Deck 16: Introduction to Management Accounting

Question 1

Managerial accounting includes the planning function. Which of the following items would be part of the planning function of a business's managerial accounting?

A) Comparing actual performance to previously budgeted amounts
B) Creating detailed budgets
C) Implementing operational plans
D) Evaluating results of operations

Answer 1

B

Question 2

Management is accountable to its employees in which of the following ways?

A) Providing products that are safe and free of defects
B) Providing a safe workplace
C) Providing a return on the owner's shareholders' investment
D) Ensuring the business is environmentally responsible for impacts on the community

Answer 2

B

Question 3

Management is accountable to communities in which of the following ways?

A) Making timely payments to creditors
B) Ensuring the company's environmental impact is not harmful to its area of operations
C) Providing a return on the owner's shareholders' investment
D) Obeying laws and paying taxes

Answer 3

B

Question 4

Which of the following most accurately describes the term cost/benefit analysis?

A) Considering whether employees should be entitled to certain fringe benefits
B) Calculating the cost of holding fundraising benefits for charity
C) Considering whether the cost of products exceeds the market selling price
D) Considering whether the cost of calculating certain types of information provides a commensurate economic benefit

Question 5

Financial accounting is focused on which of the following objectives?

A) Providing information that managers need to make operational decisions
B) Providing summarized information on operational results to investors and creditors
C) Providing budgets for future periods
D) Providing highly detailed information on product lines, regions, divisions, etc.

Question 6

Managerial accounting includes the controlling function. Which of the following items would be part of the controlling function of a business's managerial accounting?

A) Comparing actual performance to previously budgeted amounts
B) Creating detailed budgets
C) Devising marketing and production plans
D) Setting product prices

Question 7

Management accounting often requires forward-looking data because of the futuristic nature of many business decisions.

Question 8

Management is accountable to various government bodies in which of the following ways?

A) Making timely payments to creditors
B) Making timely payments to vendors
C) Providing a return on the owner's shareholders' investment
D) Obeying laws and regulations, and paying taxes

Question 9

Which of the following statements about financial accounting is CORRECT?

A) Financial accounting is oriented towards helping investors make decisions.
B) Financial accounting is forward-looking.
C) Financial accounting is focused on detailed reports on parts of the company.
D) Financial accounting is focused on planning and controlling operations.

Question 10

Financial reporting is typically much more detailed than managerial accounting.

Question 11

During the past century, many developed economies have shifted their focus from a service economy to a manufacturing economy.

Question 12

Which of the following statements is INCORRECT?

A) Managerial accounting is used to determine the cost of products and services.
B) Managerial accounting is used to plan and control business operations.
C) Managerial accounting is used to report the company's financial position and results of operations to creditors and investors.
D) Managerial accounting is used to prepare budgets.

Question 13

Management is accountable to its suppliers and vendors in which of the following ways?

A) Providing products to customers that are safe and free of defects
B) Repaying loans in a timely manner
C) Providing a return on the owner's shareholders' investment
D) Making timely payments and complying with contract terms

Question 14

Which of the following statements about managerial accounting is CORRECT?

A) Managerial accounting reports are audited annually by Certified Public Accountants.
B) Managerial accounting reports help investors make decisions.
C) Managerial accounting reports provide detailed information on parts of a company.
D) Managerial accounting reports must follow Generally Accepted Accounting principles (GAAP).

Question 15

Managerial accounting is focused on which of the following objectives?

A) Providing information that managers need to make operational decisions
B) Providing historical data to investors and creditors
C) Providing summarized results of operations
D) Providing information to comply with laws and regulations of government bodies

Question 16

Managerial accounting's focus is to provide information for internal planning and control.

Question 17

Which of the following is NOT an objective of management accounting?

A) To provide information to business managers to assist them in planning for their business
B) To provide information to business managers to assist them in controlling their business
C) To provide information to shareholders to assist them with their investment decisions
D) To assist business managers with respect to providing a return to the owners of the business

Question 18

Budget preparation is a part of the planning process.

Question 19

Which of the following statements is INCORRECT?

