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Chapter 3- Understanding Financial Standards 19.

Multiple Choices 20. Items could cause the recognition of accrued liabilities
- C. Salaries, rent, and insurance
1. Basic Financial Statements provided in annual report
- D. Statement of FS, IS, Cash Flow and Changes in Equity 21. Items need not be disclosed separately in the I.S.
- B. Salary expense
2. Function of the cash flow statement
- D. Both a and b 22. The I.S. measure for a firm
- C. Results of operation for a period
3. Items included in the notes of F.S.
- D. All of the above 23. Two F.S. are frequently combined for presentation
4. “Unqualified” auditor’s report indicates - A. The income and retained earnings
- B. The F.S. presents fairly the Financial Position, results of
operation and changes in cash flow. 24. Three profit measures calculated from the I.S.
- B. Gross profit margin, COGS percentage and EBIT
5. Who hires the auditor
- A. The firm which is audited 25. The figure for operating profit important
- A. Provides a basis for assessing the success of a
6. Allocation of the cost of fixes assets called? company apart from its financing and investment activities
- B. Depreciation and separate from its tax status

7. Depreciation expense be considered a discretionary item 26. Statement of C.S. segregates cash inflows and outflows
- D. All of the above - D. Operating, Financing and Investing activities

8. Choices and estimates relating to depreciation effect 27. Short term securities be classified in the statement of C.F.
- C. Net Fixed Assets on the statement of F.P. and - B. Cash
depreciation expense in I.S.
28. Payments for taxes be classified in the Statement of C.F.
9. Which statement is true - B. Operating outflow
- B. Published F.S. may be prepared according to either
accrual or cash basis of accounting 29. The repayment of debt principal be classified in the
statement of C.F.
10. Firms present two figures for earnings per share- basic and - D. Financing Outflows
- C. The firm has complex capital structure with convertible 30. Type of accounts are notes payable and current maturities
securities, stock options and warrants which presents “dilution” of long term debt
- C. Financing accounts
11. Statement of F.P. account used to reconcile the difference
that arise because of temporary differences in tax actually paid 31. Type of firm generally has the highest proportion of
to BIR and income tax expense reported in the I.S inventory to total assets
- B. Deferred taxes - B. Retailers

12. The use of accelerated depreciation rather than straight line 32. Assets will not be depreciated over its service life
depreciation produces earnings of higher quality - D. land
- C. Both a and b
33. Cause a change in the retained earnings
13. Methods by which management can manipulate earnings and - D. All of the above
possibly lower the quality of reported earnings
- D. All of the above 34. Largest expense item for most firms
14. True during the period of inflation
- A. Depreciation expense tends to be understated 35. What does the cash accounts include
- C. Both a and b
15. Information can be ignored when analyzing F.S.
- D. None of the above 36. Which statement is false
- A. Deferred taxes arise from the use of the same method
16. Statement of F.P. summarize for a business of depreciation for tax and reporting purposes
- A. F.P. at point of time
37. Revenue from sales of goods and services be classified in
17. Group of times would most likely be included in the other the Statement of Cash Flows
assets account on the statement of F.P. - A. Operating Inflow
- A. land held for investment, start up cost, long term-
payment 38. The sale of a building be classified in the Statement of
Cash Flows
18. Difference between notes payable- bank and current - C. Investing inflow
maturities of long term debt
- B. Note payable- banks are short term obligations,
while current maturities of long term are the proportion of long
term debt that will be repaid for the upcoming year.
Chapter 4- Financial Statements Analysis- I Multiple Choices

True or False 1. Data from comparative F.S. are useful

- D. In accomplishing a and b above
1. Financial Analysis is primarily matter of making relevant
mechanical computations 2. Index numbers are used in
- True - A. Trend analysis

2. Percentage changes usually are computed by use of the 3. “Trading on the equity” (financial leverage) is likely to be a
amounts for the latest accounting period as a base good financial strategy for shareholders of corporation with
- False - A. Rapidly growing amount of net income

3. Peso amount of change during an accounting period of an item 4. Select one with CORRECT statement
appearing in F.S. is less significant than the change measured as - B. Increase in the rate of operating earnings as a
percentage percentage of sale may accompany a decrease in operating
- True earnings measured in absolute pesos

4. Business enterprise earnings performance and its financial 5. Comparing performance with industry norms is complicated
condition are the two primary concerns of the financial analyst by:
- True - D. All of the above

5. Increase in sales volume generally is accompanied by a 6. Would probably not be found in a company’s annual report
proportionate increase in net income - C. Interim financial report
- False
7. First step in an analysis of F.S.
6. On a common size I.S. net income is given an equivalent 100% - C. Specify the objective of the analysis
- False
8. Creditor’s objective in performing an analysis of F.S
7. Peso amount of change during in a certain item appearing in - A. Decide whether the borrower has the ability to repay
F.S. is probably less significant than the change measured as interest and principal on borrowed funds
- True 9. Investor’s objective in F.S. analysis
-D. To determine whether an investment is warranted by
8. Percentage changes are usually computed using the latest estimating a company’s future earnings stream
figure as a base
- False 10. Not a tool or technique used by a F.S. analyst
- C. Random sampling analysis
9. It is possible that a decrease in gross profit rate may be offset
by a decrease in expenses, thus resulting in an increase in net 11. (A problem) These relationship suggest (indicate all correct

income answer)

- True - A, C, D. Management is successfully controlling costs and

expense, The annual return on assets has been increasing,
10. Industry standards tend to place the performance of a Financing activities are likely to result in a net use of cash
company in a more meaningful perspective
- True 12.

