Chapter 

2  Management Accounting Environment 24

MULTIPLE CHOICE

Basic concepts
1. Management accounting
A. Is governed by generally accepted accounting principles.
B. Draws from disciplines other than accounting.
C. Is geared primarily to the past rather than the future.
D. Places more emphasis on precision of data compared with financial accounting
which does not place more emphasis on accuracy of information. (rpcpa)

1. B
? A true statement about management accounting.
 Choice-letter “b” is correct. Management accounting draws techniques from
disciplines other than accounting. Management accounting has the following
characteristics: it concerns with the future data and not of the past, it uses knowledge
from different fields of disciplines, its places more emphasis on timeliness and
relevance than on accuracy and precision, its information is segmentized and not
wholistic, it has no unifying equation, its client is the management and not the general
public, and it is not governed by the generally accepted accounting principles but by
the needs of the management.
Choice-letters “a”, “c”, and “d” are all incorrect assertions with respect to
management accounting, but are true assertions with respect to financial accounting.

2. Management accounting is an integral part of the management process. As such, it

provides essential information for the following objectives except
A. Maintaining the current level of resources utilization as well as internal and
external communication.
B. Measuring and evaluating performances.
C. Planning strategies and controlling current activities of the organization.
D. Enhancing objectivity in decision-making. (rpcpa)

2. D
? The one that does not relate to the primary objective of management accounting.
 Choice-letters “a”, “b”, and “c” are objectives of management accounting (e.g.,
communication, performance evaluation, and planning and controlling ). Choice-letter
“d” is not a primary objective of management accounting because enhancing
objectivity in decision-making by providing relevant and reliable information to
management is inherent in, and therefore is not an objective of, the management
accounting process.

3. The chief management accountant called “controller” traditionally performs these

functions except
A. The establishment and implementation of the financial planning process.
B. Financial and management reporting and interpretation.
C. Protection of company resources and economic evaluation.
D. Relate to specific problems where expert help is required. (rpcpa)

3. D
Chapter 2  Management Accounting Environment 25

? The one that is not a function of a controller.

 Choice-letter “d” is the best answer. Although controllership needs expert’s help in
the performance of duties, it however, deals with developing and installing control
mechanisms in the area of general management, first, before routinary specific
controls are provided.
Choice-letters “a”, “b”, and “c” are all functions performed by a controller such as
the establishment and implementation of the financial planning process, financial and
management reporting and interpretation, protection of company resources, and
economic evaluation.

4. The chief management accountant called “controller” traditionally performs these

functions except
A. The establishment and implementation of the financial planning process.
B. Financial and management reporting and interpretation.
C. Protection of company’s resources and economic conditions.
D. Preparation of proposals for product promotions. (rpcpa)

4. D
? The one that is not performed traditionally by a controller.
 The controller has the following functions: planning and controlling, protections of assets
reporting, economic appraisal, government relations and evaluation, and tax
administration. What is not included as a function of a controller is choice-letter “d”,
preparation of proposals for product promotion, which is more a function of the marketing
manager.

5. Which of the following is a controller’s responsibility?

A. Tax planning and accounting.
B. Custodian of funds.
C. In-charge of credit and collection.
D. Arranging short-term loans and financing. (rpcpa)

5. A
? A controller’s responsibility.
 Choice letter “a” is correct. Tax administration, which includes tax planning and
accounting, is a controller’s responsibility. Choice-letters “b”, “c”, and “d” are
incorrect because custodianship of funds, credit and collection, and arranging short-
term loans and financing are functions of a treasurer.

6. Management accountants help design, develop, install and maintain reporting

systems which are aligned with the structures of the organization. These systems
provide information that are useful for decision making. Management decision
processes fall into three categories.
A. Repetitive, non programmed, and strategic.
B. Repetitive, programmed, and strategic.
C. Repetitive, programmed and non strategic.
D. Non-repetitive, non programmed, and strategic. (rpcpa)

6. A
Chapter 2  Management Accounting Environment 26

? Three (3) categories of management decision processes.