A) The primary users of management accounting are the company's managers.
B) Management accounting information is used to help managers plan and control their operations.
C) Management accounting information does not require an external audit.
D) Management accounting information is required to comply with generally accepted accounting principles.

Question 20

Management accounting is influenced significantly by rules of GAAP and guidelines of the Securities Exchange Commission.

Question 21

The accountant for Spiral Supplies deliberately post-dated a check to pay for business expenses in order to record a higher net income for the company. As long as the amount was not material, this would not be considered unethical behavior.

Question 22

Which of the following events would NOT be considered unethical under IMA standards?

A) A bank hired a bookkeeper to review foreclosure documents who had no training or experience in the area.
B) An accountant was supposed to take continuing education courses but fell behind and was not current on important new developments in his industry.
C) An accountant who had no background in internal control or finance was promoted to the position of controller.
D) An accountant who had just successfully completed an in-house training course in management accounting made a large error in the year-end expense reports.

Question 23

Which of the following BEST describes the value chain?

A) A management information system which tracks the costs of products through the manufacturing process
B) The minimizing of inventory levels to reduce storage, insurance and finance costs
C) All activities that contribute to the continuous improvement of business operations
D) The whole sequence of activities that add value to the goods and services sold to end-users

Question 24

What is total quality management?

A) A philosophy of supplying customers with superior products and services
B) An exchange of information with suppliers and customers to create efficient and effective processes
C) A software system that integrates a company's functions, departments and data into a single system
D) A system which speeds the transformation of raw materials into finished products.

Question 25

Which of the following events would NOT be considered unethical under IMA standards?

A) An inventory shipment was received on January 2, but was booked 3 days earlier in order to boost the year-end inventory balance.
B) An accountant coded an expense to a fixed asset account so that the expense budget would not be overrun at year-end.
C) A scheduled maintenance service originally planned for late December was delayed until the following year to reduce expenses recorded in the year just ended.
D) A company shipped products to a customer on January 2, but recorded the transaction on the last day of December to boost revenues in the year just ended.

Question 26

Which of the following is a philosophy of providing customers with superior products and services?

A) Just-in-time (JIT) inventory management
B) Enterprise resource planning (ERP)
C) Supply chain management
D) Total quality management

Question 27

What is the name given to software systems that can integrate all of a company's worldwide functions, departments and data into a single system?

A) Total quality management
B) Enterprise resource planning
C) E-Commerce
D) Just-in-time inventory management

Question 28

Which of the following describes a system in which suppliers deliver materials at the time they are needed and finished units are completed when customer orders need to be filled?

A) Supply chain management
B) Just-in-time (JIT)
C) Enterprise resource planning
D) Total quality management

Question 29

Which of the following is NOT one of the key standards of ethical practice published by the IMA?

A) Competence
B) Environmental sensitivity
C) Integrity
D) Confidentiality

Question 30

Which of the following is a management approach designed to set higher and higher goals in order to make continuous improvement?

A) Supply chain management
B) Just-in-time (JIT)
C) Enterprise resource planning
D) Total quality management

Question 31

Charleston Company was nearing year-end and the CEO wanted to report a high level of inventory on the balance sheet. An order of raw materials was scheduled for delivery on January 2 of the next year, but the CEO asked the accounting manager to record the shipment as being received on the last day of December. The shipment was actually received on January 2^nd, and although the dollar impact of the transaction was not affected in any way, the misrepresentation of facts in the situation would make the behavior unethical.

Question 32

Baker products shipped an order to a customer on the second day of January. Later that day, the sales manager told the accountant to record the sale as if it had taken place on the last day of December. This would allow the company to book the sales revenue in the year just ended and boost year-end profit. Because the transaction was a legitimate sale, the alteration of the date of sale alone would not be considered unethical.

Question 33

Which of the following BEST describes just-in-time inventory management?

