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Chapter 1

Managerial Accounting and the Business Environment

True/False
1.
F
Medium

Decision making is a distinct management activity that should be separated from planning,
directing and motivating, and controlling activities.

2.
T
Easy

When carrying out their directing and motivating activities, managers mobilize the
organization's human and other resources so that the organization's plans are carried out.

3.
F
Medium

When carrying out planning activities, managers rely on feedback to ensure that the plan is
actually carried out and is appropriately modified as circumstances change.

4.
F
Medium

When carrying out their controlling activities, managers select a course of action and specify
how the action will be implemented.

5.
T
Medium

The controller occupies a staff position in an organization.

6.
T
Easy

Persons occupying staff positions provide support and assistance to other parts of the
organization.

7.
T
Easy

Informal relationships and channels of communication often develop that do not appear on the
organization chart.

8.
T
Medium

Managerial accounting places less emphasis on precision and more emphasis on flexibility and
relevance of data than does financial accounting.

9.
T
Easy

Managerial accounting is not governed by generally accepted accounting principles (GAAP).

10.
T
Easy

Just-in-time is a production system in which units are produced and materials are purchased
only as needed to meet actual customer demand.

11.
F
Medium

In a just-in-time system, the flow of goods is controlled by a push approach in which partially
completed units are "pushed" forward to the next workstation as soon as work is completed at
the prior workstation.

12.

There is a greater danger of undermining employee morale with Process Reengineering than
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T
Medium

with Total Quality Management

13.
T
Easy

Total Quality Management involves a focus on serving the customer and systematic problemsolving using teams made up of front-line workers.

14.
T
Easy

The Plan-Do-Act-Check Cycle involves applying the scientific method to problem-solving.

15.
T
Easy

In Process Reengineering, a business process is diagrammed in detail, questioned, and then


completely redesigned in order to eliminate unnecessary steps, reduce opportunities for errors,
and reduce costs.

16.
F
Easy

In JIT purchasing, as many suppliers as possible are used so as to avoid relying too much on a
few suppliers.

17.
F
Medium

Efforts designed to increase the rate of output should generally be applied to non-constraint
workstations.

18.
T
Easy

The Standards of Ethical Conduct promulgated by the Institute of Management Accountants


specifically states, among other things, that management accountants have a responsibility to
disclose fully all relevant information that could be reasonably be expected to influence an
intended user's understanding of the reports, comments and recommendations presented.

19.
F
Medium

The Standards of Ethical Conduct promulgated by the Institute of Management Accountants


specifically states, among other things, that management accountants have a responsibility to
inform responsible journalists of any wrongdoing they uncover in the organization.

20
T
Easy

Work in process inventories consist of units that are only partially complete and will require
further work before they are ready for sale to a customer.

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Multiple Choice
21.
C
Medium

Obtaining feedback is generally identified most directly with which of the functions of
management?
a. Planning
b. Directing and motivating
c. Controlling
d. Decision making

22.
D
Easy

The plans of management are expressed formally in:


a. the annual report to shareholders.
b. Form 10-Q submitted to the Securities and Exchange Commission (SEC).
c. performance reports.
d. budgets.

23.
B
Easy

A staff position:
a. relates directly to the carrying out of the basic objectives
of the organization.
b. is supportive in nature, providing service and assistance to other parts of the organization.
c. is superior in authority to a line position.
d. none of these.

24.
B
Medium

Which of the following persons would occupy a line position in a department store?
I. Sales manager
II. Manager, furniture department
III. Manager, advertising department
IV. Manager, personnel department
a. Only I
b. Only I and II
c. Only I, II, III
d. I, II, III, IV

25.
B
Easy

26.
A
Easy

The controller occupies:


a. a line position.
b. a staff position.
c. neither a line nor a staff position, since the accounting
independent.
d. both a line and a staff position.
Managerial accounting:
a. has its primary emphasis on the future.
b. is required by regulatory bodies such as the SEC.
c. focuses on the organization as a whole, rather than on the
d. Responses a, b, and c are all correct.

