Managerial Accounting Review Question一、True/False QuestionsFor each of the following, circle the T or the F to indicate whether the statement is true or false.1Managerial accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers inside the business organization.2Product costs are selling expenses that appear on the income statement.3Management accounting reports provide a means of monitoring , evaluating and rewarding performance.4Product costs are offset against revenue in the period in which the related products are sold, rather than the period in which the costs are incurred.5Manufacturing overhead is considered an indirect cost, since overhead costs generally cannot be traced conveniently and directly to specific units of product.6Overhead application rates allow overhead to be assigned at the beginning of a period to help set prices.7Pepsi Cola would most likely use a job order costing system.8Activity-based costing tracks cost to the activities that consume resources.9Activity based costing uses multiple activity bases to assign overhead costs to units of production.10The two steps required in Activity Based Costing are 1) Identify separate activity cost pools and 2) allocate each cost pool to the product using an appropriate cost driver11The new manufacturing environment is characterized by its shift toward labor intensive production and declining manufacturing overhead costs.12A cost driver is an activity base that is highly correlated with manufacturing overhead costs.13In ABC, only one cost driver should be used in applying overhead.14As companies become more automated overhead costs decrease and direct labor costs increase.15An equivalent unit measures the percentage of a completed units cost that is present in a partially finished unit.16Costs do not flow through a process cost system in the same sequence as actual products move through the assembly process.17Non-value added activities are those that do not add to a product's desirability.18Target costing centers on new product and service development as opposed to managing the value chain for existing products.19In the target costing process, target price is computed by adding the desired profit margin to the target product cost.20Target cost equals target price plus profit margin.21Variable costs which increase in total amount in direct proportion to an increase in output represent a constant amount per unit of output.22Any business which operates at less than capacity will have larger fixed costs than variable costs.23With variable costs, the cost per unit varies with changes in volume.24The contribution margin is the difference between total revenue and fixed costs.25The volume of output which causes fixed costs to be equal in amount to variable costs is called the break-even point.26Any business which operates at less than capacity will have larger fixed costs than variable costs.27Margin of safety is the dollar amount by which actual sales volume exceeds the break-even sales volume.28Life cycle costing considers all potential resources used by the product over its entire life.29Economies of scale can be achieved by using facilities more intensively.30The break-even point is the level of activity at which operating income is equal to cost of goods sold.31Contribution margin ratio is equal to contribution margin per unit divided by unit sales price.32Opportunity cost is the benefit that could have been obtained by pursuing an alternate course of action.33All incremental revenue or incremental costs are relevant.34Sunk costs are relevant to decisions about replacing plant assets.35In determining whether to scrap or to rebuild defective units of product, the cost already incurred in producing the defective units is not relevant.36In making a decision, management will look thoroughly at both relevant and irrelevant data.373.Responsibility margin is useful in evaluating the consequences of short-run marketing strategies, while contribution margin is more useful in evaluating long-term profitability.38The transfer price is the dollar amount used in recording sales to primary customers.39Under variable costing, fixed manufacturing costs are treated as period costs, rather than product costs.40The transfer price is the dollar amount used in recording sales to primary customers.41Variable costing treats all fixed manufacturing costs as expenses of the current period.42In full costing when production rises above the amount of sales, some of the fixed costs will remain in inventory.43Return on Investment (ROI) tells us how much earnings can be expected for the average invested dollar.44Capital turnover can be improved by reducing invested capital while keeping sales constant.45The value chain consists of only those activities that increase the selling price of a product as it is distributed to a customer.46Residual income is calculated by subtracting the minimum acceptable return on the average invested capital from the operating income.