Chapter 18
MANAGERIAL ACCOUNTING CONCEPTS AND PRINCIPLES
1. Managerial accounting assists in analysis, planning, and control of costs.
2. Control is the process of setting goals and determining ways to achieve them.
3. Managerial accounting provides financial and nonfinancial information to an organization’s
managers and other internal decision makers.
4. One of the usual differences between financial and managerial accounting is the time
dimension of the information reported.
5. Managerial accounting information can be forwarded to the managers of a company quickly
since external auditors do not have to review it, and estimates and projections are acceptable.
6. One difference between financial and managerial accounting is that the external users that use
financial information must plan a company’s future, but the internal users of managerial
accounting information generally must decide whether to invest in or lend to a company.
7. Financial accounting relies on accepted principles that are enforced through an extensive set of
rules and guidelines; on the other hand, managerial accounting systems are flexible.
8. Both financial and managerial accounting report monetary information; managerial accounting
also reports considerable nonmonetary information.
9. Both financial and managerial accounting influence user’s decisions and actions.
10. The focus of financial accounting is on an organization’s projects, processes, and
subdivisions, and the focus of managerial accounting is on the whole organization.
11. The concept of total quality management focuses on continuous improvement.
12. Just-in-time manufacturing is a system where companies manufacture products only after the
orders have been received from customers.
13. When the attitude of continuous improvement exists throughout an organization, every
manager and employee seeks to continuously experiment with new and improved business
practices.
14. The main goal of the lean business model is the elimination of waste while satisfying the
customer and providing a positive return to the company.
15. The management concept of customer orientation causes a company to spend large amounts
on advertising to convince customers to buy the company’s standard products.
16. The management concept of customer orientation encourages a company to set up its
production system to produce large quantities of the same product for all customers.
17. Total quality management and just-in-time manufacturing are two modern systems designed
to improve the quality of management and the products and services offered.
18. Under a just-in-time manufacturing system, large quantities of inventory are accumulated
throughout the factory to be certain that needed components are available each time that they are
needed.
19. The balanced scorecard aids in continuous improvement by augmenting financial measures
with information on drivers or indicators of future financial performance.
20. Adopting a lean business model should have no effect on cost in a modern manufacturing
environment.
21. The Institute of Management Accountants Statement of Ethical Professional Practice requires
that management accountants be competent and act with integrity.
22. An employee overstates his reimbursable expenses in one period in order to receive needed
additional cash. Since he intends to reduce his expenses the next period by the current
overstatement, this act is not considered fraudulent.
23. Direct materials are not usually easily traced to a product.
24. Costs may be classified by many different cost classifications.
25. Whether a cost is controllable or not controllable by an employee is dependent on the
employee’s level of responsibility.
26. Cost concepts such as variable, fixed, mixed, direct and indirect apply only to manufacturers
and not to service companies.
27. A variable cost changes in proportion to changes in the volume in activity.
28. Direct costs are incurred for the benefit of more than one cost object.
29. A sunk cost has already been incurred and cannot be avoided or changed, so it is irrelevant to
decision making.
30. An out-of-pocket cost requires a future cash outlay and is relevant for decision making.
31. An opportunity cost requires a future cash outlay and is relevant for decision making.
32. Period costs are incurred by purchasing merchandise or manufacturing finished goods.
33. Product costs can be classified as one of three types: direct materials, direct labor, or
overhead.
34. Product costs are expenditures necessary and integral to finished products.
35. Selling and administrative expenses are normally product costs.
36. The cost of partially completed products is included in the balance of the Goods in Process
Inventory account.
37. Manufacturers usually have three inventories: raw materials, goods in process, and finished
goods.
38. The main difference between the income statement of a manufacturer and a merchandiser is
that the merchandiser includes cost of goods manufactured rather than cost of goods purchased.
39. Raw materials that become part of a product and are identified with specific units or batches
of a product are called direct materials.
40. Raw materials inventory includes only direct materials.
41. The Goods in Process Inventory account is found only in the ledgers of merchandising
companies.
42. Raw materials purchased plus beginning raw materials inventory equals the ending balance
of raw materials inventory.
43. Four factors come together in the manufacturing process: beginning goods in process
inventory, direct materials, direct labor, and factory overhead.