13. In F.S. analysis the most difficult of the following items to

predict is whether
- D .The market price of Share Capital will rise or fall over
the next months
Chapter 5- Financial Statements Analysis- II Multiple Choices

True or False 1. What are the common size F.S.

- A. Statements that express each account on the statement
1. Asset turnover rate multiplied by the rate of net income of F.P. as a percentage of total assets and each account of
earned on sales equal the rate earned on total assets the I.S. as a percentage of net sales.
- True
2. Not revealed on a common size of statement of F.P.
2. If the information were available, financial analysts would be - C. Peso amount of sales and liabilities
interested in knowing the sales volume at the break-even point
for a business enterprise 3. Serious limitation of financial ratios
- True - D. Ratios are not predictive

3. If the amount of current assets exceeds the amount of 4. Most widely used liquidity ratio
current liabilities, a decrease in current assets with a - B. Current ratio
corresponding decrease in current liabilities increases the
current ratio. 5. Limitation common to both the current and quick ratio

- True - A. Accounts receivable may not be truly liquid

4. Number of days sales in receivable at the end of an accounting 6. Quick ratio a more rigorous test of short-run solvency than

period is a better measure of the quality of receivable than the the current ratio.

receivable turnover rate - D. The quick ratio eliminates inventories from the

-False numerator

5. Window dressing is a violation of financial reporting standards 7. Increasing collection period for accounts receivable

- True suggest about a firm’s credit policy

- C. The credit policy may be too lenient
6. Debt ratio is useful to creditors as well as to stockholders, but
each of these groups places somewhat different emphasis on it. 8. Statement about inventory turnover is false

-True -D. A low inventory turnover is generally a sign of efficient

inventory management
7. Short-term creditors generally are more concerned with
vertical analysis than with horizontal analysis 9. Not a reason for a high inventory turnover ratio

- True -A. Stockpiling inventory

8. Horizontal analysis is possible for both an income statement 10. Asset turnover ratio measure

and F.S -B. Management effectiveness in generating sales from

-True investments asset

9. Common size F.S. show peso change in specific items from one 11. Ratio should not be used to measure the extent of a firm’s

year to the next debt financing

-False - C. Time interest earned

10. Company with 2.0 current ratio will experience a decline in 12. Amount of debt in a company’s capital structure

the current ratio when a short-term liability is paid important to the financial analyst

- False - A. Debt implies stock

13. Fixed charge coverage ratio a broader measure of a firm’s

coverage capabilities than the times interest earned ratio
-C. Fixed charge ratio includes lease payments as well as
interest payments

14. Profit margin measures the overall operating efficiency of

the firm
-B. Operating profit margin

15. Ratio measures the overall efficiency of the firm in

managing its investment on assets and in generating return to
- D. Return on investment and return on equity

16. Financial leverage index greater than “1” indicate about a

-B. Operating returns more than the sufficient to
cover interest payment on borrowed funds.

17. The price to earnings ratio measure

- A. The “Multiple” which the stock market places
on a firm’s earnings
26. Usually is least important as a measure of short term liquidity Chapter 6- Cash Flow Analysis
- C. Debt ratio
Multiple Choices
28. Company’s current ratio declined in a year during which its
quick ratio improved, which of the following is the most likely 1. Items is included in the adjustment of net income to

explanation obtain cash flow from operating activities

- A. Inventory is increasing - D. All of the above

29. Firm’s current ratio at the end of any given accounting period 2. True for gains and losses from capital asset sales

- D. All of the above are true -C. They are included in cash flows from investing
30. Company has current ratio of 2 to 1 at the end of year 1.
Which of the following transactions will increase this ratio? 3. Assets is included in the adjustment of net income to

- A. Sale of bonds payable at a discount obtain cash flow from operating activities
- D. All of the above
31. Investors generally will be least concerned with potential
increase in: 4. Current liability accounts is included in the adjustment of

- C. The quick ratio expenses to obtain cash flow from operating activities
-D. Both a and b
32. Conversion of a company’s short term note payable into long
term note payable would 5. Possible for a firm to be profitable and still go bankrupt

- D. Increase both working capital and the current ratio -B. The firm has positive net income but has failed to
generate cash from operations
33. A company has a current ratio of 2 to 1. This ratio will
decrease if the company 6. Cash flow from operations become increasingly important

-C. Borrows cash on a six month note as an analytical tool

-D. All of the above
34. Assuming stable business conditions a decline in the number
of days sales outstanding in accounts receivable at year end from 7. Statement is false

one year to the next might indicate - C. An increase in accounts payable represents

-A. A stiffening of credit policies accounts not yet collected cash

36. Its book value per share and earnings per share would be 8. Following could lead to cash flow problems

affected to the extent that - B. Slow-moving inventory, increasing note payable,

-C. Both book value and EPS increase easing of credit of suppliers
Chapter 7- Business Planning Chapter 8- Basic Cost management Concepts

