CHAPTER 1

BASIC CONCEPTS IN MANAGEMENT ACCOUNTING

1. The main focus of management accounting is:

A. decision making.
B. the preparation of financial statements.
C. the preparation of budgets.
D. documenting cash flows.

2. Which of the following functions is most directly related to management by objective?

A. Reporting
B. Decision making
C. Control
D. Planning

3. The setting of objectives and the identification of methods to achieve those objectives is
called
A. planning
B. controlling
C. decision making
D. performance evaluation

4. In the planning and control process, what is the proper sequence of events?
A. Set goals, set objectives, develop plans, implement plans, evaluate performance.
B. Establish a master budget, set standard costs, develop variance analysis.
C. Develop engineered costs, develop pricing targets, calculate contribution margins
D. Identify variable costs, identify fixed costs, project the sales mix, determine
breakeven.

5. The primary objective of management accounting is to provide:

A. stockholders and potential investors with useful information for decision making.
B. banks and other creditors with useful information in making credit decisions.
C. management with information useful for planning and control of operations.
D. supervising government agencies with information about the company’s management
affairs.

6. Management accounting information

A. uses historical cost as the basis for reports to managers who are making decisions
about future courses of actions.
 B. should be developed and provided only if the benefits exceed its costs.
C. does not reflect the financial criteria of verifiability or consistency.
D. should serve the basic needs of investors and creditors.

7. Which of the following is included in the day-to-day work of the management team?
A. decision making
B. planning
C. controlling
D. all of the given choices

8. Which of the following statements is true when comparing managerial accounting to

financial accounting?
A. Managerial accounting places more emphasis on precision than financial accounting.
B. Both are highly dependent on timely information.
C. Both rely on the same accounting information system.
D. Managerial accounting is concerned with external decision makers.

9. Which of the following is true of managerial accounting rather than financial accounting?
A. The outputs of this accounting system are the basic financial statements.
B. The methods of this accounting system are established by an overseeing board.
C. The accounting methods are standardized to allow comparisons among companies.
D. The accounting system would be unique to each company.

10. Management accounting’s role in the control processes is to provide

A. managers with information that can be used to determine customer satisfaction levels.
B. investors and creditors the information about financial stability of the company.
C. managers with relevant information to compare actual results with expectations.
D. input to managers on the best ways to achieve continuous improvement in the
production process.

11. Which of the following statements is (are) true regarding financial and managerial
accounting?
I. Both are mandatory.
II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just looking at the
organization as a whole.
IV. Both are geared to the future, rather than to the past.

A. I, II, III and IV

B. Only II, III and IV
 C. Only II and III
D. Only II

12. Which of the following statement is FALSE?

A. Managerial accounting need not mostly conform to PFRS.
B. Financial accounting reports focus on subunits of the organization.
C. Managerial accounting is not required.
D. Managerial accounting focuses on the needs of internal users.

13. For internal users, managers are more concerned with receiving information that is:
A. completely objective and verifiable.
B. completely accurate and precise.
C. relevant, flexible, and immediately available.
D. relevant, completely accurate, and precise.

14. Which of the following statements is correct?

A. A certified public accountant can readily render management advisory services to the
public.
B. A CPA with MBA and DBM degrees is automatically qualified to render
management advisory services.
C. Competence as a standard in the rendition of management advisory services by a
CPA may be equated to having excellent scholarly preparation to include the usual
baccalaureate degree, an MBA and other post graduate studies.
D. Adequate training and experience in both the analytical approach and process in
a particular undertaking are requisites for the CPA to be involved in a
management advisory service engagement.

15. The following characterize management advisory services except

A. It involves decision for the future.
B. It is broader in scope and varied in nature.
C. It utilizes more junior staff than senior members of the firm.
D. It relates to specific problems where an expert’s help is required.

16. Which of the following statement is incorrect?

A. CPAs provide management advisory services to go around the ethical
constraints as mandated by the accounting profession.
B. Businesses hire management consultants to help define specific problems and develop
decisions.
C. CPAs who are performing management advisory service may be considered to be in
the practice of management consulting.
 D. Included in the practice of consulting is the provision of confidential service in which
the identity of the client is concealed.