 The management decision processes may be classified as repetitive, non-
programmed and strategic. Strategic decisions gear towards long-term objectives,
positions, structures, orientations, competitive advantage, aims, and aspirations of
the company. It deals with the stability and growth of the company and primarily
satisfies the needs and desires of investors. In contrast, tactical decisions deal with
the short-term goals that are normally related to the profit-making activities of the
company. Tactical decisions concerns with liquidity, profitability, and working capital
policies.
Repetitive decisions are those routinary in nature and may be predicted,
standardized, planned and easily controlled. These decisions are normally operating
in nature and relate with the working capital cycle involving transactions with
suppliers, customers, employees, utility companies, government and other entities
regularly dealt with by the business. These repetitive decisions are captured and
expressed in standard operating policies that serve and guide us in standard costing,
budgeting, marginal costing, variance investigation and similar routinary management
activities.
Non-programmed decisions are those that are not covered by repetitive and
strategic decisions and deal with both the short-term and long-term objectives of the
business. These decisions are not normally guided by written policies but highly
require value judgment of the implementing manager.

7. In this element of internal control, the object is to gauge the efficiency of the various
levels of people in the organization as well as the quality and quantity of results.
A. Records and reports. C. Internal audit.
B. Standards of performance. D. Policies and procedure. (rpcpa)

7. B
? The one that has the purpose of gauging the efficiency of the various levels and
people in the organization as well as the quality and quantity of results.
 Standards of performance measure personnel’s efficiency (quality) and productivity
(quantity) by comparing the actual results with established standards. This is
important in controlling and directing operational activities to align actual results with
plans (choice-letter “b” is correct).
Choice-letter “a” is incorrect because reports and records are communicated
results of performance that are primarily meant to inform based on verifiable and
objective records. Choice-letter “c” and “d” are not correct because internal audit
deals with the accuracy of records and operational efficiency, effectiveness, and
economy in relation to internal controls which encompass the policies and
procedures set by the organization.

Controllership and Treasurership

8. As business increases in complexity, the function of controllership has attained top
level recognition in the corporate arena. Many areas related to finance and
accounting have been identified with controllership. One area that violates basic
internal control when assigned to controllership function is
A. Credit collection . C. Long-range financial planning.
B. Internal auditing. D. Taxation and reporting to government agencies.
Chapter 2  Management Accounting Environment 27

(rpcpa)
8. A
? One area that should not be included as a function of controllership because it
violates a basic principle of internal control.
 Controllership has the following functions (codename is PREGPET): plan and control,
report preparation and submission, evaluation of performance, government relations,
protection of assets, economic appraisal, and tax administration.
Choice-letters “b”, “c”, and “d” are all traditional functions of a controller. Internal
auditing relates to economic appraisal and is one of the traditional functions of
controllership.
Choice-letter “a”, credit and collection, is a function of a treasurer. A treasurer
has the following functions (codename is PISBCII): provisions for capital, investor
relations, short-term credits, banking and custodianship, credit and collections,
investments, and insurance (or risk management).

9. Controllership has attained special recognition in corporate management as

businesses expand in complexity and reach, and as the controller exerts influence for
management to take organization’s goals. Controllership and treasurership constitute
corporate finance. These are among the controller’s traditional functions:
1. Tax management. 5. Reporting to government regulatory agencies.
2. Financial reporting and interpretation. 6. Risk management.
3. Credit management. 7. Economic appraisal.
4. Sourcing and investing funds. 8. Planning for control.
A. All eight items. C. Items 1, 2, 3, 4, 5, 7, and 8 only.
B. Items 1, 2, 5, 7 and 8 only. D. Items 2, 3, 5, and 7 and 8 only. (rpcpa)

9. B
? To identify some of the controller’s traditional functions.
 Controllers have the following functions: planning and controlling, reporting,
evaluation of performance, government relations, protection of assets, economic
appraisal, and tax administration.
Credit management, sourcing and investing of funds, and risk management are
treasurer’s functions, including that of provision for capital, investors’ relations and
banking and custodian.

