Deck 1: Cost Accounting: Information for Decision Making

Question 1

It is important that the manager assigned to lead a responsibility center be held accountable for its operations.

Answer 1

True

Question 2

The owner of a small retail business asks,"Why do I need cost accountants? My CPA produces financial statements,which are sufficient for me to discover my costs.Look at my Income Statement.I expect sales to increase by 10% next year,so I am planning on a 10% increase in profits.I don't need a cost accountant to tell me that."
$\begin{array}{c}\text {Income Statement for the Year}\\\text {Ending December 31}\\\begin{array}{|l|}\hline \text {Sales Revenue}\\\hline \text {Cost of Goods Sold}\\\hline \text {Gross Margin}\\\hline \text {Selling Costs}\\\hline \text {Administrative Costs}\\\hline \text {Profit betore Taxes}\\\hline \end{array}\begin{array}{l|}\hline \$ 457,234 \\\hline\underline{296,348}\\\hline160,886\\\hline (76,234) \\\hline\underline{(62,350) }\\\hline\underline{\$ 22,302} \\\hline\end{array}\end{array}$
Use your knowledge of the concept of differential costs and explain why a cost accountant would question the conclusion that a 10% increase in sales would yield a 10% increase in profit.

Answer 2

The primary purpose of this exercise is to challenge students to think beyond the material presented in the chapter and to write/justify their responses. Answers will vary in depth and breadth, but should mention the change in costs may not be linear, some costs are certainly fixed and others are variable, and the above changes are based on estimates of changes in the cost drivers.

Question 3

Cost accounting information is commonly used in developing financial accounting information.

Answer 3

True

Question 4

Managers are usually responsible for the revenues needed to achieve the targets set during the budgeting process,but not the resources consumed to achieve those targets.

Question 5

Budgeting is primarily used to determine year-end bonuses based on managerial and organizational performance.

Question 6

The value chain is comprised of the activities that take place only during the production process.

Question 7

It is more important for financial accounting information to be comparable between firms than to be useful for managerial decision-making.

Question 8

Financial accounting information is designed for decision-makers who are directly involved in the daily management of the firm.

Question 9

In general,if activities that do not add value to the company can be eliminated,then costs associated with them will also be eliminated.

Question 10

A cost driver is a factor that causes costs.

Question 11

The value chain comprises activities from research and development through the production process,but does not include activities related to the distribution of products or services.

Question 12

Accounting systems are important because they are a primary source of information for managers.

Question 13

Financial accounting information is sufficient for making operational decisions.

Question 14

A responsibility center can be a epartment,division,or segment,butnot a subsidiary of the parent company.

Question 15

Cost information itself is a product with its own customers.

Question 16

If a poor facility layout exists and work-in-process inventory must be moved during the production process,the company is likely to be performing value-added activities.

Question 17

A cost can be considered a differential cost for one particular course of action but not for another course of action.

Question 18

Under the value chain concept,value-added activities are those that firms perform and that customers perceive as adding utility to the goods they purchase.

Question 19

Cost accounting information developed for managers to use in making decisions must comply with generally accepted accounting principles (GAAP)and international financial reporting standards (IFRS).

Question 20

Administrative functions are notincluded as part of the value chain because they are implicitly included in every business function.

Question 21

The boundary between what is cost accounting and what belongs in another discipline is often blurred.

Question 22

Which of the following activities would not be considered a value-added activity?

A) Production
B) Marketing
C) Accounting
D) Distribution

Question 23

(CMA adapted)Cost drivers are

A) activities that cause costs to increase as the activity increases.
B) accounting techniques and practices used to control costs.
C) accounting reimbursements used to evaluate whether performance is proceeding according to plan.
D) a mechanical basis,such as machine hours,computer time,or factory square footage,used to assign costs to activities.

Question 24

Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her ethical responsibilities.

Question 25

The set of activities that transforms raw resources into the goods and services end users purchase and consume is called the:

A) value chain.
B) supply chain.
C) demand chain.
D) cost-benefit analysis.

Question 26

Managers do not make decisions about future events based on:

A) Perfect information.
B) Estimated information.
C) Actual information.
D) Financial information.

Question 27

(CMA adapted)A costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of those activities is:

A) full-absorption costing.
B) activity-based costing.
C) variable costing.
D) benchmarking.

Question 28

Managers face ethical situations on a daily basis,while accountants face them infrequently.

Question 29

Lean manufacturing techniques are used only in the production process.

Question 30

The field of accounting that focuses on the criterion of relevant information rather than comparability of firms is:

A) Cost accounting
B) Financial accounting
C) Responsibility accounting
D) International accounting

Question 31

Which of the following is a nonvalue-added activity?

A) Product design
B) Customer service
C) Research and development
D) Rework of defective items

Question 32

Typical ERP systems integrate information systems that link production,purchasing,human resources,and finance into a single comprehensive information system.

