Cost Accounting, 15e Global Edition (Horngren/Datar/Rajan)
Chapter 1 — The Manager and Management Accounting
Objective 1.1
1) Management accounting ________.
A) focuses on estimating future revenues, costs, and other measures to forecast activities and their results
B) provides information about the company as a whole
C) reports information that has occurred in the past that is verifiable and reliable
D) provides information that is generally available only on a quarterly or annual basis
2) Managers use management accounting information to ________.
A) help external users such as investors, banks, regulators, and suppliers
B) communicate, develop, and implement strategies
C) communicate a firm’s financial position to investors, banks, regulators, and other outside parties
D) ensure that financial statements are consistent with the SEC rules
3) Financial accounting ________.
A) focuses on the future and includes activities such as preparing next year’s operating budget
B) must comply with GAAP (generally accepted accounting principles)
C) is the process of measuring, analyzing, and reporting financial and nonfinancial information related to
the costs of acquiring or using resources in an organization
D) is prepared for the use of department heads and other employees
4) The primary user of financial accounting information is a ________.
A) factory shift supervisor
B) distribution manager
C) current shareholder
D) department manager
5) The primary user of management accounting information is a(n) ________.
A) the controller
B) a shareholder evaluating a stock investment
C) bondholder
D) external regulator
6) Financial accounting provides the primary source of information for ________.
A) decision making in the finishing department
B) improving customer service
C) preparing the income statement for shareholders
D) planning next year’s operating budget
7) Which of the following is true of management accounting information?
A) It focuses on documenting past business actions of a firm.
B) It is prepared based on SEC rules and FASB accounting principles.
C) It is prepared for shareholders.
D) It co-ordinates product design, production, and marketing decisions.
8) Which of the following statements refers to management accounting information?
A) There are no regulations governing the reports.
B) The reports are generally delayed and historical.
C) The audience tends to be stockholders, creditors, and tax authorities.
D) It primarily measures manager’s compensation on reported financial results.
9) Which of the following groups would be least likely to receive detailed management accounting
reports?
A) stockholders
B) sales managers
C) production supervisors
D) distribution managers
10) Management accounting information typically includes ________.
A) tabulated results of customer satisfaction surveys
B) the cost of producing a product
C) the percentage of units produced that are defective
D) All of these answers are correct.
11) Cost accounting ________.
A) measures the costs of acquiring or using resources in an organization
B) helps managers to develop, communicate, and implement strategies
C) coordinates product design, production, and marketing decisions and evaluate a company’s
performance
D) communicates information to investors, banks, regulators, and other outside parties
12) Which of the following differentiates cost accounting and financial accounting?
A) The primary users of cost accounting are the investors, whereas the primary users of financial
accounting are the managers.
B) Cost accounting deals with product design, production, and marketing strategies, whereas financial
accounting deals mainly with pricing of the products.
C) Cost accounting measures only the financial information related to the costs of acquiring fixed assets
in an organization, whereas financial accounting measures financial and nonfinancial information of a
company’s business transactions.
D) Cost accounting measures information related to the costs of acquiring or using resources in an
organization, whereas financial accounting measures a financial position of a company to investors,
banks, and external parties.
13) Which of the following is true of financial accounting information?
A) It is prepared based on cost-benefit analysis.
B) It is primarily used by managers to make internal business decisions.
C) It focuses on the past-oriented financial performance of a company.
D) It only measures the cash transactions of a company.
14) A data warehouse or infobarn ________.
A) is reserved for exclusive use by the CFO
B) is primarily used for financial reporting purposes
C) stores information used by different managers for multiple purposes
D) gathers only nonfinancial information
15) Which of the following is true of cost accounting?
A) It provides financial information about cash-based transactions only.
B) It accounts only the financial information of business transactions, not the nonfinancial information.
C) It provides financial information regarding the cost of acquiring resources.
D) It must be prepared in accordance with GAAP.
16) Which of the following deals with management accounting?
