Chapter 3- Understanding Financial Standards
Multiple Choices
1. Basic Financial Statements provided in annual report
- D. Statement of FS, IS, Cash Flow and Changes in Equity
2. Function of the cash flow statement
- D. Both a and b
3. Items included in the notes of F.S.
- D. All of the above
4. “Unqualified” auditor’s report indicates
- B. The F.S. presents fairly the Financial Position, results of
operation and changes in cash flow.
5. Who hires the auditor
- A. The firm which is audited
6. Allocation of the cost of fixes assets called?
- B. Depreciation
7. Depreciation expense be considered a discretionary item
- D. All of the above
8. Choices and estimates relating to depreciation effect
- C. Net Fixed Assets on the statement of F.P. and
depreciation expense in I.S.
9. Which statement is true
- B. Published F.S. may be prepared according to either
accrual or cash basis of accounting
10. Firms present two figures for earnings per share- basic and
diluted
- C. The firm has complex capital structure with convertible
securities, stock options and warrants which presents “dilution”
11. Statement of F.P. account used to reconcile the difference
that arise because of temporary differences in tax actually paid
to BIR and income tax expense reported in the I.S
- B. Deferred taxes
12. The use of accelerated depreciation rather than straight line
depreciation produces earnings of higher quality
- C. Both a and b
13. Methods by which management can manipulate earnings and
possibly lower the quality of reported earnings
- D. All of the above
14. True during the period of inflation
- A. Depreciation expense tends to be understated
15. Information can be ignored when analyzing F.S.
- D. None of the above
16. Statement of F.P. summarize for a business
- A. F.P. at point of time
17. Group of times would most likely be included in the other
assets account on the statement of F.P.
- A. land held for investment, start up cost, long term-
payment
18. Difference between notes payable- bank and current
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.
19.
20. Items could cause the recognition of accrued liabilities
- C. Salaries, rent, and insurance
21. Items need not be disclosed separately in the I.S.
- B. Salary expense
22. The I.S. measure for a firm
- C. Results of operation for a period
23. Two F.S. are frequently combined for presentation
purposes
- A. The income and retained earnings
24. Three profit measures calculated from the I.S.
- B. Gross profit margin, COGS percentage and EBIT
25. The figure for operating profit important
- A. Provides a basis for assessing the success of a
company apart from its financing and investment activities
and separate from its tax status
26. Statement of C.S. segregates cash inflows and outflows
- D. Operating, Financing and Investing activities
27. Short term securities be classified in the statement of C.F.
- B. Cash
28. Payments for taxes be classified in the Statement of C.F.
- B. Operating outflow
29. The repayment of debt principal be classified in the
statement of C.F.
- D. Financing Outflows
30. Type of accounts are notes payable and current maturities
of long term debt
- C. Financing accounts
31. Type of firm generally has the highest proportion of
inventory to total assets
- B. Retailers
32. Assets will not be depreciated over its service life
- D. land
33. Cause a change in the retained earnings
- D. All of the above
34. Largest expense item for most firms
- D. COGS
35. What does the cash accounts include
- C. Both a and b
36. Which statement is false
- A. Deferred taxes arise from the use of the same method
of depreciation for tax and reporting purposes
37. Revenue from sales of goods and services be classified in
the Statement of Cash Flows
- A. Operating Inflow
38. The sale of a building be classified in the Statement of
Cash Flows
- C. Investing inflow
Chapter 4- Financial Statements Analysis- I
True or False
1. Financial Analysis is primarily matter of making relevant
mechanical computations
- True
2. Percentage changes usually are computed by use of the
amounts for the latest accounting period as a base
- False
3. Peso amount of change during an accounting period of an item
appearing in F.S. is less significant than the change measured as
percentage
- True
4. Business enterprise earnings performance and its financial
condition are the two primary concerns of the financial analyst
- True
5. Increase in sales volume generally is accompanied by a
proportionate increase in net income
- False
6. On a common size I.S. net income is given an equivalent 100%
- False
7. Peso amount of change during in a certain item appearing in
F.S. is probably less significant than the change measured as
percentage
- True
8. Percentage changes are usually computed using the latest
figure as a base
- False
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
income
- True
10. Industry standards tend to place the performance of a
company in a more meaningful perspective
- True
Multiple Choices
1. Data from comparative F.S. are useful
- D. In accomplishing a and b above
2. Index numbers are used in
- A. Trend analysis
3. “Trading on the equity” (financial leverage) is likely to be a
good financial strategy for shareholders of corporation with
- A. Rapidly growing amount of net income
4. Select one with CORRECT statement
- B. Increase in the rate of operating earnings as a
percentage of sale may accompany a decrease in operating
earnings measured in absolute pesos
5. Comparing performance with industry norms is complicated
by:
