MBA 6030 Managerial Accounting for MBAs Final Exam 1. Managerial accounting is primarily focused on: a.

a. Providing creditors information on the status of their loans b. Providing investors with useful information for valuing securities c. Providing managers with relevant information to help achieve organizational goals d. Providing the Internal Revenue Service with information to determine the amount of taxes owed 2. In order to be useful to managers, management accounting reports: a. Should be prepared according to Generally Accepted Accounting Principals b. Should be prepared according to the stated Institute of Management Accounting guidelines c. Should be prepared to meet the specific needs of decision makers d. Should not be prepared prior to the end of a fiscal reporting period 3. Strategic Position Analysis is best defined as: a. An organizations basic way of competing to sell products and services b. Fundamental choices about the size and scope of operations and technologies c. The formulation of a program for a specific goal d. The process of making the organization into a well ordered whole 4. A goal is best defined as: a. A definable and measurable objective b. The implementation of specific ideas c. The fundamental purpose of an organization d. The mission of an organization 5. Product or service differentiation involves: a. Any changes made to a product or service b. Creating something that is perceived as unique and worth a premium price c. Shifting sales to growing markets d. The use of new technologies in manufacturing 6. Which of the following costs is best classified as fixed costs with respect to volume? a. Depreciation of a copy machine in the Human Resource Department b. Electricity used to heat, light, and cool a hospital c. Parts used in manufacturing digital cameras d. Salaries of quality inspectors in a production facility 7. Step costs: a. Are constant within certain ranges of activity but differ outside those ranges of activity b. Are variable within narrowly defined ranges of activity, but constant over wider ranges of activity c. Have no relation to number of units produced d. Increase with each additional unit produced 8. The determination of the mathematical relationship between activity level and cost is known as: a. Cost control b. Cost estimation c. Cost prediction d. Regression analysis 9. Comparing least-squares regression to high-low estimation: a. Least-squares regression better predicts costs outside the range of past observations b. Least-squares regression makes fuller use of the data c. Least-squares regression requires fewer calculations d. All of the above

10. Mary French uses gas to heat her home. She has accumulated the following information regarding her monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is found by first subtracting the average temperature for each day from 65 degrees and then summing these daily amounts together for the month. Month February April Heating Degree-Days 1,900 600 Gas Bill $195 $78

What will be the increase in Mary's monthly gas bill per heating degree-day using the high-low method? a. $0.09 b. $0.39 c. $46.00 d. $117.00 11. A basic assumption of the cost-volume-profit model is that a. All costs can be accurately classified as either fixed or variable b. Cost drivers can be organized into unit-level, batch level, product-level and facility-level factors c. Higher volumes of product require lower prices d. The mix of products changes over time 12. The contribution margin is: a. The difference between sales price and total variable cost b. The difference between total sales and total cost of goods sold c. The difference between total revenue and total variable cost d. Total sales minus total cost of goods sold 13. Rozellas income statement is as follows: Sales (10,000 units) Less variable costs Contribution margin Less fixed costs Net income What is the contribution margin ratio? a. 167 percent b. 30 percent c. 40 percent d. 60 percent 14. Rozellas income statement is as follows: Sales (10,000 units) Less variable costs Contribution margin Less fixed costs Net income If sales increase by $15,000, profits will: a. Increase by $1,000 b. Increase by $4,000 c. Increase by $6,000 d. Increase by $15,000 $80,000 - 48,000 $32,000 - 24,000 $ 8,000 $120,000 - 48,000 $72,000 - 24,000 $ 48,000

15. George Company sells one product at a price of $20 per unit. Variable expenses are 40 percent of sales, and fixed expenses are $20,000. The sales dollars level required to break even are: a. $2,500 b. $12,000 c. $33,333 d. $50,000 16. Relevant costs are best described as: a. Future costs b. Future costs that differ between competing decision alternatives c. Opportunity costs d. Out-of-pocket costs 17. Which of the following statements about sunk costs is true? a. Sunk costs are the result of past decisions b. Sunk costs are never relevant to decisions (except for tax considerations) c. Sunk costs do not vary between decision alternatives d. All of the above 18. Future costs that differ among competing alternatives are: a. Absorption costs b. Relevant costs c. Replacement costs d. Variable overhead costs 19. A company loses revenues from regular customers by accepting a special order when operating at capacity. The loss of revenue just described is an example of which of the following? a. A revenue cost b. A sunk cost c. An opportunity cost d. An unavoidable cost 20. Firms are more likely to accept a special order for one of their products at a reduced price if: a. All costs are variable b. Excess capacity exists c. The order is small d. The buyer plans to compete in the markets of the firm's regular customers 21. Which of the following views of product costs is consistent with financial reporting requirements? a. Product costs are all costs incurred in the process of manufacturing products, even if they are only indirectly related to the production process. b. Product costs are all labor and materials costs that are incurred in the process of manufacturing products. c. Product costs are all costs directly incurred in the manufacturing and selling of the product. d. Product costs include all costs incurred throughout the value chain. 22. Which of the following statements most accurately describes financial accountings view of period costs? a. Period costs are all costs incurred in the current financial reporting period b. Period costs are all direct costs incurred in the current financial reporting period c. Period costs are all non-manufacturing expenses incurred in the current financial reporting period d. Period costs are a component of fully absorbed costs

