Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
Chapter 1 The Accountant’s Vital Role in Decision Making
1.1 Explain how management accounting data are essential to the process of rational
operating and strategic decision making.
1) Management accounting is guided by generally accepted accounting principles.
2) Managerial accounting and cost accounting both measure and report financial and non-financial
information relating to the cost of acquiring or utilizing resources.
3) Cost accounting provides information for both management and financial accounting.
4) Management accountants are required to follow the generally accepted accounting principles that are
used for external financial reporting when preparing reports for internal users.
5) Managers typically receive reports on cost planning and controls that should be considered for internal
use only.
6) There are three (3) basic business strategies: low cost, premium products, and customer satisfaction.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
7) Companies with a strategy of low prices compete on their ability to offer unique new products or
services that are priced higher than their competition.
8) Cost management involves long-term and short-term decisions that attempt to increase value for
customers and lower costs of products or services.
9) The key to a company’s success is always to be the low cost producer in a particular industry.
10) Companies generally follow one of two basic strategies: 1) providing a quality product or service at
low prices, or 2) offering a unique product or service often priced higher than competing products.
11) In what way do managers benefit from the use of a database, or “data warehouse”?
A) Data can be entered at numerous input terminals within the organization.
B) The managers would not be completely responsible for the information that is entered into the
database system.
C) The managers could combine or adjust these data to answer the questions from particular internal and
external users.
D) The managers do not benefit, as the information requires technical expertise to retrieve.
E) Managers can store old documents in hard copy.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
12) Financial accounting is concerned primarily with
A) cost planning and cost controls.
B) external reporting to investors, government authorities, etc.
C) profitability analysis.
D) providing information for strategic and tactical decisions.
E) providing analysis to facilitate long term decision making.
13) The text identifies six ways to classify the major differences between Management and Financial
Accounting. The “managers of the organization” is an example of which of the following classes of
differences?
A) Purpose of information
B) Primary users
C) Focus and emphasis
D) Rules of measurement and reporting
E) Time span and type of reports
14) The text identifies six ways to classify the major differences between Management and Financial
Accounting. The statement “Varies from hourly to 15 to 20 years” is an example of which of the following
classes of differences?
A) Purpose of information
B) Primary users
C) Focus and emphasis
D) Rules of measurement and reporting
E) Time span and type of reports
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
15) The text identifies six ways to classify the major differences between Management and Financial
Accounting. The statement “Past oriented (reports on 2011 performance prepared in 2012)” is an example
of which of the following classes?
A) Purpose of information
B) Primary users
C) Focus and emphasis
D) Rules of measurement and reporting
E) Time span and type of reports
16) The text identifies six ways to classify the major differences between Management and Financial
Accounting. The statement “Communicate organization’s financial position to external users” is an
example of which of the following classes?
A) Purpose of information
B) Primary users
C) Focus and emphasis
D) Rules of measurement and reporting
E) Time span and type of reports
17) Which of the following is something management accountants should do to satisfy their users?
A) provide specialized information that given users can use
B) consider only financial measures
C) focus exclusively on internal users
D) follow generally accepted accounting principles
E) focus on planning more than control
18) “Cost management” describes
A) the actions by managers to increase value for customers while continuously reducing and controlling
costs.
B) the identification of excessive costs in the production process.
C) the satisfaction of customers’ needs.
D) actions by managers to satisfy customers while maintaining current cost levels.
E) ensuring all costs remains constant.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
19) Do you agree that prior management decisions affect cost management?
A) Yes. Managers should always follow prior management decisions, for example, in the determination
of the EOQ.
B) No. Managers should ignore prior management decisions.
C) Yes. Managers should always strive to lower the costs incurred last year, as their number 1 priority.
D) Yes. The only prior management decisions that can affect cost management going forward, are
concerned with employee wages. All other decisions can be changed.
E) Yes. Prior management decisions can affect any area of the business operations, and commit the
organization to the subsequent or continued incurrence of costs in such areas as material handling, and
plant construction, for example.
20) Management accounting
A) helps creditors evaluate the company’s performance.
B) helps managers make decisions.
C) is useful for external and internal users.
D) creates technical reports that require external audit for verification.
E) is the same as cost accounting.
21) Enterprise Resource Planning software (ERP)
A) integrates data and provide managers with reports that highlight the interdependence of different
business activities.
B) facilitates “Easy Reporting for Proposals.”
C) provides financial reports for each separate enterprise in a conglomerate.
D) is used only by plant managers to create “Exceptional Reports for Production.”
