Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
1.3 Identify the five steps of decision making and the role of relevant accounting
information.
1) Planning is choosing goals, predicting results under various alternative ways of achieving those goals,
and then deciding how to attain the desired goals.
2) A bonus paid to high performing sales persons is an example of an intrinsic reward.
3) Control includes the performance evaluation of personnel and operations.
4) Management should evaluate the difference between planned and budgeted amounts.
5) The problem identification function is the accumulation of data and reporting reliable results to all
levels of management.
6) Learning arises from comparing actual performance to expected performance.
7) The process of preparing a budget enhances coordination and communication throughout the
company.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
8) A budget may be used as a planning tool, but not as a control tool.
9) Control includes deciding what feedback to provide that will help with future decision making.
10) A budget is defined as
A) the qualitative expression of a plan.
B) an aid in controlling income.
C) the quantitative expression of a plan of action by management.
D) the quantitative expression of a plan and an aid in controlling income.
E) an aid in coordinating and implementing a plan.
11) Understanding the reasons for any difference between actual results and budgeted amounts is an
important aspect of
A) extended value-chain analysis.
B) forecasting for the next accounting period.
C) kaizen management.
D) control.
E) management by perception.
12) Which of the following is a major benefit of utilizing a budgeting system?
A) It always results in more profitable decisions.
B) It is easier for managers than traditional decision-making models.
C) It saves costs by utilizing historical data to make projections.
D) It facilitates coordination and communication.
E) Once a successful budget is developed, it can be re-used year after year.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
13) Once a plan is implemented, the control process
A) ensures that managers follow the pre-existing plan.
B) should allow the originating manager(s) to keep lower-level managers from making changes.
C) should be flexible.
D) should be followed rigidly.
E) requires top management permission to change.
14) A well-conceived plan allows managers to have the ability to
A) stay with the pre-existing plan when things start to change for the better.
B) leave the system and let the plan continue on its own.
C) underestimate the costs so that actual operating results will be favourable when comparisons are
made.
D) take advantage of unforeseen opportunities.
E) stay the course regardless of the outcome.
15) The control function may include evaluating
A) the difference between current operating costs and last year’s operating costs.
B) the difference between budgeted amounts and actual results.
C) the difference between the original budget and the final adjusted budget.
D) the difference allowed in the current production costs.
E) the difference between the historical cost and the current cost.
16) Which of the following is not a use of feedback, from a manager’s perspective?
A) to improve past performances
B) to search for alternative ways of reaching goals
C) to change goals
D) to predict future events
E) to change the reward system
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
17) Which of the following is an example of an intrinsic reward?
A) participation in a stock option plan
B) receiving a cash performance bonus
C) being acknowledged for a job well done
D) receiving an all-expenses paid vacation as a bonus
E) receiving a salary increase to keep up with inflation
18) Place the five steps in the decision-making process in the correct order:
A = Obtain information
B = Decide on and implement one of the alternatives
C = Identify the problem and uncertainties
D = Implement the decision, evaluate performance, and learn
E = Make predictions about the future
A) D, B, E, A, C
B) E, D, A, B, C
C) C, A, E, B, D
D) A, E, B, D, C
E) A, C, B, D, E
19) Collecting information to follow through on how actual performance compares to planned or
budgeted performance is referred to as
A) an accounting system.
B) scorekeeping.
C) management accounting.
D) attention directing.
E) problem solving.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
20) Which of the following elements is contained within the Implement the Decision, Evaluate
Performance, and Learn category in the Five-Step Decision-Making Process?
A) Identify the problem and uncertainties.
B) Obtain information.
C) Make predictions about the future.
D) Provide feedback.
E) Make decisions by choosing among alternatives.
21) ________ includes reporting and interpreting information that helps managers to focus on operating
problems, imperfections, inefficiencies, and opportunities.
A) Scorekeeping
B) Control
C) Problem-solving
D) Planning
E) Budgeting
22) Measuring and evaluating performance, and providing feedback are aspects of
A) scorekeeping.
B) information gathering.
C) problem identification.
D) record keeping.
E) control.
23) Preparation of a monthly report comparing the actual phone bill with the expected phone costs would
be classified as
A) problem identification.
B) scorekeeping.
C) planning.
D) control.
E) information gathering.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
24) A report showing the actual financial results for a period compared to the budgeted financial results
for that same period would most likely be called a
A) strategic plan.
B) management forecast.
C) performance report.
D) revised plan.
E) comparative income statement.
25) The process of preparing a budget
A) enhances coordination and communication across business functions.
B) increases accounting efficiencies.
C) reduces overcapacity.
D) promotes production automation.
E) enhances coordination and communication external to the value chain.
26) Control measures should
A) be set and not changed until the next budget cycle.
B) be flexible to allow for employees who are slackers.
C) be kept confidential from employees so that competitors don’t have an opportunity to gain a
competitive advantage.
D) be linked by feedback to planning.