A) identifying the costs of acquiring the resources of the company
B) developing budgets
C) preparing the income statement
D) preparing the statement of cash flows
17) Financial accounting is concerned primarily with ________.
A) external reporting to investors, creditors, and government authorities
B) cost planning and cost controls
C) product design and marketing strategies
D) providing information for strategic and tactical decisions
18) Financial accounting provides a historical perspective, whereas management accounting emphasizes
________.
A) the future
B) past transactions
C) a current perspective
D) reports to shareholders
19) An Enterprise Resource Planning System can best be described as ________.
A) a collection of programs that use a variety of unconnected databases
B) a single database that collects data and feeds it into applications that support each of the company’s
business activities, such as purchases, production, distribution, and sales
C) a database that is primarily used by a purchasing department to determine the correct amount of a
particular supply item to purchase
D) a sophisticated means of linking two or more companies to facilitate their planning processes
20) The approaches and activities of managers in short-run and long-run planning and control decisions
that increase value for customers and lower costs of products and services are known as ________.
A) value chain management
B) enterprise resource planning
C) cost management
D) customer value management
21) Financial accounting information focuses on internal reporting.
22) Cost accounting provides information for both management accounting and financial accounting
professionals.
23) Management accounting information and reports do not have to follow set principles or rules such as
GAAP.
24) Management accounting ensures communication of an organization’s financial position to investors,
banks, and regulators.
25) The balance sheet, income statement, and statement of cash flows are used for financial accounting,
and also for management accounting.
26) Financial accounting is broader in scope than management accounting.
27) Cost accounting measures and reports short-term, long-term, financial, and non financial information.
28) Cost accounting is the process of measuring, analyzing, and reporting financial and nonfinancial
information related to the costs of acquiring or using resources in an organization.
29) Management accounting has to strictly follow the rules of generally accepted accounting principles
for the purposes of measurement and reporting.
30) For management accounting, internal measurement and reporting are based on cost-benefit analysis.
31) An Enterprise Resource Planning (ERP) System is a single database that collects data and feeds into
applications that support each of the company’s business activities, such as purchases, production,
distribution, and sales.
32) Financial accounting provides an organization’s past-oriented information such as the previous years’
financial statements.
33) Cost management not only helps reducing costs but also improving customer satisfaction and the
quality of a firm’s products.
34) For each report listed below, identify whether the major purpose of the report is for (1) routine
internal reporting, (2) nonroutine internal reporting, or for (3) external reporting to investors and other
outside parties.
Item:
a. study detailing sale information of the top-ten selling products
b. weekly report of total sales generated by each store in the metropolitan area
c. annual Report sent to shareholders
d. monthly report comparing budgeted sales by store to actual sales
35) Describe management accounting and financial accounting.
36) Cost accounting provides information for both management accounting and financial accounting
professionals. Explain.
37) Is it possible to have an active cost management program without an Enterprise Resource Planning
(ERP) System?
38) What competitive advantage could a company obtain from a successful cost management program?
Objective 1.2
1) Which of the following statements concerning an organization’s strategy is true?
A) Strategy specifies how an organization matches its own capabilities with the opportunities in the
marketplace to accomplish its objectives.
B) Cost accountants formulate strategy in an organization since they have more inputs about costs.
C) A good strategy will always overcome poor implementation.
D) Businesses usually follow one of two broad strategies: offering a quality product at a high price, or
offering a unique product or service priced lower than the competition.
2) Strategy specifies ________.
A) how an organization matches its own capabilities with the opportunities in the marketplace
B) standard procedures to ensure quality products
C) incremental changes for improved performance
D) the demand created for products and services
3) Which of the following is not a concern for management accountants in formulating a strategy?
A) identifying the most important warehouse location for the distribution of goods
B) substituting products that exist in the marketplace
C) strategizing compliance with GAAP (Generally Accepted Accounting Principles)
D) maintaining adequate fixed assets available to implement the strategy
4) Strategy is formulated ________.