10. Which of the following is not a controller’s functions?

A. In-charge of planning and control.
B. Protection of assets.
C. Interpretation and reporting on effects of external factors on the business.
D. Arranging short-term financing. (rpcpa)

10. D
? The one that is not a controller’s function.
 Choice-letter “d” is correct because arranging short-term financing is a function of a
treasurer. Choice-letters “a”, “b”, and “c” are controller’s functions.

11. Controllers are generally not concerned with

Chapter 2  Management Accounting Environment 28

A. Reporting to government. C. Protection of assets.

B. Preparation of tax returns. D. Investor relations. (rpcpa)

11. D
? An area where controllers are not concerned with.
 Choice-letter “d” is a function of a treasure, not of a controller, and therefore is the
correct answer. Choice-letters “a”, “b”, and “c” are controller’s functions.

12. You were newly appointed as controller of CRZ Corporation. Among the jobs your
department would do, include the following:
A. Cash receipts, cash disbursement, general accounting, taxation, financial
statements analysis and internal auditing.
B. Financial reporting, strategic planning, managerial accounting, taxation, financial
statement analysis and internal accounting.
C. Financial accounting, managerial accounting, cost accounting, inventory
accounting, payroll accounting, tax accounting, and sales forecasting.
D. Tax accounting, internal accounting, internal auditing, general accounting . rpcpa)

12. B
? The jobs the controllership department normally do.
 Controllership deals with structures and systems to facilitate smooth business
activities of generating wealth. The traditional functions of controllership are planning
and controlling, reporting of financial information, evaluating performances,
government relations and reporting, protecting assets or resources, economic
appraisal, and tax administration. Choice-letter “b” is the best choice.
Choice-letter “a” is incorrect because cash receipts and disbursements are
treasurership functions. Choice-letter “c” is incorrect because sales forecasting is
sales functions. Choice-letter “d” is incorrect because internal auditing, under the
emerging practice, now belongs to the audit committee or to the office of the Chief
Executive Officer to maintain independence and utmost objectivity.

Management accounting and Financial accounting

13. To distinguish between management accounting and financial accounting, the
following statements are correct, except
A. Management accounting, in view of its various integrated recipients,
should have a separate data recording and retrieval system from financial
accounting.
B. Financial accounting is bound by GAAP, and management accounting
need not be in conformity with GAAP.
C. Financial accounting can be regarded as the process while management
accounting can be regarded as the product of that process.
D. Management accounting output must be released on time so as not to
erode its usefulness; financial accounting output can still be useful even when delayed.
(rpcpa)

13. D
? The statement that does not distinguish management accounting from financial
accounting.
Chapter 2  Management Accounting Environment 29

 Choice-letters “a”, “b” and “c” are distinctions between management accounting and
financial accounting. Choice-letter “d” is not a distinction because delayed information
which are only made available after the decision has been made would virtually make
the information worthless. This statement is not a distinction but is both an antithesis
of relevant financial accounting and management accounting information.

14. The following characteristics refer to financial accounting except

A. Provides information to external users.
B. Emphasizes on objective data.
C. Has no eternally imposed standards.
D. Generates general-purpose financial statements. (rpcpa)

14 C
? The one that does not refer to financial accounting.
 Choice-letter “c” is correct because financial accounting has an externally imposed
standards called as the generally accepted accounting principles. Choice-letters “a”,
“b”, and “d” are all characteristics of financial accounting.