Question 33

Cost accounting information can be used by managers to defraud customers,creditors,and owners.

Question 34

The field of accounting that reports according to generally accepted accounting principles (GAAP)is called:

A) cost accounting.
B) financial accounting.
C) managerial accounting.
D) responsibility accounting.

Question 35

Which of the following statements is false?

A) In essence,the value chain and the supply chain are similar;each creates something for which the customer is willing to pay.
B) Financial accounting information is important because it is sufficient to provide all the information for operational decisions commonly made by managers.
C) The supply or distribution chain is a linked set of organizations that exchange goods and services in combination to provide a final product or service to the customer.
D) Eliminating nonvalue-added activities always reduces costs without affecting the value of the product to customers.

Question 36

Ethical behavior depends more on a firm's code of conduct than the individual's personal beliefs.

Question 37

Activity-based costing (ABC)is a management tool that focuses on the continuous improvement of all dimensions of a business.

Question 38

During 2016,the Beach Restaurant had sales revenues and food costs of $800,000 and $600,000,respectively.During 2017,Beach plans to introduce a new menu item that is expected to increase sales revenues by $100,000 and food costs by $40,000.Assuming no changes are expected for the other food items,operating profits for 2017 are expected to increase by

A) $260,000.
B) $100,000.
C) $60,000.
D) $40,000.

Question 39

Benchmarking is a continuous process of measuring a company's products,services,or activities against competitors' performance.

Question 40

(CMA adapted)The process of creating a financial plan of the revenues and resources needed to carry out activities and meet financial goals is referred to as:

A) budgeting.
B) benchmarking.
C) cost-benefit analysis.
D) value-added analysis.

Question 41

Systems that allow firms to target profitable customers by assessing customer revenue and costs are called

A) customer relationship management systems.
B) distribution chains.
C) enterprise resource planning systems.
D) cost of quality systems.

Question 42

Systems that identify the costs of producing defective units as well as low-quality items that lose sales are called

A) customer relationship management systems.
B) distribution chains.
C) enterprise resource planning systems.
D) cost of quality systems.

Question 43

Continual process of measuring a company's own products,services or activities against competitors' performance is

A) performance measure.
B) benchmarking.
C) budgeting.
D) responsibility center.

Question 44

A general term for a metric that indicates how well an individual, business, product, or firm is working is called

A) a performance measure.
B) benchmarking.
C) a budget.
D) a responsibility center.

Question 45

In 2016,the TransUnion Company had consulting revenues of $1,000,000 while costs were $750,000.In 2017,TransUnion will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in costs.Assuming no changes are expected for the other services,operating profits are expected to increase between 2016 and 2017 by:

A) $250,000.
B) $150,000.
C) $90,000.
D) $60,000.

Question 46

A management method by which the organization seeks to excel on all dimensions of quality is called

A) customer relationship management.
B) a just-in-time method.
C) total quality management.
D) cost of quality.

Question 47

The just-in-time (JIT)method of production focuses on

A) increasing sales revenue.
B) reducing inventories.
C) increasing customer service.
D) reducing operating expenses.

Question 48

According to the Institute of Management Accountants (IMA),the final step in resolving an ethical dilemma is to

A) consult your own attorney as to legal obligations and rights concerning the ethical conflict.
B) clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor,an appropriate and confidential ethics hotline,or other impartial advisor.
C) consult with the local police.
D) discuss the situation with an immediate supervisor.

Question 49

Which of the following is not one of the basic standards of the Institute of Management Accountants (IMA)Code of Ethics?

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

Question 50

Having one or more of the firms' activities performed by another firm or individual in the supply or distribution chain is called

A) lean accounting.
B) responsibility centers.
C) activity-based costing.
D) outsourcing.

Question 51

Information technology that links the various processes of the company into a single comprehensive information system is called

A) a customer relationship management system.
B) a distribution chain.
C) a cost of quality system.
D) an enterprise resource planning system.

Question 52

In 2016,the Merkel Company had revenues of $2,000,000 and costs of $1,500,000.During 2017,Merkel will be introducing a new product line that is expected to increase sales revenue by $200,000 and costs by $160,000.Assuming no changes are expected for the other products,the operating profits are expected to increase by

A) $540,000.
B) $200,000.
C) $160,000.
D) $40,000.

Question 53

The cost accounting system that minimizes wasteful or unnecessary transaction processes is

A) performance measure.
B) benchmarking.
C) budgeting.
D) lean accounting.

Question 54

(CIA adapted)The primary reason for adopting total quality management (TQM)is to achieve

A) reduced delivery time.
B) reduced delivery charges.
C) greater customer satisfaction.
D) greater employee participation.

Question 55

Moving of inventory is an example of a(n):

A) cost-benefit analysis.
B) value-added activity.
C) activity-based cost.
D) nonvalue-added activity.

Question 56

Which of the following is not one of the overarching ethical principles of the Institute of Management Accountants (IMA)Code of Ethics?

