CHAPTER 1

BASIC CONCEPTS IN MANAGEMENT ACCOUNTING

1. Which of the following the functions is most directly related to management by objective?
A. Reporting
B. Decision Making
C. Control
D. Planning

2. The setting of objectives and the identification of methods to achieve those objectives is called
A. planning
B. controlling
C. decision making
D. performance evaluation

3. In the planning and control process, what is the proper sequence of events?
A. Set goals, set objectives, develop plans, implement plans, evaluate performance
B. Establish a master budget, set standard costs, develop variance analysis
C. Develop engineered costs, develop pricing targets, calculate contribution margins
D. Identify variable costs, identify fixed costs, project the sales mix, determine breakeven

4. The primary objective of management accounting is to provide:

A. stockholders and potential investors with useful information for decision making.
B. banks and other creditors with information useful in making credit decisions.
C. management with information useful for planning and control of operations.
D. supervising government agencies with information about the company’s management
affairs.

5. Management accounting information

A. uses historical cost as the basis for reports to managers who are making decisions about
future courses of action.
B. should be developed and provided only if the benefits exceed its costs.
C. does not reflect the financial criteria of verifiability or consistency.
D. should serve the basic needs of investors and creditors.

6. Which of the following is included in the day-to-day work of the management team?
A. decision making
B. planning
C. controlling
D. all of the given choices
7. Which of the following statements is true when comparing managerial accounting to financial
accounting?
A. Managerial accounting place more emphasis on precision than financial accounting.
B. Bothe are highly dependent on timely information.
C. Both rely on the same accounting information system.
D. Managerial accounting is concerned with external decision makers.

8. Which of the following is true of managerial accounting rather than financial accounting?
A. The outputs of this accounting system are the basic financial statements.
B. The methods of this accounting system are established by an overseeing board.
C. The accounting methods are standardized to allow comparisons among companies.
D. The accounting system would be unique to each company.

9. Management accounting’s role in the control processes is to provide

A. managers with information that can be used to determine customer satisfaction levels.
B. investors and creditors the information about financial stability of the company.
C. managers with relevant information to compare actual results with expectations.
D. input to managers on the best ways to achieve continuous improvement in the production
process.

10. Which of the following statements is (are) true regarding financial and managerial accounting?
I. Both are mandatory.
II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just looking at the
organization as a whole.
IV. Both are geared to the future, rather than to the past.
A. I, II, III, and IV
B. Only II, III and IV
C. Only II and III
D. Only II

11. For internal users, managers are more concerned with receiving information that is:
A. completely objective and verifiable.
B. completely accurate and precise.
C. relevant, flexible and immediately available.
D. relevant, completely accurate and precise.

12. The major reporting standard for presenting managerial accounting information is
A. relevance
B. generally accepted accounting principles
C. the cost principle
D. the current tax law
13. Which of the following activities is not usually performed by a management accountant?
A. Assisting managers to interpret data in managerial accounting reports.
B. Designing systems to provide information for internal and external reports.
C. Gathering data from sources other than the accounting system.
D. Deciding the best level of inventory to be maintained.

14. How does managerial decision making compare with external performance evaluation?
Managerial Decision Making External Performance Evaluation
A. Detailed Detailed
B. Detailed More aggregated
C. More aggregated Detailed
D. More aggregated More aggregated

15. Management accountants would not

A. assist in budget planning.
B. prepare reports primarily for external users.
C. determine cost behaviour.
D. be concerned with the impact of cost and volume on profits.

16. Management accounting is similar to financial accounting in that both:

A. are governed by financial reporting framework.
B. deal with economic events.
C. concentrate on historical data.
D. classify reported information in the same manner.

17. Internal reports must be communicated

A. daily
B. monthly
C. annually
D. as needed

18. Which consideration influences the frequency of an internal report?

A. The wishes of the managers receiving the report.
B. The frequency with which decisions that require the information are made.
C. The cost of preparing the report.
D. All of the given choices.
19. Which of the following statements about internal reports is not true?
A. The content of internal reports may extend beyond the double-entry accounting system.
B. Internal reports may show all amounts at market values.
C. Internal reports may discuss prospective events.
D. Most internal reports are summarized rather than detailed.

