Multiple Choice Questions

1. Which of the following statements about managerial accountants is false?

A. Managerial accountants more and more are considered "business partners."
B. Managerial accountants often are part of cross-functional teams.
C. An increasing number of organizations are segregating managerial accountants separate
managerial-accounting departments.
D. In a number of companies, managerial accountants make significant business decisions and
resolve operating problems.
E. The role of managerial accountants has changed considerably over the past decade.

2. The day-to-day work of management teams will typically comprise all of the following activities
except:
A. decision making.
B. planning.
C. cost minimizing.
D. directing operational activities.
E. controlling.

3. Which of the following functions is best described as choosing among available alternatives?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Budgeting.

4. Which of the following managerial functions involves a detailed financial and operational
description of anticipated operations?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Measuring.

5. Which of the following involves the coordination of daily business functions within an
organization?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Motivating.

6. Titan Company has set various goals, and management is now taking appropriate action to
ensure that the firm achieves these goals. One such action is to reduce outlays for overhead, which have
exceeded budgeted amounts. Which of the following functions best describes this process?
A. Decision making.
B. Planning.
 C. Coordinating.
D. Controlling.
E. Organizing.

7. Which of the following is not an objective of managerial accounting?

A. Providing information for decision making and planning.
B. Assisting in directing and controlling operations.
C. Maximizing profits and minimizing costs.
D. Measuring the performance of managers and subunits.
E. Motivating managers toward the organization's goals.

8. The role of managerial accounting information in assisting management is a(n):

A. financial-directing role.
B. attention-directing role.
C. planning and controlling role.
D. organizational role.
E. problem-solving role.

9. Employee empowerment involves encouraging and authorizing workers to take initiatives to:
A. improve operations.
B. reduce costs.
C. improve product quality.
D. improve customer service.
E. all of the above.

10. The process of encouraging and authorizing workers to take appropriate initiatives to improve
the overall firm is commonly known as:
A. planning and control.
B. employee empowerment.
C. personnel aggressiveness.
D. decision making.
E. problem recognition and solution.

11. Which of the following business models considers financial, customer, internal operating, and
other measures in the evaluation of performance?
A. Deterministic simulation.
B. Balanced scorecard.
C. Payoff matrix.
D. Decision tree.
E. Chart of operating performance (COP).

12. Which of the following perspectives is normally absent in a balanced scorecard?

A. Financial.
B. Customer.
C. Internal operations.
D. Learning and innovation/growth.
E. None of the above.
 13. Managerial accounting:
A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel within the organization.
D. provides information for parties external to the organization.
E. focuses on financial statements and other financial reports.

14. Managerial accounting:

A. is unregulated.
B. produces information that is useful only for manufacturing organizations.
C. is based exclusively on historical data.
D. is regulated by the Securities and Exchange Commission (SEC).
E. generally focuses on reporting information about the enterprise in its entirety rather than by
subunits.

15. Which of the following would likely be considered an internal user of accounting information
rather than an external user?
A. Stockholders.
B. Consumer groups.
C. Lenders.
D. Middle-level managers.
E. Government agencies.

16. All of the following entities would have a need for managerial accounting information except:
A. Dell Computer.
B. The Los Angeles Dodgers baseball club.
C. Office Depot.
D. The Federal Bureau of Investigation (FBI).
E. None of the above responses is correct, as all of these entities would use managerial accounting
information.

17. Which of the following choices correctly depicts whether Bank of America, Microsoft, and
Florida State University would have a need for managerial accounting?
Bank Florida State
of America Microsoft University
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes No
E. No Yes Yes

18. Financial accounting focuses primarily on reporting:

A. to parties outside of an organization.
B. to parties within an organization.
 C. to an organization's board of directors.
D. to financial institutions.
E. for financial institutions.

19. Which of the following statements represents a similarity between financial and managerial
accounting?
A. Both are useful in providing information for external users.
B. Both are governed by GAAP.
C. Both draw upon data from an organization's accounting system.
D. Both rely heavily on published financial statements.
E. Both are solely concerned with historical transactions.

20. Which of the following employees at American Airlines would not be considered as holding a
line position?
A. Pilot.
B. Chief financial officer (CFO).
C. Flight attendant.
D. Ticket agent.
E. Baggage handler.

21. Which of the following employees would be considered as holding a line position?
A. The controller of Exxon Corporation.
B. The vice-president for government relations of Microsoft.
C. The manager of food and beverage services at Disney's Magic Kingdom.
D. A secretary employed by Hewlett-Packard.
E. None of the above.

22. Which of the following employees at Starbucks would likely be considered as holding a staff
position?
A. The company's chief operating officer (COO).
B. The manager of a store located in Kansas City, Missouri.
C. The company's lead, in-house attorney.
D. The company's chief financial officer (CFO).
E. Both the company's lead, in-house attorney and the chief financial officer.

23. The chief managerial and financial accountant of an organization is the:

A. chief executive officer (CEO).
B. treasurer.
C. vice-president of accounting.
D. internal auditor.
E. chief financial officer (CFO).

24. Which of the following typically does not relate to the role of a controller?
A. A controller supervises the accounting department.
B. A controller safeguards an organization's assets.
 C. A controller oversees the preparation of reports required by governmental authorities.
D. A controller normally assumes a narrow role within the organization, often preventing the
individual's rise to top management ranks.
E. Choices "B" and "D" above.

25. A controller is normally involved with:

A. preparing financial statements.
B. managing investments.
C. raising capital.
D. safeguarding assets.
E. managing the firm's credit policy.

26. Which of the following is not a function of the treasurer?

A. Safeguarding assets.
B. Managing investments.
C. Preparing financial statements.
D. Being responsible for an entity's credit policy.
E. Raising capital.

27. Managerial accountants:

A. often work on cross-functional teams.
B. are located throughout an organization.
C. are found throughout an organization and work on cross-functional teams.
D. are found primarily at lower levels of the organizational hierarchy.
E. are found primarily at higher levels of the organizational hierarchy.

28. The two dimensions of managerial accounting are:

A. a decision-facilitating dimension and a decision-influencing dimension.
B. a decision-facilitating dimension and a financial-influencing dimension.
C. a decision-influencing dimension and a cost-minimizing dimension.
D. a cost-minimizing dimension and a profit-maximizing dimension.
E. a decision-influencing dimension and a profit-maximizing dimension.

29. Much of managerial accounting information is based on:

A. a cost-benefit theme.
B. profit maximization.
C. cost minimization.
D. the generation of external information.
E. effectiveness but not efficiency.
 30. Which of the following is not normally considered to be an element of e-business?
A. E-budgeting.
B. Supply-chain management.
C. E-commerce.
D. Balanced scorecards.
E. Choices "B" and "D" above.

31. Managerial accounting has changed in recent years because of:

A. the growth of e-business.
B. increased global competition.
C. the emergence of new industries.
D. an increased focus on the customer.
E. all of the above factors.

32. Managerial accounting has changed in recent years because of:

A. a growing service economy in the United States.
B. the growing popularity of cross-functional teams.
C. computer-integrated manufacturing (CIM).
D. time-based competition.
E. all of the above factors.

33. Which of the following statement(s) about just-in-time (JIT) inventory management is
(are) true?

The emphasis of JIT is on "pull" manufacturing.

Raw materials are purchased just in time to be used in production.
JIT is an inventory technique that focuses on reduction of both inventory and related inventory costs.

A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.

34. Ohio Corporation recently implemented a just-in-time (JIT) production system along with a
series of continuous improvement programs. If the firm is now considering adopting a total quality
management (TQM) program, it would likely find that TQM:
A. is consistent with both JIT and continuous improvement.
B. is consistent with JIT but inconsistent with continuous improvement.
C. is consistent with continuous improvement but inconsistent with JIT.
D. is inconsistent with both JIT and continuous improvement.
E. is an antiquated management technique.

35. Cost management systems tend to focus on an organization's:

A. machines.
B. employees.
 C. activities.
D. customers.
E. rules and regulations.

36. The value chain of a manufacturer would tend to include activities related to:
A. manufacturing.
B. research and development.
C. product design.
D. all of the above.

