Chapter 01 Introduction to Managerial Accounting True / False Questions Financial accounting information is generally used exclusively by internal parties such as managers True False Financial accounting information is reported for the company as a whole True False Managers must direct, lead and motivate during the implementation function True False Managers of small, private corporations use managerial accounting information whereas managers of large, public corporations use financial accounting information True False The Sarbanes-Oxley Act of 2002 places full responsibility on the board of directors for the accuracy of the reporting system True False The Sarbanes-Oxley Act of 2002 focuses on three factors that affect the accounting reporting environment: ethics, fraud, and managers True False A sustainable business is one with the ability to meet the needs of today without sacrificing the ability of future generations to meet their own needs True False An opportunity cost is the cost of not doing something True False Whether a cost is treated as direct or indirect depends on whether tracing the cost is both possible and feasible True False 1-1 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 10 Variable costs are always direct costs True False 11 Fixed costs stay the same, on a per-unit basis, as activity level changes True False 12 Prime costs include direct materials, direct labor, and manufacturing overhead True False 13 All manufacturing costs are treated as product costs True False 14 All manufacturing costs are inventoriable costs True False 15 A cost that will occur in the future and differs between various alternatives under consideration is a relevant cost True False Multiple Choice Questions 16 What is the primary goal of accounting? A B C D To set long-term goals and objectives To arrange for the necessary resources to achieve a plan To provide information for decision making To motivate others to work towards a plan's success 17 Of the following groups, which is the primary user of managerial accounting information? A B C D 1-2 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 18 Managerial accounting, as compared to financial accounting, is primarily intended to facilitate: A B C D an understanding of GAAP making decisions with timely, relevant information conducting ethics investigations under SOX reporting results to shareholders 19 Managerial accounting information includes all of the following except: A B C D Performance evaluations, for example budget-to-actual reports Financial statements prepared in accordance with generally accepted accounting 20 Which of the following is not a characteristic of financial accounting? A B C D Financial reports are prepared according to GAAP Information is used by external parties Information is subjective, relevant and future-oriented Reports are prepared periodically 21 Which of the following is not a characteristic of financial accounting? A B C D Information is reported at the decision making level Information is used by external parties Information is objective, reliable and historical Reports are prepared periodically 22 Which of the following is not a characteristic of financial accounting? A B C D Financial reports are prepared according to GAAP Information is used primarily by internal parties Information is objective, reliable and historical Reports are prepared periodically 23 Which of the following is not a characteristic of managerial accounting? A B C D Information is used by internal parties Information is subjective, relevant, future-oriented Reports are prepared as needed Reports are prepared according to GAAP 1-3 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 24 Which of the following is not a characteristic of managerial accounting? A B C D Information is used by external parties Information is subjective, relevant, future-oriented Reports are prepared as needed Information is reported at the decision making level 25 Which of the following is not a characteristic of managerial accounting? A B C D Information is used by internal parties Information is subjective, relevant, future-oriented Reports are prepared as needed Information is reported for the company as a whole 26 Which of the following types of reports is more characteristic of managerial accounting than financial accounting? A B C D An internal report used by management An external report used by investors A report prepared according to GAAP A report prepared periodically (monthly, quarterly, annually) 27 The control function is: A B C D Comparing actual with budgeted results and taking corrective action when need Arranging of the necessary resources to carry out the plan The directing, leading, and motivating of those necessary to carry out the pla Drafting the goals and strategies to achieve long-term results 28 During the last fiscal year, XYZ organization implemented managerial accounting to allocate program costs to its soup kitchen The kitchen's manager is reviewing actual results from the prior month to compare the outcomes with the organization's objectives Which function of the Plan-Implement-Control cycle is she conducting? A B C D 29 Which of the following types of organizations purchases raw materials from suppliers and uses them to create a finished product? A B C D Manufacturing firms Merchandising companies Service compa 1-4 