Deck 18: Introduction to Managerial Accounting

Question 1

Financial reporting is typically much more detailed than managerial accounting.

Answer 1

False

Question 2

Managerial accounting provides financial statements that report results of operations,financial position,and cash flows both to managers and to external stockholders.

Answer 2

False

Question 3

How is the management of a company accountable to its employees?

A) The management must provide products that are safe and free of defects.
B) The management must provide a safe workplace.
C) The management must ensure that it earns a net positive return on its investments.
D) The management must ensure the business is environmentally responsible to its community.

Answer 3

B

Question 4

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

Question 5

Financial accounting prepares reports for internal purposes,whereas managerial accounting provides information to external stakeholders.

Question 6

Which of the following statements is true of managerial accounting?

A) The external stakeholders of a company are the primary users of managerial accounting.
B) Managerial accounting information is used to help managers plan and control their operations.
C) An external audit by an independent CPA is required for managerial accounting information.
D) Managerial accounting information must comply with Generally Accepted Accounting Principles.

Question 7

Which of the following is the primary focus of financial accounting?

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, and divisions

Question 8

Financial statements prepared for investors and creditors often include forward-looking information because they make decisions based on a company's future prospects.

Question 9

Which of the following is the primary objective of managerial accounting?

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 10

Which of the following is an objective of managerial accounting?

A) to generate a company's financial statements for tax reporting
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 ensure that the reports produced for internal and external business purposes are GAAP compliant

Question 11

Managerial accounting focuses on providing information for internal planning and control.

Question 12

Management's accountability to its suppliers and vendors is to ________.

A) provide products to customers that are safe and free of defects
B) obey laws and pay taxes timely
C) provide a return on shareholders' investment
D) make timely payments and comply with contract terms

Question 13

Which of the following statements is true of financial accounting?

A) It provides information to investors needed for their investment decisions.
B) It provides forward-looking information needed for managing and delegating operations.
C) It focuses on detailed reports for parts of the company rather than the whole company.
D) It focuses on planning and controlling day-to-day operations.

Question 14

Managerial accounting information for a company is primarily used by ________.

A) its customers to understand the pricing of the product
B) its creditors to understand the credibility of the business
C) its employees to plan and control operations
D) its investors to make their investment decisions

Question 15

Comparing actual performance to previously budgeted amounts is part of the ________.

A) controlling function of managerial accounting
B) planning function of managerial accounting
C) reporting function of managerial accounting
D) organizing function of managerial accounting

Question 16

For each of the following,indicate whether the statement relates to managerial accounting (MA)or financial accounting (FA):
$$\begin{array} { | l | l | } \hline \text { Statement } & \begin{array} { l } \text { Applies to } \\\text { MA or FA }\end{array} \\\hline \text { How reports will affect employee behavior is a } & \\\text { concern. } & \\\hline \text { Summary reports are prepared primarily on the } & \\\text { company as a whole, usually on a quarterly or annual } & \\\text { basis. } & \\\hline \text { Relevant information and focus on the future. } & \\\hline \text { Primary users include investors, creditors, and } & \\\text { government authorities. } & \\\hline \text { There is no requirement to follow GAAP. } & \\\hline\end{array}$$

Question 17

Management accountability is the manager's responsibility to the various stakeholders of the company to maximize profits.

Question 18

Managerial accounting reporting by a public firm is required to follow the rules of GAAP and guidelines of the Securities and Exchange Commission.

Question 19

A budget is a managerial accounting tool used in the planning process.

Question 20

Define planning.List and briefly discuss a planning tool that managers can use.

Question 21

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 of the IMA standards appears to have been violated here?

A) integrity
B) confidentiality
C) competence
D) objectivity

Question 22

Which of the following is true of Just-in-Time (JIT)Management?

A) It results in more storage and insurance costs.
B) It is a system in which the company produces products only after receiving an order.
C) It promotes surplus inventory to prevent production shut-down in case of supply interruptions.
D) It requires a surplus inventory of finished goods to ensure timely, or just-in-time, delivery to customers.

Question 23

What is Total Quality Management (TQM)?

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 that speeds the transformation of raw materials into finished products

Question 24

ERP systems can integrate all of a company's functions,departments,and data into a single system.

Question 25

Which of the following is one of the key standards of ethical practice published by the Institute of Management Accountants (IMA)?

A) objectivity
B) environmental sensitivity
C) technicality
D) confidentiality

Question 26

The IMA standards of ethical practice require managerial accountants to maintain their professional competence.

Question 27

The entire sequence of activities that add value to a company's products and services is called ________.