37. Which of the following choices correctly depicts activities that would be included in a
manufacturer's value chain?
Research and
Development Marketing Distribution
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes No
E. No Yes Yes

38. Which of the preceding activities would likely not be considered part of The Gap clothing
company’s value chain?
a. Designing a new product line.
b. Locating and then negotiating terms with a clothing manufacturer
c. Marketing an existing product line.
D Distributing goods from regional warehouses to local stores.
E All of the above activities would be an element in the company’s value chain.

39. The activities performed by a manufacturing organization could be categorized as pre-

production (such as research and development and product design), production-related, and post-
production (such as marketing and customer service). Which activities should the firm focus on if
management understands the value chain concept and desires to meet organizational goals?
A. Pre-production activities.
B. Production-related activities.
C. Post-production activities.
D. Pre-production, production-related, and post-production activities.
E. Pre-production and production-related activities.

40. In order for a company to achieve a sustainable competitive advantage, it must perform value
chain activities:
A. at the same quality level as competitors, at the same cost.
 B. at the same quality level as competitors, but at a lower cost.
C. at a higher quality level than competitors, at a higher cost.
D. at a higher quality level than competitors, but at no greater cost.
E. at either the same quality level as competitors, but at a lower cost, or at a higher quality level
than competitors, but at no greater cost.

41. The process of managing the various activities in the value chain, along with the associated
costs, is commonly known as:
A. activity-based costing.
B. strategic cost management.
C. total quality management.
D. computer-integrated costing.
E. sound management practices (SMP).

42. A company has a bottleneck operation that slows production. Which of the following tools or
approaches could the firm use to determine the most cost-effective ways to eliminate this problem?
A. Linear programming.
B. Theory of constraints.
C. Decision-tree diagrams.
D. Payoff matrices.
E. Strategic path analysis (SPA).

43. Which of the following can be linked to the relatively recent wave of corporate scandals?
A. Greedy corporate executives.
B. Managers who make over-reaching business deals.
C. Lack of oversight by companies' audit boards and boards of directors.
D. Shoddy work by external auditors.
E. All of the above.

44. Which of the following acts strives to improve corporate governance and the quality of
corporate accounting/reporting?
A. Robinson-Patman.
B. Taft-Hartley.
C. Sarbanes-Oxley.
D. Bush-Cheney.
E. Franks-Ashcroft.

Which of the following statements about the ethical climate of business is false?
Greedy corporate executives are, in part, to blame for the relatively recent rash of corporate scandals.
Unethical business behavior can have a negative impact on our economy.
The Sarbanes-Oxley Act strives to improve the overall quality of corporate reporting.
The Robinson-Patman Act strives to improve the overall quality of corporate reporting.
Corporate scandals have served as the accounting profession’s wake-up call to pay increased attention to
ethical issues in the conduct of business.
46. Which of the following is not an ethical standard of managerial accounting?
A. Competence.
B. Confidentiality.
C. Efficiency.
D. Integrity.
E. Credibility.

47. Which of the following is not an element of competency?

A. To develop appropriate knowledge about a particular subject.
B. To perform duties in accordance with relevant laws.
C. To perform duties in accordance with relevant technical standards.
D. To refrain from engaging in an activity that would discredit the accounting profession.
E. To prepare clear reports after an analysis of relevant and reliable information.

48. Assume that a managerial accountant regularly communicates with business associates to avoid
conflicts of interest and advises relevant parties of potential conflicts. In so doing, the accountant will
have applied the ethical standard of:
A. objectivity.
B. confidentiality.
C. integrity.
D. credibility.
E. unified behavior.

THEORY
Productivity Measures
1. A primary objective in measuring productivity is to improve operations either by using fewer
inputs to produce the same output, or to produce:
A. more effectively C. more outputs with the same inputs
B. with fewer constraints D. more outputs with more inputs

2. Which of the following assesses the productivity efficiency for all inputs combined in order to
value change in productivity?
A. partial productivity measurement C. profit-linked productivity measurement
B. profile productivity measurement D. total productivity measurement

3. Changes in the productivity of different types of resources are NOT always:

A. measurable and observable
B. in the same direction or at an equal pace
C. unique and differentiated
D. simultaneous and positive

4. How can productivity be improved?

A. using less input to produce the same output
B. using the same input to produce more output
C. improve input trade-off efficiency by using a less costly mix of inputs
D. all of the above

5. One major problem in measuring productivity in not-for-profit organizations is the absence of

revenue as the:
A. common measure for inputs
B. common measure for outputs
C. basis for financial reporting
D. common denominator with commercial firms

6. Productivity increases if:

A. less output is produced with more input.
B. the same output is produced with more input.
C. the same output is produced with fewer inputs.
D. laborers put in more effort.

7. A partial productivity measure has several limitations, including that:

A. it ignores any productivity effect caused by other manufacturing factor quantity changes.
B. it ignores any effect that changes in the production factor have on productivity.
C. it ignores and effect that changes in operating characteristics of the firm may have on the
productivity of the input resource.
D. all of the above answers are correct.

8. An advantage of partial measures of productivity is that it:

A. allows managers to focus on the use of a particular input.
B. is a complex measure that is difficult to interpret by everyone in the organization.
C. looks at the effect of multiple inputs.
D. is a perfect measure of performance.

Total quality management

9. Characteristics of total quality management include:
A. focusing on customer satisfaction
B. striving on continuous improvement
C. involvement of the entire work force
D. All of the above are characteristics of TQM

10. Which of the following is not an important principle of TQM?

A. The organization should focus on improving goods from the consumer's viewpoint
B. Everyone in the organization is required to participate
C. There should be a system of planning, controlling, and decision making
D. Complacency is the norm

11. Total quality management directs management attention to the relationship between the
internal production/service process and the:
A. CEO of the competition C. activity analysis
B. ultimate customer D. control charts

12. Continuous improvement is synonymous with:

A. process benchmarking C. management by objectives
B. total quality management D. management by exception

13. Which of the following describes the zero defects view?

A. it permits a predetermined level of defective units to be produced
B. it is the level where the number of defects allowed minimizes total cost.
C. it is the level where there are no defects.
D. all of the above.

Statistical process control

14. A technique by which companies analyze fluctuations in a process is called:
A. statistical process control C. benchmarking
B. a quality audit D. Pareto analysis

Process benchmarking
15. Focusing on how best in class companies achieve their results is referred to as:
A. reverse engineering C. process benchmarking
B. results benchmarking D. competitive benchmarking

Total quality control

16. The goal of total quality control is
A. to have less defective material than good material
B. to permit defects as long as they do not exceed a certain level
C. to have zero defect
D. both b and c

Cost of Quality Report

17. Regardless of the differences in form and control, a common feature that should be present in
any Cost of Quality Report is that the report:
A. promotes total quality management (TQM)
B. stratifies costs by product line
C. stratifies costs by plant
D. stratifies costs by division

Value Engineering
18. Value engineering can result in
A. product redesign C. modifications in process methods
B. changes in materials specifications D. all of the above

Value chain
19. Which of the following is the correct sequence of the value chain?
A. design, research and development, production, supply, marketing, customer service,
distribution
B. research and development, design, supply, production, marketing, distribution, customer
service
C. research and development, design, supply, production, marketing, customer service,
distribution
D. supply, research and development, design, production, marketing, distribution, customer
service
Process value analysis
20. A tool that focuses on manufacturing processes and seeks to reduce or optimize the activities
performed within the process is
A. process value analysis C. caveat analysis
B. re-engineering D. benchmarking

21. A tool that compares how tasks are performed internally with the best practices of industry
leaders is
A. process value analysis C. caveat analysis
B. re-engineering D. benchmarking

22. Attempting to determine why activities are performed and how well they are performed is a
goal of
A. process value analysis
B. both traditional and activity-based costing systems
C. computer-integrated manufacturing systems
D. just-in-time manufacturing

Process Re-engineering
23. An approach to developing new ways to perform existing activities is called
A. process value analysis C. caveat analysis
B. re-engineering D. benchmarking

24. 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.

Quality Costs
Prevention cost
25. Costs incurred to improve product quality by precluding product defects are known as:
A. internal failure costs C. appraisal costs
B. external failure costs D. prevention cost

26. Worker training is a(n)

A. appraisal cost. C. internal failure cost.
B. external failure cost. D. prevention cost.

27. An example of a control cost is:

A. supplier evaluation and selection C. cost of recalling products
B. scrap D. all of the above

Appraisal cost
28. The quality costs that are incurred to determine whether particular units of product meet
quality standards are
A. appraisal costs. C. internal failure costs.
B. external failure costs. D. prevention costs.