二、Multiple Choice QuestionsChoose the best answer for each of the following questions and insert the identifying letter in the space provided.1.Costs that are traceable to a particular unit and are inventoriable are calledA) Period costs B) Product costs C) Overhead costs D) Job costs2. .Determine the amount of manufacturing overhead given the following information:a. Depreciation on a factory building $2,400b. Telephone expense in factory office750c. Telephone expense in sales showroom850d. Factory foreman’s salary5000e. Maintenance for factory` 800f. Maintenance for sales showroom 680A) $4,010 B) $9,800 C) $8,950 D) $10,54024.Goods that are still in the production process would be in which account?A) Materials inventory B) Work-in-process inventory C)Finished goods inventory D)Cost of goods sold29.The principal difference between managerial accounting and financial accounting is that managerial accountinginformation is:A) Prepared by managers.B) Intended primarily for use by decision makers inside the business organization.C) Prepared in accordance with a set of accounting principles developed by the Institute of CertifiedManagerial Accountants.D) Oriented toward measuring solvency rather than profitability.30.Management accounting systems are designed to assist organizations in the performance of all of the followingfunctions except:A) The assignment of decision-making authority over company assets.B) Planning and decision-making.C) Monitoring, evaluating and rewarding performance.D) The preparation of income tax returns.35.In comparison with a financial statement prepared in conformity with generally accepted accounting principles, amanagerial accounting report is less likely to:A) Focus upon the entire organization as the accounting entity. B) Focus upon future accounting periods.C) Make use of estimated amounts. D) Be tailored to the specific needs of an individual decision maker.4.If the salaries of the sales staff of a manufacturing company are improperly recorded as a product cost, what will bethe likely effect on net income of the period in which the error occurs?A) Net income will be overstated. B) Net income will be understated.C) Net income will be unaffected. D) Net income will be understated only if inventory levels rise.5.Manufacturing overhead is best described as:A) All manufacturing costs other than direct materials and direct labor.B) All period costs associated with manufacturing operations.C) Indirect materials and indirect labor.D) All operating expenses other than selling expenses and general and administrative expenses.43.Underapplied overhead at the end of a month:A) Results when actual overhead costs are less than amounts applied to work in process.B) Indicates a poorly designed cost accounting system.C) Is represented by a debit balance remaining in the Manufacturing Overhead account.D) Is represented by a credit balance remaining in the Manufacturing Overhead account.58.The account Work-in-Process InventoryA) Consists of completed goods that have not yet been soldB) Consists of goods being manufactured that are incompleteC) Consists of materials to be used in the production processD) Consists of the cost of new materials used, labor but not overhead.66.Red Star Company uses a job order cost system. Overhead is applied to jobs on the basis of direct labor hours.During the current period, Job No. 288 was charged $400 in direct materials, $450 in direct labor, and $180 in manufacturing overhead. If direct labor costs an average of $15 per hour, the company's overhead application rate is:A) $9 per direct labor hour. B) $6 per direct labor hour.C) $17 per direct labor hour. D) $20 per direct labor hour.24.The best cost system to use for a company producing a continuous stream of similar items would be aA) Job order system B) Process costing system C) Production costing systemD) No cost system is required when jobs are similar64.Ken Gorman’s Company uses a job order cost system and has established a predetermined overhead application ratefor the current year of 150% of direct labor cost, based on budgeted overhead of $900,000 and budgeted direct labor cost of $600,000. Job no. 1 was charged with direct materials of $30,000 and with overhead of $24,000.The total cost of job no. 1:A) Is $54,000. B) I s $70,000. C)Is $90,000. D) Cannot be determined without additional information.27.Equivalent units of production areA) A measure representing the percentage of a unit's cost that has been completed.B) May be computed separately for each input added during productionC) May be assigned to beginning work-in-process or ending work-in-processD) All of the above27.Equivalent units of production areA) A measure representing the percentage of a unit's cost that has been completed.B) May be computed separately for each input added during productionC) May be