MULTIPLE CHOICE QUESTIONS OF

(MANAGEMENT ACCOUNTING)

1.

Managerial accounting information is generally prepared for

a)
b)
c)
d)

Shareholders
Creditors
Managers
Regulatory agencies

C is correct.
Management accounting basics Management accounting focuses mainly on the preparation of
reports for the internal users of financial information, i.e. managers are all levels of the entity.
2.

Managerial accounting information

a)
b)
c)
d)

Relates to the entity as a whole and is highly aggregated

Relates to sub-units of the entity and may be very detailed
Is prepared only once a year
is constrained by the requirements of generally accepted accounting principles

B is correct.
Management accounting basics Management accounting pertains to subunits of the entity and
may be very detailed.
3.

Which of the following is not an internal user of management information?

a)
b)
c)
d)

Creditor
Department manager
Controller
Treasurer

A is correct.
Management accounting basics Creditors are external to the entity.
4.

Managerial accounting does not encompass

a)
b)
c)
d)

Calculating product cost

Calculating earnings per share
Determining cost behavior
Profit planning

B is correct.
Management accounting basics Calculating earnings per share is a function for external users
of financial information.

Contributed By: Prof. Ashish Bhalla

5.

Management accounting is applicable to

a)
b)
c)
d)

Service entities
Manufacturing entities
Not-for-profit entities
All of these

D is correct.
Management accounting basics Management accounting applies to any business entity.
6.

Financial statements for external users can be described as

a)
b)
c)
d)

User-specific
General-purpose
Special-purpose
Management reports

B is correct.
Management accounting basics Financial statements prepared for external users are general
purpose financial reports.
7.

Management accounting reports can be described as

a)
b)
c)
d)

General-purpose
Macro-reports
Special-purpose
Classified financial statements

C is correct.
Management accounting basics Management accounting reports provides special purpose
information for a particular user for a specific reason.
8.

The reporting standard for external financial reports is

a)
b)
c)
d)

Industry-specific
Company-specific
Generally accepted accounting principles
Department-specific

C is correct.
Management accounting basics The reporting standard for external financial reports is
generally accepted accounting principles.

Contributed By: Prof. Ashish Bhalla

9.

Internal reports are generally

a)
b)
c)
d)

Aggregated
Detailed
Regulated
Unreliable

B is correct.
Management accounting basics Internal reports are generally very detailed.
10. Planning is a function that involves
a)
b)
c)
d)

Hiring the right people for a particular job

Coordinating the accounting information system
Setting goals and objectives for an entity
Analyzing financial statements

C is correct.
Management accounting basics Planning requires management to look ahead and to establish
objectives.
11. Which of the following is not a management function?
a)
b)
c)
d)

Demotivating
Planning
Controlling
Directing

A is correct.
Management accounting basics Management are concerned with directing and motivating, not
demotivating.
12. A manager who is establishing objectives is performing which management function?
a)
b)
c)
d)

Motivating
Directing
Planning
Constraining

C is correct.
Management accounting basics Planning involves looking ahead and establishing objectives.

Contributed By: Prof. Ashish Bhalla

13. The document of an organization that depicts authority relationships within the company is the
a)
b)
c)
d)

Chart of accounts
Ledger
Organization chart
Constitution

C is correct.
Management accounting basics An organizational chart depicts authority relationships within
a company.
14. Both direct materials and indirect materials are classified as
a)
b)
c)
d)

Raw materials
Manufacturing overhead
Merchandise inventory
Non-Current assets

A is correct.
Management cost concepts Both direct and indirect materials are included in raw materials.
15. The work of factory employees that can be physically associated with converting raw material into
finished goods is classified as
a)
b)
c)
d)

Manufacturing overhead
Indirect materials
Indirect labour
Direct labour

D is correct.
Management cost concepts The work of factory employees that can be physically and
economically traced to converting raw materials into finished goods is considered direct labour.
16. Which one of the following would not be classified as manufacturing overhead?
a)
b)
c)
d)

Indirect labour
Direct materials
Insurance on factory building
Indirect materials

B is correct.
Management cost concepts Direct materials are classified as direct materials, not
manufacturing overhead.

Contributed By: Prof. Ashish Bhalla

17. In manufacturing a product, prime costs are

a)
b)
c)
d)

Raw materials and manufacturing overhead

Indirect materials and manufacturing overhead
Indirect labour and manufacturing overhead
Direct materials and direct labour

D is correct.
Management cost concepts Direct materials and direct labour are often referred to as prime
costs because of their direct association with the manufacturing of the finished product.
18. A manufacturing process requires small amounts of glue. The glue used in the process is classified
as
a) A prime cost
b) An indirect material
c) A direct material
d) Miscellaneous expense
B is correct.
Management cost concepts The glue would be classified as an indirect material as the physical
association with the finished product is too small in terms of cost.
19. The wages of a maintenance worker in a manufacturing plant would be classified as
a)
b)
c)
d)

A prime cost
Direct labour
Indirect labour
Compliance costs

C is correct.
Management cost concepts These wages would be classified as indirect labour.
20. Which of the following is not a manufacturing cost category?
a)
b)
c)
d)

Cost of goods sold

Direct materials
Direct labour
Manufacturing overhead

A is correct.
Management cost concepts The three manufacturing categories are direct materials, direct
labour and manufacturing overhead.

Contributed By: Prof. Ashish Bhalla

21. Lubricants, used irregularly in a production process, are classified as

a)
b)
c)
d)

Miscellaneous expense
Direct materials
Indirect materials
Immaterial items

C is correct.
Management cost concepts Lubricants used in a production process are classified as overhead
because they do not physically become part of the finished product.

22. Which of the following is not another name for the term manufacturing overhead?
a)
b)
c)
d)

Factory overhead
Pervasive costs
Burden
Indirect manufacturing costs

B is correct.
Management cost concepts Terms such as factory overhead, indirect manufacturing costs and
burden as sometimes used instead of manufacturing overhead.
23. Because of automation, which component of product cost is declining?
a)
b)
c)
d)

Direct labour
Direct materials
Manufacturing overhead
Advertising

A is correct.
Management cost concepts Automation often replaces direct labour in the product cost.
24. The product cost that is most difficult to associate with a product is
a)
b)
c)
d)

Direct materials
Direct labour
Manufacturing overhead
Raw materials

C is correct.
Management cost concepts Manufacturing overhead is most difficult to associate with a
product because the costs are indirectly associated with the manufacture of the finished product.

Contributed By: Prof. Ashish Bhalla

25. Which one of the following costs would not be included in inventory?
a)
b)
c)
d)

Period costs
Prime costs
Conversion costs
Indirect labour costs

A is correct.
Management cost concepts Period costs are costs that are identified with a specific time period
rather than with a saleable product and therefore do not become part of inventory.
26. Sales commissions are classified as
a)
b)
c)
d)

Prime costs
Period costs
Product costs
Indirect labour

B is correct.
Management cost concepts Sales commissions are included in selling expenses and therefore
are classified as a period cost.
27. Product costs consist of
a)
b)
c)
d)

Conversion costs and unexpired expenses

Prime costs and manufacturing overhead
Selling and administrative expenses
Period costs

B is correct.
Management cost concepts Product costs include direct materials, direct labour (collectively
known as prime costs) and manufacturing overhead..
28. Product costs are also called
a)
b)
c)
d)

Direct cost
Prime cost
Inventoriable cost
Capitalisable cost

C is correct.
Manufacturing costs in financial statements Product costs are also called inventoriable costs
because they will eventually become part of finished goods inventory.

Contributed By: Prof. Ashish Bhalla