A) by identifying the most important customers
B) by forecasting the composition of adequate fixed assets
C) based on the qualified opinion of external auditors
D) by eliminating sunk costs
5) In designing strategy, a company must match its opportunities in the marketplace with ________.
A) environment friendly goals
B) its resources and capabilities
C) branding opportunities
D) the requirements of credit rating agencies
6) Which of the following statements about customer value is true?
A) Customer value is shown in a corporation’s balance sheet.
B) Creating value for customers is an important part of planning and implementing strategy.
C) Customer value is the only focus that helps managers to formulate strategies.
D) Customer value is lost with increase in costs of the product.
7) A company’s strategy specifies how an organization matches its capabilities with the opportunities in
the marketplace.
8) The two broad strategies that companies follow are cost leadership strategy and product differentiation
strategy.
9) The best-designed strategies are valuable whether or not they are effectively implemented.
10) The key to a company’s success is creating value for customers while differentiating itself from its
competitors.
11) The key to a company’s success is always to be the low cost producer in a particular industry.
12) Management accountants work closely with managers in various departments to formulate strategies
by providing information about the sources of competitive advantage.
13) Management accountants should have little or no role in deciding on a company’s strategy.
14) Companies can decide on an appropriate strategy based strictly on internally available information.
15) Strategic financial management describes cost management that specifically focuses on strategic
issues.
16) Identifying a company’s most important customers helps to formulate a strategy.
17) The best-designed strategies and the best-developed capabilities are useless unless they are effectively
executed.
18) Describe the major differences between management accounting and financial accounting for the
following:
1. Primary users
2. Focus and emphasis
3. Rules of measurement and reporting
19) What is strategy? Briefly describe the two broad types of strategies that companies may choose to
pursue.
20) Briefly describe the list of items that managers undertake to formulate strategies.
21) Generally, companies follow one of two broad strategies: offering a quality product at a low price, or
offering a unique product or service priced higher than the competition. Assume you are opening a small
food outlet across the street from your campus. How might that business be operated under each of the
two broad strategies? Consider the following specific operational areas:
a. target customers
b. products offered
c. product pricing
d. location choice
e. advertising content
f. advertising media
22) Generally, companies follow one of two broad strategies: offering a quality product at a low price, or
offering a unique product or service priced higher than the competition. Is it possible to follow a strategy
that is “in the middle”?
Objective 1.3
1) Place the four business functions in the order they appear along the value chain:
Customer service
Design
Marketing
Production
A) Customer Service, Design, Production, Marketing
B) Customer Service, Marketing, Production, Design
C) Design, Production, Marketing, Customer Service
D) Design, Customer Service, Production, Marketing
2) R&D, production, and customer service are business functions that are all included as part of ________.
A) the value chain
B) benchmarking
C) customer relationship management
D) the supply chain
3) The value chain is the sequence of business functions in which ________.
A) value is deducted from the products or services of an organization
B) producing and delivering the product or service is of prime importance
C) products and services are evaluated with respect to their value to the supply chain
D) usefulness is added to the products or services of an organization
4) ________ is the generation of, and experimentation with, ideas related to new products, services, or
processes.
A) Research and development
B) Design of products, services, or processes
C) Production
D) Marketing
5) ________ is the detailed planning and engineering and testing of products, services, or processes.
A) Plan of implementation
B) Design
C) Production
D) Research and development
6) Production is the ________.
A) generation of, and experimentation with, ideas related to new products, services, or processes
B) processing orders and shipping products or services to customers
C) acquisition, coordination, and assembly of resources to produce a product or deliver a service
D) detailed planning and engineering of products, services, or processes
7) Marketing is the ________.
A) generation of, and experimentation with, ideas related to new products, services, or processes
B) detailed planning and engineering of products, services, or processes
C) acquisition, coordination, and assembly of resources to produce a product or deliver a service
D) the manner by which companies promote and sell their products or services to customers or
perspective customers
8) Which of the following differentiates marketing from customer service?
A) Marketing is the process of promoting and selling products or services to customers or prospective
customers, whereas customer service is the process of providing after-sales service to customers.
