Deck 1: Introduction

Question 1

Accounting and Control
The controller of a small private college is complaining about the amount of work she must do at the beginning of each month. The president of the university requires the controller to submit a monthly report by the fifth day of the following month. The monthly report contains pages of financial data from operations. The controller was heard saying, "Why does the president need all this information? He probably doesn't read half of the report. He's an English professor and probably doesn't know the difference between a cost and a revenue."
Required:
a. What is the probable role of the monthly report?
b. What is the controller's responsibility with respect to a president who doesn't know much accounting?

Answer 1

a. There are two possible roles for the monthly report: facilitating planning decisions and control. Monthly reports provide more timely information than annual reports. With monthly reports the president can identify problem areas more quickly and make corrective actions. The president may also use the monthly reports to evaluate the work of his managers. The monthly reports provide information about how managers are performing.
b. If the president of the university is unfamiliar with accounting numbers, the controller must adapt the monthly report to make it more comprehensible. The controller may even want to highlight areas in the report that might need attention.

Question 2

Internal control systems:

A)are the responsibility of the external auditor
B)include anti-fraud measures
C)are designed to allow financial misrepresentation
D)require that one person perform all aspects of a task
E)all of the above

Answer 2

B

Question 3

Identify all the correct statements:

A)Managers naturally seek to maximize shareholders' wealth
B)Managers act in their own interests, and so there is no way to align their interests with those of the owners
C)To motivate managers in non-profit firms, no employee incentives are needed
D)To align the interests of managers and owners, owners must design systems to monitor and reward management behavior that increases the firm's profits
E)none of the above

Answer 3

D

Question 4

Management accountants:

A)are internal consultants
B)are mainly score-keepers
C)focus on calculating product costs
D)are 'corporate cops'
E)mostly a) and d)

Question 5

Micro Enterprises has the capacity to produce 10,000 widgets a month, and currently makes and sells 9,000 widgets a month. Widgets normally sell for $6 each, and cost an average of $5 to make, including fixed costs. The monthly fixed costs are $18,000. Coyote Corp. has offered to buy 1,000 widgets at $4 each. On this information alone, should Micro accept the offer?

A)No, because it will lose $1 per unit
B)No, because it will lose $2 per unit
C)No, because it will exceed capacity
D)Yes, because it makes $1 per unit in the short run
E)Unable to determine

Question 6

Micro Enterprises has the capacity to produce 10,000 widgets a month, and currently makes and sells 9,000 widgets a month. Widgets normally sell for $6 each, and cost an average of $5 to make, including fixed costs. The monthly fixed costs are $18,000. Coyote Corp. has offered to buy 1,000 widgets at $4 each. What is the "cost" per unit in the context of evaluating the offer from Coyote Corp.?

A)$2
B)$3
C)$4
D)$5
E)$6

Question 7

An internal accounting system should:

A)provide information to enable costs to be minimized
B)provide financial accounting data for external reporting purposes
C)provide management accounting information for decision-making
D)provide data for tax purposes
E)all of the above

Question 8

The firm's information system:

A)is always a single integrated system
B)includes only financial information
C)may include other information such as customer satisfaction surveys, in addition to financial information
D)is less important as a firm grows in size
E)none of the above

Question 9

Micro Enterprises has the capacity to produce 10,000 widgets a month, and currently makes and sells 9,000 widgets a month. Widgets normally sell for $6 each, and cost an average of $5 to make, including fixed costs. The monthly fixed costs are $18,000. Coyote Corp. has offered to buy 1,000 widgets at $4 each. What other factors should be taken into consideration?

A)The impact on the normal selling price of $6
B)Will an additional shift be needed to complete the order?
C)Are future orders from Coyote likely?
D)Does the special price comply with the Robinson-Patman Act?
E)All of the above

Question 10

Performance measures:

A)are critical in designing a reward system
B)are unimportant in designing a reward system
C)always influence people to achieve them
D)are always worded vaguely
E)are not needed to provide incentives because employees always want to do the right thing

Question 11

Economic Darwinism:

A)explains why firms persist in inefficient behavior
B)explains why some inefficient accounting practices persist
C)explains why marmots eat bears
D)explains why bears eat marmots
E)none of the above

Question 12

Micro Enterprises has the capacity to produce 10,000 widgets a month, and currently makes and sells 9,000 widgets a month. Widgets normally sell for $6 each, and cost an average of $5 to make, including fixed costs. The monthly fixed costs are $18,000. Coyote Corp. has offered to buy 1,000 widgets at $4 each. Assuming the same story, but Coyote's offer is for 1,500 units (all or nothing), should the offer be accepted?

A)No, because it will lose $1 per unit
B)No, because the opportunity costs outweigh the gains
C)No, (indifferent or worse) because the opportunity costs equal the gains
D)Yes, because it makes $1 per unit in the short run
E)Unable to determine