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 30 Hair salons and law firms are examples of which of the following type of organization? A B C D Service companies Manufacturing firm Merchandising companies 31 Which of the following types of organizations sells goods to the general public? A B C D Service companies Manufacturing firms Merchandising companies 32 Which of the following statements is true about the use of managerial accounting information in nonprofit organizations? A B C D Universities not exist strictly to earn profit for shareholders, so managerial acco Unlike other nonprofits, hospitals (which exist with a focus on financial results in a Because managers of nonprofit organizations need timely and relevant informatio Because nonprofit organizations - hospitals, educational institutions, charities - 33 Which of the following functions of management involves comparing actual results with budgeted results? A B C D 34 Which of the following functions of management involves setting short and long-term objectives and the tactics to achieve them? A B C D 35 Which of the following functions of management involves arranging the necessary resources to carry out the plan? A B C D 1-5 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 36 Which of the following functions of management involves providing motivation to achieve results? A B C D 37 Which of the following functions of management involves taking corrective action if needed? A B C D 38 Which of the following functions of management involves providing feedback for future plans? A B C D 39 Which of the following is the correct sequencing of the functions within the managerial cycle? A B C D Plan - Control - Implement Review - Plan - Implement Plan - Implement - Control Review - Control - Plan 40 Which of the following describes the Planning function within the management cycle? A B C D Setting short and long-term objectives Comparing actual to budgeted results and taking corrective action Taking actions to implement the plan Arranging the necessary resources to carry out the plan 41 Which of the following describes the Control function within the management cycle? A B C D Setting short and long-term objectives Comparing actual to budgeted results and taking corrective action Taking actions to implement the plan Arranging the necessary resources to carry out the plan 1-6 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 42 Which of the following does not describe the Implementing function within the management cycle? A B C D Leading, directing, and motivating others to achieve the plan's goals Arranging the necessary resources to carry out the plan Taking actions to implement the plan Setting short- and long-term objectives 43 "Ethics" refers to all of the following except: A B C D The standards of conduct for judging fair from unfair The standards of conduct for judging right from wrong The standards of conduct for judging opportunity from incentives The standards of conduct for judging honest from dishonest 44 Which of the following is not one of the factors affecting the accounting reporting environment focused on by the Sarbanes-Oxley Act? A B C D 45 Which of the following is a requirement under the Sarbanes-Oxley Act? A B C D Financial statements must be audited by a Big Four accounting firm Management must issue a report that indicates whether the financial statements a Management must conduct a review of the company's internal control system Background checks must be performed on all employees 46 Which of the following is not a provision of the Sarbanes-Oxley Act? A B C D Executives can avoid penalties for fraud by declaring personal bankruptcy Stiffer penalties for fraud in terms of monetary fines and jail time decrease the inc Public companies must adopt a code of ethics for senior financial officers Management must issue a report that indicates whether internal controls are effe 47 Which of the following is not true about how the Sarbanes-Oxley Act counteracts incentives for committing fraud? A B C D It provides for stiffer monetary penalties It increases the maximum jail sentence for fraudulent reporting It removes legal protection from whistleblowers It provides that violators must repay any money obtained via fraud and pay fin 1-7 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 48 The requirement of the Sarbanes-Oxley Act that requires management to issue a report on internal controls places responsibility for the accuracy of the reporting system on: A B C D accounting managers marketing managers production managers 49 Which of the following changes introduced by the Sarbanes-Oxley Act is not one intended to reduce opportunities for error and fraud? A B C D Internal control report from management Stronger oversight by directors Internal control audit by external auditors 50 Which of the following changes introduced by the Sarbanes-Oxley Act is not one intended to encourage good character? A B C D Anonymous tip lines Whistle-blower protection Stiffer fines and prison terms 51 Which of the following changes introduced by the Sarbanes-Oxley Act is intended to counteract incentives for fraud? A B C D Stronger oversight by directors Stiffer fines and prison terms Anonymous tip line 52 Which of the following is not true about how the Sarbanes-Oxley Act emphasizes the importance of the character of managers and employees? A B C