B) Marketing is the process of processing orders and shipping products or services to customers, whereas
customer service is the process of providing additional information to customers about the product.
C) Marketing is the process of detailed planning, engineering, and testing of products and processes,
whereas customer service concentrates on existing customers.
D) Marketing is the process of processing orders and shipping products or services to customers, whereas
customer service is concerned with choosing the right customer for the product.
9) ________ is an after-sale support provided to customers.
A) Distribution
B) Customer service
C) Production
D) Marketing
10) ________ is a strategy that integrates people and technology in all business functions to enhance
relationships with customers, partners, and distributors.
A) Supply-chain analysis
B) Customer relationship management
C) Value-chain analysis
D) Continuous quality improvement
11) Customer relationship management initiatives use technology to coordinate all ________.
A) advertising and marketing techniques to attract customers
B) research activities
C) customer-facing activities
D) quality control management activities
12) ________ describes the flow of goods, services, and information from the purchase of materials to the
delivery of products to consumers, regardless of whether those activities occur in the same organization
or with other organizations.
A) Supply chain
B) Production process
C) Quality control
D) Customer relationship management
13) Processing orders and shipping products or providing services to customers is known as ________.
A) after-sales services
B) distribution
C) marketing
D) supply chain
14) ________ is a philosophy in which management improves operations throughout the value chain to
deliver products and services that exceed customer expectations.
A) Cost-benefit approach
B) Customer focus
C) Customer relationship management
D) Total quality management
15) Which of the following is an area that customers want to see improved levels of performance?
A) higher sales margin
B) quality of the product
C) lower marginal costs
D) profit margins
16) Which of the following statements about a company’s supply chain is true?
A) A company’s supply chain is always internal to a firm.
B) A company’s supply chain is always external to a firm.
C) A company’s supply chain is the same thing as a company’s value chain.
D) Management accountants provide information to enhance a company’s supply chain.
17) Management accounting information helps managers calculate a target cost for a product ________.
A) by subtracting from the target price the operating income per unit of product that the company wants
to earn
B) by subtracting from the target price the net income per unit of product that the company wants to earn
C) by subtracting profit margin per unit from the target price of product that the company wants to earn
D) by adding the operating income per unit and the contribution margin per unit
18) The ________ function supports the six functions of value-chain analysis.
A) administration
B) controlling
C) planning
D) direction
19) ________ aims to improve operations throughout the value chain and to deliver products
and services that exceed customer expectations.
A) Total Quality Management
B) Innovation
C) Customer response time
D) Cost and efficiency
20) New-product development time is the time taken by companies to ________.
A) test the prototype and start the large scale production of a product
B) design and develop the prototype product
C) create new products and bring them to market
D) improvise existing products and re-launch them to market
21) Customer response time involves ________.
A) the speed it takes a customer to respond to an advertisement and place an order
B) the speed at which an organization responds to customer requests
C) the speed it takes to develop a new product
D) the speed it takes an organization to develop a Total Quality Management (TQM) program
22) Which of the following is true of sustainability?
A) It helps in implementing strategies to improvise the product.
B) It concerns with purchase of material in larger quantities.
C) It helps the development and implementation of strategies to achieve long-term financial, social, and
environmental goals.
D) It helps manufacturing firms produce products more efficiently ensuring lower costs at an optimum
use of available resources.
23) The supply chain refers to the sequence of business functions in which customer usefulness is added
to products or services.
24) An effective way to cut costs is to eliminate activities that do NOT improve the product attributes that
customers value.
25) For optimal planning success it is best if each business function within the value chain is performed
one at a time in sequence.
26) For best results, cost management emphasizes independently coordinating supply chain activities
within your company and with other companies that act as suppliers and customers.
27) Technological innovation has led to shorter product-life cycles and increased the need to bring new
products to market more rapidly.
28) Management accounting information helps managers calculate a target cost for a product by
subtracting from the target price the net income per unit of product that the company wants to earn.