Internal failure cost

29. The cost of downtime on machines while rework is being performed is a(n)
A. appraisal cost. C. internal failure cost.
B. external failure cost. D. prevention cost.

30. The costs of reworking defective units to make them saleable are classified as
A. appraisal costs C. internal failure costs
B. external failure costs D. prevention costs

External failure cost

31. Which of the following represents an external failure cost?
A. reprocessing a defective product before shipment
B. replacing a defective product after shipment
C. hiring for quality
D. inspecting products during production

32. Sales returns and allowances due to a quality deficiency is an example of:
A. external failure costs C. internal failure costs
B. appraisal costs D. prevention cost

Analysis
33. If a company has high failure costs, the best course of action to reduce total quality costs would
be to increase
A. prevention costs C. the cost of non-compliance
B. the costs associated with compliance D. appraisal costs

Value-added & non-value added costs

Non-value added costs
34. The costs caused by inefficiency in prevention activities are:
A. nonvalued-added costs
B. value-added costs
C. neither nonvalued-added or value-added costs
D. both nonvalued-added or value-added costs

1. The major functions of management are

A. strategic management and long-range planning.
B. planning and decision making.
C. identifying threats and opportunities for the firm.
D. all of the above.

2. The three major types of competitive strategy include

A. cost leadership, differentiation, and productivity.
B. cost leadership, focus, and productivity.
C. differentiation, focus, and productivity.
D. cost leadership, differentiation, and focus.
3. Sustainability means the balancing of
A. short term and long term goals in economic performance.
B. short term and long term goals in social aspects.
C. short term and long term goals in environmental aspects.
D. all of the above.

4. Simultaneous engineering can be used to

A. reduce both product and process complexity.
B. integrate activity-based costing with value chain analysis.
C. reduce the time-to-market of new products through elimination of batch-level activities.
D. reduce manufacturing cycle efficiency by reducing process waste.

5. Engaging in which of the following will result in radical changes being made to an organization's
processes?
A. Continuous improvement C. Reengineering
B. Benchmarking D. Mass customization

6. In the contemporary business environment, cost management focus is on

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

7. Which focuses on process improvement, process innovation, or business reengineering?

A.. functional-based responsibility accounting
B. activity-based responsibility accounting
C. strategic-based responsibility accounting
D. none of the above

8. The optimal level in the optimal cost management system is when

A. measurement costs are greater than error costs
B. measurement costs are less than error costs
C. the total of measurement costs and error costs are minimized
D. both b and c

9. A repetitive action fulfilling a business function and increasing the worth of the product and the
price that the customer is willing to pay for the product is referred to as a:
A. non-value added activity
B. value-added activity
C. business value-added activity
D. activity analysis

10. The actual time that a product must be delayed while waiting to be processed is called:
A. service time C. transfer time
B. inspection time D. idle time

11. The resource utilized by a given product divided by the total amount of the resource available is
called the
A. activity driver C. cost object
B. consumption ratio D. sustaining activity

12. The primary objective of just-in-time processing is to

A. accumulate overhead in activity cost pools
B. eliminate or reduce all manufacturing inventories
C. identify relevant activity cost drivers
D. none of them

13. 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.

14. Which of the following is not a benefit of just-in-time processing?

A. Control of significant inventory balances.
B. Enhanced product quality.
C. Reduction of rework costs.
D. Production cost savings.

15. 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.

16. 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. C. I, II, III.
B. I, III. D. II, III.

17. 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.

18. Under just-in-time processing

A. raw materials are received just in time for use in production
B. subassembly parts are completed just in time for use in assembling finished goods
C. finished goods are completed just in time to be sold
D. all of the above

19. 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.

20. 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.

21. Conventional and just-in-time manufacturers differ in that the conventional manufacturer is
likely to
A. be a new entrant into its industry.
B. need less storage space than its JIT competitors.
C. give less credibility to management accounting reports.
D. have a longer production cycle than its JIT competitors.

22. In JIT manufacturing, each operation produces

A. only what is necessary for the succeeding operations
B. all that it can to offset fixed costs
C. a fixed percentage in excess of orders to ensure adequate quality stock
D. all that it can in order to build inventories

23. Many companies have significantly lowered inventory levels and costs using
A. activity-based costing.
B. an enterprise resource planning system.
C. the just-in-time method.
D. a total quality management system.

24. JIT manufacturing emphasizes

A. large amounts of inventory on hand so that the company does not run out of it
B. small amounts of inventory on hand resulting in lower quality goods because production is
rushed
C. reducing investment in inventory and increasing the emphasis on quality
D. both b and c

25. A just-in-time manufacturer is more likely than a conventional manufacturer to

A. receive more frequent deliveries of materials.
B. spend less money on advertising.
C. need workers with fewer skills.
D. all of the above.

26. Just-in-time manufacturing

A. is a demand pull rather than a push through the system
B. allows the firm to focus on quality and productivity simultaneously
C. increases product cost accuracy by increasing a firm’s ability to track costs to products
D. all of the above

27. If JIT manufacturing is used, maintenance of the production equipment would be classified as
a
A. unit-level activity C. product-level activity
B. cell-level activity D. facility-level activity

28. Under JIT manufacturing, many overhead costs formerly classified as indirect costs are now
A. eliminated C. no longer traceable
B. depreciated D. directly traceable to the product

29. When JIT manufacturing is used, which of the following costs is considered an indirect product
cost?
A. the cost to set up cell equipment C. property taxes on the plant
B. the cost of maintenance on equipment D. salary of the cell supervisor

30. When JIT manufacturing is used, which of the following costs is considered a direct product
cost?
A. insurance on the plant and equipment C. janitors’ salary
B. repair parts for the machinery D. salary of the plant supervisor

31. Problems encountered with using traditional product costing for JIT manufacturing usually stem
from
A. assigning direct materials costs to units of product.
B. assigning direct labor costs to units of product.
C. assigning overhead costs to units of product.
D. all of the above.

32. A characteristic of the just-in-time manufacturing environment is

A. frequent deliveries of materials
B. manufacturing cells
C. little or no inventory of finished product
D. all of the above

33. Just-in-time relates to

A. people getting to their job location just in time to begin their work.
B. machinery placed in service just in time to begin production.
C. materials received from suppliers just in time for production needs.
D. all of the above.

34. Which of the following is a value-added activity?

A. Engineering design. C. Inventory storage.
B. Machinery repair. D. Inspections.

35. Which of the following is a nonvalue-added activity?

A. Engineering design. C. Inspection.
B. Machining. D. Packaging.

36. A nonvalue-added activity in a service enterprise is

A. taking appointments. C. advertising.
B. traveling. D. all of them.

37. Value-added activities

A. should be reduced or eliminated.
B. involve resource usage that customers are willing to pay for.
C. add cost to a product without affecting the selling price.
D. cannot be differentiated from nonvalue-added activities.

38. The company's goal for defective units as a percentage of total units produced should be:
A. 1.50% C. 0.05%
B. 0.00% D. 0.53%

39. All of the following are examples of non-value-added activities except

A. ordering C. receiving
B. assembling D. inspections

40. Sequencing if-then statements is a simple method of:

A. testing a strategy C. creating lead measures
B. prioritizing objectives D. evaluating performance

41. Setting balanced objectives, setting target values, and aligning rewards are:
A. necessary steps in creating a balanced scorecard
B. important aspects of the capital budgeting process
C. the heart of process innovation
D. the ingredients for economic forecasting

42. Delivery performance declines by:

A. increasing cycle time C. increasing velocity
B. decreasing cycle time D. decreasing turnover

43. Just-in-time processing

A. is based on a just-in-case philosophy.
B. results in a push approach.
C. minimizes inventory storage and waiting time.
D. all of these.

44. An element of just-in-time processing is

A. dependable suppliers who are willing to deliver on short notice.
B. a multi-skilled workforce.
C. a total quality control system.
D. all of them.

45. Which account is used in just-in-time processing?

A. Raw materials inventory C. Merchandise inventory
B. Work in process inventory D. Raw and In-Process inventory

46. Under just-in-time processing, all of the following are received or completed “just in time”
except
A. finished goods. C. supplies.
B. raw materials. D. subassembly parts.