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department must be

organization's segments.

27.
D
Medium

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

28.
D
Easy

Managerial accounting places considerable weight on:


a. generally accepted accounting principles.
b. the financial history of the entity.
c. ensuring that all transactions are properly recorded.
d. detailed segment reports about departments, products, and customers.

29.
C
Easy

For internal uses, managers are more concerned with receiving information that is:
a. completely objective and verifiable.
b. completely accurate and precise.
c. relevant, flexible, and immediately available.
d. relevant, completely accurate, and precise.

30.
B
Medium

The benefits of a successful Just-In-Time system include all of the following except:
a. funds tied up in inventories are released for use elsewhere.
b. inventory buffers are increased.
c. throughput time is reduced.
d. defect rates are decreased.

31.
D
Medium

A key concept of the JIT inventory system is:


a. the raw materials, work in process, and finished goods
inventories of manufacturing
companies act as buffers so
that operations can proceed smoothly even if suppliers are
late with deliveries or a department is unable to operate for a brief period due to
breakdowns or other reasons.
b. the use of many suppliers so as to ensure rapid delivery of materials for production.
c. the maintenance of a stock of raw materials so that defective materials can be replaced
quickly so as to maintain a high rate of productivity.
d. inventories are costly to carry and can be kept to minimum levels or eliminated completely
with careful planning.

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32.
C
Easy

The just in time (JIT) concept applies to which of the following:


I. The acquisition of raw materials.
II. The assembly of manufactured parts in products.
III. The shipment of finished products to customers.
a. I.
b. I, III.
c. I, II, III.
d. II, III.

33.
D
Medium

The flow of goods through a JIT system is based on:


a. a workstation efficiently completing its processing of a
batch of units so that the units
can proceed forward to the
next workstation before the next workstation is ready to
receive them.
b. processing goods in large batch sizes rather than less
economical small batches.
c. maintaining a stockpile of raw materials in anticipation of materials shortages.
d. producing to meet customer demand with no buildup of
inventory at any point in the
production process.

34.
D
Medium

A successful JIT system is based upon which of the following concepts?


a. The company must rely upon a large number of suppliers to ensure frequent deliveries of
small lots.
b. The company should always choose those suppliers offering
the lowest prices.
c. The company should avoid long-term contracts with suppliers
so as to exert pressure
on suppliers to make prompt and frequent deliveries.
d. A small number of suppliers make frequent deliveries of
specific quantities thus avoiding
the buildup of large
inventories of materials on hand.

35.
B
Medium

The plant layout under the JIT concept emphasizes:


a. a functional approach in which machines performing the same
function are grouped
together.
b. a product approach in which all machines needed in the
production of a particular
product are grouped together.
c. a facilities approach in which all machines of a similar
nature are located in one plant
building.
d. a concentrated approach in which the processing of certain subassemblies is performed by
a small number of independent
machine shops under contract to the manufacturing
company.

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36.
C
Medium

The key point of a focused factory is that:


a. the flow line of a product must be straight.
b. the flow line of product must be U-shaped.
c. all machines in a product flow line are tightly grouped
together so that partiallycompleted units are not shifted
from place to place all over the factory.
d. products should be moved from one group of machines to another even if this involves
movements across the plant or
to another building so as to exploit fully the benefits of
worker specialization.

37.
B
Medium

A company adopting the JIT approach would:


a. produce large batches of products so as to recoup the costs associated with setups.
b. attempt to reduce setup time so as to economically produce in smaller batches.
c. adapt a functional plant layout so as to enhance production flexibility.
d. require workers to become highly specialized in operating a single machine.

38.
B
Medium

The Plan-Do-Check-Act Cycle includes all of the following except:


a. studying the current process.
b. determining which manager is responsible for existing
problems.
c. implementing a plan on a small scale if possible.
d. analyzing data to identify possible causes for any problems.