- D. All of the above
6. Would probably not be found in a company’s annual report
- C. Interim financial report
7. First step in an analysis of F.S.
- C. Specify the objective of the analysis
8. Creditor’s objective in performing an analysis of F.S
- A. Decide whether the borrower has the ability to repay
interest and principal on borrowed funds
9. Investor’s objective in F.S. analysis
-D. To determine whether an investment is warranted by
estimating a company’s future earnings stream
10. Not a tool or technique used by a F.S. analyst
- C. Random sampling analysis
11. (A problem) These relationship suggest (indicate all correct
answer)
- A, C, D. Management is successfully controlling costs and
expense, The annual return on assets has been increasing,
Financing activities are likely to result in a net use of cash
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
True or False
1. Asset turnover rate multiplied by the rate of net income
earned on sales equal the rate earned on total assets
- True
2. If the information were available, financial analysts would be
interested in knowing the sales volume at the break-even point
for a business enterprise
- True
3. If the amount of current assets exceeds the amount of
current liabilities, a decrease in current assets with a
corresponding decrease in current liabilities increases the
current ratio.
- True
4. Number of days sales in receivable at the end of an accounting
period is a better measure of the quality of receivable than the
receivable turnover rate
-False
5. Window dressing is a violation of financial reporting standards
- True
6. Debt ratio is useful to creditors as well as to stockholders, but
each of these groups places somewhat different emphasis on it.
-True
7. Short-term creditors generally are more concerned with
vertical analysis than with horizontal analysis
- True
8. Horizontal analysis is possible for both an income statement
and F.S
-True
9. Common size F.S. show peso change in specific items from one
year to the next
-False
10. Company with 2.0 current ratio will experience a decline in
the current ratio when a short-term liability is paid
- False
Multiple Choices
1. What are the common size F.S.
- A. Statements that express each account on the statement
of F.P. as a percentage of total assets and each account of
the I.S. as a percentage of net sales.
2. Not revealed on a common size of statement of F.P.
- C. Peso amount of sales and liabilities
3. Serious limitation of financial ratios
- D. Ratios are not predictive
4. Most widely used liquidity ratio
- B. Current ratio
5. Limitation common to both the current and quick ratio
- A. Accounts receivable may not be truly liquid
6. Quick ratio a more rigorous test of short-run solvency than
the current ratio.