A) the value chain
B) the planning process
C) TQM production chain
D) Enterprise Resource Planning

Question 28

Which of the following is a philosophy designed to integrate all organizational areas in order to provide customers with superior products and services,while meeting organizational goals throughout the value chain?

A) Supply Chain Management (SCM)
B) Just-in-Time (JIT) Management
C) Enterprise Resource Planning (ERP)
D) Total Quality Management (TQM)

Question 29

An Enterprise Resource Planning system (ERP)________.

A) is a cost management system in which a company produces products just in time to satisfy needs
B) requires the implementation of Total Quality Management
C) integrates all worldwide functions, departments, and data of a company into a single system
D) cannot be implemented in service companies

Question 30

The income statement of a service company will most likely include ________.

A) salaries expense
B) factory overhead
C) cost of goods sold
D) direct materials

Question 31

________ is a philosophy of continuous improvement of products and processes.

A) Just-in-Time (JIT) Management
B) Enterprise Resource Planning (ERP)
C) Supply Chain Management (SCM)
D) Total Quality Management (TQM)

Question 32

The IMA Standards of Ethical Practice include confidentiality,competence,credibility,and integrity.

Question 33

In which of the following ways is the management of a company accountable to its communities?

A) making timely interest payments to creditors and dividend payments to investors
B) ensuring the company's environmental impact is not harmful to its community
C) providing a capital return on the shareholders' investment
D) repaying principal and interest to the suppliers

Question 34

Management of a company is accountable to ________ for obeying laws and paying taxes.

A) the natural environment
B) its asset vendors
C) the securities exchange
D) the government

Question 35

Seria,Inc.has received a bulk order from an overseas client.As a result,the reported earnings of this year are expected to be significantly higher than the estimates of financial analysts.Joshua,an accountant at Seria,tells this to one of his friends.Which of the IMA standards has Joshua violated?

A) objectivity
B) competence
C) confidentiality
D) technicality

Question 36

Service companies sell their time,skills,and knowledge.

Question 37

Which of the following correctly describes Just-in-Time (JIT)Management?

A) It is a production approach that maintains surplus goods at each stage of manufacture.
B) It is an inventory purchase approach that seeks purchase discounts on buying large quantities.
C) It is a cost management approach that focuses on maintaining lean inventory levels.
D) It is an inventory approach that stockpiles raw materials to protect against supply interruptions.

Question 38

Which of the following is true of service companies?

A) All costs of service companies are product costs.
B) Service companies modify and resell products they buy from manufacturers.
C) Revenues of service companies are only recorded on cash receipt.
D) Service companies carry no inventories of products for sale.

Question 39

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 (SCM)
B) Just-in-Time (JIT) Management
C) Enterprise Resource Planning (ERP)
D) Total Quality Management (TQM)

Question 40

The accountant for Myra Lido deliberately recorded operating expenses as operating assets in order to record a higher net income for the company.As long as the amount of the misstatement was not material,this would not be considered unethical behavior.

Question 41

Which of the following would appear as a line item on the income statements of both a merchandiser and a manufacturer?

A) Direct Labor
B) Cost of Goods Manufactured
C) Direct Materials
D) Cost of Goods Sold

Question 42

Define product cost.How does a merchandising company treat these costs?

Question 43

The primary activity of manufacturing companies is to purchase goods from a wholesaler and resell them.

Question 44

Manufacturing companies produce their own products,but merchandising companies do not.

Question 45

Manufacturing companies have inventory accounts,but merchandising companies do not.

Question 46

For external reporting purposes,GAAP requires companies to treat period costs as assets.

Question 47

One of the primary activities of Rex,Inc.is to purchase hats from Viva,Inc.in Texas and sell them to its customers in Washington for a profit.It is likely that Rex is a ________.

A) manufacturing company
B) hybrid company
C) service company
D) merchandising company

Question 48

Define period cost.Give three examples of period costs of a merchandising company.

Question 49

Goods that have been started in the manufacturing process but are not yet complete are included in the ________.

A) Finished Goods Inventory account
B) Work-in-Process Inventory account
C) Raw Materials Inventory account
D) Cost of Goods Sold account

Question 50

A company that uses labor,equipment,supplies,and facilities to convert raw materials into finished products is a ________.

A) merchandising company
B) manufacturing company
C) service company
D) trading company

Question 51

Crystal,Inc.is a merchandiser of stone ornaments.The company sold 6,000 units during the year.The company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 589,000 \\\hline \text { Purchases (excluding Freight In) } & 305,000 \\\hline \text { Selling and Administrative Expenses } & 69,000 \\\hline \text { Freight In } & 15,000 \\\hline \text { Beginning Merchandise Inventory } & 44,000 \\\hline \text { Ending Merchandise Inventory } & 42,000 \\\hline\end{array}$$ What is the operating income for the year? (Round your answer to the nearest whole dollar.)