Multiple Choices Multiple Choices

1. Operating decisions primarily deal with 1. Statement is true

-A. The use of scarce resources -B. Because of a cost benefit trade-off, some direct
costs may be treated as indirect costs
2. Financing decisions primarily deal with
- B. How to obtain funds to acquire resources 2. Indirect manufacturing costs
- D. May include both variable and fixed costs
3. Limitation of comparing a company’s performance against
actual results of last year that 3. Variable costs
-C. Past results can contain inefficiencies of the past year -B. Increase in total when the actual level of activity
4. Challenging business plans tend to
- D. Motivate improved performance 4. Fixed costs
- A. May include either direct or indirect costs
5. Business plan can help improvement
-D. All of the above 5. Variable cost in an insurance company
-C. Sales Commission
6. To gain the benefits of business planning,____ must understand
and support the budget 6. Service-sector companies report
-A. Management at all levels - D. No inventory accounts

7. The sales forecast should be primarily based on 7. Manufacturing- sector companies except
-B. Input from sales managers and sales representative - C. Direct materials inventory, work-in process,
inventory and finished goods inventory accounts
8. Sales forecast is influenced by
-D. All of the above 8. For a manufacturing company, direct materials cost may be
included in
9. Sales forecast is -D. D.M. inventory, WIP inventory and F.G. inventory
- A. Often the outcome of elaborate information gathering accounts
and discussions among sales managers
9. For a manufacturing company, direct labor cost may be
10. Budget production depends on included in
- C. Budgeted sales and expected changes in inventory levels -C. Both WIP inventory and F.G. inventory

11. Budget manufacturing overhead costs include all types of 10. For a manufacturing company, indirect manufacturing
factory expenses except cost may be included in
-D. Direct labor and direct materials - C. Both WIP inventory and F.G. inventory

11. I.S. of a service sector firm reports

-A. Period costs only

12. Inventoriable costs are expensed on the I.S.

-C. When the products are sold

13. For merchandising companies, inventoriable costs include

-D. All of the above

18. Usually found in a company’s accounting records

- C. Opportunity cost

19. Committed costs refers to those

- A. Costs which are governed mainly by past
decisions that established the present levels of operating and
organizational capacity and which only change slowly
response to small changes in capacity

20. Discretionary costs refers to those

-A. Cost which management decides to incur in the
current periods to enable the company to achieve objectives
other than the filling of the orders placed by customers

21. Controllable costs refers to those

-B. Cost which likely to respond to the amount of
attention devoted to them by a specified manager
22. COG manufactures the accountant incorrectly included as Chapter 10- System Design: Activity Based Costing and
part of manufacturing overhead the rental expense on the firm’s Management
retail facilities. This inclusion would
- B. Overstate the COGS on the I.S. True or False

23. COG manufactured will usually include 1. In activity-based costing, facility level costs should not be

-C. Some costs incurred during the prior period as well as included in product cost for internal management reports

costs incurred during the current period that are used for decisions making. However companies
frequently include facility-level costs in product cost in
24. Example of a fixed cost that would be considered a direct order to meet external reporting requirements
cost is -True
-C. A production supervisors’ salary when the cost objective
is the production department 2. Batch level activities are performed each time a batch of
goods is handled or processed
26. Cost associated with idle time should be -True
-B. Treated as part of manufacturing overhead
3. When there is automation, product diversity, and little
27. A D.L. overtime premium should be charged to a specific job correlation between overhead cost and direct labor, a plant
when the overtime is caused by the wide overhead rate based on D.L. is most appropriate
-B. Customer’s requirement for early completion of the job -False

28. Costs which are inventoriable are 4. In activity-based costing, a separate overhead rate is
-A. Manufacturing costs incurred to produce units of computed for each activity center by dividing the estimated
output overhead cost in the activity center by the total expected
activity for the activity center
29. For external reporting -True
-A. Costs are classified as either inventoriable or period cost
5. In activity-based costing system there is no overhead over
or under applied because the costing system is much more

6. Activity-based costing involves a two-stage allocation in

which overhead costs are first assigned to departments and
then to jobs on the basis of D.L. hours

7. When a company shifts from a traditional cost system in

which overhead is applied based on D.L. hours to an activity
based costing system in which there are batch-level and
product-level costs the unit product costs of high-volume
products typically decrease whereas the unit product cost
of low-volume products typically increase

8. Process value analysis (PVA) consists of systematically

analyzing the activities required to make a product or
perform a service. PVA identifies al resource-consuming
activities and labels these activities as either value-added or
Multiple Choices Chapter 11- Cost Estimation

21. Which of the following levels of costs should not be included Multiple Choices
in product costs for internal management report that are used
for decision making 1. Cost behavior refers to

-D. Facility-level activities -A. How costs react to a change in the level of
22. Machining a part for a product is an example of a
-A. Unit-level activity 2. Understanding of the underlying behavior of costs helps in
all of the following EXCEPT
23. Production order processing is an example of a - D. Sales volume can be better estimated
- B. Batch-level activity
3. Fixed costs depend on
24. The power costs associated with running machines is an -B. The amount of resources required
example of a cost that can be traced to a
-A. Unit-level activity center 4. A fixed cot in an automobile manufacturing plant
- A. Administrative salaries
25. labor setup cost is an example of a cost that can be traced to
a 5. Each furnace required a hose that costs P20 and 2,000