39.
C
Easy

In Total Quality Management, problems are solved by teams consisting of:


a. top managers.
b. outside consultants and quality control engineers.
c. front-line workers.
d. customers and sales representatives.

40.
C
Medium

40. A danger in Process Reengineering is that:


a. non-value-added activities may be eliminated.
b. some resources may no longer be required.
c. employee morale may suffer.
d. all of the above.

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41.
C
Hard

The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial
Management contains a policy regarding confidentiality that requires that management
accountants:
a. refrain from disclosing confidential information acquired in the course of their work except
when authorized by
management.
b. refrain from disclosing confidential information acquired in the course of their work in all
situations.
c. refrain from disclosing confidential information acquired in the course of their work except
when authorized by
management, unless legally obligated to do so.
d. refrain from disclosing confidential information acquired in the course of their work in all
cases since the law requires
them to do so.

42.
A
Medium

The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial
Management states that significant ethical issues should be discussed first with an immediate
superior unless the superior is involved. If satisfactory resolution cannot be achieved when the
problem is initially presented, then the issues should be:
a. submitted to the next higher managerial level.
b. submitted to the chief executive officer of the firm.
c. submitted to the audit committee, executive committee, board
of directors, or owners.
d. submitted to outside legal counsel.

43.
B
Medium

A traditional functional factory layout results in:


a. minimal material handling.
b. large work in process inventories.
c. minimal throughput time.
d. low storage costs.

44.
D
Medium

An example of a performance report would be:


a. an income statement reporting actual results for the past
month.
b. an income statement showing the amounts budgeted for the past month.
c. a balance sheet showing the actual financial position at the end of the past month.
d. a production report showing budgeted and actual production
for the past month.

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Essay
45.
Medium

You have recently been hired by a manufacturing company. Two days ago, you met with the
top management of the your company to discuss future strategies for the firm. During the
meeting the president of the company expressed concern about the profitability of the company
and the company's ability to compete effectively in the future. You responded to the president's
concerns by mentioning some articles you had read in professional accounting journals
regarding JIT. The president responded to your comments by saying that although the JIT
concept sounded interesting, no one in the company was knowledgeable about JIT. The
president then requested that you prepare a brief summary of JIT for the next strategic
planning meeting.
Required:
a. List the five key elements involved in the successful
b. List at least five benefits cited as coming from a JIT

operation of a JIT system.


system.

Answer:
a. The five key elements involved in the successful operation
of JIT system are:
1. A company must learn to rely on a few suppliers who are
willing to
make frequent deliveries in small lots of
defect-free material.
2. A company must improve the manufacturing flow lines in
its
plants by physically locating together all of the
machines needed in the
production of a particular
product.
3. A company must reduce setup times by creating flow lines
that are
dedicated to a single product so that production
occurs in smaller batches
resulting in reduced levels of
work in process and finished goods inventories.
4. A company must develop a system of total quality control
over its part
and materials, such quality being monitored
by both suppliers and employees so as to
avoid
interruptions in production.
5. A company must develop a flexible work force of multiskilled workers capable of operating the various machines
in the
manufacturing flow lines as well as performing
minor repairs and maintenance
work when no demands are
made by the next work station.

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b. A JIT system should produce the following benefits:


1. Worker productivity is increased through teams working in
a cellular
plant layout organized in product flow lines.
2. Setup time is decreased, resulting in smaller batch sizes
and smoother
flow of goods between workstations.
3. Total production time is decreased, resulting in greater
output and quicker
response to customer needs.
4. Waste is reduced as a result of implementation of a Total
Quality
Control program.
5. Inventories of all types are reduced through better
control by
suppliers, less wait time between work
stations, smaller production
runs, and the production of
goods to customer orders.
6. Investment funds previously tied up in inventories are
released for use
elsewhere in the company.
7. Usable space in the plant is increased as areas
previously used to store inventory are made available for
other, more
productive uses.

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