Test 1 - Overview of MA and cost behaviors

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Financial accounting:
A) focuses on the future and includes activities such as preparing next year's operating budget.
B) is prepared for the use of department heads and other employees.
C) is primarily oriented to external stakeholders, such as investors, creditors, regulators and tax authorities.
D) does not need to comply with GAAP (generally accepted accounting principles).

2) When analysing costs, accountants should think of variable costs on a ________ basis and fixed costs on a
________ basis.
A) total; per-unit B) per-unit; total C) total; total D) per-unit; per-unit

3) Knowledge about the behavior of different costs in a service department such as maintenance can be used to
________.
A) plan costs
B) make decisions about the most efficient use of resources
C) provide feedback to managers
D) all of the above

4) ________ is the field that produces information used primarily by managers within an organization.
A) External auditing B) Internal auditing
C) Management accounting D) Financial accounting

5) A compensation plan where the sales force is paid salary plus commission is a ________.
A) step cost B) purely variable cost
C) mixed cost D) fixed cost

6) The following data points are available. This is an example of a ________ cost.

Units Costs
600 $560
650 $565
800 $580
900 $590
A) mixed B) fixed C) variable D) none of the above

7) When comparing management accounting and financial accounting, which of the following statements is
FALSE?
A) Management accounting prepares detailed reports whereas financial accounting prepares summary
reports.
B) Management accounting has a future orientation whereas financial accounting has a past orientation.
C) Behavioural considerations are of primary importance in management accounting, but not in financial
accounting.
D) Management accountants are constrained by the principles of reporting promulgated by the Institute of
Management Accountants whereas financial accountants are constrained by Generally Accepted
Accounting Principles.

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 8) As sales volume increases in the relevant range, a fixed cost does not change ________, but the fixed cost
________ becomes progressively smaller.
A) in total; per-unit B) in total; per year C) per-unit; total D) per-unit; per-unit

9) Which of the following costs is a fixed cost?

A) labor wages of workers who mix dairy ingredients to make ice cream
B) depreciation expense on factory building
C) cost of dairy ingredients used to produce ice cream
D) fuel used by delivery trucks

10) The person MOST likely to use management accounting information is a(n):
A) assembly department supervisor. B) shareholder evaluating a stock investment.
C) governmental taxing authority. D) banker evaluating a credit application.

11) As sales volume decreases in the relevant range, fixed costs per unit ________, but total fixed costs ________.
A) do not change; increase B) do not change; decrease
C) increase; do not change D) decrease: do not change

12) Which of the following costs is a variable cost?

A) fuel for airplane for airline
B) lease cost for factory machine for manufacturer of electronics
C) depreciation expense of airplane for airline
D) rental expense for factory building for manufacturer of electronics

13) A car lease payment is computed based solely on the number of miles driven. This is an example of a ________.
A) variable cost B) stair cost C) step cost D) mixed cost

14) The high-low method can be used to approximate a cost function. A disadvantage of this method is ________.
A) it is difficult to apply due to rigorous calculations
B) it takes a long time to measure a cost function
C) it is very costly to use
D) it makes inefficient use of information because it does not use all the available data

15) Which of the following statements about management accounting is FALSE?

A) Management accounting is used by managerial accountants to make strategic and operational decisions.
B) Management accounting is the process of identifying, measuring, accumulating, analyzing, preparing,
interpreting and communicating information.
C) Management accounting helps managers fulfill organizational objectives.
D) Management accounting produces information for managers in an organization.

16) Management accounting information can be used for all of the following EXCEPT:
A) evaluate the performance of a company. B) project materials needs.
C) evaluate the market price of the stock. D) calculate the cost of a product or service.

17) What happens when the cost-driver level increases within the relevant range?
A) Variable costs per unit of cost driver increase. B) Fixed costs per unit of cost driver increase.
C) Total variable costs decrease. D) Total fixed costs remain unchanged.

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18) Variable costs ________.
A) are fixed in total
B) vary per unit
C) are fixed per unit and vary in total
D) decrease in total as the cost-driver activity level increases

19) Fixed costs ________.

A) vary on a per-unit basis, but are fixed in total B) vary on a per-unit basis, and vary in total
C) are fixed on a per-unit basis, and fixed in total D) are fixed on a per-unit basis, but vary in total

20) Which of the following is NOT a function of a management accounting system?

A) strategic development B) control
C) product costing D) financial reporting

21) Which of the following organizations oversees the CMA Exam?

A) Institute of Management Accountants
B) American Institute of Certified Management Accountants
C) American Institute of Certified Public Accountants
D) Chartered Accountants Institute

22) Generally Accepted Accounting Principles are most closely connected to ________.
A) management auditing B) financial accounting
C) internal auditing D) management accounting

23) Which of the following costs is a fixed cost?

A) labour wages of workers who mix dairy ingredients to make ice cream
B) cost of dairy ingredients used to produce ice cream
C) fuel used by delivery trucks
D) factory supervisory salaries

24) When estimating the cost of the maintenance department in a hospital for a month (Y), what cost driver (X)
should be used?
A) number of patients per month times the length of stay per patient
B) number of nurses working per month
C) number of operations per month
D) number of patients per month

25) Within the relevant range, the total amount of ________ cost changes in direct proportion to changes in the cost
driver. Within the relevant range, the total amount of ________ cost does not change in direct proportion to
changes in the cost driver.
A) variable; fixed B) step; mixed C) fixed; variable D) mixed; step

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26) When comparing management accounting and financial accounting, which of the following statements is
FALSE?
A) Behavioral considerations are of primary importance in management accounting, but not in financial
accounting.
B) Management accounting has a future orientation whereas financial accounting has a past orientation.
C) Management accounting prepares detailed reports whereas financial accounting prepares summary
reports.
D) Management accountants are constrained by the principles of reporting promulgated by the Institute of
Management Accountants whereas financial accountants are constrained by Generally Accepted
Accounting Principles.