A) Competence
B) Responsibility
C) Honesty
D) Objectivity

Question 57

Which of the following is nota key financial manager in an organization?

A) Chief financial officer
B) Treasurer
C) External auditor
D) Controller

Question 58

The costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of activities is called

A) lean accounting.
B) responsibility centers.
C) activity-based costing.
D) budgeting.

Question 59

According to the Institute of Management Accountants (IMA),the first step in resolving an ethical dilemma is to

A) consult your own attorney as to legal obligations and rights concerning the ethical conflict.
B) call the IMA's ethics hotline.
C) clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor or other impartial advisor.
D) discuss the situation with an immediate supervisor,except when it appears that the supervisor is involved,or with the next level supervisor,if involvement of the immediate supervisor is suspecteD.
It is best to discuss the situation with the immediate supervisor before bringing in outsiders.

Question 60

Which of the following is notnormally considered part of the value chain?

A) Research and development
B) Purchasing
C) Administration
D) Distribution

Question 61

Which of the following provides much of the information necessary for the coordination of the value chain?

A) the distribution chain.
B) the financial accounting system.
C) the cost accounting system.
D) the supply chain.

Question 62

Financial accounting provides a historical perspective,while cost accounting emphasizes

A) reporting to stockholders.
B) a current perspective.
C) the future.
D) past transactions.

Question 63

Financial accounting

A) focuses on the future.
B) must comply with GAAP (generally accepted accounting principles).
C) reports include detailed information on the various operating segments of the business.
D) is prepared for the use of management.

Question 64

The concept of considering both the costs and benefits of a proposal is known as:

A) Cost-benefit analysis
B) Performance measurement
C) Nonvalue-added analysis
D) Preparation of financial statements

Question 65

Which of the following activities would not be included in the value chain of a manufacturing company?

A) Research and Development
B) Customer Service
C) Design
D) Accounting

Question 66

A firm's replies to customers' questions via email would be an example of which element of the value chain?

A) Customer Service
B) Marketing
C) Design
D) Supply

Question 67

Which of the following statements concerning the value chain is false?

A) The goal of a value chain is to find areas where a company can either add value or reduce cost.
B) The value chain focuses on the entire production process,as well as the sale of the product and service after the sale.
C) If a company cannot compete in a specific area of the value chain,it might outsource that portion of the value chain to another entity which can perform it better.
D) Successful firms are ones that operate within the entire value chain,thereby overseeing every aspect of the value chain for the customer.

Question 68

Place the four components in the order they appear along the value chain: A = Customer service;B = Design;C = Distribution;and D = Production.

A) ABDC
B) ACDB
C) BDCA
D) BADC

Question 69

Which part of the value chain is outside the firm?

A) The Design component
B) The Research and Development component
C) The Production activity
D) The Distribution chain

Question 70

Which of the following is the best reason why cost accounting information does not need to be comparable to similar information in other organizations?

A) Because it is only used by investors and creditors.
B) Because no publicly traded companies use cost accounting.
C) Because IFRS and cost accounting are converging which eliminates the need for comparability.
D) Because managers that use this information are making decisions only for their organization.

Question 71

The individual who would most likely use only financial accounting information in making decisions is a

A) vice president of marketing.
B) factory supervisor.
C) department manager.
D) company stockholder.

Question 72

Advertising costs would be associated with which of the following value chain components?

A) Production.
B) Research and Development.
C) Distribution.
D) Marketing and sales.

Question 73

The delivery of products or services to customers is an example of which element in the value chain?

A) Production
B) Design
C) Marketing
D) Distribution

Question 74

Which of the following could be considered part of the value chain in a service firm?

A) Inspection of product
B) Advertising
C) Raw materials
D) Distribution

Question 75

The financial accounting system is the primary source of information for

A) decision making on the factory floor.
B) improving the performance level of customer service.
C) planning the budget for next year.
D) preparing the income statement for stockholders.

Question 76

Managers evaluate value-added activities to determine how they contribute to the final product's

A) service only.
B) quality only.
C) cost only.
D) service,quality,and cost.

Question 77

Costs that differ among or between two or more alternative courses of action are

A) differential costs.
B) cost-benefit analysis.
C) activity-based costs.
D) cost drivers.

Question 78

At the middle management level,where managers supervise work and make operating decisions,cost information highlights

A) the company's overall performance.
B) comparability across firms.
C) financial position and income according to accounting rules.
D) some aspect of operations that is different from expectations.

Question 79

Which of the following statements regarding the value chain is true?

A) Service firms benefit from the value chain more than do manufacturing firms.
B) Value chain components do not overlap.
C) Value is not created until after the research and development stage.
D) Administrative functions are not included as part of the value chain.

Question 80

Managerial decisions using cost accounting are more appropriate for which types of costs?

A) future costs.
B) historical costs.
C) current costs.
D) externally reported costs.