47. A just-in-time manufacturing process should have substantially less of which of the following
than a traditional manufacturing process?
A. B. C. D.
Idle Time Yes Yes Yes No
Transfer Time Yes No Yes Yes
Value-added Time Yes No No No
Cycle Time Yes Yes Yes No

48. Manufacturing cycle efficiency should be increased by employing which of the following
techniques?
A. B. C. D.
Just-in-Time Inventory Yes Yes No Yes
Flexible Manufacturing Systems Yes Yes No No
Batch Manufacturing Yes No No Yes

Question Nos. 49 and 50 are based on the following:

Small Computer Company has the following personnel:
Two inspectors: inspect the final computers
Four fabricators: make the computer cases
Two computer programmers: run all of the bookkeeping for the accounting records
Seven assemblers: manufacture the mother boards
One owner: writes the paychecks

49. Which groups of employees are value-added workers?

A. I and II C. II and III
B. III and V D. II and IV

50. Which groups of employees are non-value-added workers?

A. I, II, and III C. I, III and V
B. III, IV, and V D. I, II, and IV

FINANCIAL STATEMENT ANALYSIS

THEORIES:
6. Management is a user of financial analysis. Which of the following comments does not
represent a fair statement as to the management perspective?
A. Management is always interested in maximum profitability.
B. Management is interested in the view of investors.
C. Management is interested in the financial structure of the entity.
D. Management is interested in the asset structure of the entity.

Limitations
1. A limitation in calculating ratios in financial statement analysis is that
A. it requires a calculator.
B. no one other than the management would be interested in them.
C. some account balances may reflect atypical data at year end.
D. they seldom identify problem areas in a company.

2. Which of the following is not a limitation of financial statement analysis?

A. The cost basis. C. The diversification of firms.
B. The use of estimates. D. The availability of information.

5. Which of the following does not represent a problem with financial analysis?
A. Financial statement analysis is an art; it requires judgment decisions on the part of the analyst.
B. Financial analysis can be used to detect apparent liquidity problems.
C. There are as many ratios for financial analysis as there are pairs of figures.
D. Some industry ratio formulas vary from source to source.

77. The use of alternative accounting methods:

A. is not a problem in ratio analysis because the footnotes disclose the method used.
B. may be a problem in ratio analysis even if disclosed.
C. is not a problem in ratio analysis since eventually all methods will lead to the same end.
D. is only a problem in ratio analysis with respect to inventory.

Industry Analysis
3. Suppose you are comparing two firms in the steel industry. One firm is large and the other is
small. Which type of numbers would be most meaningful for statement analysis?
A. Absolute numbers would be most meaningful for both the large and small firm.
B. Absolute numbers would be most meaningful in the large firm; relative numbers would be most
meaningful in the small firm.
C. Relative numbers would be most meaningful for the large firm; absolute numbers would be
most meaningful for the small firm.
D. Relative numbers would be most meaningful for both the large and small firm, especially for
interfirm comparisons.

4. Which of these statements is false?

A. Many companies will not clearly fit into any one industry.
B. A financial service uses its best judgment as to which industry the firm best fits.
C. The analysis of an entity's financial statements can be more meaningful if the results are
compared with industry averages and with results of competitors.
D. A company comparison should not be made with industry averages if the company does not
clearly fit into any one industry.

Common-sized financial statements

9. Which of the following generally is the most useful in analyzing companies of different sizes?
A. comparative statements C. price-level accounting
B. common-sized financial statements D. profitability index

12. Statements in which all items are expressed only in relative terms (percentages of a base) are
termed:
A. Vertical statements C. Funds Statements
B. Horizontal Statements D. Common-Size Statements

10. The percent of property, plant and equipment to total assets is an example of:
A. vertical analysis C. profitability analysis
B. solvency analysis D. horizontal analysis

15. Vertical analysis is a technique that expresses each item in a financial statement
A. in pesos and centavos.
B. as a percent of the item in the previous year.
C. as a percent of a base amount.
D. starting with the highest value down to the lowest value.

17. In performing a vertical analysis, the base for prepaid expenses is

A. total current assets. C. total liabilities.
B. total assets. D. prepaid expenses in a previous year.

Horizontal analysis
8. The percentage analysis of increases and decreases in individual items in comparative financial
statements is called:
A. vertical analysis C. profitability analysis
B. solvency analysis D. horizontal analysis

11. Horizontal analysis is also known as

A. linear analysis. C. trend analysis.
B. vertical analysis. D. common size analysis.

13. In which of the following cases may a percentage change be computed?

A. The trend of the amounts is decreasing but all amounts are positive.
B. There is no amount in the base year.
C. There is a negative amount in the base year and a negative amount in the subsequent year.
D. There is a negative amount in the base year and a positive amount in the subsequent year.

14. Horizontal analysis is a technique for evaluating a series of financial statement data over a
period of time
A. that has been arranged from the highest number to the lowest number.
B. that has been arranged from the lowest number to the highest number.
C. to determine which items are in error.
D. to determine the amount and/or percentage increase or decrease that has taken place.

Trend analysis
16. Trend analysis allows a firm to compare its performance to:
A. other firms in the industry C. other industries
B. other time periods within the firm D. none of the above

Risk and return

29. The present and prospective stockholders are primarily concerned with a firm’
A. profitability C. leverage
B. liquidity D. risk and return

69. Which suppliers of funds bear the greatest risk and should therefore earn the greatest return?
A. common stockholders C. preferred shareholders
B. general creditors such as banks D. bondholders

Measures of Risk
54. The following groups of ratios primarily measure risk:
A. liquidity, activity, and common equity C. liquidity, activity, and debt
B. liquidity, activity, and profitability D. activity, debt, and profitability

Financial ratios
7. Ratios are used as tools in financial analysis
A. instead of horizontal and vertical analyses.
B. because they can provide information that may not be apparent from inspection of the
individual components of a particular ratio.
C. because even single ratios by themselves are quite meaningful.
D. because they are prescribed by GAAP.

18. In the near term, the important ratios that provide the information critical to the short-run
operation of the firm are:
A. liquidity, activity, and profitability C. liquidity, activity, and equity
B. liquidity, activity, and debt D. activity, debt, and profitability

75. The ability of a business to pay its debts as they come due and to earn a reasonable amount of
income is referred to as:
A. solvency and leverage C. solvency and liquidity
B. solvency and profitability D. solvency and equity

Liquidity ratios
Interested parties
19. The primary concern of short-term creditors when assessing the strength of a firm is the
entity’s
A. short-term liquidity C. market price of stock
B. profitability D. leverage

35. Short-term creditors are usually most interested in assessing

A. solvency. C. marketability.
B. liquidity. D. profitability.

36. The two categories of ratios that should be utilized to asses a firm’s true liquidity are the
A. current and quick ratios C. liquidity and profitability ratios
B. liquidity and debt ratios D. liquidity and activity ratios

47. Which of the following is the most of interest to a firm’s suppliers?

A. profitability C. asset utilization
B. debt D. liquidity

Measures of liquidity
21. The ratios that are used to determine a company’s short-term debt paying ability are
A. asset turnover, times interest earned, current ratio, and receivables turnover.
B. times interest earned, inventory turnover, current ratio, and receivables turnover.
C. times interest earned, acid-test ratio, current ratio, and inventory turnover.
D. current ratio, acid-test ratio, receivables turnover, and inventory turnover.

20. Which of the following is a measure of the liquidity position of a corporation?

A. earnings per share
B. inventory turnover
C. current ratio
D. number of times interest charges earned

37. Which one of the following ratios would not likely be used by a short-term creditor in
evaluating whether to sell on credit to a company?
A. Current ratio C. Asset turnover
B. Acid-test ratio D. Receivables turnover

51. Which of the following ratios would be least helpful in appraising the liquidity of current
assets?
A. Accounts Receivable turnover C. Current Ratio
B. Days’ sales in inventory D. Days’ sales in accounts receivable

53. Which ratio is most helpful in appraising the liquidity of current assets?
A. current ratio C. acid-test ratio
B. debt ratio D. accounts receivable turnover

Not a measure of liquidity

79. Which one of the following ratios would not likely be used by a short-term creditor in evaluating
whether to sell on credit to a company?
A. accounts receivable turnover. C. acid test ratio.
B. asset turnover. D. current ratio.