23. How is depreciation on the manufacturing building and equipment classified in financial reporting? a. As an irrelevant cost because it has already been incurred b. As a current expense c. As part of the cost of the products produced d. As a period cost 24. When is the cost of manufacturing equipment recognized as an expense? a. When equipment depreciation is recorded b. When inventory processing is completed and finished goods are recorded c. When finished goods inventory is sold d. None of the above 25. Which of the following is one of the three major components of product costs? a. Research and development expenses b. Manufacturing overhead c. Marketing costs related to specific products d. Selling, general and administrative expenses 26. Which of the following statements about activity based costing is true? a. The most widely used approach to activity-based costing involves the use of a two-stage model. b. Activity-based costing involves tracing the cost of activities used by the various cost objectives. c. Activity-based costing involves determining the cost of activities. d. All of the above 27. An object to which costs are assigned is called: a. A value chain. b. A cost objective. c. A cost pool. d. Overhead. 28. Which of the following product costing methods produces the most precise product costing information? a. Activity-based costing b. Departmental overhead rate methods c. Organization-based costing d. Plant-wide overhead rates 29. Activity-based costing is a technique for more precisely measuring the cost and profitability of: a. Products b. Customers c. Distribution channels d. All of the above 30. Which of the following is a value-added activity? a. Set-up b. Movement c. Machine operations d. Inspection 31. Developing a value chain from the perspective of the final customer requires: a. Working backwards to the basic raw materials. b. Working forward from mid-production. c. Providing response mailers with sold products. d. Providing the lowest price in the industry.

32. World-class organizations operating in competitive markets are more likely to take which one of the following approaches toward pricing? a. Begin with cost data as given and determine price by adding a reasonable mark-up. b. Determine price based on the amount management believes customers are willing to pay. c. Employ a cost-based approach to pricing. d. Determine the price that keeps the facilities fully utilized. 33. In a cost-based pricing approach, the last amount to be determined is: a. variable cost. b. manufacturing cost. c. sales price. d. discretionary fixed cost. 34. All of the following are typical steps in benchmarking, except: a. Decide what to benchmark b. Plan the benchmark project. c. Limit benchmarking only to competitors d. Understand your own performance. 35. An awareness of the impact of todays actions on tomorrows costs is a concept that underlies which of the following notions? a. marginal revenue b. target pricing c. Kanban systems d. life-cycle costs 36. ______________ is a period of time when sales increase at an increasing rate. a. The start-up stage b. The growth stage c. The maturity stage d. The decline stage 37. Cost-based pricing has traditionally been widely used because: a. cost data are cheap. b. cost-based prices are defensible. c. revenues must exceed fixed costs if the firm is to remain in business. d. cost/benefit analysis is critical to such decisions. 38. When cost-based pricing is employed and markup is based on manufacturing costs, the markup must be sufficiently large enough to: a. cover selling expenses, administrative expenses, and provide for the desired profit. b. cover selling and administrative expenses. c. provide for the desired profit. d. cover selling expenses and provide for the desired profit. 39. From a value chain perspective, value is defined by which of the following? a. Only the costs associated with producing a product b. The amount of worth the final customer places on a product or service c. All costs necessary to deliver a product or service to the end user. d. All costs associated with the life of a product or service (including all upstream and downstream costs)