-B. Batch-level activity center furnaces are produced for the month, the total costs for
hoses is
26. The plant manager’s salary is an example of a cost that would - B. Considered to be direct variable cost
be traced to a
-D. Facility-level activity center 6. Statement is FALSE
- B. Fixed costs have cost driver over the short run
Fill in the Blanks
7. Within the relevant range, if there is a change in the level
1. A single overhead rate used throughout an entire plant of the cost driver then
operation is known as Plantwide overhead rate -C. Total fixed cost will remain the same and total
variable cost will change
2. The major problem with using direct labor- hours or machine-
hours as the bases for assigning overhead cost to products is 8. Within the relevant range, if there is a change in the level
that these bases rely on volume as the sole factor in overhead of the cost driver then
cost assignment - D. Fixed costs per unit will change and variable
costs per unit will remain the same
3. ABC involves a two stage allocation process, in which the first
stage assigns overhead costs to activity centers and the second 16. The contribution approach to the income statement
stage assigns overhead costs from activity centers to products -C. Is particularly helpful to the managers in planning
and services and decision making

4. Process value analysis which involves a systematic analysis of 17. Which of the following is unlikely to be classified as a
the activities required to make a product or perform a service is fixed cost with respect to the number of units produced
the beginning point in ABC and sold
-D. Production supplies
5. Unit level activities, such as the consumption of power are
performed each time a unit is produced and arise as a result of 18. Multiple regression analysis is used when
the total volume of production going through a facility -B. There is more than one activity that drives the
variable component of a mixed cost
6. Batch Level activities, which are performed each time a batch
of goods is handled or processed, include tasks such as 35. A regression equation
placement of a purchase order -A. Estimates the dependent variables

7. Product Level activities, which are performed as needed to 36. Correlation is a term frequently used in conjunction with
support the production of a particular product, include tasks regression analysis and is measured by the value of the
such as maintaining parts inventories coefficient of correlation, r. The best explanation of r is
- D. is a measure of the relative relationship between
8. Facility Level activities just sustain a facility’s general two variables
manufacturing process and include items such as insurance or
general factory management

9. The use of activity-based costing often causes a shift in

overhead costs from high-volume, products to low-volume
products, thereby causing the unit cost of the low-volume
products to sharply increase

10. One of the benefits of activity-based costing is that it

increases the number of cost pools, or activity centers used to
accumulate and assign overhead costs to products and services
Chapter 12- CVP Relationships Chapter 13- Variable Costing

Multiple Choices Multiple Choices

1. A calculation uses in CVP analysis is the breakeven point. Once 1. Under variable costing, fixed manufacturing overhead is
the breakeven point has been reached operating income will -D. Immediately charged against sales a s a period
increase by cost
- B. Contribution margin per unit for each additional unit
sold 2. Which of the following statements is true for affirm that
uses variable costing
2. In working on a CVP analysis, the accountant is unsure of the - D. Product costs include variable administration
exact result and or assumption under which to operate. What can costs
accountant do to help management in this CVP decision?
- B. Ascertain the probabilities of various outcomes and work 3. Principal difference between variable costing and

with management on understanding those probabilities in absorption costing centers on

reference to the CVP decision -B. Whether fixed manufacturing costs should be
included as product costs
3. Margin of safety is a key concept of CVP analysis. The margin
of safety is 4. Under variable costing

- B. The difference between budgeted contribution margin - B. Inventory costs will always be lower than under

and breakeven contribution margin absorption costing

4. One of the margin assumptions limiting the reliability of 5. When sales are constant, but the production level

breakeven analysis is that fluctuates, net income determined by the variable costing

- C. Total fixed costs will remain unchanged over the relevant method will

range -B. Remain constant

5. When used in CVP analysis, sensitivity analysis 6. Costing method that treats all fixed costs as period costs

- C. Is done through various possible scenarios and computes is

the impact on profit of various predictions of future events -C. Job-order costing

6. Which of the following will result in raising the breakeven point 7. Under absorption costing, fixed factory overhead costs

- B. An increase in the semi variable cost per unit - A. Are deferred in inventory when production
exceeds sales
7. The equal percentage changes in selling price and variable cost
per unit will cause the breakeven point in sales pesos to 8. The absorption costing net income was greater than the

-D. Remain unchanged variable costing net income. This fact suggest that
-B. More units were produced during the year than
8. Which of the following is a characteristic of a contribution were sold
income statement
-B. Fixed expenses are listed separately from variable 9. Net income computed using variable costing would exceed

expenses net income computed using absorption costing if

- A. Units sold exceed units produced
9. Which of the following would decrease unit contribution
margin the most 10. When sales are constant, but the production level

