Chapter 10 Management Accounting – Flashcards
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Ashley Bradshaw is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in? A. Economic data B. Financial data C. Nonfinancial data D. Both Financial data and Nonfinancial data
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D. Both Financial data and Nonfinancial data
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All of the following are features of managerial accounting except: A. information is provided primarily to insiders such as managers. B. information includes economic and non-financial data as well as financial data. C. information is characterized by objectivity, reliability, consistency, and accuracy. D. information is reported continuously with a present or future orientation.
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C. information is characterized by objectivity, reliability, consistency, and accuracy.
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Choose the answer that is not a distinguishing characteristic of financial accounting information. A. It is global information that reflects the performance of the whole company. B. It is focused primarily on the future. C. It is more concerned with financial data than physical or economic data. D. It is more highly regulated than managerial accounting information.
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B. It is focused primarily on the future.
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Managerial accounting information is limited or restricted by which of the following authorities or principles? A. Securities and Exchange Commission B. Generally Accepted Accounting Principles C. Managerial Accounting Standards Board D. Value-Added Principle
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C. Managerial Accounting Standards Board
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Select the incorrect statement regarding the relationship between type of user and type of information. A. Middle managers need more nonfinancial, or operational data than do senior executives. B. Assembly line supervisors need more immediate feedback on performance than do senior executives. C. Senior executives need less aggregated information than do lower-level managers. D. Senior executives use general economic information as well as financial information.
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C. Senior executives need less aggregated information than do lower-level managers.
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Select the correct statement regarding managerial and financial accounting. A. Users of managerial accounting information desire greater aggregation than do users of financial accounting information. B. Both managerial and financial accounting use economic and physical data in addition to financial data. C. Financial accounting is more highly regulated than managerial accounting. D. Timeliness is more important in financial accounting than in managerial accounting.
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C. Financial accounting is more highly regulated than managerial accounting.
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Which of the following most exemplifies the value-added principle? A. An ongoing process where continuous improvement is the goal B. A competitive management program that emphasizes quality C. Information gathering and reporting activities should be restricted to those activities that add value in excess of their cost. D. Managerial accounting information is measured in economic, physical, and financial terms.
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C. Information gathering and reporting activities should be restricted to those activities that add value in excess of their cost.
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Which of the following costs would be classified as a direct cost for a company that produces motorcycles? A. Rent of manufacturing facility that produces motorcycles B. Seats used in the motorcycles C. Wages of motorcycle assembly workers D. Both Seats used in the motorcycles and Wages of motorcycle assembly workers
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D. Both Seats used in the motorcycles and Wages of motorcycle assembly workers are correct.
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Which of the following is a product cost for a construction company? A. Cost of transporting raw materials to the job site B. Wages paid to the company's payroll clerk C. Rent of the company's main office D. All of these.
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A. Cost of transporting raw materials to the job site
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For a manufacturing company, product costs include all of the following except: A. indirect material costs. B. warehousing costs. C. direct labor costs. D. All of these are product costs.
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B. warehousing costs.
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Why do accountants normally calculate cost per unit as an average? A. Determining the exact cost of a product is virtually impossible. B. Some manufacturing-related costs cannot be accurately traced to specific units of product. C. Even when producing multiple units of the same product, normal variations occur in the amount of materials and labor used. D. All of these are justifications for computing average unit costs.
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D. All of these are justifications for computing average unit costs.
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Which of the following costs is not considered to be a period cost? A. Warehousing costs B. Depreciation of delivery vehicles C. Salaries paid to company executives D. Freight paid on a purchase of raw materials
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D. Freight paid on a purchase of raw materials
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Select the incorrect statement regarding costs and expenses. A. Some costs are initially recorded as expenses while others are initially recorded as assets. B. Expenses are incurred when assets are used to generate revenue. C. Manufacturing-related costs are initially recorded as expenses. D. Non-manufacturing costs should be expensed in the period in which they are incurred.
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C. Manufacturing-related costs are initially recorded as expenses.
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Which of the following costs should be recorded as an expense? A. Administrative employee salaries B. Depreciation of manufacturing equipment C. Insurance for the factory building D. All of these are expenses.
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A. Administrative employee salaries
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Which of the following costs should not be recorded as an expense? A. Insurance on factory building B. Sales commissions C. Product shipping costs D. Product advertising
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A. Insurance on factory building
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Which of the following transactions would cause net income for the period to decrease? A. Paid $2,500 cash for raw material cost B. Purchased $8,000 of merchandise inventory C. Recorded $5,000 of depreciation on production equipment D. Paid $2,000 for production supplies
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D. Paid $2,000 for production supplies
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Which of the following statements is true with regard to product costs versus general, selling, and administrative costs? A. Product costs associated with unsold units appear on the income statement as general expenses. B. General, selling, and administrative costs appear on the balance sheet. C. Product costs associated with units sold appear on the income statement as cost of goods sold. D. None of these is true.
