Basic Concepts

MODULE 1 7. Which of the following statements is true when comparing managerial accounting to financial
BASIC CONCEPTS IN MANAGEMENT ACCOUNTING accounting?
A. Managerial accounting places more emphasis on precision than financial accounting.
1. The major functions of management is (are): B. Both are highly dependent on timely information.
A. strategic management and long-range planning. C. Both rely on the same accounting information system.
B. planning and decision making. D. Managerial accounting is concerned with external decision makers. Bobadilla
C. identifying threats and opportunities for the firm.
D. all of the above. Bobadilla 8. Which of the following is true of managerial accounting rather than financial accounting?
A. The outputs of this accounting system are the primary financial statements.
2. The process of identifying, measuring, analyzing, interpreting, and communicating information B. The methods of this accounting system are established by an overseeing board.
in pursuit of an organization's goals is called C. The accounting methods are standardized to allow comparisons among companies.
A. managerial accounting C. management D. The accounting system would be unique to each company. Bobadilla
B. financial accounting D. promotional activities Bobadilla
9. Management accounting’s role in the control processes is to provide
3. The primary objective of management accounting is A. managers with information that can be used to determine customer satisfaction levels.
A. to provide stockholders and potential investors with useful information for decision B. investors and creditors information on the financial stability of the company.
making. C. managers with relevant information to compare with expectations.
B. to provide banks and other creditors with information useful in making credit decisions. D. input to managers on the best ways to achieve continuous improvement in the
C. to provide management with information useful for planning and control of operations. production process. Bobadilla
D. to provide supervising government agencies with information about the company’s
management affairs. Bobadilla 10. Which of the following statements are true regarding financial and managerial accounting?
I. Both are mandatory.
4. Management accounting information II. Both rely on the same underlying financial data.
A. uses historical cost as the basis for reports to managers who are making decisions III. Both emphasize the segments of an organization, rather than just looking at the
about future courses of action. organization as a whole.
B. should be developed and provided only if its benefits exceed its costs. IV. Both are geared to the future, rather than to the past.
C. does not reflect the financial criteria of verifiability or consistency. A. I, II, III, and IV C. Only II and III
D. should serve the basic needs of investors and creditors. Bobadilla B. Only II, III and IV D. Only II Bobadilla

5. Which of the following is included in the day-to-day work of the management team? 11. Managerial accounting activity adds value to an organization by pursuing five major objectives,
A. decision making C. controlling which include
B. planning D. all of the above Bobadilla A. providing information for decision making and planning.
B. measuring the performance of activities within an organization.
6. Paying rent, purchasing supplies, and purchasing inventory are which of the day-to-day work C. assisting managers in directing and controlling operational activities.
activities of the management team? D. all of them Bobadilla
A. decision making C. directing operational activities
B. planning D. only A and B Bobadilla 12. Managerial accounting places considerable weight on:
A. generally accepted accounting principles.