15. Which of the following characteristics does not relate to management accounting?
A. Accounting reports may include non-monetary information.
B. It is subject to restrictions imposed by GAAP.
C. Reports are often based on estimates and are seldom useful for everything other
than the purpose for which they are prepared.
D. It provides data for external users within the business organizations. (rpcpa)

15. B
? The one that does not relate to management accounting.
 Choice-letter “b” is correct because management accounting is not subject to
restrictions imposed by GAAP. Choice-letters “a”. “c”, and “d” are incorrect because
they all relate to management accounting.

16. Which of the following characteristics relates to financial accounting?

A. Reports are promptly prepared and submitted to preserve its usefulness.
B. Data may be both historical and estimates.
C. It must adhere to the generally accepted accounting principles.
D. It provides information needed by management in making decisions. (rpcpa)

16. C
? The one that relates to financial accounting.
 Financial accounting should be relevant, its data are both historical and estimates, it
adheres to GAAP, and it also provides data to management accounting in making
decisions. However, among the choices given, the most important and unique
characteristics of financial accounting is choice-letter “c”.

17. A formal report in management accounting is covered by the guidelines of

A. GAAP C. Management
B. SEC D. PICPA (rpcpa)
Chapter 2  Management Accounting Environment 30

17. C
? The one that sets the guidelines in preparing a management report.
 Choice-letter “c” is correct because management accounting reports are for
management’s use only who sets the format in preparing a management accounting
report.
Generally accepted accounting principles (GAAP), which govern the preparation
of external accounting reports, are not used in the field of management accounting
that prepares reports for management, or internal, use only. The Securities and
Exchange Commission (SEC) and Philippine Institute of Certified Public Accountants
(PICPA) do not, and have no inherent authority to, prescribe guidelines on how
information for management’s use only should be prepared.

18. Identify the following statements as true or false.

Statement 1. Reporting to various government agencies such as BIR, SEC, and SSS
is a function of a controller.

Statement 2. Interim financial reports issued by managerial accountants must

conform to generally accepted accounting principles.

Statement 3. The managerial accountant often deals with information that cannot be
expressed in numbers. (rpcpa)
A Statement 1 is true, Statement 2 is false.
B. Statement 2 is true, Statement 1 is false.
C. Statement 1 is true, Statement 2 is true.
D. Statement 1 is false, Statement 3 is false.

18. A
? Identify the given statements as true or false.
 Statement 1 is true. Statement 2 is false because management accountant reports
do not conform with GAAP. Statement 3 is false because accounting, including
management accounting, makes reports primarily in financial nature or in other
quantitative methods of measurement to emphasize objectivity in reporting. Hence,
Choice-letter “a” is the correct answer.

Miscellaneous
19. Which of the following represents an internal control weakness in a payroll system?
A. Payroll department personnel are related in their duties.
B. Timekeeping is independent of the payroll department.
C. Payroll records are reconciled with quarterly tax reports.
D. Paychecks are distributed by the employees’ immediate superior. (rpcpa)

19. D
? The statement that represents an internal control weakness in a payroll system.
 The internal control structure of an organization must primarily be set to protect the
assets, check the accuracy and reliability of accounting data, promote operational
efficiency, and encourage adherence to prescribed managerial policies. In so doing,
the organization plan and structures should be properly designed to ensure that
transactional responsibilities are properly segregated. The phases of a transaction
Chapter 2  Management Accounting Environment 31

cycle are authorization, execution, recording, custodian and accountability. Choice-

letter “d” is a weakness in internal control because the paychecks are supposed to be
distributed by the custodian (i.e., custodianship) and not by the employees’
immediate superior (i.e., execution).
Choice-letter “a” is a strength in internal control (i.e., employees must be carefully
selected and trained). Choice-letter “b” indicates strong internal control (i.e.,
execution is separate from recording). Choice-letter “c” also indicates strong internal
control (i.e., all available proof of accuracy must be utilized).