-A. A 15% decrease in selling price fluctuates, net income determined by the absorption costing
method will
- A. Tend to fluctuate in the same direction as
fluctuations in the level of production
Chapter 14- Standard cost and Operating Performance 6. When performing input output analysis in standard costing,
Measures “standard hours allowed” is a means of measuring
- B. Actual output at standard hours
Matching Type
7. The operating capacity that is required to satisfy
1. Total Variable overhead anticipated sales demand is
-E. The sum of variable overhead spending variance and the - C. Practical capacity
variable overhead efficiency variance
8. If the actual amount of direct materials used in a process
2. Overhead Efficiency exceeded the standard amount of materials, there was
- G. Difference between actual hours worked and the hours - C. An unfavorable materials quantity variance
that should have been worked at the level of production, times
the standard variable overhead rate 9. When computing variances from standard costs the
difference between actual and standard price multiplied by
3. Variable overhead spending variance actual quantity yields a
- C. Difference between the actual variable overhead -B. Price variance
incurred and a performance budget for variable overhead
10. In a standard cost system the materials price variance is
4. Labor efficiency variance obtained by multiplying
- H. Difference between actual hours worked and the hours -B. Actual quantity purchased by the difference
that should have been worked and at the level of production between actual price and standard price
times the standard wage rate
11. Suppose a standard cost system is being used. What do
5. Labor rate variance you call the variations in the use of materials which can be
- A. Difference between the actual hours worked times the calculated by comparing the record of materials withdrawn
standard wage rate and the actual payroll with the standard consumption
-B. Quantity Variance
6. Material usage variance
- D. measure of how well materials were utilized in the 12. What type of direct materials variances for price and
production process usage will arise if the actual number of pounds of materials
used exceeds standard pounds allowed but actual cost was
7. Material price variance
less than standard cost
- J. Difference between the actual price and the standard
-A. Usage- Unfavorable/ Price- Favorable
price, times the actual quantity of material purchases
13. How should a usage variance that is significant in amount
8. Expected actual variance
be treated at the end of an accounting period
-B. An estimate of what will happen
- B Allocated among work in process inventory,
9. Normal standard finished goods inventory and COGS
-I- What should achieve with normal workers in a normal
14. What would be the appropriate time to isolate and
recognize a direct material price variance
10. Ideal standard -C. When a material is purchased
-F. What should achieved if all conditions are perfect
15. An unfavorable price variance occurs because of
-A. Price increases on raw materials

Multiple Choices 16. Which department is customarily held responsible for an

unfavorable materials usage variance
1. Which of the following is true concerning standard costs - D. Production
-C. If probably used, standard can help to motivate
employees 17. Standard unit cost is used in the calculation of which of
the following variance
2. Which of the following terms is bet identified with a system of -D. Materials price variance- yes/ Materials usage
standard costs variance- Yes
-C. Management by exception
18. Formula for labor rate variance
3. Which of the following is standard cost nearly like -A. Actual hours worked x actual hourly rate less
-A. Estimate cost standard hourly rate

4. Which of the following best characterized a standard cost 19. Excess direct labor wages variance resulting from
system overtime premium will be disclosed in which type of variance
- B. Standards can pinpoint responsibility and can help -D. Labor rate
motivate employees
20. How is a labor rate variance computed
5. Standard costing will produce the same results or conventional -B. Difference between standard and actual rate
costing when standard cost variances are distributed to multiplied by actual hours
-A. COGS and inventories
Chapter 15- Functional and Activity-based Budgeting 8. Purpose of flexible budget is to
- C. Compare actual and budgeted results at
Matching Type virtually any level of production

1. Sales Forecast 9. When using a flexible budget what will occur to fixed cost
-C. The most important input for budget preparation. All as production increased within the relevant range
estimates of activity depend upon this information - A. Fixed cost per unit will decrease

2. Management by exception 10. A budget that identifies revenues and costs with an
-H. The practice of focusing attention on those activities individual controlling their incurrence is
where the actual performance differs significantly from planned - D. Responsibility budget
11. In preparing quarterly budget estimates, who should be
3. Responsibility Accounting responsible for the cash budget
- E. A system that relates cost to organizational structure -C. Finance manager

4. Statement of F.P. 12. The cash budget is prepared

-F. Integrated statement of resource levels and their sources -B. After all forecasted income statement but
before the forecasted statement of financial position
5. Performance budget
-I. Budget prepared after the fact, showing what costs should 13. Applied in terms of an executive’s personal judgment and
have been at the actual level of activity knowledge of his business is
- C. Business forecasting
6. Objective
-A. Quantitative benchmark for measuring company 14. Zero based budgeting is a
achievement -B. Process which requires systematic consideration
of all programs projects and activities with the use of
7. Capital expenditures budget
defined ranking procedures the activities analyzed and
-B. Budget reflecting long-range decisions of the company
presented in decision packages
8. Profit plan
15. Management by exception uses which accounting tool to
-J. Operating budget for a specific future period of time
a great extent
9. Master budget -D. Variance analysis
-D. Integrated plan of action for the firm as whole,
expressed in financial term

10. Goals
-G. Set of statements providing broad direction for the firm

Multiple Choices

1. First step involved in preparing a master budget is

-B. Preparing general operating budget

2. Second logical step in preparing a master budget would be to

-B. Forecast sales during the budget period

3. The following components of the master budget must be

prepared before the others
-C. Production budget

4. The factors are not important to consider in making a sales

-E. None of the above

5. Period budget should begin with a forecast of

-C. Sales

6. Basic difference between a master budget and flexible budget

- C. Master budget is based on one specific level of
production and a flexible budget can be prepared for any
production level within a relevant range