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B. the financial history of the entity. C. CPAs who are performing management advisory services may be considered to be in
C. ensuring that all transactions are properly recorded. the practice of management consulting.
D. detailed segment reports about departments, products, and customers. Bobadilla D. Included in the practice of consulting is the provision of confidential service in which the
identity of the client is concealed. (RPCPA)
13. Which of the following statement is FALSE?
A. Managerial accounting need not conform to GAAP. 18. The primary purpose of management advisory services is
B. Financial accounting reports focus on subunits of the organization. A. To conduct special studies, preparation of recommendations, development of plans and
C. Managerial accounting is not required programs, and provision of advice and assistance in their implementation.
D. Managerial accounting focuses on the needs of internal users. Bobadilla B. To provide services or to fulfill some social needs.
C. To improve the client’s use of its capabilities and resources to achieve the objectives of
14. For internal uses, managers are more concerned with receiving information that is: the organization.
A. completely objective and verifiable. D. To earn the best rate of return on resources entrusted to its care with safety of
B. completely accurate and precise. investment being taken into account and consistent with firm’s social and legal
C. relevant, flexible, and immediately available. responsibilities. Bobadilla
D. relevant, completely accurate, and precise. Bobadilla
19. Managerial accounting information:
15. Which of the following statements is correct? A. pertains to the entity as a whole and is highly aggregated.
A. A certified public accountant can readily render management advisory services to the B. pertains to subunits of the entity and may be very detailed.
public. C. is prepared only once a year. Bobadilla
B. A CPA with MBA and DBM degrees is automatically qualified to render management D. is constrained by the requirements of generally accepted accounting principles.
advisory services.
C. Competence as a standard in the rendition of management advisory services by a CPA 20. Managerial accounting is primarily concerned with:
may be equated to having excellent scholarly preparation to include the usual A. segments of a company rather than the company as a whole.
baccalaureate degree, an MBA and other post graduate studies. B. the data needs of stockholders and creditors.
D. Adequate training and experience in both the analytical approach and process in a C. meeting the requirements of generally accepted accounting principles.
particular undertaking are requisites for the CPA to be involved in a management D. the company as a whole rather than a segment of the organization. Bobadilla
advisory service engagement. (RPCPA)
21. The major reporting standard for presenting managerial accounting information is
16. The following characterize management advisory services except A. relevance
A. It involves decision for the future B. generally accepted accounting principles
B. It broader in scope and varied in nature C. the cost principle
C. It utilizes more junior staff than senior members of the firm D. the current tax law Bobadilla
D. It relates to specific problems where expert help is required Bobadilla
22. With respect to the time dimension, how does managerial decision compare
17. Which of the following statements is incorrect? with external performance evaluation?
A. CPAs provide management advisory services to go around the ethical constraints as Bobadilla A. B. C. D.
mandated by the Accountancy Law. Managerial Decision Making Past Past Future Future
B. Businesses hire management consultants to help define specific problems and develop External Performance Past Future Past Future
solutions.

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B. prepare reports primarily for external users.

23. Managerial accounting differs from financial accounting in that it is C. determine cost behavior.
A. more concerned with segments of a company. D. be concerned with the impact of cost and volume on profits. Bobadilla
B. less constrained by rules and regulations.
C. more concerned with the future. 29. In the contemporary business environment, cost management focus is on
D. all of the above. Bobadilla A. financial reporting and cost analysis.
B. common emphasis on standardization and standard costs.
24. The distinction between traditional accounting and cost management is C. development and implementation of the business strategy.
A. the focus of the former on accounting matters and the latter in support to management in D. all of the above. Bobadilla
making the right decisions for staying on a competitive position
B. the emphasis of former on record keeping and the latter on reporting 30. Management accounting is similar to financial accounting in that
C. the focus of the former on cost cutting and the latter on product differentiation A. both are governed by generally accepted accounting principles.
D. the focus of the former on efficiency and the latter on quality. Bobadilla B. both deal with economic events.
C. both concentrate on historical data.
25. Which of the following activities is not usually performed by a management accountant? D. both classify reported information in the same manner. Bobadilla
A. Assisting managers to interpret data in managerial accounting reports.
B. Designing systems to provide information for internal and external reports. 31. How frequent is management accounting report when compared to report to external
C. Gathering data from sources other than the accounting system. users?
D. Deciding the best level of inventory to be maintained. Bobadilla Management Accounting Report External Report
A. More frequent Less frequent
26. Which of the following statements correctly distinguishes financial and managerial B. More frequent More frequent
accounting? C. Less frequent Less frequent
A. managerial accounting reports on the whole organization D. Less frequent More frequent
B. financial accounting is oriented toward the future Bobadilla
C. financial accounting is primarily concerned with providing information for internal users
D. managerial accounting is oriented more toward the planning and control aspects of 32. Managerial accounting differs from financial accounting in that financial accounting is
management Bobadilla A. more oriented toward the future.
B. primarily concerned with external financial reporting.
27. How does managerial decision making compare with external performance C. concerned with nonquantative information.
evaluation? D. heavily involved with decision analysis and implementation of decisions. Bobadilla
Managerial Decision Making External Performance Evaluation
A. Detailed Detailed 33. Managerial accounting provides data for all of the following major objectives except:
B. Detailed More aggregated A. planning and control of costs
C. More aggregated Detailed B. supporting management planning
D. More aggregated More aggregated C. compliance with SEC reporting requirements
Bobadilla D. determining the costs of products Bobadilla

