1) The value chain comprises activities from research and development through the production process but does not include activities related to the distribution of products or services.
Answer: FALSE
Explanation: The value chain comprises activities from research and development (R&D) through the production process and including distribution and customer service.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Administrative functions are not included as part of the value chain because they are implicitly included in every business function.
Answer: TRUE
Explanation: This statement is true. Administrative expenses are not included as part of the value chain because they are included instead in every business function of the value chain.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) Under the value chain concept, value-added activities are those that firms perform and that customers perceive as adding utility to the goods they purchase.
Answer: TRUE
Explanation: The statement is true. Under the value chain concept, the value-added activities are those that the customer perceives as adding utility to the goods or services they purchase.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) The value chain is comprised of the activities that take place only during the production process.
Answer: FALSE
Explanation: This statement is false. The value chain comprises activities from research and development through the production process to customer service.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) If a poor facility layout exists and work-in-process inventory must be moved during the production process, the company is likely to be performing value-added activities.
Answer: FALSE
Explanation: The statement is false. If a poor facility layout exists and work-in-process inventory must be moved during the production process, the company is likely to be performing nonvalue-added activities.
Difficulty: 1 Easy
Topic: Our Framework for Assessing Cost Accounting Systems
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) Cost information itself is a product with its own customers.
Answer: TRUE
Explanation: The statement is true. Cost information itself is a product with its own customers, who are managers that need to control and improve operations.
Difficulty: 1 Easy
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) Financial accounting information is sufficient for making operational decisions.
Answer: FALSE
Explanation: The statement is false. Financial accounting information is not sufficient for making operational decisions.
Difficulty: 1 Easy
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
8) Cost accounting information is commonly used in developing financial accounting information.
Answer: TRUE
Explanation: The statement is true. Cost accounting information is commonly used in developing financial accounting information.
Difficulty: 1 Easy
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) Financial accounting information is designed for decision-makers who are directly involved in the daily management of the firm.
Answer: FALSE
Explanation: This statement is false. Financial accounting is designed for external parties; cost accounting is designed for managers.
Difficulty: 1 Easy
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) It is more important for financial accounting information to be comparable between firms than to be useful for managerial decision-making.
Answer: TRUE
Explanation: Important criteria for financial accounting include comparability and decision relevance (for investors); decision relevance (for managers) and timeliness are the important criteria for cost accounting.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) Cost accounting information developed for managers to use in making decisions must comply with generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS).
Answer: FALSE
Explanation: This statement is false. In contrast to cost data for financial reporting to shareholders, cost data for managerial use (that is, within the organization) need not comply with GAAP or IFRS.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
12) A cost driver is a factor that causes costs.
Answer: TRUE
Explanation: This statement is true. A cost driver is a factor that causes costs
Difficulty: 1 Easy
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) A cost can be considered a differential cost for one particular course of action but not for another course of action.
Answer: TRUE
Explanation: This statement is true. A differential cost is a cost that changes in response to a particular course of action. A cost may change in response to one course of action but not in response to a different course of action.
Difficulty: 1 Easy
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) A responsibility center can be a department, division, or segment, but not a subsidiary of the parent company.
Answer: FALSE
Explanation: A responsibility center is a specific unit of an organization assigned to a manager who is held accountable for its operations and resources. As such, a department, division, segment, or subsidiary could be considered a responsibility center.
Difficulty: 2 Medium
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) It is important that the manager assigned to lead a responsibility center be held accountable for its operations.
Answer: TRUE
Explanation: The statement is true. Responsibility does not work without accountability.
Difficulty: 1 Easy
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) Budgeting is primarily used to determine year-end bonuses based on managerial and organizational performance.
Answer: FALSE
Explanation: This statement is false. A budget is a financial plan of the revenues and resources needed to carry out activities and meet financial goals. Budgeting helps managers decide whether their goals can be achieved and, if not, what modifications are necessary.
Difficulty: 1 Easy
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) Managers are usually responsible for the revenues needed to achieve the targets set during the budgeting process, but not the resources consumed to achieve those targets.