D It requires that ethics be embedded in the organizational culture It requires that audit committees establish anonymous tip lines It provides protection for whistle-blowers It requires that public companies adopt a code of ethics for senior financial offi 1-8 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 53 Which of the following statements is correct about sustainability accounting? A B C D Sustainability accounting has been in existence since 1592 Sustainability accounting tracks a company's "green" score Sustainability accounting aims to provide managers a broad set of information to Sustainability accounting is a subset of GAAP applied only to socially responsible 54 Which of the following statements is correct about the triple bottom line? A B C D The triple bottom line measures a company's social impact, without regard for p The triple bottom line captures three factors: People, Profit, and Planet The triple bottom line has replaced net income as the most crucial measure of a c The triple bottom line reports profit at the expense of social factors 55 Many organizations are building sustainable business practices into their strategies, including by issuing: A B C D Corporate social responsibility reports Reports on internal controls Profit and loss statements that reflect people and planet costs Reports from the board of directors on sustainability 56 An out-of-pocket costs is: A B C D an actual outlay of cash the cost of not doing something a budgeted estimate 57 Which of the following is not one of the categories used to sort costs in managerial accounting? A B C D Relevant or irrelevant Out-of-pocket or opportunity 58 Which of the following statements concerning costs is incorrect? A B C D Costs are treated differently depending on how the information will be used Out-of-pocket costs include the costs associated with not taking a particular cours Any single cost can be classified in more than one way Costs can be categorized on the basis of relevant or irrelevant costs 1-9 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 59 The cost of not doing something is a(n): A B C D out-of-pocket co 60 An actual outlay of cash is a(n): A B C D out-of-pocket co 61 An opportunity cost is: A B C D the foregone benefit of the path not taken an actual outlay of cash the initial investment required to pursue an opportunity a cost that cannot be traced to a specific cost object 62 An out-of-pocket cost involves which of the following? A B C D Choosing to one thing instead of another Tracing the cost directly to a cost object An actual outlay of cash Determining how the cost changes with a change in activity level 63 To earn summer money, Joe could mow lawns in his neighborhood, or he could work at a local grocery store Which of the following is an opportunity cost of mowing lawns? A B C D Cash paid for gas to run the lawnmower The time spent mowing the lawns The wages he could have earned working at the grocery store Depreciation on the lawnmower 64 To earn summer money, Joe could mow lawns in his neighborhood, or he could work at a local grocery store Which of the following is an out-of-pocket cost of mowing lawns? A B C D The use of his father's truck to get to job sites The wages he could have earned working at the grocery store The time spent mowing the lawns Cash paid for gas to run the lawnmower 1-10 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Direct or Indirect Variable or Fixed Direc Indire Variabl Fixe t ct e d Wages paid to construction crew X X Wood X X Production supervisor’s salary X X Billboard advertising for the company X X Rent on office space X X Depreciation on tools used at construction sites X X Sheet rock X Machine purchased to cut a special kind of tile requested by one customer – cannot be re-used X Gas for the company truck, used to haul supplies to construction sites X X X X Paint X X Fees paid to electrical contractor (a fixed amount per house) X X Depreciation on the company truck, used to haul supplies to construction X X 1-368 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Feedback: Costs that can be traced directly to a specific cost object are direct costs Costs that cannot be traced to a specific cost object, or that are not worth the effort of tracing, are indirect costs Variable costs are those that change, in total, in direct proportion to changes in activity levels Fixed costs are those that stay the same, in total, regardless of activity level AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: BB Industry Blooms: Understand Difficulty: Medium Learning Objective: 01-04 Define and give examples of different types of cost: Out-of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs, Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or irrelevant costs Topic: Direct versus indirect costs Topic: Variable versus fixed costs 1-369 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 127 Parkside Rentals, a firm that rents tuxedos for special events, incurred costs for the following items Place an "X" in the appropriate column to indicate whether they are direct or indirect, and whether they are variable or fixed The cost object is tuxedo rentals Direct or Indirect Variable or Fixed Direc Indire Variabl Fixe t ct e d Cost to purchase tuxedos (replaced when they show wear, after approximately 80 - 100 rentals) Salespersons’ salaries Advertising