A) $198,000
B) $322,000
C) $267,000
D) $520,000

Question 52

Which of the following is most likely a service company?

A) a law firm
B) a car dealership
C) a grocery store
D) a bakery

Question 53

Selling and administrative expenses are subtracted from gross profit to obtain operating income.

Question 54

Star Health,Inc.is a fitness center in Oklahoma City.In October,the company earned
$550,000 in revenues and incurred the following operating costs from 340 customers:
$$\begin{array} { | l | r | } \hline \text { Manager's salary } & \$ 50,000 \\\hline \text { Gym Rent } & 60,000 \\\hline \text { Depreciation Expense-Equipment } & 25,000 \\\hline \text { Office Supplies Expense } & 30,000 \\\hline \text { Utilities Expense } & 89,700 \\\hline \text { Trainer's Salary } & 25,000 \\\hline\end{array}$$
Required: Prepare Star Health's income statement for the month of October.

Question 55

Unlike merchandising companies,income statements of service companies include cost of goods sold as a line item.

Question 56

Product costs are expensed ________.

A) when the products are consumed or sold
B) when the accounting period they are incurred in comes to an end
C) when the products are transferred to the Work-in-Process Inventory account
D) when the market value of products goes above the recorded value

Question 57

Merchandising companies,like service companies,do not have a Cost of Goods Sold account.

Question 58

Damsel,Inc.is a large manufacturer of auto tires.Damsel has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 55,000 \\\hline \text { Beginning Finished Goods Inventory } & 18,500 \\\hline \text { Cost of Goods Sold } & 33,000 \\\hline \text { Cost of Goods Manufactured } & 52,000 \\\hline\end{array}$$ Calculate the amount of ending Finished Goods Inventory reported on Damsel's balance sheet.

A) $3,000
B) $70,500
C) $37,500
D) $19,000

Question 59

Royal,Inc.purchases each unit of product X for $100 and can sell it in the market for $135.The price of the product for Royal would be $100.

Question 60

Which of the following is true of product costs?

A) They are expensed in the period they are paid.
B) For external reporting, GAAP requires that they be expensed before the products are sold.
C) They are first recorded in an inventory account.
D) For merchandising companies, product costs do not include freight costs.

Question 61

Best,Inc.,a merchandiser,sells office supplies.The following information summarizes Best's operating activities during the year:
$$\begin{array} { | l| r | } \hline \text { Utilities Expense } & \$ 6,000 \\\hline \text { Rent for Store Expense } & 8,000 \\\hline \text { Sales Commissions Expense } & 4,500 \\\hline \text { Purchases of Merchandise } & 54,000 \\\hline \text { Merchandise Inventory on January 1 } & 30,000 \\\hline \text { Merchandise Inventory on December 31 } & 20,500 \\\hline \text { Sales Revenue } & 108,000 \\\hline\end{array}$$
Required: Prepare an income statement for Best,Inc.for the year ended December 31,using the format below.
$$\begin{array} { | l | l | l | } \hline \text { Sales Revenue } &\quad\quad &\quad\quad \\\hline \text { Cost of Goods Sold: } & & \\\hline \text { Beginning Inventory } & & \\\hline \text { Purchases } & & \\\hline \text { Cost of Goods Available for Sale } & & \\\hline \text { Ending Inventory } & & \\\hline \text { Cost of Goods Sold } & & \\\hline \text { Gross Profit } & & \\\hline \text { Selling Expenses: } & & \\\hline \text { Sales Commissions Expense } & & \\\hline \text { Administrative Expenses: } & & \\\hline \text { Rent Expense } & & \\\hline \text { Utilities Expense } & & \\\hline \text { Total Operating Expenses } & & \\\hline \text { Operating Income } & & \\\hline\end{array}$$

Question 62

Which of the following is true of Finished Goods Inventory?

A) Finished Goods Inventory is an account used by a manufacturer and includes completed goods that have not yet been sold.
B) Finished Goods Inventory is an account used by a merchandiser and includes completed goods that have not yet been sold.
C) Finished Goods Inventory is an account used by service companies in lieu of raw materials inventory.
D) Finished Goods Inventory is an account used by a manufacturer in lieu of raw materials inventory.

Question 63

Direct costs and indirect costs can be easily traced directly to a cost object.