Answer: FALSE
Explanation: This statement is false. Usually, managers are responsible for both the revenues and resources needed to carry out activities and meet financial goals.
Difficulty: 2 Medium
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) In general, if activities that do not add value to the company can be eliminated, then costs associated with them will also be eliminated.
Answer: TRUE
Explanation: This statement is true. In general, if activities that do not add value to the company can be eliminated, then costs associated with them will also be eliminated.
Difficulty: 1 Easy
Topic: Our Framework for Assessing Cost Accounting Systems
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
19) Accounting systems are important because they are a primary source of information for managers.
Answer: TRUE
Explanation: This statement is true. Accounting systems are important because they are a primary source of information for managers.
Difficulty: 1 Easy
Topic: Our Framework for Assessing Cost Accounting Systems
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) Benchmarking is a continuous process of measuring a company's products, services, or activities against competitors' performance.
Answer: TRUE
Explanation: This is the definition of benchmarking.
Difficulty: 1 Easy
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
21) Activity-based costing (ABC) is a management tool that focuses on the continuous improvement of all dimensions of a business.
Answer: FALSE
Explanation: This statement is false. ABC is a costing method that assigns costs to activities and then assigns them to products based on the products' consumption of activities.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) Lean manufacturing techniques are used only in the production process.
Answer: FALSE
Explanation: This statement is false. Lean manufacturing techniques can be applied to design, materials, and cost accounting decisions throughout the life of a product.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
23) Typical ERP systems integrate information systems that link production, purchasing, human resources, and finance into a single comprehensive information system.
Answer: TRUE
Explanation: This statement is true. ERP systems are integrated information systems that link the various systems of the enterprise into a single comprehensive information system.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) Managers face ethical situations on a daily basis, while accountants face them infrequently.
Answer: FALSE
Explanation: This statement is false. Professional accountants, managers, and business owners face ethical situations on an everyday basis.
Difficulty: 1 Easy
Topic: Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.
Bloom's: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
25) Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her ethical responsibilities.
Answer: TRUE
Explanation: This statement is true. Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her ethical responsibilities.
Difficulty: 3 Hard
Topic: Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.
Bloom's: Apply
AACSB: Ethics
Accessibility: Keyboard Navigation
26) Ethical behavior depends more on a firm's code of conduct than the individual's personal beliefs.
Answer: FALSE
Explanation: This statement is false. Codes of conduct look good on paper, but ultimately much of ethical behavior comes from an individual's personal beliefs.
Difficulty: 2 Medium
Topic: Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.
Bloom's: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
27) Cost accounting information can be used by managers to defraud customers, creditors, and owners.
Answer: TRUE
Explanation: The statement is true. The design of the cost accounting system has the potential to be misused to defraud customers, employees, or shareholders.
Difficulty: 1 Easy
Topic: Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) The boundary between what is cost accounting and what belongs in another discipline is often blurred.
Answer: TRUE
Explanation: This statement is true. Real world problems are generally multidisciplinary.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
29) The set of activities that transforms raw resources into the goods and services end users purchase and consume is called the:
A) value chain.
B) supply chain.
C) demand chain.
D) cost-benefit analysis.
Answer: A
Explanation: The value chain is the set of activities that transforms raw resources into the goods and services end users purchase and consume.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) Which of the following activities would not be considered a value-added activity?
A) Production
B) Marketing
C) Accounting
D) Distribution
Answer: C
Explanation: Accounting for something does not add value; it is an administrative function.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
31) Which of the following statements is false?
A) In essence, the value chain and the supply chain are similar; each creates something for which the customer is willing to pay.
B) Financial accounting information is important because it is sufficient to provide all the information for operational decisions commonly made by managers.
C) The supply or distribution chain is a linked set of organizations that exchange goods and services in combination to provide a final product or service to the customer.
D) Eliminating nonvalue-added activities always reduces costs without affecting the value of the product to customers.
Answer: B
Explanation: Financial accounting information is not sufficient for operational decisions made by managers.