assigned to beginning work-in-process or ending work-in-processD) All of the above21.Process costing would be suitable forA) Automobile repair B) Production of television sets C) Boat building D) K itchen remodeling Use the following to answer questions 75-76:Riverview Company's budget for the coming year includes $6,000,000 for manufacturing overhead, 100,000 hours of direct labor, and 500,000 hours of machine time.75. Refer to the above data. If Riverview applies overhead using a predetermined rate based on machine-hours,what amount of overhead will be assigned to a unit of output which requires 0.5 machine hours and 0.25 labor hours to complete?A) $6.00. B) $15.00. C) $21.00. D) S ome other amount.76. Refer to the above data. If Riverview applies overhead using a predetermined rate based on labor-hours, whatamount of overhead will be assigned to a unit of output which requires 0.5 machine hours and 0.25 labor hours to complete?A) $6.00. B) $15.00. C) $21.00. D) S ome other amount.21.Process costing would be suitable forA) Automobile repair B) Production of television sets C)Boat building D)Kitchen remodeling21.Which one of the following is not one of the basic procedures related to ABC?A) Identify the activity. B) Create an associated activity cost pool.C) Transact identified cost centers. D) Calculate the cost per unit of activity.23.Examples of value-adding activities include all of the following except:A) Product design. B) Assembly activities.C) Machinery set-up activities. D) Establishing efficient distribution channels.26.Just-in-time manufacturing systems are also known as:A) Supply push systems. B)Supply pull systems. C)Demand push systems. D) Demand pull systems.28.Target costing is directed toward:A) Reducing the activity costs associated with existing products.B) Identifying the amount by which the costs of existing products must be reduce to achieve a target profitmargin.C) The creation and design of products that will provide adequate profits.D) The improvement of existing production processes by eliminating non-value adding activities.30.During which element of manufacturing cycle time is value added to products?A) Storage and waiting time. B) Processing time.C) Movement time. D) Inspection time.33.Four categories of costs associated with product quality are:A) External failure, internal failure, prevention, and carrying.B) External failure, internal failure, prevention, and appraisal.C) External failure, internal failure, training, and appraisal.D) Warranty, product liability, prevention, and training.41.During cycle time, value is added only duringA) Processing time. B) Storage and waiting time. C) Movement time. D) Inspection time.26.A semivariable cost:A) Increases and decreases directly and proportionately with changes in volume.B) Changes in response to a change in volume, but not proportionately.C) Increases if volume increases, but remains constant if volume decreases.D) Changes inversely in response to a change in volume.27.Which of the following is an example of a fixed cost for an airline?A) Depreciation on the corporate headquarters. B) Fuel costs.C) Income taxes expense. D) Passengers' meals.28.In order to calculate break-even sales units, fixed costs are divided by:A) Contribution margin per unit. B) Contribution margin percentage.C) Target operating income. D) Sales volume.29.A company's relevant range of production is:A) The production range from zero to 100% of plant capacity.B) The production range over which CVP assumptions are valid.C) The production range beyond the break-even point.D) The production range that covers fixed but not variable costs.30.The break-even point in a cost-volume-profit graph is always found:A) At 50% of full capacity.B) At the sales volume resulting in the lowest average unit cost.C) At the volume at which total revenue equals total variable costs.D) At the volume at which total revenue equals total fixed costs plus total variable costs.32.The contribution ratio is computed as:A) Sales minus variable costs, divided by sales. B) F ixed costs plus variable costs, divided by sales.C) Sales minus fixed costs, divided by sales. D) S ales divided by variable costs.33.In comparison to selling a product with a low contribution margin ratio, selling a product with a high contributionmargin ratio always:A) Requires less dollar sales volume to cover a given level of fixed costs.B) Results in a greater margin of safety.C) Results in higher operating income. D) Results in a higher contribution margin per unit sold.36.How will a company's contribution margin be affected by an investment in equipment that increases fixed costs inorder to achieve a reduction in direct labor cost?A) Contribution margin will increase. B) Contribution margin will fall.C) Contribution margin will either increase or decrease depending on the relative magnitudes of the changesin fixed and variable costs. D) Contribution