E) is free software downloaded over the Internet.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
22) Management accounting
A) measures, analyzes, and reports financial and nonfinancial information to internal managers.
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.
E) must follow generally accepted accounting principles.
23) 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) reports include detailed information on the various operating segments of the business such as
product lines or departments.
D) is prepared for the use of department heads and other employees.
E) is primarily concerned with profitability analysis.
24) 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.
E) exception reporting system for plant managers.
25) 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.
E) management information system.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
26) 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.
E) that a company’s financial procedures are in compliance with GAAP.
27) In designing strategy, a company must match the opportunities and threats in the marketplace with
A) those of the CFO (Chief Financial Officer).
B) its resources and capabilities.
C) branding opportunities.
D) capabilities of current suppliers.
E) its competitors.
28) Describe management accounting and financial accounting.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
29) 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
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
30) 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”?
1.2 Explain how business functions help management accountants organize accounting
information.
1) In the value chain, Research and Development generates and experiments with new ideas related to
new products.
2) The value chain includes the following functions: research and development; design of products,
services, or processes; production; marketing; distribution; customer service; and management
satisfaction.
3) In the value chain, Research and Development is the detailed planning and engineering of products,
services, or processes.
4) There are 8 business functions in the value chain.
5) Value chain and supply chain are two (2) terms describing the same set of business functions.
6) Sub-contracting a business function is part of supply chain management.
7) TQM is a method for improving quality.
8) Key success factors such as quality, time, and innovative products and services, must be executed well
to achieve corporate performance.
9) A budget is a quantitative expression of a proposed plan of action by management.
10) Information used to project budgeted amounts does not require non-financial information.
11) The supply chain refers to the sequence of business functions in which customer usefulness is added
to products or services.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
12) For best results, cost management emphasizes independently coordinating supply chain activities
within your company and not interfering with other companies.
13) Key success factors are geared to improving customer satisfaction.
14) The value chain is the
A) sequence of business functions in which value is deducted from the products or services of an
organization.
B) sequence of business functions in which value is proportionately added to the products or services of
an organization.
C) process by which products and services are critiqued for their value.
D) sequence of business functions in which customer usefulness is added to the products or services of an
organization.
E) sequence of functions in which value is added at specific target areas of improvement.
15) What aspect of business analysis focuses on the sequence of business functions?
A) customer service
B) value chain
C) quality
D) research and development
E) product design
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
16) Which of the following is true concerning the value chain of business functions?
A) Managers should always proceed sequentially through the value chain, since distribution, for
example, cannot occur before production is completed.
B) Senior managers from individual parts of the value chain do not have a responsibility in deciding on
the organization’s overall strategy.
C) An organization can only realize gains from having individual parts of the value chain work
sequentially.
D) The value chain refers to the value added to the customer from marketing.
E) Senior managers from individual parts of the value chain have a responsibility in deciding how
resources are to be obtained and used, and how rewards are to be given.
17) When a company works with its supplier to reduce material–handling costs, this is an example of
A) the customer-driven approach.
B) a conflict of interest.
C) a key success factor.
D) a strategic marketing focus.
E) total value chain or supply chain analysis.
18) Determining the number of components to put into a computer monitor is an example of which of the
following value chain functions?
A) research and development
B) design of products, services, and processes
C) production
D) marketing
E) distribution
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
19) Developing a new web site to display and demonstrate the company’s products would be part of
which value chain function?
A) research and development
B) design of products, services, and processes
C) production
D) marketing
E) distribution
20) Companies use the term customer relationship management (CRM) to describe
A) a strategy that integrates people and technology in all business functions to enhance relationships with
customers.
B) a strategy that integrates people and technology in all business functions to enhance relationships with
customers and partners.
C) a strategy that integrates people and technology in all business functions to enhance relationships with
customers, partners, and distributors.
D) a strategy that integrates people and technology in a few business functions to enhance relationships
with customers, partners, and distributors.
E) a strategy that integrates people and technology in a few business functions to enhance relationships
with customers and partners.
21) To be successful a company should be
A) customer driven.
B) “driven” by the board of directors.
C) employee driven.
D) management driven.
E) executive driven.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
22) There is many aspects of a company that managers should focus on. Which of the following sets
describes key success factors for managers in terms of delivering performance to customers?
A) cost and efficiency, time, quality, innovation
B) cost and efficiency, quality, innovation
C) cost and efficiency, shareholder value, quality, innovation
D) cost and efficiency, management by exception, quality, innovation
E) cost and efficiency, budgeting, quality, innovation
23) R&D, production, and customer service are business functions that are all included as part of
A) the value chain.