Difficulty: 2 Medium
Topic: Value Creation in Organizations; Accounting Systems; Our Framework for Assessing Cost Accounting Systems
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.; 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.; 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
32) Managers do not make decisions about future events based on:
A) Perfect information.
B) Estimated information.
C) Actual information.
D) Financial information.
Answer: A
Explanation: Perfect information is never available; there is always some uncertainty.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
33) Which of the following is a nonvalue-added activity?
A) Product design
B) Customer service
C) Research and development
D) Rework of defective items
Answer: D
Explanation: Performing a task correctly adds value; correcting mistakes does not add value.
Difficulty: 2 Medium
Topic: Our Framework for Assessing Cost Accounting Systems
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
34) (CMA adapted) A costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of those activities is:
A) full-absorption costing.
B) activity-based costing.
C) variable costing.
D) benchmarking.
Answer: B
Explanation: Activity-based costing is a costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of those activities.
Difficulty: 1 Easy
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
35) (CMA adapted) Cost drivers are:
A) activities that cause costs to increase as the activity increases.
B) accounting techniques and practices used to control costs.
C) accounting reimbursements used to evaluate whether performance is proceeding according to plan.
D) a mechanical basis, such as machine hours, computer time, or factory square footage, used to assign costs to activities.
Answer: A
Explanation: Cost drivers are factors that cause costs.
Difficulty: 1 Easy
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
36) During 2020, the Beach Restaurant had sales revenues and food costs of $800,000 and $600,000, respectively. During 2021, Beach plans to introduce a new menu item that is expected to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are expected for the other food items, operating profits for 2021 are expected to increase by:
A) $260,000.
B) $100,000.
C) $60,000.
D) $40,000.
Answer: C
Explanation: Increase in operating profits would be $100,000 − $40,000 = $60,000.
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
37) (CMA adapted) The process of creating a financial plan of the revenues and resources needed to carry out activities and meet financial goals is referred to as:
A) budgeting.
B) benchmarking.
C) cost-benefit analysis.
D) value-added analysis.
Answer: A
Explanation: Budgeting is the process of creating a financial plan of the revenues and resources needed to carry out activities and meet financial goals.
Difficulty: 1 Easy
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) The field of accounting that reports according to generally accepted accounting principles (GAAP) is called:
A) cost accounting.
B) financial accounting.
C) managerial accounting.
D) responsibility accounting.
Answer: B
Explanation: Financial accounting is governed by generally accepted accounting principles (GAAP). Cost, managerial, and responsibility accounting do not depend on GAAP.
Difficulty: 1 Easy
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
39) The field of accounting that focuses on the criterion of relevant information rather than comparability of firms is:
A) cost accounting.
B) financial accounting.
C) responsibility accounting.
D) international accounting.
Answer: A
Explanation: The important criterion of cost accounting is that information be relevant for managers making operational decisions; individuals making decisions using financial accounting data are interested in comparing firms.
Difficulty: 1 Easy
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
40) The just-in-time (JIT) method of production focuses on:
A) increasing sales revenue.
B) reducing inventories.
C) increasing customer service.
D) reducing operating expenses.
Answer: B
Explanation: JIT focuses on reducing inventories; the other items are all results or outcomes.
Difficulty: 1 Easy
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
41) (CIA adapted) The primary reason for adopting total quality management (TQM) is to achieve:
A) reduced delivery time.
B) reduced delivery charges.
C) greater customer satisfaction.
D) greater employee participation.
Answer: C
Explanation: TQM focuses on the customer.
Difficulty: 1 Easy
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
42) According to the Institute of Management Accountants (IMA), the final step in resolving an ethical dilemma is to:
A) consult your own attorney as to legal obligations and rights concerning the ethical conflict.
B) clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor, an appropriate and confidential ethics hotline, or other impartial advisor.
C) consult with the local police.
D) discuss the situation with an immediate supervisor.
Answer: A
Explanation: Per the IMA Code of Ethics, consulting your own attorney is a last step.