20. The informational needs of internal users/management:

A. are historical in nature
B. emphasize the company as a whole
C. emphasize accuracy over timeliness
D. may require more customized reports than external financial statements

21. Which of the following is most associated with managerial accounting?

A. Must follow generally accepted accounting principles.
B. May rely on estimates and forecasts.
C. Is prepared for users outside the organization.
D. may require more customized reports than external financial statements

22. Which statement about the extent of detail in a management accounting report is true?
A. It may depend on the frequency of the report.
B. It depends on the type of manager receiving the report.
C. It depends on the level of the manager receiving the report.
D. All of the given choices.

23. Which of the following characteristics is inherent to management accounting?

A. Reporting of historical information
B. Compliance to generally accepted accounting principles
C. Contribution approach income statement
D. External users of financial report

24. In order to be useful to managers, management accounting reports should possess all of the
following characteristics except:
A. Provide objective measures of past operations and subjective estimates about future
decisions.
B. Be prepared in accordance with generally accepted accounting principles.
C. Be provided at any time management needs information.
D. Be prepared to report information for any unit of the business to support decision making.
25. Which ethical standard of conduct requires that a managerial accountant be responsible to
prepare complete and clear reports and recommendations are based on appropriate analyses of
relevant and reliable information?
A. competence
B. confidentiality
C. integrity
D. objectivity

26. Which ethical standard of conduct requires the managerial accountant have to communicate
information fairly and objectively?
A. competence
B. confidentiality
C. integrity
D. objectivity

27. Under which ethical standard of conduct does the managerial accountant have the responsibility
to refuse any gift, favour, or hospitality that would influence or appear to influence his or her
decision?
A. competence
B. confidentiality
C. integrity
D. objectivity

28. For managerial decision purposes, the volume of information should evaluated on the basis of
A. cost-benefit relationship.
B. A cost, but not benefit.
C. A benefit, but not cost.
D. Neither costs nor benefits, but some other criteria.

29. Which of the following does not describe managerial accounting?

A. internally focused
B. emphasis on the future
C. externally focused
D. detailed information

30. The managerial function of controlling

A. is performed only by the controller of a company.
B. is only applicable when the company sustains a loss.
C. is concerned mainly with a operating a manufacturing segment.
D. includes performance evaluation by management.
31. Planning is function that involves
A. hiring the right people for a particular job.
B. coordinating the accounting information system.
C. setting goals and objectives for an entity.
D. analyzing financial statements.

32. In determining whether planned goals are being met, a manager is performing the function of
A. planning
B. controlling
C. motivating
D. follow-up
33. Managerial accounting creates value by:
A. by forcing managers to analyze historical figures and interpret the results
B. by eliminating all pricing and costing errors
C. by focusing managers attention on the relationship between financial and non-financial
factors
D. all of the given choices

34. Which of the following best describes what performance evaluation should be designed to do?
A. Modify goal and objectives each month
B. Establish sales goals and targets
C. Compare actual results to plan
D. Establish blame

35. Which management position is responsible for raising capital?

A. Internal auditor
B. Treasurer
C. Controller
D. CFO

36. The treasurer function is usually not concerned with

A. investor relations.
B. financial reports.
C. short-term financing.
D. credit extension and collection of bad debts.

37. Which of the following duties is usually assigned to the controller?

A. directing the granting of credit to clients
B. investing the organization’s funds
C. tax planning
D. independently evaluating the firm’s financial statements
38. Developing a company strategy for responding to anticipated new markets is an example of:
A. decision making
B. controlling
C. planning
D. motivating

39. Obtaining feedback is generally identified most directly with the management function of
A. Planning
B. Directing and motivating
C. Controlling
D. Decision making

40. Which of the following statements is true regarding ethics in decision-making?

A. Since most business decisions are simply a matter of economics, ethical considerations
should be ignored.
B. Decision-making can have an ethical as well as an economic impact.
C. Managerial accountants do not face ethical issues.
D. Business managers will always agree on ethical choices.