Current ratio
24. Typically, which of the following would be considered to be the most indicative of a firm's short-
term debt paying ability?
A. working capital C. acid test ratio
B. current ratio D. days’ sales in receivables

22. The current ratio is

A. calculated by dividing current liabilities by current assets.
B. used to evaluate a company’s liquidity and short-term debt paying ability.
C. used to evaluate a company’s solvency and long-term debt paying ability.
D. calculated by subtracting current liabilities from current assets.

30. Which of the following ratios is rated to be a primary measure of liquidity and considered of
highest significance rating of the liquidity ratios a bank analyst?
A. Debt/Equity
B. Current ratio
C. Degree of Financial Leverage
D. Accounts Receivable Turnover in Days

41. A weakness of the current ratio is

A. the difficulty of the calculation.
B. that it does not take into account the composition of the current assets.
C. that it is rarely used by sophisticated analysts.
D. that it can be expressed as a percentage, as a rate, or as a proportion.

Acid-test or quick ratio

42. A measure of a company’s immediate short-term liquidity is the
A. current ratio.
B. current cash debt coverage ratio.
C. cash debt coverage ratio.
D. acid-test ratio.

23. The acid-test or quick ratio

A. is used to quickly determine a company’s solvency and long-term debt paying ability.
B. relates cash, short-term investments, and net receivables to current liabilities.
C. is calculated by taking one item from the income statement and one item from the balance
sheet.
D. is the same as the current ratio except it is rounded to the nearest whole percent.

Not a liquidity ratio

28. Which one of the following would not be considered a liquidity ratio?
A. Current ratio. C. Quick ratio.
B. Inventory turnover. D. Return on assets.

Activity ratios
Days receivable & receivable turnover
Quality of receivables
25. Which of the following does not bear on the quality of receivables?
A. shortening the credit terms
B. lengthening the credit terms
C. lengthening the outstanding period
D. all of the above bear on the quality of receivables

Days receivable
27. A general rule to use in assessing the average collection period is
A. that is should not exceed 30 days.
B. it can be any length as long as the customer continues to buy merchandise.
C. that it should not greatly exceed the discount period.
D. that it should not greatly exceed the credit term period.

Asset utilization ratios

Performance measures
65. All of the following are asset utilization ratios except:
A. average collection period C. receivables turnover
B. inventory turnover D. return on assets

Asset turnover
63. Asset turnover measures
A. how often a company replaces its assets.
B. how efficiently a company uses its assets to generate sales.
C. the portion of the assets that have been financed by creditors.
D. the overall rate of return on assets.

66. Total asset turnover measures the ability of a firm to:

A. generate profits on sales
B. generate sales through the use of assets
C. cover long-term debt
D. buy new assets

76. A measure of how efficiently a company uses its assets to generate sales is the
A. asset turnover ratio. C. profit margin ratio.
B. cash return on sales ratio. D. return on assets ratio.

Solvency ratios
Interested parties
50. Long-term creditors are usually most interested in evaluating
A. liquidity. C. profitability.
B. marketability. D. solvency.

Financial Leverage
45. Trading on the equity (leverage) refers to the
A. amount of working capital.
B. amount of capital provided by owners.
C. use of borrowed money to increase the return to owners.
D. earnings per share.

90. The tendency of the rate earned on stockholders' equity to vary disproportionately from the
rate earned on total assets is sometimes referred to as:
A. leverage C. yield
B. solvency D. quick assets

55. Using financial leverage is a good financial strategy from the viewpoint of stockholders of
companies having:
A. a high debt ratio C. a steadily declining current ratio
B. steady or rising profits D. cyclical highs and lows
46. The ratio that indicates a company’s degree of financial leverage is the
A. cash debt coverage ratio. C. free cash flow ratio.
B. debt to total assets. D. times-interest earned ratio.

73. Interest expense creates magnification of earnings through financial leverage because:
A. while earnings available to pay interest rise, earnings to residual owners rise faster
B. interest accompanies debt financing
C. interest costs are cheaper than the required rate of return to equity owners
S. the use of interest causes higher earnings

Measures of solvency
34. The set of ratios that is most useful in evaluating solvency is
A. debt ratio, current ratio, and times interest earned
B. debt ratio, times interest earned, and return on assets
C. debt ratio, times interest earned, and quick ratio
D. debt ratio, times interest earned, and cash flow to debt

49. Which of the following ratios is most relevant to evaluating solvency?

A. Return on assets C. Days’ purchases in accounts payable
B. Debt ratio D. Dividend yield

Fixed assets to long-term liabilities

44. Which of the following ratios provides a solvency measure that shows the margin of safety of
noteholders or bondholders and also gives an indication of the potential ability of the business to
borrow additional funds on a long-term basis?
A. ratio of fixed assets to long-term liabilities
B. ratio of net sales to assets
C. number of days' sales in receivables
D. rate earned on stockholders' equity

Debt ratio
59. The debt ratio indicates:
A. a comparison of liabilities with total assets
B. the ability of the firm to pay its current obligations
C. the efficiency of the use of total assets
D. the magnification of earnings caused by leverage

78. The debt to total assets ratio measures

A. the company’s profitability.
B. whether interest can be paid on debt in the current year.
C. the proportion of interest paid relative to dividends paid.
D. the percentage of the total assets provided by creditor.

Debt-to-equity ratio
60. Which of the following statements best compares long-term borrowing capacity ratios?
A. The debt/equity ratio is more conservative than the debt ratio.
B. The debt to tangible net worth ratio is more conservative than the debt/equity ratio.
C. The debt/equity ratio is more conservative than the debt to tangible net worth ratio.
D. The debt ratio is more conservative than the debt/equity ratio.

Times interest earned

74. A times interest earned ratio of 0.90 to 1 means that
A. the firm will default on its interest payment
B. net income is less than the interest expense
C. the cash flow is less than the net income
D. the cash flow exceeds the net income

Fixed charge coverage

61. A fixed charge coverage:
A. is a balance sheet indication of debt carrying ability
B. is an income statement indication of debt carrying ability
C. frequently includes research and development
D. computation is standard from firm to firm

Off-balance sheet liabilities

62. If a firm has substantial capital or financing leases disclosed in the notes but not capitalized in
the financial statements, then the
A. times interest earned ratio will be overstated, based upon the financial statements
B. debt ratio will be understated
C. working capital will be understated
D. fixed charge ratio will be overstated, based upon the financial statements

Profitability ratios
Interested parties
39. The return on assets ratio is affected by the
A. asset turnover ratio.
B. debt to total assets ratio.
C. profit margin ratio.
D. asset turnover and profit margin ratios.

52. Stockholders are most interested in evaluating

A. liquidity. C. profitability.
B. solvency. D. marketability.

Performance measures
48. The set of ratios that are most useful in evaluating profitability is
A. ROA, ROE, and debt to equity ratio C. ROA, ROE, and acid-test ratio
B. ROA, ROE, and dividend yield D. ROA, ROE, and cash flow to debt

Earnings per share

82. Which of the following ratios appears most frequently in annual reports?
A. Earnings per Share C. Profit Margin
B. Return on Equity D. Debt/Equity

Return on assets
64. Return on assets
A. can be determined by looking at a balance sheet
B. should be smaller than return on sales
C. can be affected by the company’s choice of a depreciation method
D. should be larger than return on equity

Return on investments
72. Return on investment measures:
A. return to all suppliers of funds C. return to all long-term suppliers of funds
B. return to all long-term creditors D. return to stockholders

Market test ratios

Price-earnings ratio
56. The price/earnings ratio
A. measures the past earning ability of the firm
B. is a gauge of future earning power as seen by investors
C. relates price to dividends
D. relates

58. Which of the following ratios usually reflects investors opinions of the future prospects for the
firm?
A. dividend yield C. book value per share
B. price/earnings ratio D. earnings per share

Dividend yield
57. Which of the following ratios represents dividends per common share in relation to market price
per common share?
A. dividend payout C. price/earnings
B. dividend yield D. book value per share

Financial Statement Analysis

Accounts Receivable
26. Which of the following reasons should not be considered in order to explain why the receivables
appear to be abnormally high?
A. Sales volume decreases materially late in the year.
B. Receivables have collectibility problems and possibly some should have been written off.
C. Material amount of receivables are on the installment basis.
D. Sales volume expanded materially late in the year.