44. Newly completed units are combined with beginning finished goods inventory to make up
total ending goods in process inventory.
45. The series of activities that add value to a company’s products or services is called a value
chain.
46. The raw materials turnover is raw materials purchased divided by the average raw materials
inventory.
47. A manufacturer’s cost of goods manufactured is the sum of direct materials, direct labor, and
factory overhead costs incurred in producing products.
48. Indirect materials are accounted for as factory overhead because they are not easily traced to
specific units or batches of production.
49. Indirect labor refers to the cost of the workers whose efforts are directly traceable to specific
units or batches of product.
50. Although direct labor and raw materials costs are treated as manufacturing costs and
therefore make up part of the finished goods inventory cost, factory overhead is charged to
expense as it is incurred because it is a period cost.
51. Factory overhead includes selling and administrative expenses because they are indirect costs
of a product.
52. Prime costs consist of direct labor and factory overhead.
53. The manufacturing statement is also known as the schedule of manufacturing activities or the
schedule of cost of goods manufactured.
54. The manufacturing statement must be prepared monthly as it is a required general-purpose
financial statement.
55. Managerial accounting information:
A. Is used mainly by external users.
B. Involves gathering information about costs for planning and control decisions.
C. Is generally the only accounting information available to managers.
D. Can be used for control purposes but not for planning purposes.
E. Has little to do with controlling costs.
56. Managerial accounting is different from financial accounting in that:
A. Managerial accounting is more focused on the organization as a whole and financial
accounting is more focused on subdivisions of the organization.
B. Managerial accounting never includes nonmonetary information.
C. Managerial accounting includes many projections and estimates whereas financial accounting
has a minimum of predictions.
D. Managerial accounting is used extensively by investors, whereas financial accounting is used
only by creditors.
E. Managerial accounting is mainly used to set stock prices.
57. Flexibility of practice when applied to managerial accounting means that
A. The information must be presented in electronic format so that it is easily changed.
B. Managers must be willing to accept the information as the accountants present it to them,
rather than in the format they ask for.
C. The managerial accountants need to be on call twenty-four hours a day.
D. The design of a company’s managerial accounting system largely depends on the nature of the
business and the arrangement of the internal operations of the company.
E. Managers must be flexible with information provided in varying forms and using inconsistent
measures.
58. Which of the following items represents a difference between financial and managerial
accounting?
A. Users of the information.
B. Flexibility of practices.
C. Timeliness and time dimension of the information reported.
D. Nature of the information.
E. All of the choices represent differences between financial and managerial accounting.
59. Which of the following items are management concepts that were created to improve
companies’ performances?
A. Just-in-time manufacturing.
B. Customer orientation.
C. Total quality management.
D. Continuous improvement.
E. All of the above are ways that management can improve companies’ performances.
60. The Malcolm Baldrige Award was established by
A. The United Nations.
B. The U.S. Chamber of Commerce.
C. The Malcolm Baldrige Foundation.
D. The U.S. Congress.
E. The SEC.
61. Continuous improvement:
A. Is a measure of profits.
B. Is a measure of costs.
C. Rejects the notion of “good enough.”
D. Is not applicable to most businesses.
E. Is possible only in service businesses.
62. An attitude of constantly seeking ways to improve company operations, including customer
service, product quality, product features, the production process, and employee interactions, is
called:
A. Continuous improvement.
B. Customer orientation.
C. Just-in-time.
D. Theory of constraints.
E. Total quality measurement.
63. A management concept that encourages all managers and employees to be in tune with the
wants and needs of customers, and which leads to flexible product designs and production
processes, is called:
A. Continuous improvement.
B. Customer orientation.
C. Just-in-time.
D. Theory of constraints.
E. Total quality management.
64. An approach to managing inventories and production operations such that units of materials
and products are obtained and provided only as they are needed is called:
A. Continuous improvement.
B. Customer orientation.
C. Just-in-time manufacturing.
D. Theory of constraints.
E. Total quality management.
65. A management concept that applies quality improvement to all aspects of business activities
is called:
A. Continuous operations.
B. Customer orientation.
C. Just-in-time.
D. Theory of constraints.
E. Total quality management.