20. Which of the following is not a characteristic of a “staff” authority?

A. It gives support, advises and services to line managers.
B. It is exercised laterally and upward.
C. It has authority to command action or give orders to subordinates.
D. None of the above. (rpcpa)

20. C
? The one that is not a characteristic of a staff authority.
 A staff gives support, advises, and services to line authority, and is exercised laterally
or upward. Choice-letters “a” and “b” are therefore not correct. Choice-letter “c” is
the correct answer because it refers to line authority.

21. All of the following statements are correct except

A. Job cost records are used to accumulate product cost of individual units or small
batches of identical units for both product costing and control purposes.
B. Process of production of same or similar goods.
C. The basic purpose of any costing system is to allocate the cost of production
(direct materials, direct labor and manufacturing overhead) to the units produced.
D. In comparison to job order costing system, process costing systems are usually
more complicated and more expensive. (rpcpa)

21. C
? The incorrect statement.
 Choice-letters “a”, “b” and “d” are all correct statements. Choice-letter “c” is not a
correct statement because the basic purpose of costing system is not to allocate
costs but to accumulate production costs for better planning and controlling.

22. The activities in a management system’s control process can be grouped into four:
1. Measurement of actual performance.
2. Deciding and implementing corrective action.
3. Determining standards of performance.
4. Comparing actual performance versus standards and analyzing results.
The above steps must be done in this sequence:
A. 4,3,2,1 C. 1,3,4,2
B. 3,1,4,2 D. 3,4,1,2 (rpcpa)

22. B
? The control process sequence.
Chapter 2  Management Accounting Environment 32

 The operating control process follows the planning process. The general steps
followed in the operating control process are: establishment of control standards (or
standards or performance), measurement of actual performance, comparison of
actual performance with established standards and analysis of variances, decision
and implementation of remedial/corrective actions. Choice-letter “b” is correct.

23. The concept of ”management by exception” refers to management’s

A. Consideration of only those items which vary materially from plans.
B. Consideration of only rare events.
C. Consideration of items selected a random.
D. Events that involve material amount.

23. A
? A statement describing the concept of management by exception.
 Choice-letter “a” is correct, management by exception refers to the management
control technique of investigating those variances which materially or significantly
deviate from plans. Normal variances are to be investigated by lower managers
while abnormal variances are to be attended to by top management. Choice-letters
“b” and “c” are incorrect because it is amount of the variance, not the events, not
those items selected at random, neither those events that involve material amounts,
are covered by the management by exception.

24. Which of the statements is true or false?

Statement 1. Management accounting reports tend to be much more detailed than
financial accounting.
Statement 2. Cost accounting refers to accounting for the annual cost of operating a
business.
Statement 1 Statement 2
A. False True
B. False False
C. True True
D. True False (rpcpa)

24. D
? Indicate the given statements as true or false.
 Choice-letter “d” is correct. Statement 1 is true. Statement 2 is false because it
refers to the cost of money, not cost accounting which refers to the process of
accumulating and processing production and costs data into a meaningful information
to help management in making effective decisions with respect to the business of
running the production operations of the firm.

25. Which of the statements is true or false?

Statement 1. The Securities and Exchange Commission is the only government
agency that has jurisdiction over corporations in the Philippines.
Statement 2. Cost of goods sold is not an expense though the amount is applied to
units sold.
Chapter 2  Management Accounting Environment 33

Statement 3. Among the roles of controllership is the development of the

management information system, upon completion of which the controller must
not interfere with its implementation. (rpcpa)

Statement 1 Statement 2 Statement 3

A. False True False
B. False False True
C. True True True
D. True False False

25. A
? Identify the given statements as true or false.
 Choice-letter “a” is correct. Statement 1 is false because the SEC is not the only
government agency that has jurisdiction over corporation in the Philippines. Several
government regulatory agencies such as the Bangko Sentral ng Pilipinas, Insurance
Commissions, Energy Regulatory Board, Commission on Higher Education, and
many others have also jurisdiction over corporation within their area of regulation.
Statement 3 is false because as the primary officer in-charge of instituting systems,
reporting, and control, the controller’s job is conceived not to end after a system is
developed but to continue even up to the point of installing and monitoring the
effectiveness of the system.