Difficulty: 2 Medium
Topic: Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.
Bloom's: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
43) According to the Institute of Management Accountants (IMA), the first step in resolving an ethical dilemma is to:
A) consult your own attorney as to legal obligations and rights concerning the ethical conflict.
B) call the IMA's ethics hotline.
C) clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor or other impartial advisor.
D) discuss the situation with an immediate supervisor, except when it appears that the supervisor is involved, or with the next level supervisor if involvement of the immediate supervisor is suspected.
Answer: D
Explanation: It is best to discuss the situation with the immediate supervisor before bringing in outsiders.
Difficulty: 2 Medium
Topic: Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.
Bloom's: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
44) Which of the following is not one of the basic standards of the Institute of Management Accountants (IMA) Code of Ethics?
A) Competence
B) Confidentiality
C) Honesty
D) Integrity
Answer: C
Explanation: Competence, confidentiality, and integrity are all basic standards of the IMA Code of Ethics. Honesty is not.
Difficulty: 2 Medium
Topic: Appendix-Institute of Management Accountants Code of Ethics; Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.
Bloom's: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
45) Which of the following is not one of the overarching ethical principles of the Institute of Management Accountants (IMA) Code of Ethics?
A) Competence
B) Responsibility
C) Honesty
D) Objectivity
Answer: A
Explanation: Competence is not one of the overarching ethical principles of the IMA Code of Ethics.
Difficulty: 2 Medium
Topic: Appendix-Institute of Management Accountants Code of Ethics; Choices: Ethical Issues for Accountants
Learning Objective: 01-05 Understand ethical issues faced by accountants and ways to deal with ethical problems that you face in your career.
Bloom's: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
46) A general term for a metric that indicates how well an individual, business, product, or firm is working is called:
A) a performance measure.
B) benchmarking.
C) a budget.
D) a responsibility center.
Answer: A
Explanation: A performance measure is a metric that indicates how well an individual, business, product, or firm is working.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
47) The cost accounting system that minimizes wasteful or unnecessary transaction processes is:
A) performance measure.
B) benchmarking.
C) budgeting.
D) lean accounting.
Answer: D
Explanation: Lean accounting systems are designed to minimize wasteful or unnecessary transaction processes.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) The continual process of measuring a company's own products, services, or activities against competitors' performance is:
A) performance measure.
B) benchmarking.
C) budgeting.
D) responsibility center.
Answer: B
Explanation: Benchmarking is a process of measuring a company's own products, services, or activities against competitors' performance.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
49) The costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of activities is called:
A) lean accounting.
B) responsibility centers.
C) activity-based costing.
D) budgeting.
Answer: C
Explanation: This costing method is a basic concept of ABC.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
50) Having one or more of the firm's activities performed by another firm or individual in the supply or distribution chain is called:
A) lean accounting.
B) responsibility centers.
C) activity-based costing.
D) outsourcing.
Answer: D
Explanation: Outsourcing is having one or more of the firm's activities performed by another firm or individual in the supply or distribution chain.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
51) Systems that identify the costs of producing defective units as well as low-quality items that lose sales are called:
A) customer relationship management systems.
B) distribution chains.
C) enterprise resource planning systems.
D) cost of quality systems.
Answer: D
Explanation: Cost of quality systems identify costs of producing defective units as well as the lost sales associated with poor-quality products.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
52) Systems that allow firms to target profitable customers by assessing customer revenue and costs are called:
A) customer relationship management systems.
B) distribution chains.
C) enterprise resource planning systems.
D) cost of quality systems.
Answer: A
Explanation: CRM systems allow firms to target more precisely those customers who are profitable by assessing the costs to serve a customer along with the revenues a customer generates.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) Information technology that links the various processes of the company into a single comprehensive information system is called:
A) a customer relationship management system.
B) a distribution chain.
C) a cost of quality system.
D) an enterprise resource planning system.
