Chapter 1

Managerial Accounting and the Business Environment

True/False

1. Decision making is a distinct management activity that should be separated from planning,
F directing and motivating, and controlling activities.
Medium

2. When carrying out their directing and motivating activities, managers mobilize the
T organization's human and other resources so that the organization's plans are carried out.
Easy

3. When carrying out planning activities, managers rely on feedback to ensure that the plan is
F actually carried out and is appropriately modified as circumstances change.
Medium

4. When carrying out their controlling activities, managers select a course of action and specify
F how the action will be implemented.
Medium

5. The controller occupies a staff position in an organization.

T
Medium

6. Persons occupying staff positions provide support and assistance to other parts of the
T organization.
Easy

7. Informal relationships and channels of communication often develop that do not appear on the
T organization chart.
Easy

8. Managerial accounting places less emphasis on precision and more emphasis on flexibility and
T relevance of data than does financial accounting.
Medium

9. Managerial accounting is not governed by generally accepted accounting principles (GAAP).

T
Easy

10. Just-in-time is a production system in which units are produced and materials are purchased
T only as needed to meet actual customer demand.
Easy

11. In a just-in-time system, the flow of goods is controlled by a push approach in which partially
F completed units are "pushed" forward to the next workstation as soon as work is completed at
Medium the prior workstation.

12. There is a greater danger of undermining employee morale with Process Reengineering than

ManagerialAccounting,9/e 1
T with Total Quality Management
Medium

13. Total Quality Management involves a focus on serving the customer and systematic problem-
T solving using teams made up of front-line workers.
Easy

14. The Plan-Do-Act-Check Cycle involves applying the scientific method to problem-solving.
T
Easy

15. In Process Reengineering, a business process is diagrammed in detail, questioned, and then
T completely redesigned in order to eliminate unnecessary steps, reduce opportunities for errors,
Easy and reduce costs.

16. In JIT purchasing, as many suppliers as possible are used so as to avoid relying too much on a
F few suppliers.
Easy

17. Efforts designed to increase the rate of output should generally be applied to non-constraint
F workstations.
Medium

18. The Standards of Ethical Conduct promulgated by the Institute of Management Accountants
T specifically states, among other things, that management accountants have a responsibility to
Easy disclose fully all relevant information that could be reasonably be expected to influence an
intended user's understanding of the reports, comments and recommendations presented.

19. The Standards of Ethical Conduct promulgated by the Institute of Management Accountants
F specifically states, among other things, that management accountants have a responsibility to
Medium inform responsible journalists of any wrongdoing they uncover in the organization.

20 Work in process inventories consist of units that are only partially complete and will require
T further work before they are ready for sale to a customer.
Easy

ManagerialAccounting,9/e 2
Multiple Choice

21. Obtaining feedback is generally identified most directly with which of the functions of
C management?
Medium a. Planning
b. Directing and motivating
c. Controlling
d. Decision making

22. The plans of management are expressed formally in:

D a. the annual report to shareholders.
Easy b. Form 10-Q submitted to the Securities and Exchange Commission (SEC).
c. performance reports.
d. budgets.

23. A staff position:

B a. relates directly to the carrying out of the basic objectives of the organization.
Easy b. is supportive in nature, providing service and assistance to other parts of the organization.
c. is superior in authority to a line position.
d. none of these.

24. Which of the following persons would occupy a line position in a department store?
B I. Sales manager
Medium II. Manager, furniture department
III. Manager, advertising department
IV. Manager, personnel department

a. Only I
b. Only I and II
c. Only I, II, III
d. I, II, III, IV

25. The controller occupies:

B a. a line position.
Easy b. a staff position.
c. neither a line nor a staff position, since the accounting department must be
independent.
d. both a line and a staff position.

26. Managerial accounting:

A a. has its primary emphasis on the future.
Easy b. is required by regulatory bodies such as the SEC.
c. focuses on the organization as a whole, rather than on the organization's segments.
d. Responses a, b, and c are all correct.

