Deck 10: An Introduction to Management Accounting

Question 1

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

Answer 1

D

Question 2

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

Answer 2

D

Question 3

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.

Answer 3

C

Question 4

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.

Question 5

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.

Question 6

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.

Question 7

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.

Question 8

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 are correct.

Question 9

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.

Question 10

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.

Question 11

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.

Question 12

During its first year of operations, Connor Company paid $50,000 for direct materials and $36,000 in wages for production workers. Lease payments and utilities on the production facilities amounted to $14,000. General, selling, and administrative expenses were $16,000. The company produced 5,000 units and sold 4,000 units for $30.00 a unit. The average cost to produce one unit is which of the following amounts?

A) $20.00
B) $16.00
C) $18.40
D) $25.00

Question 13

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.

Question 14

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.

Question 15

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

Question 16

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.

Question 17

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

Question 18

During its first year of operations, Forrest Company paid $30,000 for direct materials and $50,000 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $15,000. General, selling, and administrative expenses were $20,000. The average cost to produce one unit was $2.50. How many units were produced during the period?

A) 40,000
B) 46,000
C) 38,000
D) None of these.

Question 19

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

Question 20

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.

Question 21

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.

Question 22

Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,000 units of Product A requiring a total of 1,600 labor hours and 2,500 units of Product B requiring a total of 400 labor hours. What allocation rate should be used if the company incurs overhead costs of $20,000?

A) $10 per labor hour
B) $2.67 per unit
C) $12.50 per labor hour for Product A and $50 per labor hour for Product B
D) None of these.

Question 23

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.
What is Silverman's cost of goods sold for the year?

A) $50,000
B) $24,600
C) $30,000
D) $41,000

Question 24

Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 3,000 units of Product A requiring a total of 100 machine hours and 2,000 units of Product B requiring a total of 25 machine hours. What allocation rate should be used if the company incurs overhead costs of $10,000?

A) $2 per unit
B) $2 per machine hour
C) $80 per unit
D) $80 per machine hour

Question 25

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.

Question 26

Which of the following is not classified as manufacturing overhead?

A) Product delivery costs
B) Supervisory labor
C) Factory insurance
D) Production supplies

Question 27

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

Question 28

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.

Question 29

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.

Question 30

The following information relates to Marshall Manufacturing's 2013 accounting period: $\begin{array}{lr}\text { Raw materials used } & \$ 34,000 \\ \text { Direct labor wages } & 66,000 \\\text { Sales salaries and commissions } & 50,000 \\\text { Depreciation on production equipment } & 6,000 \\ \text { Rent on manufacturing facilities } & 4,000 \\ \text { Administrative supplies and utilities } & 10,000 \\\text { Sales revenue } & 210,000 \\ \text { Units produced } & 10,000 \\ \text { Units sold } & 10,000\end{array}$ Based on this information, what is the company's net income for 2013?

A) $40,000
B) $70,000
C) $30,000
D) $42,000

Question 31

The following information relates to Minimart's 2012 accounting period: $\begin{array}{|l|r|}\hline \text { Raw materials used } & \$ 17,000 \\\hline \text { Direct labor wages and salaries } & 33,000 \\\hline \text { Sales salaries } & 25,000 \\\hline \text { Depreciation on manufacturing equipment } & 3,000 \\\hline \text { Rent on manufacturing facilities } & 4,000 \\\hline \text { Administrative supplies and utilities } & 5,000 \\\hline \text { Sales revenue } & 105,000 \\\hline \text { Units of products produced } & 4,000 \\\hline \text { Units of products sold } & 4,000 \\\hline\end{array}$ Based on this information, Minimart's total manufacturing costs for 2012 equal:

A) $75,000
B) $87,000
C) $57,000
D) $50,000

Question 32

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.
What is the amount of gross margin for the first year?

A) $15,000
B) $24,000
C) $20,000
D) $45,000

Question 33

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.

Question 34

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.

Question 35

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.

Question 36

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.
What is the amount of finished goods inventory on the balance sheet at year-end?

A) $10,000
B) $20,000
C) $4,000
D) $15,000

Question 37

All of the following are downstream costs except:

A) packaging costs
B) advertising
C) research and development
D) sales commissions

Question 38

The following information relates to Cruz Manufacturing for 2013: $$\begin{array} { l c r } \text { Raw materials used } & \$ & 20,000 \\\text { Direet hbor wages } & & 60,000 \\\text { Sales salaries and commissions } & & 50,000 \\\text { Depreciation on producticn equipment } & & 4,000 \\\text { Rent on manufacturing facilities } & & 30,000 \\\text { Packaging and shipping supplies } & & 6,000 \\\text { Sales revenue } & & 190,000 \\\text { Unis produced and sold } & & 10,000 \\\text { Selling price per unit } & \$ & 20.00\end{array}$$ Based on this information, what is the company's cost of goods sold for 2013?

A) $86,000
B) $120,000
C) $114,000
D) $170,000

Question 39

The following information relates to Minimart's 2012 accounting period: $\begin{array}{|l|r|}\hline \text { Raw materials used } & \$ 17,000 \\\hline \text { Direct labor wages and salaries } & 33,000 \\\hline \text { Sales salaries } & 25,000 \\\hline \text { Depreciation on manufacturing equipment } & 3,000 \\\hline \text { Rent on manufacturing facilities } & 4,000 \\\hline \text { Administrative supplies and utilities } & 5,000 \\\hline \text { Sales revenue } & 105,000 \\\hline \text { Units of products produced } & 4,000 \\\hline \text { Units of products sold } & 4,000 \\\hline\end{array}$ Minimart's work in process inventory at the beginning of 2012 was $12,000, and work in process inventory at the end of 2012 was $10,000. Minimart's cost of goods manufactured in 2012 equal:

A) $77,000
B) $89,000
C) $59,000
D) $52,000

Question 40

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.
What was Silverman's net income for the first year in operation?