Question 64

Simons,Inc.sells plasticware.The following information summarizes Simons' operating activities for the year:
$$\begin{array} { | l | r | } \hline \text { Utilities Expense } & \$ 65,000 \\\hline \text { Rent Expense } & 10,000 \\\hline \text { Sales Commissions Expense } & 32,500 \\\hline \text { Purchases of Merchandise } & 260,000 \\\hline \text { Merchandise Inventory on January 1 } & 65,000 \\\hline \text { Merchandise Inventory on December 31 } & 97,500 \\\hline \text { Sales Revenue } & 650,000 \\\hline\end{array}$$
Prepare an income statement for Simons,Inc.,a merchandiser,for the year ended December 31 using the format below:
$$\begin{array} { | l | l | l | } \hline \text { Sales Revenue } &\quad\quad &\quad\quad \\\hline \text { Cost of Goods Sold: } & & \\\hline \text { Beginning Inventory } & & \\\hline \text { Purchases } & & \\\hline \text { Cost of Goods Available for Sale } & & \\\hline \text { Ending Inventory } & & \\\hline \text { Cost of Goods Sold } & & \\\hline \text { Gross Profit } & & \\\hline \text { Selling Expenses: } & & \\\hline \text { Sales Commissions Expense } & & \\\hline \text { Administrative Expenses: } & & \\\hline \text { Rent Expense } & & \\\hline \text { Utilities Expense } & & \\\hline \text { Total Operating Expenses } & & \\\hline \text { Operating Income } & & \\\hline\end{array}$$

Question 65

New Hope,Inc.is a merchandiser of stone ornaments.It sold 15,000 units during the year.The company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 535,000 \\\hline \text { Purchases (excluding Freight In) } & 347,000 \\\hline \text { Selling and Administrative Expenses } & 32,500 \\\hline \text { Freight In } & 15,200 \\\hline \text { Beginning Merchandise Inventory } & 43,000 \\\hline \text { Ending Merchandise Inventory } & 56,500 \\\hline\end{array}$$ How much is the gross profit for the year?

A) $218,800
B) $348,700
C) $186,300
D) $188,000

Question 66

The balance sheet of a ________ company will include Work-in-Process Inventory as a line item.

A) manufacturing
B) merchandising
C) service
D) trading

Question 67

The wages of manufacturing plant janitors are considered to be non-manufacturing overhead costs as these costs are not directly related to the manufacturing process.

Question 68

Amber Corporation has provided the following information of its operating activities for the year:
$$\begin{array} { | l | r | } \hline \text { Merchandise Inventory, January 1 } & \$ 150,000 \\\hline \text { Merchandise Inventory, December 31 } & 75,000 \\\hline \text { Purchases } & 854,000 \\\hline \text { Selling and Administrative Expenses } & 65,000 \\\hline \text { Sales Revenue } & 1,000,000 \\\hline\end{array}$$ Required: Prepare Amber's income statement for the year ended December 31.Use the format provided below:
$$\begin{array} { | l | l | l | } \hline \text { Sales Revenue } & \quad\quad& \quad\quad\\\hline \text { Cost of Goods Sold } & & \\\hline \text { Beginning Inventory } & & \\\hline \text { Cost of Goods Available for Sale } & & \\\hline \text { Ending Inventory } & & \\\hline \text { Cost of Goods Sold } & & \\\hline \text { Gross Profit } & & \\\hline \text { Selling and Administrative Expenses } & & \\\hline \text { Operating Income } & & \\\hline\end{array}$$

Question 69

Riverside Manufacturing provided the following information for the month ended March 31: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 27,000 \\\hline \text { Beginning Finished Goods Inventory } & 14,000 \\\hline \text { Ending Finished Goods Inventory } & 10,500 \\\hline \text { Cost of Goods Manufactured } & 14,600 \\\hline\end{array}$$ Compute gross profit.

A) $8,900
B) $12,400
C) $15,900
D) $1,900

Question 70

Poolside Manufacturing provided the following information for the month ended March 31: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 17,000 \\\hline \text { Beginning Finished Goods Inventory } & 12,000 \\\hline \text { Ending Finished Goods Inventory } & 10,500 \\\hline \text { Cost of Goods Manufactured } & 19,600 \\\hline\end{array}$$ Compute cost of goods sold.

A) $19,600
B) $18,100
C) $21,100
D) $30,100

Question 71

The cost of direct materials cannot easily be traced to the manufactured product,and therefore,it is a component of manufacturing overhead.