Dry cleaning Sales commissions on tuxedo rentals Store rent Store utilities Store window displays Depreciation on office equipment Insurance President’s salary 1-370 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Direct or Indirect Variable or Fixed Direc Indire Variabl Fixe t ct e d Cost to purchase tuxedos (replaced when they show wear, after approximately 80 - 100 rentals) X X Salespersons’ salaries X X Advertising X X Dry cleaning X X Sales commissions on tuxedo rentals X X Store rent X X Store utilities X X Store window displays X X Depreciation on office equipment X X Insurance X X President’s salary X X Feedback: Costs that can be traced directly to a specific cost object are direct costs Costs that cannot be traced to a specific cost object, or that are not worth the effort of tracing, are indirect costs Variable costs are those that change, in total, in direct proportion to changes in activity levels Fixed costs are those that stay the same, in total, regardless of activity level AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: BB Industry Blooms: Understand Difficulty: Medium Learning Objective: 01-04 Define and give examples of different types of cost: Out-of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs, Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or irrelevant costs Topic: Direct versus indirect costs Topic: Variable versus fixed costs 1-371 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-372 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 128 Salon de Beauty, a local hair salon, incurred the following costs last month Place an "X" in the appropriate column to indicate whether they are direct or indirect, and whether they are variable or fixed The cost object is customers served Direct or Indirect Variable or Fixed Direc Indire Variabl Fixe t ct e d Salon rent Salon utilities (electric and water) Hairstylists’ salaries Hairstylists’ commissions (a percentage of sales) Depreciation on fixtures and equipment Shampoo and conditioner (only a small amount is used on each customer) Insurance Advertising Store manager’s salary Hair dye and perm kits (each dye job or perm uses one kit) 1-373 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Direct or Indirect Variable or Fixed Direc Indire Variabl Fixe t ct e d Salon rent X Salon utilities (electric and water) X Hairstylists’ salaries X Hairstylists’ commissions (a percentage of sales) X X X X X Depreciation on fixtures and equipment X Shampoo and conditioner (only a small amount is used on each customer) X Insurance X X Advertising X X Store manager’s salary X X Hair dye and perm kits (each dye job or perm uses one kit) X X X X Feedback: Costs that can be traced directly to a specific cost object are direct costs Costs that cannot be traced to a specific cost object, or that are not worth the effort of tracing, are indirect costs Variable costs are those that change, in total, in direct proportion to changes in activity levels Fixed costs are those that stay the same, in total, regardless of activity level AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: BB Industry Blooms: Understand Difficulty: Medium Learning Objective: 01-04 Define and give examples of different types of cost: Out-of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs, Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or irrelevant costs Topic: Direct versus indirect costs Topic: Variable versus fixed costs 1-374 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-375 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 129 Adobe Music Company, which manufactures wooden and metal xylophones, incurred costs for the following items Place an "X" in the appropriate column to indicate whether they are direct or indirect, and whether they are variable or fixed The cost object is the xylophones manufactured by the company Direct or Indirect Variable or Fixed Direc Indire Variabl Fixe t ct e d Assembly labor wages Wood Production supervisor’s salary Advertising Factory rent Depreciation on factory equipment Metal Wood polish used to finish the wood xylophones Factory utilities (dependent on hours) Paint Salary of product designer Depreciation on office equipment Insurance premiums President’s salary Glue 1-376 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Direct or Indirect Variable or Fixed Direc Indire Variabl Fixe t ct e d Assembly labor wages X X Wood X X Production supervisor’s salary X X Advertising X X Factory rent X X Depreciation on factory equipment X X Metal X X Wood polish used to finish the wood xylophones X X Factory utilities (dependent on hours) X X Paint X X Salary of product designer X X Depreciation on office equipment X X Insurance premiums X X President’s salary X X Glue X X Feedback: Costs that can be traced directly to a specific cost object are direct costs Costs that cannot be traced to a specific cost object, or that are not worth the effort of tracing, are indirect costs Variable costs are those that change, in total, in direct proportion to changes in activity levels Fixed costs are those that stay the same, in total, regardless of activity level AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: BB Industry Blooms: Understand Difficulty: Medium Learning Objective: 01-04 Define and give examples of different types of cost: Out-of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs, Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or