A) Production system that stores surplus goods at each stage of manufacture
B) Inventory purchasing process that gains purchase discounts by buying in large quantities
C) Production system that focuses on delivering materials and goods in exactly the right quantity when needed
D) Inventory system which stockpiles raw materials to protect against supply interruptions

Question 34

Charleston Company was nearing year-end and the CEO wanted to report a high level of inventory on the balance sheet. An order of raw materials was planned for early the next year, but the CEO asked the purchasing manager to accelerate the shipment so that it would arrive before the end of the year. Because this action was taken deliberately to affect the financial results of the company, it would be considered unethical.

Question 35

Which of the following is NOT an advantage of just-in-time inventory management?

A) Surplus inventory is maintained to prevent production shut-down in case of supply interruption
B) Lower inventory levels reduce storage cost
C) Inventory kept for shorter periods of time reduces the amount of goods that become obsolete
D) Reduce the amount of insurance needed for lower levels of inventory

Question 36

Increased global competition has resulted in many companies moving their operations to other countries to be closer to new markets.

Question 37

Maintaining confidentiality of company information is a key element of ethical professional practice.

Question 38

The sales manager for Baker Products told the shipping department to ship an order to a customer on the last day of December instead of the previously scheduled shipping date of January 2. This would allow the company to book the sales revenue in the year just ended and boost year-end profit. Although done deliberately to boost income, the action did not misrepresent any facts of the situation, and so it would not be considered unethical.

Question 39

Which of the following events would NOT be considered unethical under IMA standards?

A) An accountant told his friends about the bids his company had received from contractors for construction contracts.
B) An accountant provided a list of his company's foreign transactions to an investigative reporter who was working on a story for the paper.
C) An accountant provided a list of his company's qualified suppliers to a small businessman that wanted to set up a similar business on his own.
D) An accountant provided a copy of his company's published financial statements to a relative who owned a business that was directly competing with the accountant's company.

Question 40

The IMA standards of ethical practice provide that accountants should continually develop their knowledge and skills.

Question 41

Which of the following could be found on the income statement of a service company?

A) Rent expense
B) Cost of goods manufactured
C) Cost of goods sold
D) Manufacturing overhead

Question 42

Which of the following is TRUE for a service company?

A) Expenses are all period costs.
B) Expenses are all product costs.
C) Income statement includes gross profit.
D) Balance sheet includes finished goods inventory.

Question 43

Which of the following is a characteristic of a service company?

A) It transforms raw materials into finished goods.
B) It makes a product.
C) It does not have tangible products intended for sale.
D) It has a single category of inventory.

Question 44

Both merchandising and manufacturing businesses produce their own products, but service businesses do not.

Question 45

Manufacturing businesses have inventory accounts, but service and merchandising businesses do not.

Question 46

You did not understand what the term accrual meant and failed to accrue the interest due at the end of the year on the company's bonds. Which IMA guideline has been violated?

A) Integrity
B) Confidentiality
C) Competence
D) Objectivity

Question 47

The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.
$\begin{array}{|l|r|}\hline \text { Purchases } & \$ 126,000 \\\hline \text { Selling and Administrative Expenses } & 90,000 \\\hline \text { Merchandise inventory, } 1 / 1 / 2012 & 14,000 \\\hline \text { Merchandise inventory, } 12 / 31 / 2012 & 10,000 \\\hline \text { Sales Revenue } & 250,000 \\\hline\end{array}$

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What is the cost of goods sold for 2012?

A) $104,000
B) $124,000
C) $130,000
D) $140,000

Question 48

Which of the following is an inventory account for a merchandise company?

A) Work in process inventory
B) Manufacturing overhead inventory
C) Merchandise inventory
D) Finished goods inventory

Question 49

Which of the following applies to goods that are produced by a manufacturing company and ready to sell?

A) Materials inventory
B) Work in process inventory
C) Merchandise inventory
D) Finished goods inventory

Question 50

Merchandising businesses resell goods which they purchase from a producer.

Question 51

Which of the following applies to the raw materials used by a manufacturing company?

A) Materials inventory
B) Work in process inventory
C) Merchandise inventory
D) Finished goods inventory

Question 52

A service company's income statement does NOT include cost of goods sold.

Question 53

Product costs, such as direct materials, are expensed during the period that they were incurred.