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C. Product costs associated with units sold appear on the income statement as cost of goods sold.
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Which of the following statements concerning product costs versus general, selling, and administrative costs is false? A. Product costs incurred during the period will initially appear as inventory on the balance sheet. B. General, selling, and administrative costs are always expensed when paid. C. Product costs may be divided between the balance sheet and income statement. D. General, selling, and administrative costs never appear as inventory on the balance sheet.
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B. General, selling, and administrative costs are always expensed when paid.
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Manufacturing costs that cannot be traced to specific units of product in a cost-effective manner are: A. depreciation on production equipment. B. direct material. C. indirect labor. D. Both depreciation on production equipment and indirect labor.
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D. Both depreciation on production equipment and indirect labor.
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What is the effect on the balance sheet of recording a $200 cash purchase of raw materials? A. Assets decrease by $200 and equity decreases by $200. B. Assets and equity do not change. C. Assets increase by $200 and equity increases by $200. D. Assets increase by $200 and equity does not change.
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B. Assets and equity do not change.
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What is the effect on the balance sheet of making cash sales of inventory to customers on profit? A. Assets and equity increase. B. Assets and equity decrease. C. Assets decrease and equity increases. D. Assets increase and equity decreases.
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A. Assets and equity increase.
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Which of the following types of labor costs will never flow through the balance sheet? A. Plant supervision B. Sales commissions C. Material handling D. Assembly labor
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B. Sales commissions
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Which of the following is not classified as manufacturing overhead? A. Product delivery costs B. Supervisory labor C. Factory insurance D. Production supplies
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A. Product delivery costs
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Costs such as transportation-out, sales commissions, uncollectible accounts receivable, and advertising costs are sometimes called: A. upstream costs. B. downstream costs. C. direct costs. D. indirect costs.
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B. downstream costs.
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All of the following are downstream costs except: A. packaging costs B. advertising C. research and development D. sales commissions
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C. research and development
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Select the incorrect statement regarding upstream and downstream costs. A. Companies normally incur significant downstream costs. B. To be profitable, companies must recover the total cost of developing, producing, and delivering products. C. Pricing decisions must consider both upstream and downstream costs in addition to manufacturing costs. D. Upstream and downstream costs are reported as product costs on the income statement.
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D. Upstream and downstream costs are reported as product costs on the income statement.
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Select the incorrect statement regarding service companies. A. Because service companies do not carry inventory, it is impossible to determine product costs. B. Because the products of service companies are consumed immediately, there is no finished goods inventory on their balance sheets. C. Managers of service companies are expected to control costs, improve quality, and increase productivity just like managers of manufacturing companies. D. Material, labor, and overhead costs of service companies are treated as period costs.
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A. Because service companies do not carry inventory, it is impossible to determine product costs.
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Identify the false statement regarding how product costs in a manufacturing company differ from product costs in a service or merchandising company. A. Both manufacturing companies and service companies incur costs for supplies. B. Manufacturing companies accumulate product costs in inventory accounts, while service companies do not. C. Products of service companies such as restaurants are consumed immediately. D. Most labor costs for merchandising companies are treated as product costs.
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D. Most labor costs for merchandising companies are treated as product costs.
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Costs associated with holding inventory often include: A. theft, damage, and obsolescence. B. financing. C. warehouse space. D. supervision. E. All of these.
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E. All of these.
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A company that uses a just in time inventory system: A. has finished goods inventory on hand at all times in order to speed up shipments of customer orders. B. may find that having less inventory actually leads to increased customer satisfaction. C. assesses its value chain to create new value-added activities. D. adopts a systematic, problem-solving attitude.
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B. may find that having less inventory actually leads to increased customer satisfaction.
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Howard Lumber Company mistakenly classified a product cost as an expense that totaled $20,000. The company produced 2,000 units of product and sold 1,000 of them during the year. Management is paid a bonus equal to 2% of net income. In the year in which the mistake was made: A. product costs were overstated. B. management bonuses were underpaid. C. the company's income statement portrayed a more favorable position than actually existed. D. the company's net income was overstated.
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B. management bonuses were underpaid.
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Assuming a company's inventory increased during the period, which of the following misclassifications may increase net income? A. Recording administrative salaries as a product cost B. Recording depreciation on production equipment as an expense C. Expensing raw material costs instead of including them in inventory D. Recording depreciation on production equipment as an expense and Expensing raw material costs instead of including them in inventory
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A. Recording administrative salaries as a product cost
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During her first year with the company, Ann mistakenly accumulated some of the company's period costs in ending inventory. Which of the following indicates how this error affects the company's financial statements assuming number of units produced exceeded number of units sold during the period? A. Cash flows from operations are understated. B. Gross margin is unaffected. C. Net income is overstated. D. Inventory is understated.
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C. Net income is overstated.