E) provide continuous feedback.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
27) Most organizations exist in a changing environment and, therefore, depend greatly on various types
of feedback to adjust to the changes. Give four uses of feedback and provide examples of how each is
used.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
28) Six uses of feedback are given below. Match each independent statement with one of the feedback
uses.
Uses of feedback:
a. Changing goals.
b. Changing how decision alternatives are identified.
c. Changing managers.
d. Changing the range of information collected in order to make predictions.
e. Changing how the company operates.
f. Changing reward systems.
Independent Statements:
1. Quality control activities have been moved from the end of the assembly line to critical points along
the assembly line.
2. Home office changes stock option plans.
3. Jackson Company increases emphasis on cash flow rather than income, after prior liquidity problems
lead to bankruptcy.
4. The Economic Order Quantity (EOQ) and reorder points of the inventory system are being converted
to automatic processing on the computer to increase the information for forecasting inventory demand.
5. MLB Company contracts with an outside janitorial service rather than continuing with its own
cleaning crew.
6. AMB Company is adopting online meetings to identify which product lines to establish.
7. Local Computer Company incorporates average inflation forecasts for wages when predicting future
labour costs.
8. Altec Company considers basing its marketing bonuses on the profitability of sales rather than on the
dollar amount of sales.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
29) Aspects of the Five-Step Decision-Making Process are listed below. For each of the independent
activities give the aspect that best describes what is being undertaken.
Independent activities:
1. Preparing a report comparing actual and budgeted waste percentages from a chemical process in a
herbicide plant.
2. Changing the selling price of a product.
3. Explaining the variances in Department 23’s labour report.
4. Evaluating a new environmental law..
5. Estimate possible outcomes from outsourcing production to another country.
6. Conduct a consumer survey.
Aspects:
a. Identify the problem and uncertainties
b. Obtain information
c. Make predictions about the future
d. Decide on and implement one of the alternatives
e. Implement the decision, evaluate performance, and learn
30) For each type of report listed below, identify one planning decision and one control decision for
which the information would be helpful.
Item:
a. annual financial statements for the past three years
b. report detailing sales by department by each hour of the day for the past week
c. special study regarding increased road traffic due to the construction of a new shopping mall at a
nearby intersection
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
31) List the Five-Step Decision-Making Process in order.
32) Explain how a budget can help management implement strategy.
33) Jayhawk Basketballs manufactures and distributes rebounding equipment. The company is having a
problem coordinating its marketing and production efforts. Every time marketing has a special
promotion in a certain part of the country, production either cannot deliver the products or distribution
has them in the wrong part of the country. In addition, the company has had several production
stoppages due to insufficient raw material stock at the manufacturing plant.
Required:
In terms of the information system, what appears to be the main problems? What action can be taken to
improve the situation?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
34) Briefly explain the planning and control activities in management accounting. How are these two
activities linked to each other?
35) Complete a performance report for the month of May, 2012, for the Daily Bulletin, a regional
newspaper. Use four columns: 1) Actual Result; 2) Budgeted Amount; 3) Difference: Actual Result minus
Budgeted Amount; 4) Difference as a Percentage of Budgeted Amount; AND, three rows: 1) advertising
pages sold; 2) average rate per page; 3) advertising revenues. Use the given the following data:
Advertising pages sold
910
Budgeted advertising pages
900
Advertising revenue
$4,368,000
Budget advertising revenue
$4,410,000
Does the report indicate any cause for managerial investigation?
pages sold
pages sold)
revenues
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
1.4 Describe key guidelines management accountants follow and roles they assume to
support management decisions.
1) As users of the information produced by management accounting systems, managers are forced to
understand the design and operation of these systems.
2) The cost-benefit approach should be used to make resource allocation decisions.
3) Line management exists to provide advice and assistance to staff departments.
4) The controller is also called the CFO.
5) Line management is directly responsible for attaining the goals of the organization.
6) A cost concept used for external reporting purposes may not be appropriate for internal, routine
reporting to managers.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
7) The method recommended for a management accountant in dealing with a resource-allocation decision
is
A) management by exception.
B) total value chain analysis.
C) analysis based on feedback.
D) the variance analysis approach.
E) the cost-benefit approach.
8) The primary criterion when faced with a resource allocation decision is
A) cost minimization.
B) reduction in the amount of time required to perform a particular job.
C) achievement of organizational goals.
D) how well the alternative options help achieve organizational goals in relation to the costs incurred.
E) improving information flow.
9) Which of the following statements about the cost-benefit approach is true?
A) Resources should be spent if they are expected to better attain company goals in relation to the
expected costs of these resources.
B) In a cost-benefit analysis, both costs and benefits are easy to obtain.
C) Resources should be spent if the costs of a decision outweigh the benefits of the decision.
D) A cost-benefit approach would not be appropriate for a decision to install a budget system or not.
E) The cost-benefit approach is more important than behavioural considerations.
10) An example of a staff management function would be
A) determining that new equipment is required.
B) preparing operating cost estimates for proposed new equipment.
C) developing quality standards for production.
D) ensuring that environmental standards are met.
E) being responsible for attaining a set level of plant income.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
11) The person(s) directly responsible for the attainment of organizational objectives is/are
A) staff management.