26. Identify the following statements as true or false.

Statement 1. Management accounting has no externally imposed standards while
financial accounting has to follow the generally accepted accounting principles.

Statement 2. In the organizational structure of management accounting, the chief

accounting officer’s authority is basically “line” authority?

Statement 3. Management by exception pertains to management taking action on

items selected at random. (rpcpa)
Statement 1 Statement 2 Statement 3
A False True False
B False False True
C. True True False
D. True False False

26. C
? Identify the given statements as true or false.
 Choice-letter “c” is correct. Statements 1 and 2 are correct. Statement 3 is incorrect
because management by exception refers to the identification of materials variances
for top management to correct and develop policies on how to avoid the same in the
future.

27. Identify the following statements as true or false.

Statement 1. A user of financial statements who is a short-term creditor is interested
in the borrower’s ability to pay interest regularly.
Chapter 2  Management Accounting Environment 34

Statement 2. Management accounting provides that information essential for

planning, evaluating and controlling the strategies, tactics and operations of an
organization.
Statement 3. Despite of the ever increasing complexities of businesses today the
role of the controller in today’s management has not changed from that of the
controller of yesteryears. (rpcpa)

Statement 1 Statement 2 Statement 3

A. False True False
B. False True True
C. True True True
D. True False False

27. B
? Identify the given statements as true or false.
 Statement 1 is false because short-term creditors are more interested on how the
principal obligations rather than the interest would be paid. Long-term creditors are
more interested in ensuring payment of interest than short-term creditors.
Statements 2 and 3 are correct.

28. A type of managerial accounting
products and services regardless
known as
A. Differential accounting.
B. Activity accounting.
that refers to the determination of the cost of
of whether they are variable or non-variable is
C. Full cost accounting.
D. Responsibility accounting.

28. C
? A type of managerial accounting that refers to the determination of the cost of
products and services regardless of whether they are variable or non-variable.

 Full cost accounting (or absorption costing) considers all production costs, whether
variable or fixed, as product costs and are included in the determination of operating
costs. Choice-letter “b” is the correct answer.
Choice-letter “a” is incorrect because differential accounting relates to accounting
for those costs that change from one alternative to another and are used in making
economic decisions. Choice-letter “b” is incorrect because activity accounting may
refer to the process of relating costs with cost drivers that cause costs to be incurred.
Choice-letter “d” is incorrect because responsibility accounting does not primarily
relate to cost behavior but relates to organizational structure outlining the distribution
and delegation of authority and responsibility in an organization.

29. A type of managerial accounting that refers to the determination of the operating cost
regardless of cost behavior is
A. Differential accounting. C. Responsibility accounting.
B. Full cost accounting. D. Profitability accounting. (rpcpa)

29. B
Chapter 2  Management Accounting Environment 35

? A type of managerial accounting that refers to the determination of the operating cost
regardless of cost behavior.
 Full cost accounting (or absorption costing) considers all production costs, whether
variable or fixed, as product costs and are included in the determination of operating
costs. Choice-letter “b” is the correct answer.
Choice-letter “a” is incorrect because differential accounting relates to accounting
for those costs that change from one alternative to another and are used in making
economic decisions. Choice-letter “c” is incorrect because responsibility accounting
does not relate to cost behavior but relates to organizational structure that defines the
distribution and delegation of authority and responsibility in an organization.
Normally, responsibility accounting follows flexible budgeting that segregates costs
as to their fixed and variable components. Choice-letter “d” is incorrect because
profitability accounting refers only to the short-term measure of determining operating
income or loss based on the methods and techniques applied to recognize revenue
and measure expenses.

 done 
Chapter 2  Management Accounting Environment 36