31. An acceleration in the collection of receivables will tend to cause the accounts receivable
turnover to:
A. decrease C. either increase or decrease
B. remain the same D. increase

Inventories
32. Which of the following would best indicate that the firm is carrying excess inventory?
A. a decline in the current ratio
B. stable current ratio with declining quick ratios
C. a decline in days' sales in inventory
D. a rise in total asset turnover

89. When Tri-C Corp. compares its ratios to industry averages, it has a higher current ratio, an
average quick ratio, and a low inventory turnover. What might you assume about Tri-C?
A. Its cash balance is too low. C. Its current liabilities are too low.
B. Its cost of goods sold is too low. D. Its average inventory is too high.

Current ratio
33. Which of the following would be most detrimental to a firm's current ratio if that ratio is
currently 2.0?
A. Buy raw materials on credit
B. Sell marketable securities at cost
C. Pay off accounts payable with cash
D. Pay off a portion of long-term debt with cash

Fixed asset turnover ratio

68. Which of the following circumstances will cause sales to fixed assets to be abnormally high?
A. A labor-intensive industry.
B. The use of units-of-production depreciation.
C. A highly mechanized facility.
D. High direct labor costs from a new union contract.

Total asset turnover

81. A firm with a total asset turnover lower than the industry standard and a current ratio which
meets industry standard might have excessive:
A. Accounts receivable C. Debt
B. Fixed assets D. Inventory

Profitability analysis
84. Denver Dynamics has net income of P2,000,000. Oakland Enterprises has net income of
P2,500,000. Which of the following best compares the profitability of Denver and Oakland?
A. Oakland Enterprises is 25% more profitable than Denver Dynamics.
B. Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be
quantified.
C. Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics.
D. Further information is needed for a reasonable comparison.

Debt ratio
86. Companies A and B are in the same industry and have similar characteristics except that
Company A is more leveraged than Company B. Both companies have the same income before
interest and taxes and the same total assets. Based on this information we could conclude that
A. Company A has higher net income than Company B
B. Company A has a lower return on assets than company B
C. Company A is more risky than Company B.
D. Company A has a lower debt ratio than company B

Sensitivity Analysis
Current ratio
40. A firm has a current ratio of 1:1. In order to improve its liquidity ratios, this firm should
A. improve its collection practices, thereby increasing cash and increasing its current and quick
ratios.
B. improve its collection practices and pay accounts payable, there decreasing current liabilities
and increasing the current and quick ratios.
C. decrease current liabilities by utilizing more long-term debt, thereby increasing the current
and quick ratios.
D. increase inventory, thereby increasing current assets and the current and quick ratios.

43. Recently the M&M Company has been having problems. As a result, its financial situation has
deteriorated. M&M approached the First National Bank for a badly needed loan, but the loan officer
insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even
consider granting the credit. Which of the following actions would do the most to improve the ratio in
the short run?
A. Using some cash to pay off some current liabilities.
B. Collecting some of the current accounts receivable.
C. Paying off some long-term debt.
D. Purchasing additional inventory on credit (accounts payable).

87. Tyner Company had P250,000 of current assets and P90,000 of current liabilities before
borrowing P60,000 from the bank with a 3-month note payable. What effect did the borrowing
transaction have on Tyner Company's current ratio?
A. The ratio remained unchanged.
B. The change in the current ratio cannot be determined.
C. The ratio decreased.
D. The ratio increased.

88. Which of the following actions will increase a firm's current ratio if it is now less than 1.0?
A. Convert marketable securities to cash.
B. Pay accounts payable with cash.
C. Buy inventory with short term credit (i.e. accounts payable).
D. Sell inventory at cost.

Acid-test ratio
38. If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash
by short-term debt and collection of accounts receivable have on the ratio?
A. B. C. D.
Short-term borrowing Increase Increase Decrease Decrease
Collection of No effect Increase No effect Decrease
receivable

Profit margin
70. Which of the following would most likely cause a rise in net profit margin?
A. increased sales C. decreased operating expenses
B. decreased preferred dividends D. increased cost of sales

Return on assets
67. Return on assets cannot fall under which of the following circumstances?
A. B. C. D.
Net profit margin Decline Rise Rise Decline
Total asset turnover Rise Decline Rise Decline

Debt ratio
83. Jones Company has long-term debt of P1,000,000, while Smith Company, Jones' competitor, has
long-term debt of P200,000. Which of the following statements best represents an analysis of the long-
term debt position of these two firms?
A. Jones obviously has too much debt when compared to its competitor.
B. Smith Company's times interest earned should be lower than Jones.
C. Smith has five times better long-term borrowing ability than Jones.
D. Not enough information to determine if any of the answers are correct.

Times interest earned

85. Which of the following will not cause times interest earned to drop? Assume no other changes
than those listed.
A. A rise in preferred stock dividends.
B. A drop in sales with no change in interest expense.
C. An increase in interest rates.
D. An increase in bonds payable with no change in operating income.

DuPont Analysis
71. Which of the following could cause return on assets to decline when net profit margin is
increasing?
A. sale of investments at year-end C. purchase of a new building at year-end
B. increased turnover of operating assets D. a stock split

80. A firm with a lower net profit margin can improve its return on total assets by
A. increasing its debt ratio C. increasing its total asset turnover
B. decreasing its fixed assets turnover D. decreasing its total asset turnover

MODULE 3
ACTIVITY COST AND COST ANALYSIS

THEORIES:

1. Cost behavior analysis is a study of how a firm's costs

A. relate to competitors' costs.
B. relate to general price level changes.
C. respond to changes in activity levels within the company.
D. respond to changes in the gross national product. Bobadilla

2. The term “relevant range” as used in cost accounting means the range over which
A. costs may fluctuate C. production may vary
B. cost relationships are valid D. relevant costs are incurred Bobadilla
3. Most operating decisions by management focus on a narrow range of activity which is called
the:
A. relevant range of production. C. optimal level of production. Bobadilla
B. strategic level of production. D. tactical operating level of production.

4. An item or event that has a cause-effect relationship with the incurrence of a variable cost is
called a
A. mixed cost. C. direct cost.
B. predictor. D. cost driver. Bobadilla

5. If a predetermined overhead rate is not employed and the volume of production is increased
over the level planned, the cost per unit would be expected to
A. Decrease for fixed costs and remain unchanged for variable costs.
B. Remain unchanged for fixed costs and increase for variable costs.
C. Decrease for fixed costs and increase for variable costs.
D. Increase for fixed costs and increase for variable costs. Bobadilla

6. Which of the following describes the behavior of the variable cost per unit? Variable cost:
A. Varies in increasing proportion with changes in the activity level.
B. Varies in increasing proportion with changes in the activity level.
C. Remains constant with changes in the activity level.
D. Varies in direct proportion with the activity level. Bobadilla

7. A cost that remains constant on a per unit basis in a given period despite changes in the level of
activity should be considered a(an):
A. variable cost. C. fixed cost.
B. prime cost. D. overhead cost. Bobadilla

8. Malayan Company’s average cost per unit is the same at all levels of volume. Which of the
following is true?
A. MALAYAN must have only variable costs.
B. MALAYAN must have only fixed costs.
C. MALAYAN must have some fixed costs and some variable costs.
D. MALAYAN’s cost structure cannot be determined from this information. Bobadilla

9. Depreciation expense based on the number of units produced is classified as what type of cost?
A. Out-of-pocket cost. C. Variable cost.
B. Marginal cost. D. Fixed cost. Bobadilla

10. When production increases, variable manufacturing costs react in which of the following ways?
Bobadilla A. B. C. D.
Unit variable cost decreases remains same remains same increases
Total variable cost decreases Increases decreases Increases

11. When the number of units manufactured increases, the most significant change in unit cost will
be reflected as a(n)
A. increase in the fixed element. C. increase in the mixed element.
B. decrease in the variable element. D. decrease in the fixed element. Bobadilla
12. As volume increases,
A. total fixed costs remain constant and per-unit fixed costs increase.
B. total fixed costs remain constant and per-unit fixed costs decrease.
C. total fixed costs remain constant and per-unit fixed costs remain constant.
D. total fixed costs increase and per-unit fixed costs increase. Bobadilla

13. Which of the following best describes a fixed cost?

A. It may change in total when such change is unrelated to changes in production.
B. It may change in total when such change is related to changes in production.
C. It is constant per unit of change in production.
D. It may change in total when such change depends on production within the relevant range.
Bobadilla

14. If activity increases, which of the following statements about cost behavior is true?
Bobadilla
A. Fixed cost per unit will increase C. Fixed cost per unit will decrease
B. Variable cost per unit will increase D. Variable cost per unit will decrease

15. An increase in the activity level within the relevant range results in:
A. an increase in fixed cost per unit.
B. a proportionate increase in total fixed costs.
C. an unchanged fixed cost per unit.
D. a decrease in fixed cost per unit. Bobadilla

16. A cost that remains constant in total but varies on a per-unit basis with changes in activity is
called a(n)
A. expired cost. C. variable cost.
B. fixed cost. D. mixed cost. Bobadilla

17. Which of the following statements regarding fixed costs is incorrect?

A. Expressing fixed costs on a per unit basis usually is the best approach for decision-making
process.
B. Fixed costs expressed on a per unit basis will react inversely with changes in activity.
C. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the concept of
the relevant range. Bobadilla
D. Fixed costs frequently represent long-term investments in property, plant, and equipment.