28. Management accountants would not 34. Which statement is false? Managerial accounting information:
A. assist in budget planning. A. involves planning for the future

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B. should be requested and used by management even if it is very costly to gather and 41. Managerial accounting reports can be described as:
analyze A. general-purpose C. classified financial statements
C. helps managers make financing decisions B. special purpose D. macro-report Bobadilla
D. need not comply with generally accepted accounting principles Bobadilla
42. The informational needs of internal users/management:
35. Internal reports must be communicated A. are historical in nature
A. daily C. annually B. emphasize the company as a whole
B. monthly D. as needed Bobadilla C. emphasize accuracy over timeliness
D. may require more customized reports than external financial statements Bobadilla
36. Which of the following does not apply to the content of managerial reports?
A. Reporting standard is relevant to the decision to be made. 43. The role of the managerial accountant in today’s corporate world includes all of the following
B. May extend beyond double-entry accounting system. except:
C. Pertain to subunits of the entity and may be very detailed. A. interpreting financial information C. financial modeling
D. Pertains to the entity as a whole and is highly aggregated. Bobadilla B. financial planning D. bookkeeping Bobadilla

37. Which consideration influences the frequency of an internal report? 44. Which of the following is most associated with managerial accounting?
A. The wishes of the managers receiving the report. A. Must follow generally accepted accounting principles.
B. The frequency with which decisions are made that require the information in the report. B. May rely on estimates and forecasts.
C. The cost of preparing the report. C. Is prepared for users outside the organization.
D. All of the above. Bobadilla D. Always reports on the entire entity. Bobadilla

38. Which of the following statements about internal reports is not true?
A. The content of internal reports may extend beyond the double-entry accounting system.
B. Internal reports may show all amounts at market values.
C. Internal reports may discuss prospective events.
D. Most internal reports are summarized rather than detailed. Bobadilla
45. Which statement about the extent of detail in a management accounting report is true?
A. It may depend on the frequency of the report.
B. It depends on the type of manager receiving the report.
C. It depends on the level of the manager receiving the report.
D. All of the above. Bobadilla

39. Management accountants help develop and maintain reporting systems that are aligned with 46. Managerial accounting information
organizational structures and that provide useful information on an organization’s A. pertains to the entity as a whole and is highly aggregated.
performance. Management decision processes fall into three categories that consist of B. pertains to subunits of the entity and may be very detailed.
A. Nonrepetitive, nonprogrammed, and nonstrategic. C. is prepared only once a year. Bobadilla
B. Repetitive, nonprogrammed, and strategic. D. is constrained by the requirements of generally accepted accounting principles.
C. Repetitive, programmed, and strategic.
D. Nonrepetitive, nonprogrammed, and strategic. Bobadilla 47. Which of the following characteristics is inherent to management accounting?
A. Reporting of historical information
40. Internal reports are generally B. Compliance to generally accepted accounting principles
A. aggregated C. regulated C. Contribution approach income statement
B. detailed D. unreliable Bobadilla D. External users of financial report Bobadilla