Question 72

Robbinsdale,Inc.is a merchandiser of stone ornaments.The company sold 8,000 units during the year.The company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 593,000 \\\hline \text { Purchases (excluding freight in) } & 300,000 \\\hline \text { Selling and Administrative Expenses } & 66,000 \\\hline \text { Freight In } & 15,000 \\\hline \text { Beginning Merchandise Inventory } & 46,000 \\\hline \text { Ending Merchandise Inventory } & 43,000 \\\hline\end{array}$$ What is the cost of goods available for sale for the year?

A) $361,000
B) $318,000
C) $346,000
D) $331,000

Question 73

List the three kinds of inventory accounts that are used by manufacturing companies.Briefly discuss what each account includes.

Question 74

Planet Manufacturing provided the following information for the month ended March 31:
$$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 22,000 \\\hline \text { Beginning Finished Goods Inventory } & 7,000 \\\hline \text { Ending Finished Goods Inventory } & 6,500 \\\hline \text { Cost of Goods Manufactured } & 10,600 \\\hline \text { Selling and Administrative Expenses } & 5,125 \\\hline\end{array}$$ Prepare the income statement.

Question 75

Bloomington,Inc.is a merchandiser of stone ornaments.The company sold 6,000 units during the year.The company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 566,000 \\\hline \text { Purchases (excluding freight in) } & 300,000 \\\hline \text { Selling and Administrative Expenses } & 69,000 \\\hline \text { Freight In } & 13,000 \\\hline \text { Beginning Merchandise Inventory } & 44,000 \\\hline \text { Ending Merchandise Inventory } & 43,000 \\\hline\end{array}$$
What is the cost of goods sold for the year?

A) $357,000
B) $314,000
C) $312,000
D) $301,000

Question 76

Partial income statements of Company A and Company B are provided below: Company A
$$\begin{array} { | l | r | r | } \hline \text { Revenue } & & \$ 80,000 \\\hline \text { Expenses: } & & \\\hline \text { Utilities Expense } & \$ 5,000 & \\\hline \text { Salaries Expense } & 15,000 & \\\hline \text { Rent Expense } & \underline { 3,2000 } & \\\hline \text { Total Expenses } & & \underline { 23,700 } \\\hline \text { Operating Income } & & \$ 56,300 \\\hline\end{array}$$
Company B
$$\begin{array} { | l | r | r | } \hline \text { Revenue } & & \$ 50,000 \\\hline \text { Cost of Goods Sold: } & & \\\hline \text { Beginning Merchandise Inventory } & \$ 4,000 & \\\hline \text { Purchases and Freight In } & 23,000 & \\\hline \text { Ending Merchandise Inventory } & \$ 5,500 & \\\hline \text { Cost of Goods Sold } & & 21,500 \\\hline \text { Gross Profit } & & \$ 28,500 \\\hline\end{array}$$
Which of the following statements is true?

A) Company A is a merchandising company.
B) Company B is a manufacturing company.
C) Company A is a manufacturing company.
D) Company A is a service company.

Question 77

Excellent,Inc.sells accounting textbooks.The following information summarizes Excellent's operating activities for the year:
$$\begin{array} { | l | r | } \hline \text { Merchandise Inventory, January 1 } & \$ 10,000 \\\hline \text { Merchandise Inventory, December 31 } & 7,000 \\\hline \text { Purchases } & 95,000 \\\hline \text { Selling and Administrative Expenses } & 65,000 \\\hline \text { Sales Revenue } & 180,000 \\\hline\end{array}$$
Required: Prepare Excellent,Inc.'s income statement for the year ended December 31.

Question 78

Lakeside Manufacturing provided the following information for the month ended March 31: $$\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 23,000 \\\hline \text { Beginning Finished Goods Inventory } & 7,000 \\\hline \text { Ending Finished Goods Inventory } & 9,500 \\\hline \text { Cost of Goods Manufactured } & 13,600 \\\hline\end{array}$$
Compute cost of goods available for sale.

A) $13,600
B) $23,100
C) $20,600
D) $11,100

Question 79

The Work-in-Process Inventory account includes the ________.

A) goods that are ready to be sold
B) goods that are partially completed
C) goods that have been sold in the market
D) goods that are damaged during production

Question 80

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

A) Beginning Merchandise Inventory - Ending Merchandise Inventory = Cost of Goods Sold
B) Purchases and Freight In - Ending Merchandise Inventory = Cost of Goods Sold
C) Ending Merchandise Inventory + Purchases and Freight In - Beginning Merchandise Inventory = Cost of Goods Sold
D) Beginning Merchandise Inventory + Purchases and Freight In - Ending Merchandise Inventory = Cost of Goods Sold