk cost.

Question 73

Materials that are used in support of the production process but that do not become a part of the product and are not clearly identified with units or batches of product are called:

A)Secondary materials
B)General materials
C)Direct materials
D)Indirect materials
E)Materials inventory

Question 74

Costs classified by controllability are useful for:

A)The balance sheet
B)The income statement
C)The budgeting process
D)Evaluation reports
E)Determining product cost

Question 75

Classifying costs by behavior involves:

A)Identifying fixed cost and variable cost.
B)Identifying cost of goods sold and operating costs.
C)Identifying all costs.
D)Identifying costs in a physical manner.
E)Identifying both quantitative and qualitative cost factors.

Question 76

Which of the following is not a characteristic of all fraud?

A)It is done to provide direct or indirect benefit to the employee.
B)It violates the employee's duties to his employer.
C)It costs the employer money.
D)It is secret.
E)Can be intentional or unintentional.

Question 77

The salary paid to the supervisor of an assembly line would normally be classified as:

A)Direct labor
B)Indirect labor
C)A period cost
D)A general cost
E)An assembly cost

Question 78

A direct cost is a cost that is:

A)Identifiable as controllable.
B)Recorded as part of manufacturing overhead.
C)Fixed with respect to the volume of activity.
D)Traceable to a cost object.
E)Sunk with respect to a cost object.

Question 79

A management concept that applies quality improvement to all aspects of business activities is called:

A)Continuous operations.
B)Customer orientation.
C)Just-in-time.
D)Managerial accounting.
E)Total quality management.

Question 80

Which of the following statements is true?

A)The IMA's Statement of Ethical Professional Practice requires management accountants to be incompetent, maintain confidentiality, act with integrity, and communicate information in a fair and credible manner.
B)The IMA's Statement of Ethical Professional Practice requires management accountants to be competent, maintain confidentiality, eliminate all fraud, and communicate information in a fair and credible manner.
C)The IMA's Statement of Ethical Professional Practice requires management accountants to be incompetent, maintain confidentiality, act with integrity, and miscommunicate information in a credible manner.
D)The IMA's Statement of Ethical Professional Practice requires management accountants to be competent, maintain confidentiality, act with integrity, and communicate information in a fair and credible manner.
E)The IMA's Statement of Ethical Professional Practice requires management accountants to perform certain checks for fraud, act with integrity, and communicate information in a fair and credible manner.