ManagerialAccounting,9/e 3
27. Which of the following statements are true regarding financial and managerial accounting?
D I. Both are mandatory.
Medium 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

28. Managerial accounting places considerable weight on:

D a. generally accepted accounting principles.
Easy b. the financial history of the entity.
c. ensuring that all transactions are properly recorded.
d. detailed segment reports about departments, products, and customers.

29. For internal uses, managers are more concerned with receiving information that is:
C a. completely objective and verifiable.
Easy b. completely accurate and precise.
c. relevant, flexible, and immediately available.
d. relevant, completely accurate, and precise.

30. The benefits of a successful Just-In-Time system include all of the following except:
B a. funds tied up in inventories are released for use elsewhere.
Medium b. inventory buffers are increased.
c. throughput time is reduced.
d. defect rates are decreased.

31. A key concept of the JIT inventory system is:

D a. the raw materials, work in process, and finished goods inventories of manufacturing
Medium companies act as buffers so that operations can proceed smoothly even if suppliers are
late with deliveries or a department is unable to operate for a brief period due to
breakdowns or other reasons.
b. the use of many suppliers so as to ensure rapid delivery of materials for production.
c. the maintenance of a stock of raw materials so that defective materials can be replaced
quickly so as to maintain a high rate of productivity.
d. inventories are costly to carry and can be kept to minimum levels or eliminated completely
with careful planning.

ManagerialAccounting,9/e 4
32. The just in time (JIT) concept applies to which of the following:
C
Easy I. The acquisition of raw materials.
II. The assembly of manufactured parts in products.
III. The shipment of finished products to customers.

a. I.
b. I, III.
c. I, II, III.
d. II, III.

33. The flow of goods through a JIT system is based on:

D a. a workstation efficiently completing its processing of a batch of units so that the units
Medium can proceed forward to the next workstation before the next workstation is ready to
receive them.
b. processing goods in large batch sizes rather than less economical small batches.
c. maintaining a stockpile of raw materials in anticipation of materials shortages.
d. producing to meet customer demand with no buildup of inventory at any point in the
production process.

34. A successful JIT system is based upon which of the following concepts?
D a. The company must rely upon a large number of suppliers to ensure frequent deliveries of
Medium small lots.
b. The company should always choose those suppliers offering the lowest prices.
c. The company should avoid long-term contracts with suppliers so as to exert pressure
on suppliers to make prompt and frequent deliveries.
d. A small number of suppliers make frequent deliveries of specific quantities thus avoiding
the buildup of large inventories of materials on hand.

35. The plant layout under the JIT concept emphasizes:

B a. a functional approach in which machines performing the same function are grouped
Medium together.
b. a product approach in which all machines needed in the production of a particular
product are grouped together.
c. a facilities approach in which all machines of a similar nature are located in one plant
building.
d. a concentrated approach in which the processing of certain subassemblies is performed by
a small number of independent machine shops under contract to the manufacturing
company.

ManagerialAccounting,9/e 5
36. The key point of a focused factory is that:
C a. the flow line of a product must be straight.
Medium b. the flow line of product must be U-shaped.
c. all machines in a product flow line are tightly grouped together so that partially-
completed units are not shifted from place to place all over the factory.
d. products should be moved from one group of machines to another even if this involves
movements across the plant or to another building so as to exploit fully the benefits of
worker specialization.

37. A company adopting the JIT approach would:

B a. produce large batches of products so as to recoup the costs associated with setups.
Medium b. attempt to reduce setup time so as to economically produce in smaller batches.
c. adapt a functional plant layout so as to enhance production flexibility.
d. require workers to become highly specialized in operating a single machine.

38. The Plan-Do-Check-Act Cycle includes all of the following except:

B a. studying the current process.
Medium b. determining which manager is responsible for existing problems.
c. implementing a plan on a small scale if possible.
d. analyzing data to identify possible causes for any problems.