27) Which of the following descriptors refer to management accounting information?

A) It is only retrospective, reporting and summarizing in financial terms the results of past decisions and
transactions.
B) It is prepared for shareholders.
C) It is oriented to meeting the decision making needs of employees and managers inside the organization.
D) It is driven by rules.

28) ________ is the field of accounting that develops information for external parties such as stockholders,
suppliers, banks and governmental regulatory bodies.
A) Auditing B) Management accounting
C) Financial accounting D) Internal auditing

29) ________ is the field of accounting that develops information for external parties such as stockholders,
suppliers, banks and governmental regulatory bodies.
A) Auditing B) Management accounting
C) Internal auditing D) Financial accounting

30) Management accounting:

A) provides information that is generally available only on a quarterly or annual basis.
B) must be consistent with rules formulated by the Financial Accounting Standards Board (FASB).
C) is primarily oriented to external stakeholders.
D) is both retrospective, providing feedback about past operations, and also prospective, incorporating
forecasts and estimates about future events.

31) What happens when the cost-driver activity level decreases within the relevant range?
A) Total fixed costs increase. B) Variable costs per unit of cost driver decrease.
C) Total variable costs decrease. D) Fixed costs per unit of cost driver decrease.

32) Which of the following types of information are used in management accounting?
A) financial information B) nonfinancial information
C) information focused on the long term D) All of the above are correct.

33) The person MOST likely to use ONLY financial accounting information is a:
A) department manager. B) vice president of operations.
C) factory shift supervisor. D) current shareholder.

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34) Donahue currently produces 120,000 units at a cost of $400,000. Of the $400,000 cost, $200,000 is a fixed cost.
Next year Donahue expects to produce 145,000 units. Donahue's relevant range for production activities is
100,000 to 150,000 units. If 145,000 units are produced next year, what is the expected fixed cost for next year?
A) $441,667 B) $483,333 C) $200,000 D) $241,667

35) Simon Inc. currently produces 110,000 units at a cost of $440,000. The cost is variable. Next year Simon Inc.
expects to produce 115,000 units. Simon's relevant range for production is 100,000 to 120,000 units. If 115,000
units are produced next year, what is the expected variable cost?
A) $460,000 B) $430,000 C) $440,000 D) $420,000

36) Financial reports prepared by financial accountants focus on ________. Financial reports prepared by
management accountants focus on ________.
A) the organization as a whole; the organization as a whole
B) segments of the organization such as departments and divisions; the organization as a whole
C) the organization as a whole; segments of the organization such as departments and divisions
D) segments of the organization such as departments and divisions; segments of the organization such as
departments and divisions

37) When managers graph a linear cost function with one cost driver, the intercept represents the ________ cost and
the slope represents the ________ cost.
A) fixed; variable B) variable; fixed C) fixed; mixed D) variable; mixed

38) Presented below is the production data for six months of the year showing the mixed costs incurred by
Madeline Company.

Month Cost Units

July $6,000 4,000
August $11,250 9,500
September $11,500 9,000
October $11,700 10,500
November $14,000 12,000
December $12,850 10,000

Madeline Company uses the high-low method to analyze mixed costs. The predicted total cost at an operating
level of 10,000 units is ________.
A) $11,800 B) $11,725 C) $12,850 D) $12,000

39) The relevant range applies to ________.

A) fixed costs only B) variable costs only
C) fixed costs and variable costs D) none of the above

40) As the sales volume increases in the relevant range, variable costs per unit ________ but total variable costs
________.
A) do not change; decrease B) do not change; increase
C) decrease; do not change D) increase; do not change

41) Management accounting information includes all of the following EXCEPT:

A) tabulated results of customer satisfaction surveys.
B) market price of the stock.
C) the cost of producing a product.
D) the percentage of units produced that is defective.

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42) What statement about management accounting is FALSE?
A) Management accounting is the process of identifying, measuring, accumulating, analysing, preparing,
interpreting and communicating information.
B) Management accounting produces information for managers in an organisation.
C) Management accounting is used by managerial accountants to make strategic and operational decisions.
D) Management accounting helps managers fulfil organisational objectives.

43) Who provides assurance to external users about the reliability of a company's financial statements?
A) Certified Public Accountants and Chartered Accountants
B) Certified Public Accountants and Chartered Management Accountants
C) Certified Management Accountants and Certified Public Accountants
D) Chartered Management Accountants and Certified Management Accountants

44) An accountant may have difficulty classifying costs as fixed or variable because ________.
A) costs may behave in a nonlinear way
B) it depends on the decision situation
C) costs may be affected by more than one cost driver
D) all of the above

45) Management accounting reports might include information about:

A) customer complaints.
B) net income for the year on budgeted income statement.
C) total assets on budgeted balance sheet.
D) All of the above are correct.

46) When examining the output from regression analysis to separe a mixed cost into fixed and variable elements,
the goodness of fit (prediction power) measure is labeled ________ by most computer programs.
A) constant B) R2
C) standard error of estimate D) X coefficient

47) ________ is the field that produces information for managers within an organisation.
A) Financial auditing B) Management accounting
C) Financial accounting D) External auditing

48) The primary users of management accounting information are ________.

A) managerial accountants B) governmental regulatory bodies
C) bankers D) managers in organisations

49) What happens when the cost-driver activity level increases within the relevant range?
A) Variable costs per unit of cost driver decrease. B) Total fixed costs increase.
C) Fixed costs per unit of cost driver decrease. D) Total variable costs decrease.

50) The primary users of management accounting information are ________.

A) bankers B) managers in organizations
C) governmental regulatory bodies D) managerial accountants