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48. In order to be useful to managers, management accounting reports should possess all of the 2. confidentiality
following characteristics except: 3. integrity
A. Provide objective measures of past operations and subjective estimates about future 4. objectivity
decisions. A. All of them C. 1, 2, 3 only
B. Be prepared in accordance with generally accepted accounting principles. B. 1, 3, 4 only D. 1 and 3 only Bobadilla
C. Be provided at any time management needs information.
D. Be prepared to report information for any unit of the business to support decision 53. Under which ethical standard of conduct does the managerial accountant have the
making. Bobadilla responsibility to prepare complete and clear reports and recommendations after appropriate
analyses of relevant and reliable information?
49. The following are inherent to either management accounting or financial accounting: A. competence C. integrity
1. External report B. confidentiality D. objectivity Bobadilla
2. Historical information
3. Contribution approach income statement 54. Under which ethical standard of conduct does the managerial accountant have the
4. Generally accepted accounting principles responsibility to communicate information fairly and objectively?
5. Prospective financial statements A. competence C. integrity
Which of the foregoing are related to management accounting and financial B. confidentiality D. objectivity Bobadilla
accounting, respectively?
Bobadilla A. B. C. D. 55. Under which ethical standard of conduct does the managerial accountant have the
Management Accounting 1, 2, 5 3, 5 2, 3 3 responsibility to refuse any gift, favor, or hospitality that would influence or appear to influence
Financial Accounting 3, 4 1, 2, 4 1, 4, 5 1, 2, 4, 5 his or her decision?
A. competence C. integrity
B. confidentiality D. objectivity Bobadilla
50. Which of the following is an incorrect statement?
A. There is no overlap between financial and managerial accounting.
56. Under which ethical standard of conduct does the managerial accountant have the
B. Managerial accounting sometimes relies on past information.
responsibility to refrain from either actively or passively subverting the attainment of an
C. Managerial accounting does not need to conform to generally accepted accounting
organization's legitimate and ethical objectives?
principles. Bobadilla
A. integrity C. objectivity
D. Financial accounting must conform to generally accepted accounting principles.
B. competence D. confidentiality Bobadilla
51. For managerial reports, the accounting data used:
57. Under which ethical standard of conduct does the managerial accountant have the
A. must be the same accounting data for reporting to shareholders, but may use different
responsibility to disclose fully all relevant information that could reasonably be expected to
data for tax purposes.
influence an intended user's understanding of the reports, comments, and recommendations
B. must be the same accounting data for tax purposes, but may use different data for
presented?
reporting to shareholders. Bobadilla
A. objectivity C. confidentiality
C. must be the same accounting data for both tax purposes and reporting to shareholders.
B. competence D. integrity Bobadilla
D. may be different accounting data for both tax purposes and reporting to shareholders.
58. For managerial decision purposes, the volume of information should be evaluated on the
52. Which of the following is an ethical standard of conduct for managerial accountants?
basis of
1. competence
A. cost-benefit relationship.

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B. A cost, but not benefit.

C. A benefit, but not cost. 65. Which of the following does not describe managerial accounting?
D. Neither costs nor benefits, but some other criteria. Bobadilla A. internally focused C. externally focused
B. emphasis on the future D. detailed information Bobadilla
59. What is the primary criterion for the preparation of managerial accounting reports?
A. Relevance of the reports. C. Timing of the reports. 66. Management accounting
B. Meet the manager’s needs. D. Cost of the reports. Bobadilla A. reports are always objective
B. provides information to external users
60. The first step in managerial decision making is to C. generates general purpose financial statements and reports
A. specify the standard or expected outcome. D. has few externally imposed standards Bobadilla
B. gather information about the consequence of each alternative.
C. identify a problem. 67. Management accounting reports are prepared
D. list alternative courses of action. Bobadilla A. to meet the needs of decision makers within the firm
B. whenever stockholders request them
61. In a broad sense, cost accounting can be defined within the accounting system as C. according to guidelines prepared by the SEC
A. internal and external reporting that may be used in making nonroutine decisions and in D. by CPAs Bobadilla
developing plans and policies.
B. external reporting to government, various outside parties, and stockholders. 68. Which of the following is true of managerial accounting rather than financial accounting?
C. internal reporting for use in management planning and control, and external reporting to A. The outputs of this accounting system are the primary financial statements
the extent its product-costing function satisfies external reporting requirements. B. The methods of this accounting system are established by an overseeing board.
D. internal reporting for use in planning and controlling routing operations. Bobadilla C. The accounting methods are standardized to allow comparisons among companies
D. The accounting system would be unique to each company Bobadilla
62. The cost management function is usually under
A. the chief information officer. C. purchasing manager. 69. Traditional managerial accounting systems are often criticized for:
B. treasurer. D. controller. Bobadilla A. not focusing on the activities that actually drive the costs.
B. only looking at historical data.
63. If a distinction is made between cost accounting and managerial accounting, managerial C. being too GAAP oriented.
accounting is more oriented toward D. not emphasizing cost control. Bobadilla
A. valuation of inventory.
B. analysis of variances including spoilage. 70. The managerial function of controlling
C. financial reporting to third parties. A. is performed only by the controller of a company.
D. the planning and controlling aspects of the management process. Bobadilla B. is only applicable when the company sustains a loss.
C. is concerned mainly with a operating a manufacturing segment.
64. Management accounting and financial accounting differ in that management accounting D. includes performance evaluation by management. Bobadilla
information
A. is prepared following prescribed rules 71. Planning is a function that involves
B. is prepared using whatever methods the company finds beneficial A. hiring the right people for a particular job.
C. is prepared for stockholders B. coordinating the accounting information system.
D. is prepared following Generally Accepted Accounting Principles Bobadilla C. setting goals and objectives for an entity.