18. Lamang Company changed its cost structure by increasing fixed costs and decreasing its per-unit
variable costs. The change:
A. Increases risk and increases potential profit.
B. Increases risk and decreases potential profit.
C. Decreases risk and decreases potential profit.
D. Decreases risk and increases potential profit. Bobadilla

19. A management’s preference for a very low degree of operating leverage might indicate that:
A. an increase in sales volume is expected.
B. a decrease in sales volume is expected.
C. the firm is very unprofitable.
D. the firm has very high fixed costs. Bobadilla

20. Management is considering replacing its existing sales commission compensation plan with a
fixed salary plan. If the change is adopted, the company’s
A. Breakeven point must increase. C. Operating leverage must increase.
B. Margin of safety must decrease.D. Profit must increase. Bobadilla

21. The indifference point is the level of volume at which a company

A. earns the same profit under different operating scheme.
B. earns no profit.
C. earns its target profit.
D. any of the above. Bobadilla

22. Operating leverage is the relative mix of

A. revenues earned and manufacturing costs
B. fixed and variable costs.
C. high-volume and low-volume products.
D. manufacturing costs and period costs. Bobadilla

23. The increased use of automation and less use of the work force in companies has caused a trend
towards an increase in
A. both variable and fixed costs.
B. fixed costs and a decrease in variable costs.
C. variable costs and a decrease in fixed costs.
D. variable costs and no change in fixed costs. Bobadilla

24. If fixed costs decrease while variable cost per unit remains constant, the contribution margin will
be
A. Unchanged C. Higher
B. Lower D. Indeterminate Bobadilla

25. Costs that increase as the volume of activity decreases within the relevant range are
A. Average cost per unit. C. Total fixed costs.
B. Average variable cost per unit. D. Total variable costs. Bobadilla

26. Which costs will change with an increase in activity within the relevant range?
A. Total fixed costs and total variable cost.
B. Per unit fixed costs and total variable cost.
C. Per unit variable cost and per unit fixed cost.
D. Per unit fixed cost and total fixed cost. Bobadilla

27. Which of the following best describes the relationship between fixed costs per unit and variable
costs per unit, as total volume increases?
A. Fixed cost per unit stays the same and variable cost per unit stays the same.
B. Fixed cost per unit stays the same and variable cost per unit increases.
C. Fixed cost per unit increases and variable cost per unit increases.
D. Fixed cost per unit decreases and variable cost per unit stays the same. Bobadilla
28. Within the relevant range, the difference between variable costs and fixed costs is:
A. variable costs per unit fluctuate and fixed cost per unit remains constant.
B. variable cost per unit is constant and fixed cost per unit fluctuates.
C. both total variable cost and total fixed cost are constant.
D. both total variable cost and total fixed cost fluctuate. Bobadilla

29. The learning curve in cost estimation is a good example of:

A. non-linear cost behavior. C. simple regression.
B. machine-intensive production. D. a random variable. Bobadilla

30. Cost estimation is the process of

A. estimating the relationship between costs and the cost drivers that cause those costs.
B. documenting costs in terms of direct and indirect costs.
C. summarizing past costs into fixed and variable components.
D. all of the above.Bobadilla

31. Which of the following methods is used to estimate costs?

A. Account analysis C. Engineering method
B. High-low method D. All of the above Bobadilla

32. For analysis purposes, the high-low method usually produces a(n)
A. reasonable estimate. C. overstated estimate.
B. precise estimate. D. understated estimate. Bobadilla

33. The high-low method is criticized because it

A. is not a graphical method.
B. is a mathematical method.
C. ignores much of the available data by concentrating on only the extreme points.
D. does not provide reasonable estimates. Bobadilla

34. The high-low method may give unsatisfactory results if

A. the data points all fall on a line. C. the points are not representative.
B. volume of activity is heavy. D. volume of activity is light. Bobadilla

35. The equation(s) required for applying the least squares method in the computation of fixed and
variable production costs could be expressed as
A. xy = ax + b x2 C.  y = na + b x
B. y = a + bx 2
D. xy = ax + b x2
xy = na + b x y = na + bx Bobadilla

36. Weaknesses of the high-low method include all of the following except
A. Only two observations are used to develop the cost function.
B. The high and low activity levels may not be representative.
C. the method does not detect if the cost behavior is nonlinear.
D. the mathematical calculations are relatively complex. Bobadilla
37. Which of the following methods estimates costs by identifying costs as variable or fixed based
on qualitative analysis?
A. Regression analysis C. Engineering method
B. Account analysis D. High-low method Bobadilla

38. Account analysis as compared to the engineering method

A. relies on past data.
B. relies on present and future data.
C. measures the work involved in the activities that go into a product.
D. a and c. Bobadilla

39. Which of the following methods may be used to estimate costs by using time-and-motion
studies to approximate labor time?
A. Regression analysis C. Engineering method
B. Account analysis D. High-low method Bobadilla

40. The cost estimation method that gives the most mathematically precise cost prediction
equation is
A. the high-low method C. the scatter-diagram method
B. the contribution margin method D. regression analysis Bobadilla

41. Regression analysis is better than the high-low method of cost estimation because regression
analysis:
A. is more mathematical. C. fits its data into a mathematical equation.
B. uses all the data points, not just two. D. takes more time to do. Bobadilla

42. In regression analysis, what does the variable "X" stand for in the model Y = a + bX + e?
A. The amount of the dependent variable, the cost to be estimated.
B. The regression error, which is the distance between the regression line and the data point.
C. The value for the independent variable, the cost driver for the cost to be estimated; there may
be one or more cost drivers.
D. The unit variable cost, also called the coefficient of the independent variable. Bobadilla

43. Simple regression is

A. a regression equation with more than one independent variable.
B. a regression equation with more than one dependent variable.
C. a regression equation with more than one independent and dependent variables.
D. a regression that considers all unknown factors. Bobadilla

44. Regression shows

A. the proportion of the variation of dependent variable explained by dependent variables.
B. the proportion of the variation of independent variable explained by the independent variables.
C. the proportion of the variation of dependent variable explained by the independent variables.
D. none of the above. Bobadilla

45. In the method of least squares, the deviation is the difference between the
A. predicted and estimated costs. C. predicted and average costs.
B. predicted and actual costs. D. average and actual costs. Bobadilla
46. A cost-predicting equation determined through regression analysis
A. always gives close predictions.
B. will not work any better than one obtained using the high-low method.
C. can be used only for costs that vary with sales of production.
D. could be severely affected by outliers. Bobadilla

47. In the cost equation TC = F + VX, the X term is:

A. total fixed costs. C. unit variable cost.
B. total variable costs. D. activity units. Bobadilla

48. Which of the following methods would be best for estimating costs for totally new activities?
A. Engineering method C. Scattergraph method
B. Account analysis method D. High-Low method Bobadilla

49. The engineering method of estimating costs:

A. can be used to estimate costs for totally new activities.
B. can detail each step required to perform an operation.
C. sometimes can be quite expensive to use.
D. all of the above are true. Bobadilla

50. The correlation coefficient or R-squared (R2) is interpreted as:

A. the minimum distance between the regression line and a single data point.
B. the measure of the linear relationship between two or more variables.
C. a determination of whether the data point is considered to be an "outlier."
D. the proportion of the variation in the dependent variable explained by the independent
variable. Bobadilla

51. The closeness of the relationship between the cost and the activity is called
A. correlation C. spurious
B. regression analysis D. manufacturing overhead Bobadilla

52. R-squared is a measure of

A. the spurious relationship between cost and activity
B. the fixed cost component
C. the variable cost per unit of activity Bobadilla
D. how well the regression line accounts for the changes in the dependent variable

53. The principal advantage of the scatter-diagram method over the high-low method of cost
estimation is that the scatter-diagram method
A. includes cost outside the relevant range.
B. considers more than two points.
C. can be used with more types of costs than the high-low method.
D. gives a precise mathematical fit of the points to the line. Bobadilla

54. The major objective of preparing a scatter-diagram is to

A. develop an equation to predict future costs.
B. perform regression analysis on the results.
C. determine the relevant range. Bobadilla
D. find the high and low points to use for the high-low method of estimating costs.