Answer: D
Explanation: ERP systems are integrated information systems that link various activities in an organization.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
54) A management method by which the organization seeks to excel on all dimensions of quality is called:
A) customer relationship management.
B) a just-in-time method.
C) total quality management.
D) cost of quality.
Answer: C
Explanation: The key words are "management method" and "all dimensions of quality."
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
55) Which of the following is not a key financial manager in an organization?
A) Chief financial officer
B) Treasurer
C) External auditor
D) Controller
Answer: C
Explanation: Correct! The external auditor is not a financial manager in an organization.
Difficulty: 1 Easy
Topic: Key Financial Players in the Organization
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
56) Which of the following is not normally considered part of the value chain?
A) Research and development
B) Purchasing
C) Administration
D) Distribution
Answer: C
Explanation: Administration is imbedded in all of the business functions; it is not a separate function of the value chain.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
57) In 2020, the TransUnion Company had consulting revenues of $1,000,000 while costs were $750,000. In 2021, TransUnion will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in costs. Assuming no changes are expected for the other services, operating profits are expected to increase between 2020 and 2021 by:
A) $250,000.
B) $150,000.
C) $90,000.
D) $60,000.
Answer: C
Explanation: Increase in operating profit would be $150,000 − $60,000 = $90,000.
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
58) In 2020, the Merkel Company had revenues of $2,000,000 and costs of $1,500,000. During 2021, Merkel will be introducing a new product line that is expected to increase sales revenue by $200,000 and costs by $160,000. Assuming no changes are expected for the other products, the operating profits are expected to increase by:
A) $540,000.
B) $200,000.
C) $160,000.
D) $40,000.
Answer: D
Explanation: Increase in operating profit would be $200,000 − $160,000 = $40,000.
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
59) Moving of inventory is an example of a(n):
A) cost-benefit analysis.
B) value-added activity.
C) activity-based cost.
D) nonvalue-added activity.
Answer: D
Explanation: Producing product adds value, moving it around does not add value.
Difficulty: 1 Easy
Topic: Our Framework for Assessing Cost Accounting Systems
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
60) Costs that differ among or between two or more alternative courses of action are:
A) differential costs.
B) cost-benefit analysis.
C) activity-based costs.
D) cost drivers.
Answer: A
Explanation: Differential costs are the costs that change in response to a particular course of action.
Difficulty: 2 Medium
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
61) Which of the following activities would not be included in the value chain of a manufacturing company?
A) Research and Development
B) Customer Service
C) Design
D) Accounting
Answer: D
Explanation: Accounting is not a separate component in the value chain, instead it is included in every business function of the value chain.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
62) A firm's reply to customer questions via email would be an example of which component of the value chain?
A) Customer Service
B) Marketing
C) Design
D) Supply
Answer: A
Explanation: This is an example of customer service.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
63) The delivery of products or services to customers is an example of which element in the value chain?
A) Production
B) Design
C) Marketing
D) Distribution
Answer: D
Explanation: This is an example of distribution.
Difficulty: 1 Easy
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
64) Which of the following provides much of the information necessary for the coordination of the value chain?
A) Distribution chain.
B) Financial accounting system.
C) Cost accounting system.
D) Supply chain.
Answer: C
Explanation: The cost accounting system provides much of the information necessary for the coordination of the value chain.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
65) Advertising costs would be associated with which of the following value chain components?
A) Production.
B) Research and Development.
C) Distribution.
D) Marketing and sales.
Answer: D
Explanation: Advertising costs would be associated with the value chain component of marketing and sales.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
66) Which part of the value chain is outside the firm?
A) Design component
B) Research and Development component
C) Production activity
D) Distribution chain
Answer: D
Explanation: The distribution chain is a part of the value chain outside the firm.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
67) Which of the following statements regarding the value chain is true?
A) Service firms benefit from the value chain more than manufacturing firms.
B) Value chain components do not overlap.
C) Value is not created until after the research and development stage.
D) Administrative functions are not included as a separate component of the value chain.