7. A flexible budget
- D. Appropriate for nay level of activity
Chapter 18- Relevant cost for Non Routine Decision Making Chapter 19- Capital Budgeting Decisions

Multiple Choices Matching Type

1. Cost that do not appear in accounting records and that do not 1. Economic Life
require peso outlays but do involve a foregone opportunity by the -A. Period within which returns are expected
entity whose costs are being measured are
-C. Imputed costs 2. Direct Costing
- C. The assignment of direct material, direct labor,
2. The low margin item should be produced if it can be sold for and variable factory overhead costs to products
more than its
-C. Variable cost plus any opportunity cost of the idle 3. Incremental analysis

facilities - F. The comparison of cost and revenue data that

differ among alternatives
3. The increase in total cost is known as
-B. Differential cost 4. Capital Budgeting
-B. The process of identifying a facility needed,
4. An item whose entire amount is usually a differential coat is analyzing alternative, and rationing available funds among
-B. Direct cost competing needs

5. In the development of accounting data for decision- making 5. Average cost of capital
purpose, relevant cost are defined as -I. The cost of financing the company’s activities
- A. Future costs which will differ under each alternative
course of action 6. Accounting rate of return method
- H. The capital budgeting method that divides a
6. Which of the following costs are always irrelevant in decision proposed project’s net income by the average investment
making? cost
-B. Sunk Costs
7. Payback period
7. Which of the following statement does not represent a step in -D. Capital Budgeting method that determines the
identifying the relevant costs in a decision problem? minimum length of time it would take to recover the initial
- C. Eliminate those costs that differ between alternatives investment in an asset

8. Acceptance of a special order will improve overall net operating 8. Present value method
income so long as the revenue from the special order exceeds -G. Capital budgeting method that discounts all net
-B. The incremental costs associated with the order cash inflows to the present

9. Allocated common fixed cost 9. Sales mix analysis

-A. Can make a product line appear to be unprofitable - J. Determining the most profitable combination of
product sales
10. Give an economic reason for eliminating the division
-B. The division’s avoidable fixed costs exceed it contribution 10. Capital expenditure decision
margin -E. Determining when and how much to spend on
capital facilities
11. In a make or buy decision
- D. Both variable costs and the fixed costs which are Multiple Choices
avoidable are relevant
1. The relevance of a particular cost to a decision is
12. Best describes an opportunity cost determined by
-A. It is a relevant cost in decision making, but it is not part -D. Potential effect on the decision
of the traditional accounting records
2. In equipment-replacement decisions, which one of the
13. The opportunity cost of making a component part in a factory following does not affect the decision-making process?
with excess capacity for which there is no alternative use - C. Original fair market value of the old equipment
-D. Zero
3. Statements concerning cash flow determination for capital
14. Not relevant in a decision regarding whether the product budgeting purpose is not correct
should be processed further -B. Book depreciation is relevant because it affects
-A. A variable production cost incurred prior to split-off net income

15. Indicate hazards to a firm that arise from being vertically 4. A depreciation tax shield is
integrated -B. A reduction in income taxes
-D. A firm that decides to produce its own parts runs the risk
of destroying long-run relationships with suppliers and Changing 5. The concept most relevant to the evaluation of the lease

technology often makes continued production of one’s own parts is

more costly than buying them from the outside -A. The present value of an annuity due
7. Of the following decisions, capital budgeting techniques Chapter 20 – Responsibility Accounting and Transfer Pricing
would least likely to be used in evaluating the
-D. Adoption of a new method of allocating nontraceable Multiple Choices

costs to product lines

1. A management decision may be beneficial for a given profit

8. The length of time required to recover the initial cash outlay center, but not for the entire company. From the overall

of a capital project is determined by using the company viewpoint, this decision could lead to action

-B. Payback method referred to as

-C. Goal Congruence
9. A characteristic of the payback method (before taxes) is that
it 2. A responsibility center is an organization unit headed by a

- B. Neglects total project profitability responsible manager it is known as

-D. None of the above
10. Statements about the payback method of investment analysis
is correct? The payback method 3. What term identifies an accounting system in which the

-A. Does not consider the time value of money operations of the business are broken down into cost
centers and the control function of a foreman, sales
11. The payback reciprocal can be used to approximate a projects manager or supervisor is emphasized
-D. internal rate of return if the cash flow pattern is relatively -A. Responsibility accounting
4. Which of the following items of cost would be least likely
12. The bailout payback method to appear in a performance report based on responsibility
-D. Measures the risk if a project is terminated accounting techniques for the supervisor of an assembly line
in a large manufacturing situation
13. When evaluating projects, breakeven time (discounted payback - A. Supervisor’s salary
period) is best describes as
-D. The point at which discounted cumulative cash inflows on 5. If a cost cannot be allocated to certain segments of an
a project equal discounted total cash outflows organization it should be
- C. Included in it but not allocated
14. The NPV method of investment project analysis assumes that
the project’s cash flows are reinvested at the 6. A profit center is any subunit or segment of an
-C. Discount rate of return in the NPV calculation organization that is assigned
- A. Both revenues and expenses
15. The proper discount rate to use in calculating certainty
equivalent net present value is the 7. Which of the following is not true abut a responsibility
-C. Risk free rate accounting system
-D. It holds management equally responsible for all
16. The rankings of mutually exclusive investments determined costs
using the internal rate of return method (IRR) and the NPV may
be different when 8. In designing a responsibility accounting system, one should
- D. Multiple projects have unequal lives and the size of the be keep in mind a certain characteristics of each cost. This
investment for each project is different characteristic is
- A. Increasing sales revenue and operating expenses
18. When determining NPV in an inflationary environment by the same peso amount
adjustments should made to
- B. Increase the estimated cash inflows and increase the 9. A company that has a profit can increase its return on
discount rate investment by
- C. Increasing sales revenue and operating assets
and sales by the same percentage