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D. analyzing financial statements. Bobadilla 79. Which of the following functions is most directly related to management by objective?
A. Reporting C. Control
72. In determining whether planned goals are being met, a manager is performing the function B. Decision making D. Planning Bobadilla
of
A. planning C. motivating 80. The setting of objectives and the identification of methods to achieve those objectives is
B. controlling D. follow-up Bobadilla called
A. planning C. decision making
73. Which of the following is not a separate management function? B. controlling D. performance evaluation Bobadilla
A. Motivating C. Controlling
B. Planning D. Decision-making Bobadilla 81. Which of the following best describes what performance evaluation should be designed to do?
A. Modify goal and objectives each month C. Compare actual results to plan
74. Total quality management emphasizes B. Establish sales goals and targets D. Establish blame Bobadilla
A. zero defects C. elimination of waste
B. continual improvement D. all of the above Bobadilla 82. In the planning and control process, what is the proper sequence of events?
A. Set goals, set objectives, develop plans, implement plans, evaluate performance
75. Automation of the manufacturing process increases B. Establish a master budget, set standard costs, develop variance analysis Bobadilla
A. the quantity of information C. the number of production employees C. Develop engineered costs, develop pricing targets, calculate contribution margins
B. the timeliness of information D. both a and b Bobadilla D. Identify variable costs, identify fixed costs, project the sales mix, determine breakeven

76. Which of the following emerging themes in cost accounting deals with managers striving to 83. Which of the following is a staff position?
create and environment which will enable workers to manufacture perfect (zero defect) A. vice-president of production C. vice-president of finance
products? B. vice-president of marketing D. plant foreman Bobadilla
A. customer orientation C. total quality management Bobadilla
B. global competition D. advance in information technology 84. Which management position is responsible for raising capital?
A. Internal auditor C. Controller
77. Managerial accounting creates value by: B. Treasurer D. CFO Bobadilla
A. by forcing managers to analyze historical figures and interpret the results
B. by eliminating all pricing and costing errors 85. All of the following would be considered staff functions EXCEPT:
C. by focusing managers attention on the relationship between financial and non-financial A. the vice-president of finance
factors B. the vice-president of corporate planning
D. all of the above Bobadilla C. the vice-president of research and development
D. the vice president of marketing Bobadilla
78. Systems implemented to reduce defects in finished products with the goal of achieving
zero defects are 86. Management accountants generally exercise which type of authority?
A. activity-based costing systems. A. Company. C. Line.
B. enterprise resource planning systems. B. Functional. D. Staff. Bobadilla
C. value chain systems.
D. total quality management systems. Bobadilla 87. The treasurer function is usually not concerned with
A. investor relations.