- D. The quick ratio eliminates inventories from the
numerator
7. Increasing collection period for accounts receivable
suggest about a firm’s credit policy
- C. The credit policy may be too lenient
8. Statement about inventory turnover is false
-D. A low inventory turnover is generally a sign of efficient
inventory management
9. Not a reason for a high inventory turnover ratio
-A. Stockpiling inventory
10. Asset turnover ratio measure
-B. Management effectiveness in generating sales from
investments asset
11. Ratio should not be used to measure the extent of a firm’s
debt financing
- C. Time interest earned
12. Amount of debt in a company’s capital structure
important to the financial analyst
- 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
shareholders
- D. Return on investment and return on equity
16. Financial leverage index greater than “1” indicate about a
firm
-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
activities
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
Multiple Choices
1. Operating decisions primarily deal with
-A. The use of scarce resources
2. Financing decisions primarily deal with
- B. How to obtain funds to acquire resources
3. Limitation of comparing a company’s performance against
actual results of last year that
-C. Past results can contain inefficiencies of the past year
4. Challenging business plans tend to
- D. Motivate improved performance
5. Business plan can help improvement
-D. All of the above
6. To gain the benefits of business planning,____ must understand
and support the budget
-A. Management at all levels
7. The sales forecast should be primarily based on
-B. Input from sales managers and sales representative
8. Sales forecast is influenced by
-D. All of the above
9. Sales forecast is
- A. Often the outcome of elaborate information gathering
and discussions among sales managers
10. Budget production depends on
- C. Budgeted sales and expected changes in inventory levels
11. Budget manufacturing overhead costs include all types of
factory expenses except
-D. Direct labor and direct materials
Chapter 8- Basic Cost management Concepts
Multiple Choices
1. Statement is true
-B. Because of a cost benefit trade-off, some direct
costs may be treated as indirect costs
2. Indirect manufacturing costs
- D. May include both variable and fixed costs
3. Variable costs
-B. Increase in total when the actual level of activity
increases
4. Fixed costs
- A. May include either direct or indirect costs
5. Variable cost in an insurance company
-C. Sales Commission
6. Service-sector companies report
- D. No inventory accounts
7. Manufacturing- sector companies except
- C. Direct materials inventory, work-in process,
inventory and finished goods inventory accounts
8. For a manufacturing company, direct materials cost may be
included in
-D. D.M. inventory, WIP inventory and F.G. inventory
accounts
9. For a manufacturing company, direct labor cost may be
included in
-C. Both WIP inventory and F.G. inventory
10. For a manufacturing company, indirect manufacturing
cost may be included in
- 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
EXCEPT for,
- 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
part of manufacturing overhead the rental expense on the firm’s
retail facilities. This inclusion would
- B. Overstate the COGS on the I.S.
23. COG manufactured will usually include
-C. Some costs incurred during the prior period as well as
costs incurred during the current period
24. Example of a fixed cost that would be considered a direct
cost is
-C. A production supervisors’ salary when the cost objective
is the production department
26. Cost associated with idle time should be
-B. Treated as part of manufacturing overhead
27. A D.L. overtime premium should be charged to a specific job
when the overtime is caused by the
-B. Customer’s requirement for early completion of the job
28. Costs which are inventoriable are
-A. Manufacturing costs incurred to produce units of
output
29. For external reporting
-A. Costs are classified as either inventoriable or period cost
Chapter 10- System Design: Activity Based Costing and
Management
True or False
1. In activity-based costing, facility level costs should not be
included in product cost for internal management reports
that are used for decisions making. However companies
frequently include facility-level costs in product cost in
order to meet external reporting requirements
-True
2. Batch level activities are performed each time a batch of
goods is handled or processed
-True
3. When there is automation, product diversity, and little
correlation between overhead cost and direct labor, a plant
wide overhead rate based on D.L. is most appropriate
-False
4. In activity-based costing, a separate overhead rate is
computed for each activity center by dividing the estimated
overhead cost in the activity center by the total expected
activity for the activity center
-True
5. In activity-based costing system there is no overhead over
or under applied because the costing system is much more
accurate
-False
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
-False
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
-True
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
non-value-added
-True
Multiple Choices
21. Which of the following levels of costs should not be included
in product costs for internal management report that are used
for decision making
-D. Facility-level activities
22. Machining a part for a product is an example of a
-A. Unit-level activity
23. Production order processing is an example of a
- B. Batch-level activity