Answer: D
Explanation: It is true that administrative functions are not included as a separate component of the value chain.They are included instead in every business function of the value chain.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
68) Which of the following statements concerning the value chain is false?
A) The goal of a value chain is to find areas where a company can either add value or reduce cost.
B) The value chain focuses on the entire production process, as well as the sale of the product and service after the sale.
C) If a company cannot compete in a specific area of the value chain, it might outsource that portion of the value chain to another entity which can perform it better.
D) Successful firms are ones that operate within the entire value chain, thereby overseeing every aspect of the value chain for the customer.
Answer: D
Explanation: A "total value chain focus" ensures the utility of each value chain function.
Difficulty: 3 Hard
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
69) Which of the following could be considered part of the value chain in a service firm?
A) Inspection of product
B) Advertising
C) Raw materials
D) Distribution
Answer: B
Explanation: Advertising would be a part of the marketing and sales component of the value chain in a service firm. The other three answer choices describe an activity with a "physical" product, not a service.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
70) Place the four components in the order they appear along the value chain: A = Customer service; B = Design; C = Distribution; and D = Production.
A) ABDC
B) ACDB
C) BDCA
D) BADC
Answer: C
Explanation: The correct order is Design, Production, Distribution, and Customer service.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
71) Managers evaluate value-added activities to determine how they contribute to the final product's:
A) service only.
B) quality only.
C) cost only.
D) service, quality, and cost.
Answer: D
Explanation: Managers evaluate value-added activities to determine how they contribute to the final product's service, quality, and cost.
Difficulty: 2 Medium
Topic: Value Creation in Organizations
Learning Objective: 01-01 Describe the way managers use accounting information to create value in organizations.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
72) Which of the following is the best reason why cost accounting information does not need to be comparable to similar information in other organizations?
A) Because it is only used by investors and creditors.
B) Because no publicly traded companies use cost accounting.
C) Because IFRS and cost accounting are converging which eliminates the need for comparability.
D) Because managers that use this information are making decisions only for their organization.
Answer: D
Explanation: Because the managers are making decisions only for their own organization, there is no need for the information to be comparable to similar information in other organizations.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
73) Financial accounting:
A) focuses on the future.
B) must comply with GAAP (generally accepted accounting principles).
C) reports include detailed information on the various operating segments of the business.
D) is prepared for the use of management.
Answer: B
Explanation: Financial accounting must comply with GAAP. The other answer choices are characteristics of cost accounting.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
74) The individual who would most likely use only financial accounting information in making decisions is a:
A) vice president of marketing.
B) factory supervisor.
C) department manager.
D) company shareholder.
Answer: D
Explanation: Company shareholders would most likely use only financial accounting information in making decisions. The other answer choices are internal users who focus primarily on cost accounting information.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
75) The financial accounting system is the primary source of information for:
A) decision making on the factory floor.
B) improving the performance level of customer service.
C) planning the budget for next year.
D) preparing the income statement for shareholders.
Answer: D
Explanation: Financial accounting information is used primarily for preparing the income statement. The other answer choices describe internal functions that have to do with the cost accounting system.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
76) Managerial decisions using cost accounting are more appropriate for which types of costs?
A) future costs.
B) historical costs.
C) current costs.
D) externally reported costs.
Answer: A
Explanation: Managerial decisions deal with the future, so estimates of future costs are more valuable for decision making than are the historical and current costs that are reported externally.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
77) At the middle management level, where managers supervise work and make operating decisions, cost information highlights:
A) the company's overall performance.
B) comparability across firms.
C) financial position and income according to accounting rules.
D) some aspect of operations that is different from expectations.
Answer: D
Explanation: At the middle management level, where managers supervise work and make operating decisions, cost information is used to identify problems by highlighting when some aspect of operations is different from expectations.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
78) Financial accounting provides a historical perspective, while cost accounting emphasizes:
A) reporting to shareholders.
B) a current perspective.
C) the future.
D) past transactions.
Answer: C
Explanation: Future focus is a basic function of cost accounting. The other answer choices relate to financial accounting.