irrelevant costs Topic: Direct versus indirect costs Topic: Variable versus fixed costs 1-377 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-378 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 130 Melinda's Custom Homes, a construction company that builds custom-designed houses, incurred costs for the following items Wages paid to construction crew $105,000 Wood $176,000 Production supervisor’s salary Billboard advertising the company $52,000 $9,000 Rent on office space $12,000 Depreciation on tools used at construction sites $32,500 Sheet rock $84,000 Machine purchased to cut a special kind of tile requested by one customer – cannot be reused $8,300 Gas for the company truck, used to haul supplies to construction sites $2,800 Paint $9,600 Fees paid to electrical contractor, who charges a set amount per house $12,500 Depreciation on the company truck, used to haul supplies to construction sites (straight-line) $10,000 Insurance premiums $13,800 President’s salary Bricks $101,000 $89,000 Calculate each of the following, where the cost object is the houses built by the company: a Total variable costs b Total fixed costs c Total direct costs d Total indirect costs a Total variable costs: $478,900 = $105,000 + $176,000 + $84,000 + $2,800 + $9,600 + $12,500 + $89,000 b Total fixed costs: $238,600 = $52,000 + $9,000 + $12,000 + $32,500 + $8,300 + $10,000 + $13,800 + $101,000 c Total direct costs: $484,400 = $105,000 + $176,000 + $84,000 + $8,300 + $9,600 + $12,500 + $89,000 d Total indirect costs: $233,100 = $52,000 + $9,000 + $12,000 + $32,500 + $2,800 + $10,000 + $13,800 + $101,000 Feedback: Variable costs are those that change, in total, in direct proportion to changes in activity levels Fixed costs are those that stay the same, in total, 1-379 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education regardless of activity level Costs that can be traced directly to a specific cost object are direct costs Costs that cannot be traced to a specific cost object, or that are not worth the effort of tracing, are indirect costs AACSB: Analytical Thinking AACSB: Knowledge Application AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-04 Define and give examples of different types of cost: Out-of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs, Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or irrelevant costs Topic: Direct versus indirect costs Topic: Variable versus fixed costs 1-380 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 131 Cactus Cookies incurred the following costs this month to manufacture 1,000 jumbo chocolate chip cookies Chocolate chips $75.00 Flour $22.00 Butter $48.50 Sugar $30.00 Other ingredients $27.00 Labor wages $300.00 Rent on manufacturing space $250.00 Utilities (paid at a fixed monthly rate) $52.00 Depreciation on kitchen equipment $88.00 Calculate each of the following: a The total variable cost this month b The total fixed cost this month c The variable cost per cookie this month d The fixed cost per cookie this month e The total variable cost if Cactus Cookies had manufactured 2,000 cookies this month f The total fixed cost if Cactus Cookies had manufactured 2,000 cookies this month g The variable cost per cookie if Cactus Cookies had manufactured 2,000 cookies this month h The fixed cost per cookie if Cactus Cookies had manufactured 2,000 cookies this month a Total variable cost: $502.50 = $75.00 + $22.00 + $48.50 + $30.00 + $27.00 + $300.00 b Total fixed cost: $390.00 = $250.00 + $52.00 + $88.00 c Variable cost per cookie: $0.5025 = (a) $502.50/1,000 cookies d Fixed cost per cookie $0.39 = (b) $390/1,000 cookies e Total variable costs for #2,000 cookies: $1,005.00 = $0.5025 (c) × 2,000 cookies f $Total fixed costs for #2,000 cookies: 390.00 = $250.00 + $52.00 + $88.00 g Variable cost per cookie: $0.5025 = $1,005.00 (e)/2,000 cookies h Fixed cost per cookie: $0.195 = $390 (f)/2,000 cookies Note: The variable cost per cookie stayed the same (See letters c and g) However the fixed cost per cookie decreased (see letters d and h) as the volume increased Feedback: Variable costs are those that change, in total, in direct proportion to changes in activity levels Fixed costs are those that stay the same, in total, regardless of activity level AACSB: Analytical Thinking 1-381 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education AACSB: Knowledge Application AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-04 Define and give examples of different types of cost: Out-of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs, Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or irrelevant costs Topic: Variable versus fixed costs 1-382 Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education ... about sustainability accounting? A B C D Sustainability accounting has been in existence since 1592 Sustainability accounting tracks a company's "green" score Sustainability accounting aims to... a whole 26 Which of the following types of reports is more characteristic of managerial accounting than financial accounting? A B C D An internal report used by management An external report... statements is true about the use of managerial accounting information in nonprofit organizations? A B C D Universities not exist strictly to earn profit for shareholders, so managerial acco Unlike other