24. The power costs associated with running machines is an
example of a cost that can be traced to a
-A. Unit-level activity center
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
26. The plant manager’s salary is an example of a cost that would
be traced to a
-D. Facility-level activity center
Fill in the Blanks
1. A single overhead rate used throughout an entire plant
operation is known as Plantwide overhead rate
2. The major problem with using direct labor- hours or machine-
hours as the bases for assigning overhead cost to products is
that these bases rely on volume as the sole factor in overhead
cost assignment
3. ABC involves a two stage allocation process, in which the first
stage assigns overhead costs to activity centers and the second
stage assigns overhead costs from activity centers to products
and services
4. Process value analysis which involves a systematic analysis of
the activities required to make a product or perform a service is
the beginning point in ABC
5. Unit level activities, such as the consumption of power are
performed each time a unit is produced and arise as a result of
the total volume of production going through a facility
6. Batch Level activities, which are performed each time a batch
of goods is handled or processed, include tasks such as
placement of a purchase order
7. Product Level activities, which are performed as needed to
support the production of a particular product, include tasks
such as maintaining parts inventories
8. Facility Level activities just sustain a facility’s general
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 11- Cost Estimation
Multiple Choices
1. Cost behavior refers to
-A. How costs react to a change in the level of
activity
2. Understanding of the underlying behavior of costs helps in
all of the following EXCEPT
- D. Sales volume can be better estimated
3. Fixed costs depend on
-B. The amount of resources required
4. A fixed cot in an automobile manufacturing plant
- A. Administrative salaries
furnaces are produced for the month, the total costs for
hoses is
- B. Considered to be direct variable cost
6. Statement is FALSE
- B. Fixed costs have cost driver over the short run
7. Within the relevant range, if there is a change in the level
of the cost driver then
-C. Total fixed cost will remain the same and total
variable cost will change
8. Within the relevant range, if there is a change in the level
of the cost driver then
- D. Fixed costs per unit will change and variable
costs per unit will remain the same
16. The contribution approach to the income statement
-C. Is particularly helpful to the managers in planning
and decision making
17. Which of the following is unlikely to be classified as a
fixed cost with respect to the number of units produced
and sold
-D. Production supplies
18. Multiple regression analysis is used when
-B. There is more than one activity that drives the
variable component of a mixed cost
35. A regression equation
-A. Estimates the dependent variables
36. Correlation is a term frequently used in conjunction with
regression analysis and is measured by the value of the
coefficient of correlation, r. The best explanation of r is
- D. is a measure of the relative relationship between
two variables
Chapter 12- CVP Relationships
Multiple Choices
1. A calculation uses in CVP analysis is the breakeven point. Once
the breakeven point has been reached operating income will
increase by
- B. Contribution margin per unit for each additional unit
sold
2. In working on a CVP analysis, the accountant is unsure of the
exact result and or assumption under which to operate. What can
accountant do to help management in this CVP decision?
- B. Ascertain the probabilities of various outcomes and work
with management on understanding those probabilities in
reference to the CVP decision
3. Margin of safety is a key concept of CVP analysis. The margin
of safety is
- B. The difference between budgeted contribution margin
and breakeven contribution margin
4. One of the margin assumptions limiting the reliability of
breakeven analysis is that
- C. Total fixed costs will remain unchanged over the relevant
range
5. When used in CVP analysis, sensitivity analysis
- C. Is done through various possible scenarios and computes
the impact on profit of various predictions of future events
6. Which of the following will result in raising the breakeven point
- B. An increase in the semi variable cost per unit
7. The equal percentage changes in selling price and variable cost
per unit will cause the breakeven point in sales pesos to
-D. Remain unchanged
8. Which of the following is a characteristic of a contribution
income statement
-B. Fixed expenses are listed separately from variable
expenses
9. Which of the following would decrease unit contribution
margin the most
-A. A 15% decrease in selling price
Chapter 13- Variable Costing
Multiple Choices
1. Under variable costing, fixed manufacturing overhead is
-D. Immediately charged against sales a s a period
cost
2. Which of the following statements is true for affirm that
uses variable costing
- D. Product costs include variable administration
costs
3. Principal difference between variable costing and
absorption costing centers on
-B. Whether fixed manufacturing costs should be
included as product costs
4. Under variable costing
- B. Inventory costs will always be lower than under
absorption costing
5. When sales are constant, but the production level
fluctuates, net income determined by the variable costing
method will
-B. Remain constant
6. Costing method that treats all fixed costs as period costs
is
-C. Job-order costing