Question 54

The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.
$\begin{array}{|l|r|}\hline \text { Purchases } & \$ 126,000 \\\hline \text { Selling and Administrative Expenses } & 90,000 \\\hline \text { Merchandise inventory, } 1 / 1 / 2012 & 14,000 \\\hline \text { Merchandise inventory, } 12 / 31 / 2012 & 10,000 \\\hline \text { Sales Revenue } & 250,000 \\\hline\end{array}$

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What is the profit margin percentage?

A) 12%
B) 56%
C) 100%
D) 36%

Question 55

Which of the following applies to goods that are partially completed?

A) Materials inventory
B) Work in process inventory
C) Merchandise inventory
D) Finished goods inventory

Question 56

The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.
$\begin{array}{|l|r|}\hline \text { Purchases } & \$ 126,000 \\\hline \text { Selling and Administrative Expenses } & 90,000 \\\hline \text { Merchandise inventory, } 1 / 1 / 2012 & 14,000 \\\hline \text { Merchandise inventory, } 12 / 31 / 2012 & 10,000 \\\hline \text { Sales Revenue } & 250,000 \\\hline\end{array}$

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What is the operating income for 2012?

A) $250,000
B) $140,000
C) $30,000
D) $90,000

Question 57

Which of the following applies to goods that are purchased from a producer and sold by a merchandising company?

A) Materials inventory
B) Work in process inventory
C) Merchandise inventory
D) Finished goods inventory

Question 58

Your company is doing well and you tell your sister that the company will report earnings that are significantly higher than the financial analysts' estimated. Which IMA guideline has been violated?

A) Objectivity
B) Competence
C) Confidentiality
D) Integrity

Question 59

The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.
$\begin{array}{|l|r|}\hline \text { Purchases } & \$ 126,000 \\\hline \text { Selling and Administrative Expenses } & 90,000 \\\hline \text { Merchandise inventory, } 1 / 1 / 2012 & 14,000 \\\hline \text { Merchandise inventory, } 12 / 31 / 2012 & 10,000 \\\hline \text { Sales Revenue } & 250,000 \\\hline\end{array}$

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What is the gross profit for 2012?

A) $120,000
B) $130,000
C) $140,000
D) $136,000

Question 60

The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.
$\begin{array}{|l|r|}\hline \text { Purchases } & \$ 126,000 \\\hline \text { Selling and Administrative Expenses } & 90,000 \\\hline \text { Merchandise inventory, } 1 / 1 / 2012 & 14,000 \\\hline \text { Merchandise inventory, } 12 / 31 / 2012 & 10,000 \\\hline \text { Sales Revenue } & 250,000 \\\hline\end{array}$

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What is the cost of goods available for sale for 2012?

A) $140,000
B) $126,000
C) $104,000
D) $130,000

Question 61

Excellent Company sells accounting textbooks. The following information summarizes Excellent's operating activities for 2012:
$$\begin{array} {| l | r |} \hline \text { Nerchendise inventory, Janury } 1,2012 & \$ 10,000 \\\hline \text { Nerchendise inventory, Decenber } 31,2012 & \$ 7,000 \\\hline \text { Purcheses } & \$ 95,000 \\\hline \text { Selling and Adrminitrative Expenses } & \$ 65,000 \\\hline \text { Sales Reverue } & \$ 180,000 \\\hline\end{array}$$

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Required: Prepare an income statement for the year ended December 31, 2012. Please use the format provided below:
$$\begin{array} { | l | l | l | } \hline \text { Sales revenue } &\quad\quad & \quad\quad\\\hline \text { Cost of goods sold } & & \\\hline \text { Beginning inventory } & & \\\hline \text { Purchases } & & \\\hline \text { Cost of goods available for sale } & & \\\hline \text { Ending inventory } & & \\\hline \text { Cost of goods sold } & & \\\hline \text { Gross profit } & & \\\hline \text { Selling and administrative expenses } & & \\\hline \text { Net income/(loss) } & & \\\hline\end{array}$$