B) benchmarking.
C) marketing.
D) the supply chain.
E) the company strategy.
24) The value chain is the sequence of business functions in which
A) value is deducted from the products or services of an organization.
B) value is proportionately added to the products or services of an organization.
C) rational experimentation is performed to enhance product compatibility.
D) products and services are evaluated with respect to their value to the supply chain.
E) usefulness is added to the products or services of an organization.
25) Whose perceptions of the company’s products or services are the most important to the manager?
A) board of directors’ perception
B) customers’ perception
C) president’s perception
D) stockholders’ perception
E) competitors’ perception
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
26) Place the five business functions in the order they appear along the value chain:
A = Customer service
B = Design
C = Distribution
D = Production
E = Research and Development
A) A, E, B, D, C
B) A, C, D, B, E
C) E, B, D, C, A
D) E, B, A, D, C
E) B, E, D, C, A
27) ________ 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
E) Quality control
28) ________ 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
E) Differentiation
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
29) Customer relationship management initiatives use technology to coordinate all
A) production activities.
B) research activities.
C) customer-facing activities.
D) inventory management activities.
E) aspects of strategy implementation.
30) ________ describe(s) 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) Key success factors
C) Continuous improvement
D) Customer focus
31) ________ is an operational activity that is essential to corporate performance.
A) Customer focus
B) A key success factor
C) Continuous improvement
D) Supply chain
E) Value chain
32) ________ 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
E) Management by objectives
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
33) Classify each cost item into one of the business functions of the value chain, either (1) R&D, (2) design,
(3) production, (4) marketing, (5) distribution, or (6) customer service.
Item:
a. cost of samples mailed to promote sales of a new product
b. labour cost of workers in the manufacturing plant
c. bonus paid to a person with a 90% satisfaction rating in handling customers with complaints
d. transportation costs for shipping products to retail outlets
34) List and briefly describe each function in the value chain. Provide an example for each of the value
chain functions identified.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
35) Hardcover Company incurs the following costs when it manufactures books.
1. Cost of customer order forms.
2. Cost of paper used in manufacture of books.
3. Cost of paper used in packing cartons to ship books.
4. Cost of paper used in display at national trade show.
5. Amortization of delivery trucks.
6. Amortization of the wood used in the manufacturing plant.
7. Salary of the scientists attempting to find another source of printing ink.
Required:
Classify each one of them according to one of the value chain functions below:
a. Research and development.
b. Design of products, services, and processes.
c. Production.
d. Marketing.
e. Distribution.
f. Customer service.
36) Johnson Advertising Agency incurs the following costs in its service activities. Classify each one of
them according to one of the value chain functions.
1. Amortization of the artist design desk.
2. Cost of computer time used to create designs for customers.
3. Cost of updating an ad for a customer.
4. Cost of computer time used by a salesperson.
5. Cost of changing an unsuccessful ad after client complains that ad targeted wrong customers.
6. Cost of materials used in the layout of a customer’s magazine ad.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
37) Customers are demanding that companies use the value chain and supply chain to deliver ever–
improving levels of performance regarding key success factors. Briefly describe each of the following key
success factors: cost and efficiency; quality; time; innovation. For each key success factor give an example
an activity that relates to that factor; and, the effect of that activity on the value chain.
38) Describe the value chain and how it can help organizations become more effective.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 1 – The Accountants’ Vital Role in Decision Making
39) Cyclone Car Company tries to assign appropriate responsibilities to all of its managers. Production
managers receive reports which accumulate information of the shop operations for each plant. Plant
operations are further aggregated in the report received by the vice president of manufacturing. These
reports show the budgeted and actual operating results for the current month and year–to-date. These,
along with inventory status reports, provide the major source of production information for the next
planning period. Managers evaluate the variances between actual and budgeted amounts and determine
whether operations are in or out of control. If variances are large, appropriate action is taken, i.e., the
plans are changed.
The company’s profits have been decreasing, and management has requested similar aggregate sales data
from marketing. It is felt that this added information will suffice for its decision–making needs.
Required:
Do you agree? Why? Do you foresee any needs that will not be met by this information? If so, what
additional information do you suggest that management be provided by the management accounting
system?
40) In most organizations, customer satisfaction is one of the top priorities. As such, attention to
customers is necessary for success. Briefly describe the four types of key success factors essential to
successful corporate performance.