55. Advantages of the method of least squares over the high-low method include all of the following
except
A. a statistical method is used to mathematically derive the cost function
B. only two points are used to develop the cost function
C. the squared differences between actual observations and the line (cost function) are minimized
D. all the observations have an effect on the cost function Bobadilla

56. The scatter diagram method of cost estimation

A. is influenced by extreme observations
B. requires the use of judgment
C. uses the least-squares method
D. is superior to other methods in its ability to distinguish between discretionary and committed
fixed costs Bobadilla
THEORIES:
Standard cost system
1. A primary purpose of using a standard cost system is
A. To make things easier for managers in the production facility.
B. To provide a distinct measure of cost control.
C. To minimize the cost per unit of production.
D. b and c are correct

2. Which one of the following statements is true concerning standard costs?

A. Standard costs are estimates of costs attainable only under the most ideal conditions, but
rarely practicable.
B. Standard costs are difficult to use with a process-costing system.
C. If properly used, standards can help motivate employees.
D. Unfavorable variances, material in amount, should be investigated, but large favorable
variances need not be investigated.

3. Which of the following is a purpose of standard costing?

A. Determine “breakeven” production level
B. Control costs
C. Eliminate the need for subjective decisions by management
D. Allocate cost with more accuracy

4. When evaluating the operating performance management sometimes uses the difference
between expected and actual performance. This refers to:
A. Management by Deviation C. Management
by Objective
B. Management by Control D. Management by
Exception

Standard setting
5. The best basis upon which cost standards should be set to measure controllable production
inefficiencies is
 A. Engineering standards based on ideal performance
B. Normal capacity
C. Engineering standards based on attainable performance
D. Practical capacity

6. A company employing very tight (high) standards in a standard cost system should expect that
A. No incentive bonus will be paid.
B. Most variances will be unfavorable.
C. Employees will be strongly motivated to attain the standard.
D. Costs will be controlled better than if lower standards were used.

7. To measure controllable production inefficiencies, which of the following is the best basis for a
company to use in establishing the standard hours allowed for the output of one unit of product?
A. Average historical performance for the last several years
B. Engineering estimates based on ideal performance
C. Engineering estimates based on attainable performance
D. The hours per unit that would be required for the present workforce to satisfy expected
demand over the long run

8. Which of the following statements about the selection of standards is true?

A. Ideal standards tend to extract higher performance levels since they give employees
something to live up to.
B. Currently attainable standards may encourage operating inefficiencies.
C. Currently attainable standards discourage employees from achieving their full
performance potential.
D. Ideal standards demand maximum efficiency which may leave workers frustrated, thus
causing a decline in performance.

Standard costs vs. budgeted costs

9. A difference between standard costs used for cost control and the budgeted costs representing
the same manufacturing effort can exist because
A. standard costs must be determined after the budget is completed
B. standard costs represent what costs should be while budgeted costs represent expected
actual costs
C. budgeted costs are historical costs while standard costs are based on engineering studies
D. budgeted costs include some “slack” or “padding” while standard costs do not

Types of standards
12. The absolute minimum cost possible under the best conceivable operating conditions is a
description of which type of standard?
A. Currently attainable (expected) C. Theoretical
B. Normal D. Practical

13. Standards, which are difficult to achieve due to reasons beyond the individual performing the
task, are the result of firm using which of the following methods to establish standards?
A. Ideal Standards C. Practical Standards
B. Lax Standards D. Employee Standards
 14. Standards that represent levels of operation that can be attained with reasonable effort are
called:
A. Theoretical standards C. Variable standards
B. Ideal standards D. Normal standards

Variances
Generic variances
15. When performing input/output variance analysis in standard costing, “standard hours allowed” is
a means of measuring
A. Standard output at standard hours C. Actual
output at standard hours
B. Standard output at actual hours D. Actual output at
actual hours

Two way variances

Volume variance
16. A company uses a two-way analysis for overhead variances: budget (controllable) and volume.
The volume variance is based on the
A. Total overhead application rate
B. Volume of total expenses at various activity levels
C. Variable overhead application rate
D. Fixed overhead application rate

17. Assuming that the standard fixed overhead rate is based on full capacity, the cost of available but
unused productive capacity is indicated by the:
A. Factory overhead cost volume variance
B. Direct labor cost efficiency variance
C. Direct labor cost rate variance
D. Factory overhead cost controllable variance

18. In analyzing manufacturing overhead variances, the volume variance is the difference between
the:
A. Amount shown in the flexible budget and the amount shown in the debit side of the
overhead control account
B. Predetermined overhead application rate and the flexible budget application rate times
actual hours worked
C. Budget allowance based on standard hours allowed for actual production for the period
and the amount budgeted to be applied during the period
D. Actual amount spent for overhead items during the period and the overhead amount
applied to production during the period

19. The variance least significant for purposes of controlling costs is the:
A. Material usage variance
B. Variable overhead efficiency variance
C. Fixed overhead spending variance
D. Fixed overhead volume variance
 20. The variance most useful in evaluating plant utilization is the:
A. Variable overhead spending variance
B. Fixed overhead spending variance.
C. Variable overhead efficiency variance
D. Fixed overhead volume variance

Four way variances

21. The choice of production volume as a denominator for calculating its factory overhead rate
A. Has no effect on the fixed factory overhead rate for applying costs to production
B. Has an effect on the variable factory overhead rate for applying costs to production
C. Has no effect on the fixed factory overhead budget variance
D. Has no effect on the fixed factory overhead production volume variance

22. The budgeted overhead costs for standard hours allowed and the overhead costs applied to
product are the same amount
A. for both variable and fixed overhead costs.
B. only when standard hours allowed is less than normal capacity.
C. for variable overhead costs.
D. for fixed overhead costs.

Responsibility for variances

23. Which department is customarily held responsible for an unfavorable materials usage variance?
A. Quality control C. Purchasing
B. Engineering D. Production

Variance analysis
24. Which of the following should be least considered when deciding whether to investigate a
variance?
A. Whether the variance is favorable or unfavorable
B. Significance of the variance
C. Cost of investigating the variance
D. Trend of the variances over time

Total materials variance

25. If the total materials variance (actual cost of materials used compared with the standard cost of
the standard amount of materials required) for a given operation is favorable, why must this variance
be further evaluated as to price and usage?
A. There is no need to further evaluate the total materials variance if it is favorable
B. Generally accepted accounting principles require that all variances be analyzed in three
stages
C. All variances must appear in the annual report to equity owners for proper disclosure
D. To allow management to evaluate the efficiency of the purchasing and production
functions

Labor variances
26. Which of the following unfavorable cost variances would be directly affected by the relative
position of a production process on a learning curve?
A. Materials mix C. Labor rate
 B. Materials price D. Labor efficiency

27. Which of the following is the most probable reason with a company would experience an
unfavorable labor rate variance and a favorable labor efficiency variance?
A. The mix of workers assigned to the particular job was heavily weighted toward the use of
higherly paid, experienced individuals.
B. The mix of workers assigned to the particular job was heavily weighted toward the use of
new, relatively low paid, unskilled workers.
C. Because of the productive schedule, workers from other production areas were assigned
to assist in this particular process.
D. Defective materials caused more labor to be used in order to produce a standard unit