40. An activity is: a. A unit of work b. Typically not part of a process c. Made up of several units of work d. Unrelated to a process 41. Which of the following is NOT a common approach to developing a budget? a. The incremental approach b. The input/output approach c. The qualitative approach d. The minimum level approach 42. Which budgeting approach seeks to reduce expenditures on a monthly basis? a. The continuous improvement approach b. The input/output approach c. The activity based approach d. Participation budgeting 43. Which of the following statements concerning zero-based budgeting is true? a. Zero-based budgeting specifies that every line item must be rounded to the nearest thousand dollar increment. b. Zero-based budgeting specifies that every expenditure must be justified. c. Zero-based budgeting is a variation of the incremental approach. d. Zero-based budgeting is mainly used to assess research and development departments and similar departments where the relationship between inputs and outputs is weakest. 44. Which of the following costs would be reported in the general and administrative expense budget? a. Factory overhead b. Sales commissions c. Direct manufacturing labor d. Expenses incurred in an accounting department 45. Generally, the first of the following budgets to be prepared is the: a. Cash budget. b. Operations budget. c. Sales budget. d. Purchases budget. 46. Generally, the budgeting process concludes with the preparation of the: a. Cash budget. b. Production budget. c. Selling expense budget. d. Budgeted financial statements. 47. Which of the following statements concerning the cash budget is true? a. The cash budget summarizes all economic activities during the budget period. b. The cash budget summarizes all cash receipts and disbursements during the budget period. c. The cash budget summarizes all sales and expenses during the budget period. d. The cash budget summarizes all revenues and expenses during the budget period. 48. Budgetary slack refers to: a. The time lag between budget preparation and actual operations. b. Intentionally requesting more funds in the budget than needed. c. Overspending the budget allowance. d. The time lag between budget discussions and actual preparation of budgets.

49. Arizona Corporation has a sales budget for next month of $200,000. Cost of goods sold is expected to be $100,000. All goods are purchased in the month used and paid for in the month following their purchase. The beginning inventory of merchandise is $8,000, and an ending inventory of $6,000 is desired. Beginning accounts payable is $26,000. How much merchandise inventory will Arizona need to purchase next month? a. $100,000 b. $98,000 c. $102,000 d. $200,000 50. Budgets improve ____________________ and ____________________. a. Communication; profits b. Information; revenues c. Revenues; profits d. Communication; coordination 51. In what way does a cost center differ from either an investment center or a profit center? a. Cost centers are a much less common component of current business organizations, given the increased emphasis on value chain analysis. b. A cost center is always smaller than either an investment center or a profit center. c. A cost center recognizes neither revenues nor computes income. d. Both a and b are correct. 52. Structuring performance reports and addressing them to individuals as group members of an organization in a manner that emphasizes factors that can be controlled by them is accomplished by using which of the following? a. Absorption costing b. Value chain analysis c. Responsibility accounting d. Relational concepts 53. When using responsibility accounting, non-controllable costs should be excluded from which reports? a. Discretionary cost reports b. Performance reports c. Financial statements d. Tax filings 54. A flexible budget variance for a manufacturing cost is computed as the difference between: a. flexible budget costs and static budget costs b. actual costs and flexible budget costs c. departmental costs and cost center costs d. flexible budget costs and original budget costs 55. Assume that the standard cost to make one unit of product includes 5 units of raw materials at a price of $3 per unit. In July, 17,000 units of raw materials were purchased for $50,400, and 10,400 units of raw materials were used to produce 2,000 units of finished product. What is the materials quantity variance? a. $1,200 (U) b. $400 (U) c. $600 (F) d. $600 (U) 56. Which of the following factors describes a possible cause for an unfavorable materials price variance? a. Last minute purchases b. Vendors flooding the marketplace with their products c. Purchasing low quality materials d. Making a long-term commitment with one vendor for a specific raw material

57. Assume that the standard cost to make one finished unit includes 1 hour of direct labor at $8 per hour. During April, 11,000 direct labor-hours were worked, 10,500 units of product were manufactured, and total direct labor cost was $85,000. What is the labor rate variance for April? a. $1,000 (U) b. $1,000 (F) c. $3,000 (F) d. $3,000 (U) 58. Which factor listed below is a cause for favorable materials quantity variances? a. Higher machine usage hours than anticipated b. Lower worker efficiency than anticipated c. Securing a more favorable price on materials than anticipated d. Using higher quality materials than required in the standard cost system. 59. The manager of an investment center is responsible for all of the following EXCEPT: a. Decisions regarding corporate overhead. b. Decisions regarding revenues. c. Decisions to invest in assets. d. Decision regarding costs. 60. Which of the following departments would NOT be classified as a profit center? a. The accounting department of a large corporation b. The automotive division of a large corporation c. The hardware department of a department store d. The men's shoe department of a department store 61. Which of the sources listed below would a manager be LEAST likely to consider in deciding whether or not to discontinue a given segment? a. Direct segment costs b. An evaluation of the importance of the segment to overall operations c. The common costs allocated to the segment d. Segment reports 62. Product X contribution margin minus direct product fixed expenses is termed: a. manufacturing margin. b. operating income. c. product margin. d. gross margin. 63. Which of the following is a legitimate disadvantage of a 100%-of-variable-cost transfer pricing? a. This price will not allow the selling division to make a long-run profit. b. This price will discourage the purchasing division from buying internally. c. At this price, if the selling division does not have excess capacity, the selling division will not wish to sell anything to the outside market. d. If the selling division has excess capacity, this transfer price will often lead the purchasing division to act inconsistently with corporate goals. 64. An advantage of absorption cost transfer pricing arises from the fact that: a. This method is not as easy to implement as other methods. b. This method encourages the selling division to operate efficiently. c. This method allows the selling division to make a contribution toward covering long run fixed costs. d. This method keeps the purchasing division content.