7. Under absorption costing, fixed factory overhead costs
- A. Are deferred in inventory when production
exceeds sales
8. The absorption costing net income was greater than the
variable costing net income. This fact suggest that
-B. More units were produced during the year than
were sold
9. Net income computed using variable costing would exceed
net income computed using absorption costing if
- A. Units sold exceed units produced
10. When sales are constant, but the production level
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
Measures
Matching Type
1. Total Variable overhead
-E. The sum of variable overhead spending variance and the
variable overhead efficiency variance
2. Overhead Efficiency
- G. Difference between actual hours worked and the hours
that should have been worked at the level of production, times
the standard variable overhead rate
3. Variable overhead spending variance
- C. Difference between the actual variable overhead
incurred and a performance budget for variable overhead
4. Labor efficiency variance
- H. Difference between actual hours worked and the hours
that should have been worked and at the level of production
times the standard wage rate
5. Labor rate variance
- A. Difference between the actual hours worked times the
standard wage rate and the actual payroll
6. Material usage variance
- D. measure of how well materials were utilized in the
production process
7. Material price variance
- J. Difference between the actual price and the standard
price, times the actual quantity of material purchases
8. Expected actual variance
-B. An estimate of what will happen
9. Normal standard
-I- What should achieve with normal workers in a normal
setting
10. Ideal standard
-F. What should achieved if all conditions are perfect
Multiple Choices
1. Which of the following is true concerning standard costs
-C. If probably used, standard can help to motivate
employees
2. Which of the following terms is bet identified with a system of
standard costs
-C. Management by exception
3. Which of the following is standard cost nearly like
-A. Estimate cost
4. Which of the following best characterized a standard cost
system
- B. Standards can pinpoint responsibility and can help
motivate employees
5. Standard costing will produce the same results or conventional
costing when standard cost variances are distributed to
-A. COGS and inventories
6. When performing input output analysis in standard costing,
“standard hours allowed” is a means of measuring
- B. Actual output at standard hours
7. The operating capacity that is required to satisfy
anticipated sales demand is
- C. Practical capacity
8. If the actual amount of direct materials used in a process
exceeded the standard amount of materials, there was
- C. An unfavorable materials quantity variance
9. When computing variances from standard costs the
difference between actual and standard price multiplied by
actual quantity yields a
-B. Price variance
10. In a standard cost system the materials price variance is
obtained by multiplying
-B. Actual quantity purchased by the difference
between actual price and standard price
11. Suppose a standard cost system is being used. What do
you call the variations in the use of materials which can be
calculated by comparing the record of materials withdrawn
with the standard consumption
-B. Quantity Variance
12. What type of direct materials variances for price and
usage will arise if the actual number of pounds of materials
used exceeds standard pounds allowed but actual cost was
less than standard cost
-A. Usage- Unfavorable/ Price- Favorable
13. How should a usage variance that is significant in amount
be treated at the end of an accounting period
- B Allocated among work in process inventory,
finished goods inventory and COGS
14. What would be the appropriate time to isolate and
recognize a direct material price variance
-C. When a material is purchased
15. An unfavorable price variance occurs because of
-A. Price increases on raw materials
16. Which department is customarily held responsible for an
unfavorable materials usage variance
- D. Production
17. Standard unit cost is used in the calculation of which of
the following variance
-D. Materials price variance- yes/ Materials usage
variance- Yes
18. Formula for labor rate variance
-A. Actual hours worked x actual hourly rate less
standard hourly rate
19. Excess direct labor wages variance resulting from
overtime premium will be disclosed in which type of variance
-D. Labor rate
20. How is a labor rate variance computed
-B. Difference between standard and actual rate
multiplied by actual hours
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
-H. The practice of focusing attention on those activities
where the actual performance differs significantly from planned
performance
3. Responsibility Accounting
- E. A system that relates cost to organizational structure
10. A budget that identifies revenues and costs with an
individual controlling their incurrence is
- D. Responsibility budget
11. In preparing quarterly budget estimates, who should be
responsible for the cash budget
-C. Finance manager

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

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

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

forecast
-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

is
- 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
purpose, relevant cost are defined as
- A. Future costs which will differ under each alternative
course of action
6. Which of the following costs are always irrelevant in decision
making?