11. An internal transfer between divisions is in the best

economic interest of a company when
-E. The variable production costs plus the
opportunity cost for the selling divisions is less than the
external price for the buying division

12. Which of the following is not an appropriate use of

transfer pricing
- D. Establishing cost or volume standards for
production departments

13. The ideal transfer price for the decision making is

-C. Market price
14. Some managers prefer to use cost rather than marketing price Chapter 21- Decentralized Operations and Segment
in controlling transfers between divisions. If cost is to be used Reporting
then it should be
- C. Standard cost Multiple Choices

15. Transfer prices based on actual cost of the selling divisions as 1. A good example of a common cost which normally could

opposed to standard costs not be assigned to products on a segmented income

-B. Often decline to provide the selling division with statement except on an arbitrary basis would be

incentives to control costs -B. Salary of a corporation president

16. In transfer pricing if the selling division does not meet all bona 2. All other things being equal if a divisions traceable fixed

fide outside prices then expenses increase

-C. The buying divisions should be free to purchase outside -C. The divisions segment margin will decrease

34. Decentralized firms can delegate authority and yet retain

control and monitor managers’ performance by structuring the
Chapter 22 – Strategic Cost Management: Balanced
organization into responsibility centers. Which one of the
following organizational segments is most likely an independent
business Multiple Choices
-D. Investment center
1. Which of the following represents value-added time in the
35. A successful responsibility accounting reporting system is manufacturing cycle
dependent upon -D. Process time
-C. The proper delegation of responsibility and authority
2.Throughput time consists of
36. Which one of the following items is least likely to appear in a -D. Process time, Inspection time, Move time and
performance report for a manager of one of assembly line Queue Time
- D. Depreciation on the manufacturing facility
3.Manufacturing Cycle Efficiency (MCE) is computed as
37. In responsibility accounting, a center’s performance is -C. Value-Added Time + Throughput Time
measured by controllable cost. Controllable costs are best
decried as including
-B. Only those costs that the manager can influence in the
Chapter 23- Financial and Nonfinancial Performance
current time period
38. A segment of an organization is referred to as a service center
Multiple Choices
if it has
- D. Authority to provide specialized support to other units 1. A report that measures financial and nonfinancial
within the organization performance for various organization units in a single report
is called a
39. The basic purpose of a responsibility accounting system is
-A. Balanced scorecard
-B. Motivation
2. Customer-satisfaction measures are an example of
40. The least complex segment or area of responsibility for which
-B. Balanced scorecard approach
costs are allocated is a
-D. Cost center 3. An example of a performance measure with a long run time

-C. is a number of new patents developed

4. Should assets be defined as total assets or net assets? This

question is considered part of which step in designing an
accounting based performance measure
- C. Choose a definition for each performance

5. Should assets be measured at historical cost or current

cost? This question is considered part of which step in
designing an accounting based performance measure
-D. Choose a measurement alternative for each
performance measures

6. Which of the following statement about designing an

accounting based performance measure is false
-B The issues considered in each step are
7. The return on investment is usually considered the most 35. An effective program of performance measurement
popular approach to incorporating the investment base into a assess all facets of relevant performance so that the
performance measure because decision maker will not trade off relevant, but unmeasured,
-A. It blends all the ingredients of profitability into a single facets of performance on measured facets
percentage -C. Reflection of comprehensive information

13. A problem with utilizing residual income is that 36. What critical performance indicator is concerned with
-C. A corporation with a larger peso amount of assets is outcomes?
likely to have a higher residual income than a corporation with a -B. Reflection of the customer’s validation
smaller peso amount of assets
37. What critical performance indicator uses performance
14. A company which favors the residual income approach measures as warning and diagnostic signals?
-A. Wants managers to concentrate on maximizing an -D. Provision of feedback
absolute amount of pesos

18. A negative feature of defining investment by excluding the

portion of total assets employed that are financed by short-term Chapter 25- Executive Performance Measures and

creditors is Compensation

-C. This method encourages managers to use an excessive

Multiple Choices
amount of short-term debt
1. All of the following statements are true except
25. If a company is a multinational company with operation in
-C. An intrinsic reward is based on performances
several different countries, one way to achieve comparability of
and is any reward that one person provides to another
historical-cost based on ROI’s for facilities in different countries
person to recognize a job well done
-C. Restate the results of all operations in pesos 2. Which of the following statement is false
-A. Incentive compensation systems work best in
26. Which of the following statement is true
organizations in which employees have no skills or have not
-D. The economic, legal, political, social and cultural
been empowered
environments differ across countries/ Governments in some
countries may impose controls and limit selling process of a 3. Which of the following NOT a true statement
company’s products -D. Compensation is not useful in motivating
27. Typical performance measures more closely to manager’s
efforts 4. Based on performance and is any reward that one person
- A. Encourages the use of nonfinancial measures provides to another in recognition of a job well done
-C. Extrinsic rewards
28. Team incentives encourage cooperation by
-C. Letting individuals help one another as they strive toward 5. Which of the following is an intrinsic reward
a common goal -B. Job satisfaction