65. All of the following reasons are legitimate potential disadvantages of using a market-based transfer price except: a. Use of market price leads division managers to act in a manner that is inconsistent with corporate goals. b. Market price of intermediate goods and services can be difficult to determine. c. Substantially high selling expenses can lead companies to set an artificially high transfer price. d. Market price can be misleading if it is controlled by one or two highly influential companies. 66. Which of the following situations gives rise to the need for a transfer price? a. Two divisions of the same company sell to the same wholesaler. b. Two divisions of the same company sell competing products to the same customer. c. Two divisions of the same company sell to one another. d. Both b. and c. 67. When an outside market exists for an intermediate product that is perfectly competitive, the ideal method of transfer pricing is generally: a. The one that creates the highest margin to the selling unit. b. The price at which the product sells in the external market. c. One that is higher than what the outside market is quoting. d. Based on management accounting numbers. 68. Negotiated prices transfer prices are: a. Determined between a division and corporate headquarters. b. Negotiated with external customers. c. Used when supplying and buying divisions independently negotiate a transfer price. d. Agreed to by division management and unions. 69. What is residual income? a. Excess income earned after budgeted income has been achieved b. The excess of investment center income over the minimum return set by management c. A percentage of income received by an organization for its participation in a joint venture d. Income beyond the breakeven point determined by the products lifecycle 70. If the Domestic Division of Central American Products had an investment turnover of 2.2 and a return on sales of 0.12, the return on investment would be: a. 26.4% b. 38.4% c. 266.0% d. 384.0% 71. The following is part of a projects operations phase: a. Collections of accounts receivable from sales b. Depreciation on working capital c. Payments of principal and interest on bonds used to finance the project d. All of the above 72. Which of the following amounts would be classified as part of the disinvestment phase for a project? a. Depreciation b. Collections of accounts receivable from sales c. Expenditure to return plant site to its pre-project condition d. Retiring bonds issues to finance the project

73. Which of the following capital budgeting techniques provides the decision maker with answers expressed in dollars? a. Accounting rate of return b. Internal rate of return c. Net present value d. Payback method 74. The internal rate of return: a. Does not require a predetermined discount rate b. Is often used to rank investment proposals c. May be compared to the cost of capital in project evaluation d. All of the above 75. Which of the following is needed to compute a project's net present value? a. A computer b. Accounting rate of return c. Discount rate d. Internal rate of return 76. If a company invests in a project with an internal rate of return equal to the companys cost of capital, the project should: a. Decrease the market value of the companys stock b. Have little or no effect on the market value of the companys stock c. Increase the market value of the companys stock d. Reduce the weighted average cost of capital 77. A project under consideration has a net present value of $4,500 for a required investment of $30,000. There are no other investment options at this time. However, the assumed discount rate used to calculate the net present value is 20%. On the basis of this information alone, this project should: a. Definitely be rejected because $4,500 is only 15% of $30,000 b. Be rejected on the basis that the project loses $25,500 c. Probably be approved since the net present value is greater than zero d. Be accepted if the cost of capital is greater than or equal to 20 percent 78. How is depreciation included in determining a projects NPV? a. Depreciation is a deduction in determining net operating cash inflows before computing NPV b. Depreciation is added to net operating cash inflows before computing NPV c. Depreciation is not a factor in determining a projects NPV d. Depreciation indirectly influences cash flows through effects on taxes 79. When determining net present value, this is commonly done to consider the risks associated with a proposed investment: a. Decrease the discount rate used in the analysis b. Decrease the expected cash flows c. Increase the discount rate used in the analysis d. Increase the required payback period