-B. Sunk Costs
7. Which of the following statement does not represent a step in
identifying the relevant costs in a decision problem?
- C. Eliminate those costs that differ between alternatives
5. Average cost of capital
-I. The cost of financing the company’s activities
6. Accounting rate of return method
- H. The capital budgeting method that divides a
proposed project’s net income by the average investment
cost
7. Payback period
-D. Capital Budgeting method that determines the
minimum length of time it would take to recover the initial
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
10. Give an economic reason for eliminating the division
-B. The division’s avoidable fixed costs exceed it contribution
margin
11. In a make or buy decision
- D. Both variable costs and the fixed costs which are
avoidable are relevant
12. Best describes an opportunity cost
-A. It is a relevant cost in decision making, but it is not part
of the traditional accounting records
13. The opportunity cost of making a component part in a factory
with excess capacity for which there is no alternative use
-D. Zero
14. Not relevant in a decision regarding whether the product
should be processed further
-A. A variable production cost incurred prior to split-off
- J. Determining the most profitable combination of
product sales
10. Capital expenditure decision
-E. Determining when and how much to spend on
capital facilities
Multiple Choices
1. The relevance of a particular cost to a decision is
determined by
-D. Potential effect on the decision
2. In equipment-replacement decisions, which one of the
following does not affect the decision-making process?
- C. Original fair market value of the old equipment
3. Statements concerning cash flow determination for capital
budgeting purpose is not correct
-B. Book depreciation is relevant because it affects
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
would least likely to be used in evaluating the
-D. Adoption of a new method of allocating nontraceable
costs to product lines
8. The length of time required to recover the initial cash outlay
of a capital project is determined by using the
-B. Payback method
9. A characteristic of the payback method (before taxes) is that
it
- B. Neglects total project profitability
10. Statements about the payback method of investment analysis
is correct? The payback method
-A. Does not consider the time value of money
11. The payback reciprocal can be used to approximate a projects
-D. internal rate of return if the cash flow pattern is relatively
stable
12. The bailout payback method
-D. Measures the risk if a project is terminated
13. When evaluating projects, breakeven time (discounted payback
period) is best describes as
-D. The point at which discounted cumulative cash inflows on
a project equal discounted total cash outflows
14. The NPV method of investment project analysis assumes that
the project’s cash flows are reinvested at the
-C. Discount rate of return in the NPV calculation
15. The proper discount rate to use in calculating certainty
equivalent net present value is the
-C. Risk free rate
16. The rankings of mutually exclusive investments determined
using the internal rate of return method (IRR) and the NPV may
be different when
- D. Multiple projects have unequal lives and the size of the
investment for each project is different
18. When determining NPV in an inflationary environment
adjustments should made to
- B. Increase the estimated cash inflows and increase the
discount rate
Chapter 20 – Responsibility Accounting and Transfer Pricing
Multiple Choices
1. A management decision may be beneficial for a given profit
center, but not for the entire company. From the overall
company viewpoint, this decision could lead to action
referred to as
-C. Goal Congruence
2. A responsibility center is an organization unit headed by a
responsible manager it is known as
-D. None of the above
3. What term identifies an accounting system in which the
operations of the business are broken down into cost
centers and the control function of a foreman, sales
manager or supervisor is emphasized
-A. Responsibility accounting
4. Which of the following items of cost would be least likely
to appear in a performance report based on responsibility
accounting techniques for the supervisor of an assembly line
in a large manufacturing situation
- A. Supervisor’s salary
5. If a cost cannot be allocated to certain segments of an
organization it should be
- C. Included in it but not allocated
6. A profit center is any subunit or segment of an
organization that is assigned
- A. Both revenues and expenses
7. Which of the following is not true abut a responsibility
accounting system
-D. It holds management equally responsible for all
costs
8. In designing a responsibility accounting system, one should
be keep in mind a certain characteristics of each cost. This