Difficulty: 2 Medium
Topic: Accounting Systems
Learning Objective: 01-02 Distinguish between the uses and users of cost accounting and financial accounting information.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
79) The concept of considering both the costs and benefits of a proposal is known as:
A) cost-benefit analysis.
B) performance measurement.
C) nonvalue-added analysis.
D) preparation of financial statements.
Answer: A
Explanation: The concept of considering both the costs and benefits of a proposal is cost-benefit analysis.
Difficulty: 2 Medium
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
80) Departmental managers at Boswell Department Store are allowed considerable discretion in both sourcing and pricing of products, based on local tastes and competition, as well as being responsible for departmental staffing. Based on the concept of the responsibility center, which of the following would not be a performance measure that would be useful in evaluating the performance of departmental managers at the stores?
A) Departmental profit compared to budgeted departmental profit.
B) Trends in general and administrative expenses for each store.
C) Growth in departmental sales compared to the prior period sales
D) Departmental customer satisfaction.
Answer: B
Explanation: A responsibility center allows the specific unit of an organization to be assigned to a manager who is held accountable for its operations and resources. The departmental manager does not have responsibility for controlling all the administrative expenses for each store location.
Difficulty: 2 Medium
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
81) Snuggle Toys, Inc. had the following summarized results for the month ending July 31:
| Actual | | Budget |
Revenues | $ | 60,000 | | | $ | 52,000 | |
Costs | | 53,600 | | | | 45,600 | |
Operating profits | $ | 6,400 | | | $ | 6,400 | |
As the cost accountant, which single statement related to the above financial results is most appropriate in the report to management?
A) The departmental manager is performing to expectations because budgeted profits equals actual profits.
B) Revenues are above budget and a bonus based on this increase should be considered.
C) Costs as a percentage of revenues are above budget and a further scrutiny of the results might be appropriate.
D) Costs are 17.5% above budget and the department manager's position should be critically evaluated by senior management.
Answer: C
Explanation: If revenue is higher, then profits should be higher, unless there is a problem with costs.
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
82) CraftMaster Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000. Management has decided to buy the model 280 machine. It has less capacity than the model 360 machine, but its capacity is sufficient to continue making product X05K. Management also considered, but rejected, the alternative of dropping product X05K and not replacing the old machine. If that were done, the $332,000 invested in the new machine could instead have been invested in a project that would have returned a total of $426,000. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was:
A) $21,000.
B) $87,000.
C) $7,000.
D) $14,000.
Answer: A
Explanation: Model 360 cost ($353,000) − Model 280 cost ($332,000) = Differential cost ($21,000).
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
83) When comparing activity-based costing (ABC) with conventional costing methods, which of the following is the key benefit of the ABC method?
A) It is cheaper to implement.
B) It is based on only one or two factors, generally volume-related.
C) It is simpler.
D) It provides more accurate cost numbers.
Answer: D
Explanation: Activity-based costing provides more accurate cost numbers than conventional costing methods.
Difficulty: 2 Medium
Topic: Trends in Cost Accounting throughout the Value Chain
Learning Objective: 01-04 Identify current trends in cost accounting.
Bloom's: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
84) Geno's Body Shop had sales revenues and operating costs in 2020 of $650,000 and $525,000, respectively. In 2021, Geno plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion. Assuming that there are no changes to the existing body shop business, operating profits would be expected to increase during 2021 by:
A) $125,000.
B) $85,000.
C) $160,000.
D) $35,000.
Answer: D
Explanation: Revenues ($85,000) − Operating costs ($50,000) = Additional operating profit ($35,000).
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
85) Geno's Body Shop had sales revenues and operating costs in 2020 of $650,000 and $525,000, respectively. In 2021, Geno plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion. Assuming that there are no changes to the existing body shop business, what is the amount of operating profits that are expected be earned in 2021?
A) $125,000
B) $85,000
C) $160,000
D) $35,000
Answer: C
Explanation: Total Revenues ($650,000 + $85,000) − Total Operating costs ($525,000 + $50,000) = Total operating profit = $160,000.