17. The primary purpose of management advisory services is to

A. conduct special studies, preparation of recommendations, development of plans ad
programs, and provision of advice and assistance in their implementation.
B. provide services or to fulfill some social needs.
C. improve the client’s use of its capabilities and resources to achieve the objectives
of the organization.
D. earn the best rate of return on resources entrusted to its care with safety of investment
being taken into account and consistent with firm’s social and legal responsibilities.

18. The major reporting standard for presenting managerial accounting information is
A. relevance
B. generally accepted accounting principles
C. the cost principle
D. the current tax law

19. With respect to the time dimension, how does managerial decision compare with external
performance evaluation?
Managerial Decision External
Making Performance
A. Past Past
B. Past Future
C. Future Past
D. Future Future

20. Which of the following activities is not usually performed by a management accountant?
A. Assisting managers to interpret data in managerial accounting reports.
B. Designing systems to provide information for internal and external reports.
C. Gathering data from sources other than the accounting system.
D. Deciding the best level of inventory to be maintained.

21. How does the managerial decision making compare with external performance
evaluation?
Managerial Decision Making External Performance Evaluation
A. Detailed Detailed
B. Detailed More aggregated
C. More aggregated Detailed
D. More aggregated More aggregated
22. Management accountants would not
A. assist in budget planning.
B. prepare reports primarily for external users.
C. determine cost behavior.
D. be concerned with the impact of cost and volume on profits.

23. In the contemporary business environment, cost management focuses on

A. financial reporting and cost analysis.
B. common emphasis on standardization and standard costs.
C. development and implementation of the business strategy.
D. all of the given choices.

24. Management accounting is similar to financial accounting in that both:

A. are governed by financial reporting framework.
B. deal with economic events.
C. concentrate on historical data.
D. classify reported information in the same manner.

25. Managerial accounting provides data to achieve all of the following major objectives
except:
A. planning and control of costs.
B. supporting management planning
C. compliance with SEC reporting requirements
D. determining the costs of products

26. Internal reports must be communicated

A. daily
B. monthly
C. annually
D. as needed

27. Which consideration influences the frequency of an internal report?

A. The wishes of the managers receiving the report.
B. The frequency with which decisions that require the information are made.
C. The cost of preparing the report.
D. All of the given choices.

28. Which of the following statements about internal reports is not true?
A. The content of internal reports may extend beyond the double-entry accounting
system.
 B. Internal reports may show all amounts at market values.
C. Internal reports may discuss prospective events.
D. Most internal reports are summarized rather than detailed.

29. The informational needs of internal users/management:

A. are historical in nature
B. emphasize the company as a whole
C. emphasize accuracy over timeliness
D. may require more customized reports than external financial statements

30. Which of the following is most associated with managerial accounting?

A. Must follow generally accepted accounting principles.
B. May rely on estimates and forecasts.
C. Is prepared for users outside the organization.
D. Always reports on the entire entity.

31. Which statement about the extent of detail in a management accounting report is true?
A. It may depend on the frequency of the report.
B. It depends on the type of manager receiving the report.
C. It depends on the level of the manager receiving the report.
D. All of the given choices.

32. Which of the following characteristics is inherent to management accounting?

A. Reporting of historical information
B. Compliance to generally accepted accounting principles
C. Contribution approach income statement
D. External users of financial report

33. In order to be useful to managers, management accounting reports should possess all of
the following characteristics except:
A. Provide objective measures of past operations and subjective estimates about future
decisions
B. Be prepared in accordance with generally accepted accounting principles.
C. Be provided at any time management needs information.
D. Be prepared to report information for any unit of the business to support decision
making.

34. Which ethical standard of conduct requires that a managerial accountant be responsible to
prepare complete and clear reports and recommendations are based on appropriate
analyses of relevant and reliable information?
 A. competence
B. confidentiality
C. integrity
D. objectivity

35. Which ethical standard of conduct requires the managerial accountant have to
communicate information fairly and objectively?
A. competence
B. confidentiality
C. integrity
D. objectivity

36. Under which ethical standard of conduct does the managerial accountant have the
responsibility to refuse any gift, favor, or hospitality that would influence or appear to
influence his or her decision?
A. competence
B. confidentiality
C. integrity
D. objectivity