characteristic is
- A. Increasing sales revenue and operating expenses
by the same peso amount
9. A company that has a profit can increase its return on
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
Scorecard
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
Measures
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
horizon

-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
measure

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
independent
7. The return on investment is usually considered the most
popular approach to incorporating the investment base into a
performance measure because
-A. It blends all the ingredients of profitability into a single
percentage
13. A problem with utilizing residual income is that
-C. A corporation with a larger peso amount of assets is
likely to have a higher residual income than a corporation with a
smaller peso amount of assets
14. A company which favors the residual income approach
-A. Wants managers to concentrate on maximizing an
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
creditors is
-C. This method encourages managers to use an excessive
amount of short-term debt
25. If a company is a multinational company with operation in
several different countries, one way to achieve comparability of
historical-cost based on ROI’s for facilities in different countries
is
-C. Restate the results of all operations in pesos
26. Which of the following statement is true
-D. The economic, legal, political, social and cultural
environments differ across countries/ Governments in some
countries may impose controls and limit selling process of a
company’s products
27. Typical performance measures more closely to manager’s
efforts
- A. Encourages the use of nonfinancial measures
28. Team incentives encourage cooperation by
-C. Letting individuals help one another as they strive toward
a common goal
29. Teams are used and the members have the added
encouragement of
-D. Team incentives
30. Designers of executive compensation plans emphasize of the
following factors
-D. All of the above are emphasized
31. Rate of sales growth and number of customers are two
examples of critical performance indicators for which of the
following critical success factors
-A. Service
32. Customer focused performance measures help organization
members manage activities by concentrating their attention on
improving what matters to the customers
-A. Reflection of the customer’s perspective
33. Performance measures should be external, rather than
internal and should reflect an understanding of the difference
between the output and outcome of activities
-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
35. An effective program of performance measurement
assess all facets of relevant performance so that the
decision maker will not trade off relevant, but unmeasured,
facets of performance on measured facets
-C. Reflection of comprehensive information
36. What critical performance indicator is concerned with
outcomes?
-B. Reflection of the customer’s validation
37. What critical performance indicator uses performance
measures as warning and diagnostic signals?
-D. Provision of feedback
Chapter 25- Executive Performance Measures and
Compensation
Multiple Choices
1. All of the following statements are true except
-C. An intrinsic reward is based on performances
and is any reward that one person provides to another
person to recognize a job well done
2. Which of the following statement is false
-A. Incentive compensation systems work best in
organizations in which employees have no skills or have not
been empowered
3. Which of the following NOT a true statement
-D. Compensation is not useful in motivating
employees
4. Based on performance and is any reward that one person
provides to another in recognition of a job well done
-C. Extrinsic rewards
5. Which of the following is an intrinsic reward
-B. Job satisfaction
6. Which of the following is an extrinsic reward
-D. All of the above
7. Which of the following is NOT an attribute of effective
performance measurement system
-D. The pay for performance systems base rewards
on only net income
8. Systems base rewards on achieving or exceeding some
measured performance
-A. Pay for performance
9. Which of the following is NOT an attribute of effective
performance measurement systems
-D. Incentive compensation are rewards system that
pa only an hourly wage for hours worked
10. Under the independent wage policy guideline for
effective incentive compensation policy for senior
management should be developed by
-B. A board of director’s compensation committee
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

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

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

develop
-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