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If a company misclassifies a general, selling and administrative cost as a product cost in a period when production exceeds sales: A. net income will be overstated. B. total assets will be understated. C. gross margin will be understated. D. Both net income will be overstated and gross margin will be understated.
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D. Both net income will be overstated and gross margin will be understated.
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Which of the following is not a reason management might be tempted to classify costs as assets rather than expensing them during periods in which production exceeds sales? A. The company's bank may be more likely to extend financing to the firm. B. Income taxes will be lower. C. Net income will be higher. D. Management bonuses may be higher.
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B. Income taxes will be lower.
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Certified Management Accountants (CMA) must complete a specified number of continuing professional education credits each reporting period. Which of the four standards of ethical conduct issued by the Institute of Management Accountants likely motivated this requirement? A. Confidentiality B. Competence C. Integrity D. Objectivity
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B. Competence
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Which of the following is not one of the four Standards of Ethical Conduct for Management Accountants? A. Credibility B. Confidentiality C. Integrity D. Independence
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D. Independence
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As a Certified Management Accountant, Suzanne is bound by the standards of ethical conduct issued by the Institute of Management Accountants. During the course of business, Suzanne learned that her company has decided to discontinue a major product line. If she mentions this fact to her brother, who is a stockbroker, Suzanne could be in violation of the: A. competence standard. B. confidentiality standard. C. integrity standard. D. objectivity standard.
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B. confidentiality standard.
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As a Certified Management Accountant, Derek is bound by the standards of ethical conduct issued by the Institute of Management Accountants. According to the standards, Derek has a responsibility to: A. inform subordinates that they should protect confidential information. B. ensure that financial accounting records are maintained as per the governing guidelines. C. monitor the activities of subordinates to assure that confidentiality is maintained. D. inform subordinates that they should protect confidential information and monitor the activities of subordinates to assure that confidentiality is maintained.
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D. inform subordinates that they should protect confidential information and monitor the activities of subordinates to assure that confidentiality is maintained.
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As a Certified Management Accountant, Grace is bound by the standards of ethical conduct issued by the Institute of Management Accountants. If she accepts an expensive gift from a vendor trying to win a contract with her firm, which of the following standards will she violate? A. Integrity B. Confidentiality C. Competence D. Objectivity
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A. Integrity
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Which of the following is not a provision of the Sarbanes-Oxley Act of 2002? A. The chief executive officer and the chief financial officer are jointly responsible for establishment and enforcement of internal controls. B. Companies are required to report on the effectiveness of their internal controls. C. The company's external auditor is charged with the ultimate responsibility for the accuracy of the company's financial statements and accompanying footnotes. D. The company's external auditors are required to attest to the accuracy of the internal controls report.
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C. The company's external auditor is charged with the ultimate responsibility for the accuracy of the company's financial statements and accompanying footnotes.
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Which of the following practices is not considered an effective means of reengineering business systems? A. Identifying the best practices used by world-class competitors B. Improving the accuracy of cost allocations C. Increasing non-value added activities D. All of these are effective means of reengineering business systems.
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C. Increasing non-value added activities
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Levenworth Company incurs unnecessary costs each period because of the excess quantities of inventory maintained to meet unexpected customer demand. The costs of inventory financing, storage, supervision, and obsolescence could most likely be reduced by which of the following practices? A. Activity-based costing B. Just-in-time inventory C. Total quality management D. Benchmarking
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B. Just-in-time inventory
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During which of the following activities, value is considered to be added to a product or service takes place? A. Process time B. Move time C. Inspection time D. Rework time
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A. Process time
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Which of the following best represents a characteristic of managerial accounting? A. Information is historically based and reported annually. B. Information is based on estimates and is bounded by relevance and timeliness. C. Information is regulated by the Securities and Exchange Commission. D. Information is characterized by reliability and objectivity.
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B. Information is based on estimates and is bounded by relevance and timeliness.
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Which of the following statements concerning manufacturing costs is incorrect? A. All salaries incurred by the sales department are expensed as incurred. B. Direct labor costs are recorded initially in an inventory account. C. Depreciation on manufacturing equipment is a period cost. D. The cost of direct materials can be readily traced to products.
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C. Depreciation on manufacturing equipment is a period cost.
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The benefits of a just-in-time system would include all of the following except: A. increased warehousing costs. B. reduced inventory holding costs. C. improved customer satisfaction. D. decrease in the number of suppliers.
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A. increased warehousing costs.
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A systematic problem-solving philosophy that encourages front line workers to achieve zero defects is known as: A. just-in-time (JIT). B. total quality management (TQM). C. activity based management (ABM). D. None of these.
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B. total quality management (TQM).
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Which of the following items would be reported directly on the income statement as a period cost? A. Selling and administrative salaries B. Cost of lubricant for oiling machinery C. Wages paid to machine operators D. All of these.
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A. Selling and administrative salaries
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Wages paid to factory machine operators in producing the dog houses should be categorized as:
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A. a product cost and recorded in the inventory account