A) $7,000
B) $12,000
C) $28,000
D) $37,000

Question 41

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.

Question 42

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

Question 43

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

Question 44

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.

Question 45

Steuben Company produces dog houses. During 2013, Steuben Company incurred the following costs: $\begin{array}{lr}\text { Rent on manufacturing facility } & \$ 250,000 \\ \text { Office manager's salary } & 150,000 \\ \text { Wages of factory machine operators } & 110,000 \\\text { Depreciation on manufacturing equipment } & 50,000 \\\text { Insurance and taxes on selling and administrative offices } & 30,000 \\ \text { Direct materials purchased and used } & 170,000\end{array}$ Wages paid to factory machine operators in producing the dog houses should be categorized as:

A) a product cost and recorded in the inventory account
B) a period cost and recorded on the income statement
C) a product cost and recorded on the income statement
D) a period cost and recorded in the inventory account

Question 46

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

Question 47

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

Question 48

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.

Question 49

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.

Question 50

Steuben Company produces dog houses. During 2013, Steuben Company incurred the following costs: $\begin{array}{lr}\text { Rent on manufacturing facility } & \$ 250,000 \\ \text { Office manager's salary } & 150,000 \\ \text { Wages of factory machine operators } & 110,000 \\\text { Depreciation on manufacturing equipment } & 50,000 \\\text { Insurance and taxes on selling and administrative offices } & 30,000 \\ \text { Direct materials purchased and used } & 170,000\end{array}$ Based on the above information, the amount of period costs shown on Steuben's 12/31/2013 income statement is:

A) $430,000
B) $150,000
C) $30,000
D) $180,000

Question 51

Costs associated with holding inventory often include:

A) theft, damage, and obsolescence.
B) financing.
C) warehouse space.
D) supervision.
E) All of these.

Question 52

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

Question 53

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.

Question 54

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

Question 55

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.

Question 56

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.

Question 57

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.

Question 58

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.

Question 59

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.

Question 60

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.

Question 61

Randall Company manufactures chocolate bars. The following were among Randall's 2013 manufacturing costs: Wages
Machine operators $\quad \$ 300,000$
Selling and administrative personnel $\quad \$ 75,000$

Materials used
Lubricant for oiling machinery $\quad \$ 25,000$
Cocoa, sugar, and other raw materials $\quad \$ 225.000$
Packaging materials $\quad \quad \quad \$ 190,000$ Randall's 2013 direct materials amounted to:

A) $25,000
B) $225,000
C) $250,000
D) $475,000

Question 62

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.

Question 63

Senior executives focus on financial data when comparing the performance of their companies to that of competitors.

Question 64

Steuben Company produces dog houses. During 2013, Steuben Company incurred the following costs: $\begin{array}{lr}\text { Rent on manufacturing facility } & \$ 250,000 \\ \text { Office manager's salary } & 150,000 \\ \text { Wages of factory machine operators } & 110,000 \\\text { Depreciation on manufacturing equipment } & 50,000 \\\text { Insurance and taxes on selling and administrative offices } & 30,000 \\ \text { Direct materials purchased and used } & 170,000\end{array}$ Based on the above information, which of the following would not be treated as a product cost:

A) office manager's salary
B) rent expense incurred on manufacturing facility
C) depreciation on manufacturing equipment
D) salaries of factory machine operators

Question 65

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.

Question 66

Product costs are immediately recorded in expense accounts when the products are manufactured.

Question 67

Managerial accounting is designed to satisfy needs of external users including creditors, investors, and governmental agencies.

Question 68

Managerial accounting focuses primarily on the performance of the company as a whole.

Question 69

The biggest challenge in computing the total cost per unit of a product is determining the amount of overhead cost that should be assigned to each unit.

Question 70

Period costs are initially recorded in asset accounts and are later expensed in the period when the related units are sold.

Question 71

The Sarbanes Oxley Act of 2002:

A) prohibits CPA's from becoming managerial accountants.
B) created Generally Accepted Accounting principles (GAAP).
C) requires the CEO and CFO to defer responsibility for internal controls to external auditors.
D) requires management to establish a whistleblower policy.

Question 72

Most internal users of accounting information need primarily global information that reflects the performance of the company as a whole.

Question 73

A company that incurred $1,000 in production costs reported cost of goods sold of $800 and selling costs of $100. Its ending finished goods inventory was $300.

Question 74

Randall Company manufactures chocolate bars. The following were among Randall's 2013 manufacturing costs: Wages
Machine operators $\quad \$ 300,000$
Selling and administrative personnel $\quad \$ 75,000$

Materials used
Lubricant for oiling machinery $\quad \$ 25,000$
Cocoa, sugar, and other raw materials $\quad \$ 225.000$
Packaging materials $\quad \quad \quad \$ 190,000$ Randall's 2013 direct labor costs amounted to:

A) $400,000
B) $300,000
C) $175,000
D) $375,000

Question 75

Distinguishing between product and period costs is sometimes guided by the value-added principle.

Question 76

Costs that are not classified as product costs are normally expensed in the period incurred.

Question 77

Average costs are used for internal decision-making, but actual costs are required for calculating cost of goods sold.

Question 78

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.

Question 79

Managerial accounting systems consider economic and non-financial data as well as financial statement data.

Question 80

Product costs include materials, labor, and selling and administrative costs.