39. In Total Quality Management, problems are solved by teams consisting of:
C a. top managers.
Easy b. outside consultants and quality control engineers.
c. front-line workers.
d. customers and sales representatives.

40. 40. A danger in Process Reengineering is that:

C a. non-value-added activities may be eliminated.
Medium b. some resources may no longer be required.
c. employee morale may suffer.
d. all of the above.

ManagerialAccounting,9/e 6
41. The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial
C Management contains a policy regarding confidentiality that requires that management
Hard accountants:
a. refrain from disclosing confidential information acquired in the course of their work except
when authorized by management.
b. refrain from disclosing confidential information acquired in the course of their work in all
situations.
c. refrain from disclosing confidential information acquired in the course of their work except
when authorized by management, unless legally obligated to do so.
d. refrain from disclosing confidential information acquired in the course of their work in all
cases since the law requires them to do so.

42. The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial
A Management states that significant ethical issues should be discussed first with an immediate
Medium superior unless the superior is involved. If satisfactory resolution cannot be achieved when the
problem is initially presented, then the issues should be:
a. submitted to the next higher managerial level.
b. submitted to the chief executive officer of the firm.
c. submitted to the audit committee, executive committee, board of directors, or owners.
d. submitted to outside legal counsel.

43. A traditional functional factory layout results in:

B a. minimal material handling.
Medium b. large work in process inventories.
c. minimal throughput time.
d. low storage costs.

44. An example of a performance report would be:

D a. an income statement reporting actual results for the past month.
Medium b. an income statement showing the amounts budgeted for the past month.
c. a balance sheet showing the actual financial position at the end of the past month.
d. a production report showing budgeted and actual production for the past month.

ManagerialAccounting,9/e 7
Essay

45. You have recently been hired by a manufacturing company. Two days ago, you met with the
Medium top management of the your company to discuss future strategies for the firm. During the
meeting the president of the company expressed concern about the profitability of the company
and the company's ability to compete effectively in the future. You responded to the president's
concerns by mentioning some articles you had read in professional accounting journals
regarding JIT. The president responded to your comments by saying that although the JIT
concept sounded interesting, no one in the company was knowledgeable about JIT. The
president then requested that you prepare a brief summary of JIT for the next strategic
planning meeting.

Required:
a. List the five key elements involved in the successful operation of a JIT system.
b. List at least five benefits cited as coming from a JIT system.

Answer:
a. The five key elements involved in the successful operation
of JIT system are:
1. A company must learn to rely on a few suppliers who are willing to
make frequent deliveries in small lots of defect-free material.
2. A company must improve the manufacturing flow lines in its
plants by physically locating together all of the machines needed in the
production of a particular product.
3. A company must reduce setup times by creating flow lines that are
dedicated to a single product so that production occurs in smaller batches
resulting in reduced levels of work in process and finished goods inventories.
4. A company must develop a system of total quality control over its part
and materials, such quality being monitored by both suppliers and employees so as to
avoid interruptions in production.
5. A company must develop a flexible work force of multi-
skilled workers capable of operating the various machines in the
manufacturing flow lines as well as performing minor repairs and maintenance
work when no demands are made by the next work station.

ManagerialAccounting,9/e 8
 b. A JIT system should produce the following benefits:
1. Worker productivity is increased through teams working in a cellular
plant layout organized in product flow lines.
2. Setup time is decreased, resulting in smaller batch sizes and smoother
flow of goods between workstations.
3. Total production time is decreased, resulting in greater output and quicker
response to customer needs.
4. Waste is reduced as a result of implementation of a Total Quality
Control program.
5. Inventories of all types are reduced through better control by
suppliers, less wait time between work stations, smaller production
runs, and the production of goods to customer orders.
6. Investment funds previously tied up in inventories are released for use
elsewhere in the company.
7. Usable space in the plant is increased as areas
previously used to store inventory are made available for other, more
productive uses.

ManagerialAccounting,9/e 9