37. Under which ethical standard of conduct does the managerial accountant have the
responsibility to refrain from either actively or passively subverting the attainment of an
organization’s legitimate and ethical objectives?
A. integrity
B. competence
C. objectivity
D. confidentiality

38. Under which ethical standard of conduct does the managerial accountant have the
responsibility to disclose fully all relevant information that could reasonably expected to
influence an intended user’s understanding of the reports, comments, and
recommendations presented?
A. objectivity
B. competence
C. confidentiality
D. integrity

39. For managerial decision purposes, the volume of information should be evaluated on the
basis of
A. cost-benefit relationship
 B. A cost, but not benefit.
C. A benefit, but not cost.
D. Neither cost nor benefits, but some other criteria.

40. The first step in managerial decision making is to

A. specify the standard or expected outcome.
B. gather information about the consequence of each alternative.
C. identify a problem.
D. list alternative courses of action.

41. In a broad sense, cost accounting can be defined within the accounting system as
A. internal and external reporting that may be used in making nonroutine decisions and
in developing plans and policies.
B. external reporting to government, various outside parties, and stockholders.
C. internal reporting for use in management planning and control, and external
reporting to the extent its product-costing function satisfies external reporting
requirements.
D. internal reporting for use in planning and controlling routing operations.

42. The cost management function is usually under the :

A. chief information officer.
B. treasurer.
C. purchasing manager.
D. controller.

43. If a distinction is made between cost accounting and managerial accounting, managerial
accounting is more oriented toward
A. valuation inventory.
B. analysis of variances including spoilage.
C. financial reporting to third parties.
D. the planning and controlling aspects of the management process.

44. Which of the following does not describe managerial accounting?

A. internally focused.
B. emphasis on the future
C. externally focused
D. detailed information

45. The managerial function of controlling

A. is performed only by the controller of a company.
 B. is only applicable when the company sustains a loss.
C. is concerned mainly with a operating a manufacturing segment.
D. includes performance evaluation by management.

46. Planning is a function that involves

A. hiring the right people for a particular job.
B. coordinating the accounting information system.
C. setting goals and objectives for an entity.
D. analyzing financial statements.

47. In determining whether planned goals are being met, a manager is performing the
function of
A. planning
B. controlling
C. motivating
D. follow-up

48. Managerial accounting creates value by:

A. by forcing managers to analyze historical figures and interpret the results
B. by eliminating all pricing and costing errors
C. by focusing managers attention on the relationship between financial and non-
financial factors
D. all of the given choices.

49. Which of the following best describes what performance evaluation should be designed
to do?
A. Modify goal and objectives each month.
B. Establish sales goals and targets.
C. Compare actual results to plan.
D. Establish blame

50. Which of the following is a staff position?

A. vice-president of production
B. vice-president of marketing
C. vice-president of finance
D. plant foreman

51. Which management position is responsible for raising capital?

A. Internal auditor
B. Treasurer
 C. Controller
D. CFO

52. Each of the following would be considered a staff function EXCEPT the:
A. vice-president of finance
B. vice-president of corporate planning
C. vice-president of research and development
D. vice-president of marketing

53. Management accountants generally exercise which type of authority?

A. Company
B. Functional
C. Line
D. Staff

54. The treasurer function is usually not concerned with

A. investor relations
B. financial reports
C. short-term financing
D. credit extension and collection of bad debts.

55. Which of the following duties is usually assigned to the controller?

A. directing the granting of credit to clients
B. investing the organization’s funds
C. tax planning
D. independently evaluating the firm’s financial statements

56. Developing a company strategy for responding to anticipated new markets is an example
of:
A. decision making
B. controlling
C. planning
D. motivating

57. Deciding whether to sell a product or process it further is an example of a(n):

A. controlling activity
B. operating activity
C. planning activity
D. none of the given choices
58. Obtaining feedback is generally identified most directly with the management function of
A. Planning
B. Directing and motivating
C. Controlling
D. Decision making

59. A staff position

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

60. Which of the following statements is true regarding ethics in decision-making?

A. Since most business decisions are simply a matter of economics, ethical
considerations should be ignored.
B. Decision-making can have an ethical as well as an economic impact.
C. Managerial accountants do not face ethical issues.
D. Business managers will always agree on ethical choices.