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B. financial reports.
C. short-term financing.
D. credit extension and collection of bad debts. Bobadilla 95. The balanced scorecard internal operations perspective includes
A. customer complaints C. market share
88. Which of the following duties is usually assigned to the controller? B. number of engineering changes D. inventory turnover Bobadilla
A. directing the granting of credit to clients
B. investing the organization’s funds 96. Items that prevent the organization from attaining a higher level of achievement within its value
C. tax planning chain are called the
D. independently evaluating the firm’s financial statements Bobadilla A. theory of constraints C. strategic costs management
B. value chain D. cost management systems Bobadilla
89. Developing a company strategy for responding to anticipated new markets is an example of:
A. decision making C. planning 97. The overall recognition of the importance of cost relationships among the activities in the value
B. controlling D. motivating Bobadilla chain and the process of managing those cost relationships among the activities in the value
chain is called
90. Strategic cost management has emerged from a blending of: A. the theory of constraints C. activity-based management of activities
A. cost driver analysis C. value chain analysis B. the value chain D. strategic cost management Bobadilla
B. strategic position analysis D. all of the above Bobadilla
98. The set of processes that transform raw materials into finished products is known as a
91. Strategic cost management includes all of the following tools except: A. value chain C. lowest cost strategy Bobadilla
A. standard cost variance analysis C. activity based management B. differentiation strategy D. flexible manufacturing system
B. value chain analysis D. all of the above Bobadilla
99. The period that begins with the arrival of materials and ends with the shipment of a
92. Strategic planning is different from operational planning in that operational planning: completed goods refers to
A. involves large sums of money A. performance period. C. manufacturing cell.
B. would be involved in determining production levels for next quarter B. computer-integrated manufacturing. D. cycle time. Bobadilla
C. involves only long range goals
D. operational and strategic planning are the same Bobadilla 100.Conventional and just-in-time manufacturers differ in that the conventional manufacturer is
likely to
93. Which of the following might be a performance measure for the financial perspective of a A. have a longer production cycle than its JIT competitors.
balanced scorecard? B. need less storage space than its JIT competitors.
A. percentage of on-time deliveries by the organization C. have a flexible manufacturing system.
B. percentage of product defects D. a high degree of quality control. Bobadilla
C. return on assets
D. percentage of market share held by the organization Bobadilla 101.A form of strategy that a management may adopt in order to attempt in creating a perception
of uniqueness that will permit a higher selling price.
94. The initiative to reduce non-value added activity is meeting which balanced scorecard A. Value chain. C. Lead time.
objective? B. Lowest cost. D. Differentiation. Bobadilla
A. internal operations perspective C. financial perspective Bobadilla
B. customer perspective D. learning and growth perspective 102.Deciding whether to sell a product or process it further is an example of a(n):

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A. controlling activity C. planning activity products against the best level of performance is known as
B. operating activity D. none of the above Bobadilla A. attestation. C. product review.
B. feedback. D. benchmarking. Bobadilla
103.The benefits lost or forfeited as a result of selecting one alternative over another are called
A. Differential costs C. Opportunity costs 110.Benchmarking allows managers to:
B. Sunk costs D. Indirect costs Bobadilla A. determine who in the industry performs similar processes most effectively.
B. determine the processes that have high value-to-cost relationships.
104.Obtaining feedback is generally identified most directly with which of the functions of C. compare certain internal processes, services and activities to those of other companies
management? in order to identify strengths and weaknesses.
A. Planning C. Controlling D. reproduce another company’s product design and manufacturing processes to eliminate
B. Directing and motivating D. Decision making Bobadilla competitive advantage. Bobadilla

105.A staff position:

A. relates directly to the carrying out of the basic objectives of the organization.
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. Bobadilla

106.The controller occupies:

A. a line position.
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. Bobadilla

107.“Racing with no finish” refers to

A. developing the best selling product.
B. research and development.
C. benchmarking and continuous improvement.
D. designing the highest quality product in a given segmented market. Bobadilla

108.A company’s value chain reflects the

A. organizational levels of authority and responsibility.
B. stages of production from raw materials to finished goods.
C. linked set of activities that increase the value of products or services.
D. sales distribution network for the company’s products and services. Bobadilla

109.The process of comparing, investigating, and evaluating the company’s processes or