margin will remain the same.43.If a product sells for $10, variable costs are $6 and fixed costs are $400,000 what would total sales have to be inorder to break-even?A) $160,000 B) $166,667 C) $1,000,000 D) $266,66746.If unit sales prices are $10 and variable costs are $6 per unit how many units would have to be sold to break even iffixed costs equal $12,000?A) $1,200 B) $2,000 C) $3,000 D) $2,80062.A company with an operating income of $65,000 and a contribution margin ratio of 55% has a margin of safety of:A) $35,750. B) $118,182.C) $153,932. D) It is not possible to determine the margin of safety from the information provided.63.The following information is available:Sales ............................................................................................. $100,000Break-even sales ........................................................................ $40,000Contribution margin ratio ............................................................ 25%What is the operating income?A) $0. B) $75,000. C) $87,500. D) $12,500.65. A company with monthly fixed costs of $140,000 expects to earn monthly operating income of $10,000 byselling 5,000 units per month. What is the company's expected unit contribution margin?A) $30. B) $28.C) $2. D) The information given is insufficient to determine unit contribution margin.Use the following to answer questions 82-86:Empire Company produces a single product. The selling price is $50 per unit, and variable costs amount to $20 per unit. Empire's fixed costs per month total $80,000.82. Refer to the above information. What is the contribution margin ratio of Empire's product?A) 25%. B) 75%. C) 60%. D) 40%.83. Refer to the above information. What is the monthly sales volume in dollars necessary to break even?(Rounded)A) $320,000. B) $106,667. C) $200,000. D) $133,333.84. Refer to the above information. How many units must be sold each month to earn a monthly operatingincome of $25,000?A) 833. B) 2,300. C) 3,500. D) S ome other amount.85.Refer to the above information. What will be the monthly margin of safety (in dollars) if 3,000 units are sold eachmonth?A) $16,667. B) $100,000. C) $12,000. D) $150,000.86. Refer to the above information. What will be Empire's monthly operating income if 3,500 units are sold eachmonth?A) $15,000. B) $25,000. C) $75,000. D) $105,000.24.A cost that has already been incurred and cannot be changed is called aA) Opportunity cost B) Out of Pocket cost C) Joint cost D) Sunk CostUse the following to answer questions 46-48:Tech Products, Inc. is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $95 for such a widget and that 50,000 units could be sold each year at this price. The current cost to produce the widget is estimated to be $60.46. Refer to the information above. If Tech Products requires a 25% return on sales to undertake production, whatis the target cost for the new widget?A) $60. B) $71.25. C) $75. D) Some other amount.47. Refer to the information above. Tech has learned that a competitor plans to introduce a similar widget at a priceof $85. If Tech requires a 25% return on sales, what is the target cost for the new widget?A) $75. B) $63.75. C) $21.75. D) $25.48.Refer to the information above. At a price of $85, Tech's market research indicates that it can sell 40,000 units peryear. Assuming Tech can reach its new target cost, how will Tech's profit at the $85 price compare to what it would have earned in the absence of the competitor's product?A) Profit will be $12,500 greater. B) P rofit will be $12,500 smaller.C) Profit will be unaffected if Tech can reach the revised target cost. D) None of the above.33.In comparison to selling a product with a low contribution margin ratio, selling a product with a high contributionmargin ratio always:A) Requires less dollar sales volume to cover a given level of fixed costs.B) Results in a greater margin of safety.C) Results in higher operating income.D) Results in a higher contribution margin per unit sold.26.Incremental revenuesA) Always increase revenue when one course of action is selected over anotherB) Always decrease revenue when one course of action is selected over anotherC) May increase or decrease when one course of action is selected over anotherD) Cause revenues to remain steady27.By choosing to go into business for himself, Joe Green foregoes the possibility of getting a highly paid job with alarge company. This is called a (n)A) Sunk cost B) Out-of-pocket cost C) Opportunity cost D) Joint Cost29.Which of the following types of cost are always relevant to a decision?A) Sunk costs. B) Average costs. C) Incremental costs. D) Fixed costs.40.Which cost is not relevant in making financial decisions?A) Sunk costs. B) Opportunity costs. C) Incremental costs. D) All three are relevant.Use the following to answer questions 50-52:John Stag Corporation manufactures and sells 1,000 tractors each month. The primary component in each tractor is the motor. John Stag has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below:Direct materials ............................................................................ $22Direct labor (14)Variable manufacturing overhead (27)Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $26,000. Mary Doe, Inc., has offered to purchase 200 motors from John Stag per month to be used in its own outboard motors.50. Refer to the information above. If Mary Doe's order is rejected, what will be John Stag's average unit cost ofmanufacturing each motor?A) $83. B) $63. C) $89. D) Some other amount.51. Refer to the information above. What is the incremental cost of producing each additional motor?A) $26. B) $63. C) $89. D) Some other amount.52.Refer to the information above. Assuming John Stag wants to earn a pretax profit of $10,000 on this special order,what price must it charge Mary Doe?A) $62. B) $75 C) $94. D) Some other amount.55.Korler Company currently produces all of the components for its one product an electric eraser. The unit cost ofmanufacturing the motor for this eraser is:Direct materials ............................................................................ $3.40Direct labor .................................................................................. 3.20Variable overhead ........................................................................ 1.40Fixed overhead ............................................................................ 1.10The company is considering the possibility of buying this motor from a subcontractor and has been quoted a price of $7.60 per unit. The relevant cost of manufacturing the motor to be considered in reaching the decision is:A) $9.10. B) $8.00. C) $6.60. D) $4.80.63.Tony Co. manufactures four products. Direct materials and direct labor are available in sufficient quantities, butmachine capacity is limited to 3,000 hours. Cost and revenue data for the four products are given below:Of the four products which is the most profitable for Tony Co.?A) Product A. B) Product B. C) Product C. D) Product D.29.A responsibility accounting system measures the performance of each of the following centers except:A) Profit center B) Investment center C) Control center D) Cost center29.A responsibility accounting system measures the performance of each of the following centers except:A) Profit center B) Investment center C) Control center D) Cost center38.The primary difference between profit centers and cost centers is that:A) Profit centers generate revenue. B) Cost centers incur costs.C) Profit centers are evaluated using return on investment criteria.D) Profit centers provide services to other centers in the organization.46.Cost centers are evaluated primarily on the basis of their ability to control costs and:A) Their return on assets. B) Residual income.C) The quantity and quality of the services they provide. D) Their contribution margin ratio.50.Under a variable costing system:A) All fixed manufacturing costs are treated as period costs.B) All fixed manufacturing costs are not treated as period costs.C) All variable manufacturing costs are treated as period costs.D) All variable costs, manufacturing and selling, are treated as product costs.50.Under a variable costing system:A) All fixed manufacturing costs are treated as period costs.B) All fixed manufacturing costs are not treated as period costs.C) All variable manufacturing costs are treated as period costs.D) All variable costs, manufacturing and selling, are treated as product costs.57.Responsibility margin is equal to:A) Revenue, less contribution margin and traceable fixed costs.B) Revenue, less variable costs.C) Revenue, less variable costs and traceable fixed costs.D) Revenue, less variable fixed costs, traceable fixed costs, and common costs.73.The human resources department of a large company would beconsidered:A) A cost center. B) A profit center. C) An investment center. D) A revenue center.17. Accounting systems can generate motivation byA) Creating and setting goals B) Measuring progress towards those goalsC) Allocating rewards towards goal achievement D) All of the above17.Accounting systems can generate motivation byA) Creating and setting goals B) Measuring progress towards those goalsC) Allocating rewards towards goal achievement D) All of the above25.The value chain usually starts with the _________ and ends with the ____________.A) Supplier, customer. B)Retailer, wholesaler.C) Customer, retailer. D) Retailer, customer.cy Stores has sales of $3,280,000, cost of sales of$1,360,000, and operating expenses of $608,000. What is Lacy's return on sales?A) 58.5%. B) 41.5%. C) 60%. D) 40%.41.Calculate the residual income assuming the following information:Operating earnings. $300,000Minimum acceptable return. 15%Invested capital. 1,500,000A) $225,000. B) $100,000. C) $75,000. D) $45,000.。