Question 62

Excellent Company sells accounting textbooks. The following information summarizes Excellent's operating activities for 2012:
$$\begin{array} { |l | r| } \hline \text { Nerchendise inventory, Janury } 1,2012 & \$ 10,000 \\\hline \text { Nerchendise inventory, Decenber } 31,2012 & \$ 7,000 \\\hline \text { Purcheses } & \$ 95,000 \\\hline \text { Selling and Adrminitrative Expenses } & \$ 65,000 \\\hline \text { Sales Reverue } & \$ 180,000 \\\hline\end{array}$$

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Required: Prepare an income statement for the year ended December 31, 2012. Please use the format provided below, and include a vertical analysis showing percentages rounded to the nearest tenth of a percent.
$\begin{array}{|l|l|r|r|}\hline \quad\quad\quad\quad\quad\quad\quad&\quad\quad\quad\quad&\quad\quad\quad&\quad\quad\quad\\\hline &&&\\\hline &&&\\\hline &&&\\\hline &&&\\\hline &&&\\\hline &&&\\\hline &&&\\\hline &&&\\\hline &&&\\\hline &&&\\\hline &&&\\\hline\end{array}$

Question 63

The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.
$\begin{array}{|l|r|}\hline \text { Purchases } & \$ 126,000 \\\hline \text { Selling and Administrative Expenses } & 90,000 \\\hline \text { Merchandise inventory, } 1 / 1 / 2012 & 14,000 \\\hline \text { Merchandise inventory, } 12 / 31 / 2012 & 10,000 \\\hline \text { Sales Revenue } & 250,000 \\\hline\end{array}$

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What is the gross profit percentage?

A) 48%
B) 56%
C) 36%
D) 100%

Question 64

The wages and benefits of the assembly line workers are product costs.

Question 65

Best Company sells office supplies. The following information summarizes Best's operating activities for 2012:
$\begin{array}{|l|r|}\hline \text { Utilities for store } & \$ 6,000 \\\hline \text { Rent for store } & \$ 8,000 \\\hline \text { Sales commissions } & \$ 4,500 \\ \hline \text { Purchases of merchandise } & \$ 54,000 \\\hline \text { Inventory on January } 1,2012 & \$ 30,000 \\\hline \text { Inventory on December } 31,2012 & \$ 20,500 \\\hline \text { Sales revenue } & \$ 108,000 \\\hline\end{array}$

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Required: Prepare an income statement for Best Company, a merchandiser, for the year ended December 31, 2012.using the format below:
Sales revenue
$$\begin{array} { | l | l | l | } \hline \text { Cost of goods sold } & \quad\quad&\quad\quad \\\hline \text { Beginning inventory } & & \\\hline \text { Purchases } & & \\\hline \text { Cost of goods available for sale } & & \\\hline \text { Ending inventory } & & \\\hline \text { Cost of goods sold } & & \\\hline \text { Gross profit } & & \\\hline \text { Selling expenses } & & \\\hline \text { Sales commissions } & & \\\hline \text { General expenses } & & \\\hline \text { Rent expense } & & \\\hline \text { Utilities expense } & & \\\hline \text { Total operating expenses } & & \\\hline \text { Net income/(loss) } & & \\\hline\end{array}$$

Question 66

Cost of goods manufactured includes direct materials, direct labor, and manufacturing overhead.

Question 67

Selling and administrative expenses are subtracted from cost of goods sold to obtain gross profit.

Question 68

Best Company sells office supplies. The following information summarizes Best's operating activities for 2012:
$\begin{array}{|l|r|}\hline \text { Utilities for store } & \$ 6,000 \\\hline \text { Rent for store } & \$ 8,000 \\\hline \text { Sales commissions } & \$ 4,500 \\ \hline \text { Purchases of merchandise } & \$ 54,000 \\\hline \text { Inventory on January } 1,2012 & \$ 30,000 \\\hline \text { Inventory on December } 31,2012 & \$ 20,500 \\\hline \text { Sales revenue } & \$ 108,000 \\\hline\end{array}$