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
86) The goals and objectives of establishing budgeting in an organization include all of the following except:
A) the ability to decide whether goals can be achieved.
B) the resources needed to carry out its tasks.
C) anticipated revenues to be generated.
D) the consistent application of generally accepted accounting principles.
Answer: D
Explanation: Correct! Consistent application of GAAP has nothing to do with goals and objectives of establishing budgets.
Difficulty: 2 Medium
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
87) In 2020, the Allen Company had consulting revenues of $1,000,000, while operating costs were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other services, the differential operating costs for 2021 will be:
A) $250,000.
B) $150,000.
C) $90,000.
D) $60,000.
Answer: D
Explanation: The additional operating costs are the differential amount of $60,000.
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
88) In 2020, the Allen Company had consulting revenues of $1,000,000 while operating costs were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other services, the differential revenue for 2021 will be:
A) $250,000.
B) $150,000.
C) $90,000.
D) $60,000.
Answer: B
Explanation: The additional revenues are the differential amount of $150,000.
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
89) San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below:
| Alternative A | | Alternative B | |
Material costs | $ | 35,000 | | | $ | 57,000 | |
Processing costs | | 36,000 | | | | 57,000 | |
Building costs | | 12,000 | | | | 28,000 | |
Equipment rental | | 19,000 | | | | 19,000 | |
| | | | | | | | |
Are the materials costs and processing costs differential in the choice between alternatives A and B? (Ignore the building costs and equipment rental in this question.)
A) Neither materials costs nor processing costs are differential.
B) Both materials costs and processing costs are differential.
C) Only processing costs are differential.
D) Only materials costs are differential.
Answer: B
Explanation: Both material costs and processing costs are differential because they differ between the two alternatives.
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
90) San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below:
| Alternative A | | Alternative B | |
Material costs | $ | 35,000 | | | $ | 57,000 | |
Processing costs | | 36,000 | | | | 57,000 | |
Building costs | | 12,000 | | | | 28,000 | |
Equipment rental | | 19,000 | | | | 19,000 | |
| | | | | | | | |
If only the differential costs of the two decisions are considered, the total differential costs of Alternative B is:
A) $161,000.
B) $131,500.
C) $59,000.
D) $102,000.
Answer: C
Explanation: All of the costs except equipment rental are differential ($22,000 + $21,000 + $16,000 = $59,000).
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
91) Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs associated with the alternatives are listed below.
| Alternative X | | Alternative Y | |
Material costs | $ | 44,000 | | | $ | 56,000 | |
Processing costs | | 37,000 | | | | 59,000 | |
Building costs | | 14,000 | | | | 14,000 | |
Equipment rental | | 11,000 | | | | 11,000 | |
| | | | | | | | | | |
Are the materials costs and processing costs differential in the choice between alternatives X and Y? (Ignore the building costs and equipment rental in this question.)
A) Both materials costs and processing costs are differential.
B) Only materials costs are differential.
C) Only processing costs are differential.
D) Neither materials costs nor processing costs are differential.
Answer: A
Explanation: Both material costs and processing costs are differential because they differ between the two alternatives.
Difficulty: 2 Medium
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
92) Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs associated with the alternatives are listed below.
| Alternative X | | Alternative Y | |
Material costs | $ | 44,000 | | | $ | 56,000 | |
Processing costs | | 37,000 | | | | 59,000 | |
Building costs | | 14,000 | | | | 14,000 | |
Equipment rental | | 11,000 | | | | 11,000 | |
| | | | | | | | | | |
What is the total differential costs of Alternative Y over Alternative X?
A) $140,000
B) $123,000
C) $34,000
D) $106,000
Answer: C
Explanation: Both material costs and processing costs are differential ($12,000 + $22,000 = $34,000).
Difficulty: 3 Hard
Topic: Cost Data for Managerial Decisions
Learning Objective: 01-03 Explain how cost accounting information is used for decision making and performance evaluation in organizations.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