29. Teams are used and the members have the added 6. Which of the following is an extrinsic reward
encouragement of -D. All of the above
-D. Team incentives
7. Which of the following is NOT an attribute of effective
30. Designers of executive compensation plans emphasize of the performance measurement system
following factors -D. The pay for performance systems base rewards
-D. All of the above are emphasized on only net income

31. Rate of sales growth and number of customers are two 8. Systems base rewards on achieving or exceeding some
examples of critical performance indicators for which of the measured performance
following critical success factors -A. Pay for performance
-A. Service
9. Which of the following is NOT an attribute of effective
32. Customer focused performance measures help organization performance measurement systems
members manage activities by concentrating their attention on -D. Incentive compensation are rewards system that
improving what matters to the customers pa only an hourly wage for hours worked
-A. Reflection of the customer’s perspective
10. Under the independent wage policy guideline for
33. Performance measures should be external, rather than effective incentive compensation policy for senior
internal and should reflect an understanding of the difference management should be developed by
between the output and outcome of activities -B. A board of director’s compensation committee
-B. Reflection of the customer’s validation

34. When a firm discovers that sales have been declining because
of poor service and slow delivery schedules, they are receiving a
-A. Diagnostic signal
11. Which of the following is true about the independent wage Chapter 26 – Management Accounting in Changing
policy for effective incentive systems Environment
-C. A board of director’s compensation committee should
design the incentive compensation plan for senior management Multiple Choices

12. Which of the following is true about the participation 1. Implementation of total quality management (TQM) in a

guideline for effective compensation systems firm

-B. Many experts believe that all employees should -C. Takes from 3-5 years

participate in an incentive compensation plan

2. Goalpost quality conformance differs from absolute

14. A group incentive compensation plan focused on rewarding quality conformance like

short term performance -B. “range” differs from “point”

-B. Profit sharing

3. The quality cost of prevention is

15. Also called lump-sum rewards, pay for performance and merit -C. An upstream cost

4. Typically as prevention costs increase other costs of
-A. Cash bonuses

16. The right to purchase a unit of the organization’s stock at a -D. Decrease

specified price
5. Examples of quality cost of prevention include all of the
-D. A stock option
following except

17. Which of the following would not be a advantage for -D. An annual award for lowest work rate

distributing the proceeds of a bonus pool in a profit-sharing plan

6. Appraisal costs are incurred to measure and analyze data
based on each person’s salary
to test product or service inconformity to specifications,
-C. Always reflects contribution made
but not to

18. Which of the following would not be a advantage for -A. Reduce error or prevent recurrence of error

distributing the proceeds of a bonus pool in a profit-sharing plan

7. The key difference between internal failure cost and
based on equal share
external failures cost is
-B. May have little motivational effect
-C. Both when and where the cost happens

19. Single performance measures can often

8. Which one of the following is not listed as a practice that
-B. Create employee myopia by focusing their attention on
successful TQM firms use to ensure having quality suppliers
only one aspect of their work
-C. Reducing suppliers base

20. Reward system designers consider all of the following when

9. Conformance to a quality specifications expressed as a
designing an incentive system except
specified range around a target is
-B. the personalities of employees
-D. Absolute quality conformance

21. Participation in decision-making involves

10. Conformance that requires all products or services to
-C. A joint decision making process in which all parties agree
meet exactly the target value with no variation allowed is
to the levels at which the budget should be set
-D. Absolute quality conformance

22. Empowering employees mean

11. Just in time purchasing requires
-D. They are given the ability to suggest and make changes to
-C. Smaller and more frequent purchase orders
their work environment
12. A demand pull system in which each component in a
23. Participation in decision-making may lead to the following
production line is produced immediately as needed by the
benefits except
next step in the production line is referred to as
-B. Increased job satisfaction
-A. Just in time purchasing

24. Which of the following is NOT an attribute of effective

13. All of the following are potential financial benefits of
performance measurement systems
just in time except
-D. The performance measurement system should set clear
-C. Reducing the risk of obsolescence
standards or targets for performance
14. Cost quality reports usually do not consider
-B. Opportunity cost

15. Changing to an activity based costing/ management

system will not
-C. Change all people’s job

16. Resistance to changing a management accounting and

control system (MACS) can occur for the reasons listed
below except
-D. Employees have to wait for a vote of
shareholders before MACS can be changed
17. One common mistake that managers make when changing to a
new cost management system is
-D. They try to change too many things simultaneously

18. The JIT manufacturing system is also called the

-D. Zero inventories system

19. The traditional focus in management accounting has been to

-A. Only quantitative performance measures

20. A well designed MACS develops and uses

-A. Both quantitative and qualitative information for
control, motivation and performance evaluation