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Required: Prepare an income statement for Best Company, a merchandiser, for the year ended December 31, 2012.using the format below. Please include a vertical analysis rounded to the nearest tenth of a percent.
$$\begin{array} { | l | l | l | l | } \hline \text { Sales revenue } & \quad\quad&\quad\quad &\quad\quad \\\hline \text { Cost of goods sold } & & & \\\hline \text { Beginning inventory } & & & \\\hline \text { Purchases } & & & \\\hline \text { Cost of goods available for sale } & & & \\\hline \text { Ending inventory } & & & \\\hline \text { Cost of goods sold } & & & \\\hline \text { Gross profit } & & & \\\hline \text { Selling expenses } & & & \\\hline \text { Sales commissions } & & & \\\hline \text { General expenses } & & & \\\hline \text { Rent expense } & & & \\\hline \text { Utilities expense } & & & \\\hline \text { Total operating expenses } & & & \\\hline \text { Net income/(loss) } & & & \\\hline\end{array}$$

Question 69

The costs of indirect materials cannot easily be traced to the manufactured product and is therefore a component of manufacturing overhead.

Question 70

The wages and benefits of the factory manager are product costs.

Question 71

GAAP requires companies to treat product costs such as factory overhead as an asset until the product is sold.

Question 72

The wages and benefits of the factory manager are included in manufacturing overhead.

Question 73

Manufacturing overhead includes all manufacturing costs, such as direct labor and direct materials.

Question 74

The total manufacturing costs to account for during the year minus the beginning work in process equals cost of goods manufactured.

Question 75

The wages and benefits of the assembly line workers are included in manufacturing overhead.

Question 76

Manufacturing overhead includes indirect costs, such as insurance and depreciation on the factory building.

Question 77

A manufacturer's inventory consists of merchandise inventory, work in process inventory, and finished goods inventory.

Question 78

Excellent Company sells accounting textbooks. The following information summarizes Excellent's operating activities for 2012:
$$\begin{array} {| l | r |} \hline\text { Nerchendise inventory, Janury } 1,2012 & \$ 10,000 \\\hline \text { Nerchendise inventory, Decenber } 31,2012 & \$ 7,000 \\\hline \text { Purcheses } & \$ 95,000 \\\hline \text { Selling and Adrminitrative Expenses } & \$ 65,000 \\\hline \text { Sales Reverue } & \$ 180,000 \\\hline\end{array}$$

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Required: Prepare an income statement for the year ended December 31, 2012. Please use the format provided below, and include a vertical analysis showing percentages rounded to the nearest tenth of a percent.
$$\begin{array} { | l | l | l | l | } \hline \text { Sales revenue } &\quad\quad &\quad\quad &\quad\quad \\\hline \text { Cost of goods sold } & & & \\\hline \text { Beginning inventory } & & & \\\hline \text { Purchases } & & & \\\hline \text { Cost of goods available for sale } & & & \\\hline \text { Ending inventory } & & & \\\hline \text { Cost of goods sold } & & & \\\hline \text { Gross profit } & & & \\\hline \text { Selling and administrative expenses } & & & \\\hline \text { Net income/(loss) } & & & \\\hline\end{array}$$

Question 79

The following information pertains to Bright Toy Company's operating activities for 2012. The company sells light box toys and sold 10,000 units in 2012.
$\begin{array}{|l|r|}\hline \text { Purchases } & \$ 126,000 \\\hline \text { Selling and Administrative Expenses } & 90,000 \\\hline \text { Merchandise inventory, } 1 / 1 / 2012 & 14,000 \\\hline \text { Merchandise inventory, } 12 / 31 / 2012 & 10,000 \\\hline \text { Sales Revenue } & 250,000 \\\hline\end{array}$

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What is the cost per unit sold?

A) $13.00
B) $12.40
C) $14.00
D) $10.40

Question 80

Which of the following formulas represents cost of goods sold for a merchandising business?

A) Beginning inventory - ending inventory = cost of goods sold
B) Purchases and freight in - ending inventory = cost of goods sold
C) Ending inventory + purchases and freight in - beginning inventory = cost of goods sold
D) Beginning inventory + purchases and freight in - ending inventory = cost of goods sold