B) line management.
C) both staff and line management.
D) the chief financial officer.
E) the internal auditor.
12) As teamwork has become more prominent in the last few years, the traditional distinctions between
staff and line management
A) has increased.
B) has become more important relative to promotions.
C) has diminished.
D) has only been evident in the employee reward system.
E) has become less clear cut in the employee reward system.
13) The ________ is also called the chief financial officer.
A) controller
B) finance director
C) internal auditor
D) treasurer
E) chief executive
14) For which of the following areas is a chief operating officer (COO) typically responsible?
A) treasurer
B) non-financial operating functions
C) risk management
D) taxation
E) controllership
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
15) Which of the following individuals focuses on reporting and interpreting relevant financial
information used to manage the company?
A) chief financial officer
B) controller
C) line management
D) treasurer
E) accounting manager
16) The person(s) responsible for providing advice and assistance to line managers is/are
A) the controller.
B) the chief financial officer.
C) staff management.
D) the treasurer.
E) the president.
17) Staff management includes
A) manufacturing managers.
B) human-resource managers.
C) purchasing managers.
D) distribution managers.
E) sales persons.
18) The ________ is primarily responsible for the quality of the information supplied in both internal and
external reports.
A) COO (Chief Operating Officer)
B) CIO (Chief Information Officer)
C) treasurer
D) controller
E) accountant
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
19) Discuss the cost-benefit approach guideline management accountants use to provide value in strategic
decision making.
20) Discuss the potential behavioural implications of performance evaluation.
21) What areas of responsibility does a chief financial officer have in a typical organization?
22) How does a controller help “control” a company?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
1.5 Distinguish among corporate governance, professional codes of conduct, ethics,
and corporate social responsibility.
1) An accountant, as a member of a professional organization, must follow only those ethical
requirements as are prescribed by the organization they belong to, such as the Society of Management
Accountants of Canada.
2) CMAs are required to follow the formal codes of ethical conduct provided by their professional
association.
3) A profession is distinguished by certain characteristics. “An independent, neutral, objective
perspective” is one of these characteristics.
4) Management accountants have important ethical responsibilities that are related to competence, duty
of care, objectivity, and professionalism.
5) If a managerial accountant were not keeping up with current developments in managerial accounting,
that behaviour might violate a competence standard of professional ethical behaviour.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
6) Corporate social responsibility is
A) legislated by government and enforced by the courts.
B) the same as code of ethics passed by the board of governors of a company.
C) the mandatory integration by companies of social and environmental concerns into their business
operation.
D) the voluntary integration by companies of social and environmental concerns into their business
operation.
E) codified in international trade agreements.
7) What is the professional designation for management accountants?
A) Chartered Accountant
B) Certified Management Accountant
C) Certified General Accountant
D) Certified Financial Executive
E) Chartered Management Accountant
8) Professional ethics for a Certified Management Accountant in Canada were established by
A) the CICA.
B) the FASB.
C) the CIMA.
D) the CGAC.
E) the SMAC.
9) Non-compliance with a code of professional ethics for management accountants includes which of the
following penalties?
A) imprisonment of up to two years
B) imprisonment of up to 20 years
C) fines up to $100,000 and imprisonment of up to two years
D) public censure and imprisonment up to 2 years
E) fines, public censure, and loss of license to practice
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
10) Which of the following would likely constitute a breach of ethics for a management accountant?
A) to omit pertinent information from a report because it is personally unfavourable
B) to consider disclosing confidential information in order to further your own career
C) to consider disclosing confidential information (ie gained from a third party) in order to assist your
employer / client
D) to report the unethical actions of another party, with the expectation that this will further your own
career
E) to be disruptive in a meeting
11) Corporate governance
A) relates to the role of the corporate governor.
B) comprises activities undertaken to ensure legal compliance with laws.
C) is legislated by the federal government.
D) relates only to the regulations provided by the Canadian Securities Administrators.
E) is a voluntary system of compliance approved by each company’s board of directors.
12) An accountant that agrees with the company president to defer the recognition of a revenue is in a
breach of which of the following dimensions of professional conduct?
A) conduct that is detrimental to the best interests of the public or harms the integrity of the accounting
profession
B) conduct that contravenes an act, the regulations, or the bylaws
C) conduct that displays a lack of competence
D) failure or refusal to co-operate in a practice review
E) participating in a conflict of interest
13) Professional codes of conduct relating to the accounting profession
A) supercede the provincial laws but not federal laws.
B) are enforced by the solicitor general of the relevant province.
C) specify penalties up to and including incarceration.
D) are not enforceable as they are not actually laws.
E) specify how professional accountants must behave.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
14) A company may employ CMAs and other persons who are required to meet certain standards of
professional conduct due to their membership in relevant professional organizations. These standards of
conduct often include the areas of responsibility, competence, fairness and independence. However,
holding only a few people responsible for sound professional conduct does not make a company behave
ethically.
Required:
What can a company do to increase the likelihood of its employees being ethical in all their undertakings?