Test Bank for Managerial Accounting 2nd Edition by Whitecotton

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(1)Test Bank for Managerial Accounting 2nd Edition by Whitecotton Financial accounting information is generally used exclusively by internal parties such as managers. 1. True 2. False Financial accounting information is prepared according to generally accepted accounting principles. 1. True

(2) 2. False Managerial accounting information includes such items as budgets, performance evaluations, and cost reports. 1. True 2. False Financial accounting information is reported for the company as a whole. 1. True 2. False Investors, creditors and regulators are the primary users of managerial accounting nformation. 1. True 2. False The planning function is the arranging of the necessary resources to carry out the plan. 1. True 2. False The control function is comparing actual with budgeted results and taking corrective action when needed. 1. True 2. False

(3) The directing/leading function provides motivation to achieve results. 1. True 2. False Managers of small, private corporations use managerial accounting information whereas managers of large, public corporations use financial accounting information. 1. True 2. False Since hospitals, universities, and charitable organizations do not exist strictly to earn profit for shareholders, managerial accounting information is not vital to their operations. 1. True 2. False The Sarbanes-Oxley Act of 2002 places full responsibility on the board of directors for the accuracy of the reporting system. 1. True 2. False Properly applied, ethics provide a clear right or wrong answer to the business situations facing accountants and managers. 1. True 2. False

(4) The Sarbanes-Oxley Act of 2002 focuses on three factors that affect the accounting reporting environment: ethics, fraud, and managers. 1. True 2. False Although there are numerous ways to categorize costs, each individual cost will only be classified in one particular way. 1. True 2. False Costs can be sorted or categorized in a number of ways including relevant or irrelevant costs. 1. True 2. False Out-of-pocket costs involve an actual outlay of cash. 1. True 2. False Opportunity cost is the cost of not doing something. 1. True 2. False Whether a cost is treated as direct or indirect depends on whether tracing the cost is either possible or feasible. 1. True 2. False

(5) An indirect cost can be readily traced to a cost object while a direct cost is traced only to manufacturing costs. 1. True 2. False Variable costs are always direct costs. 1. True 2. False Fixed costs stay the same, on a per-unit basis, as activity level changes. 1. True 2. False - Given Fixed costs stay the same, in total, as activity level changes. 1. True 2. False Prime costs include direct materials, direct labor, and manufacturing overhead. 1. True 2. False Conversion costs are the costs to convert direct materials into the finished product. 1. True 2. False

(6) A manufacturing firm reports only manufacturing costs. 1. True 2. False All manufacturing costs are treated as product costs. 1. True 2. False All manufacturing costs are inventoriable costs. 1. True 2. False A cost that will occur in the future and differs between various alternatives under consideration is a relevant cost. 1. True 2. False What is the primary goal of accounting? 1. A. To set long-term goals and objectives. 2. B. To arrange for the necessary resources to achieve a plan. 3. C. To provide information for decision making. 4. D. To motivate others to work towards a plan's success. Accounting is primarily intended to facilitate 1. A. starting a business. 2. B. decision making. 3. C. ethics investigations. 4. D. cost tracing.

(7) Which of the following is not a characteristic of financial accounting? 1. A. Financial reports are prepared according to GAAP. 2. B. Information is used by external parties. 3. C. Information is subjective, relevant and future-oriented. 4. D. Reports are prepared periodically. Which of the following is not a characteristic of financial accounting? 1. A. Information is reported at the decision making level. 2. B. Information is used by external parties. 3. C. Information is objective, reliable and historical. 4. D. Reports are prepared periodically. Which of the following is not a characteristic of financial accounting? 1. A. Financial reports are prepared according to GAAP. 2. B. Information is used primarily by internal parties. 3. C. Information is objective, reliable and historical. 4. D. Reports are prepared periodically. Which of the following is not a characteristic of managerial accounting? 1. A. Information is used by internal parties. 2. B. Information is subjective, relevant, future-oriented. 3. C. Reports are prepared as needed. 4. D. Reports are prepared according to GAAP.

(8) Which of the following is not a characteristic of managerial accounting? 1. A. Information is used by external parties. 2. B. Information is subjective, relevant, future-oriented. 3. C. Reports are prepared as needed. 4. D. Information is reported at the decision making level. Which of the following is not a characteristic of managerial accounting? 1. A. Information is used by internal parties. 2. B. Information is subjective, relevant, future-oriented. 3. C. Reports are prepared as needed. 4. D. Information is reported for the company as a whole. Which of the following types of reports is more characteristic of managerial accounting than financial accounting? 1. A. An internal report used by management. 2. B. An external report used by investors. 3. C. A report prepared according to GAAP. 4. D. A report prepared periodically (monthly, quarterly, annually). Which of the following types of organizations purchases raw materials from suppliers and uses them to create a finished product? 1. A. Manufacturing firms 2. B. Merchandising companies 3. C. Service companies 4. D. Retailers

(9) Hair salons and law firms are which of the following type of organization? 1. A. Retailers 2. B. Service companies 3. C. Manufacturing firms 4. D. Merchandising companies Which of the following types of organizations sells goods to the general public? 1. A. Service companies - Given 2. B. Manufacturing firms 3. C. Merchandising companies 4. D. Retailers Which of the following functions of management involves taking actions to implement the plan? 1. A. Planning 2. B. Organizing 3. C. Directing/leading 4. D. Control Which of the following functions of management involves comparing actual results with budgeted results? 1. A. Planning 2. B. Organizing 3. C. Directing/leading 4. D. Control

(10) Which of the following functions of management involves setting short and long-term objectives and the tactics to achieve them? 1. A. Planning 2. B. Organizing 3. C. Directing/leading 4. D. Control Which of the following functions of management involves arranging the necessary resources to carry out the plan? 1. A. Planning 2. B. Organizing 3. C. Directing/leading 4. D. Control Which of the following functions of management involves providing motivation to achieve results? 1. A. Planning 2. B. Organizing 3. C. Directing/leading 4. D. Control Which of the following functions of management involves taking corrective action if needed? 1. A. Planning 2. B. Organizing 3. C. Directing/leading 4. D. Control

(11) Which of the following functions of management involves providing feedback for future plans? 1. A. Planning 2. B. Organizing 3. C. Directing/leading 4. D. Control Which of the following is the correct sequencing of the managerial process? 1. A. Planning - Organizing - Control - Directing/Leading 2. B. Planning - Directing/Leading - Organizing - Control 3. C. Planning - Organizing - Directing/Leading - Control 4. D. Organizing - Directing/Leading - Planning - Control Which of the following describes the Planning function of management? 1. A. Setting short and long-term objectives 2. B. Comparing actual to budgeted results and taking corrective action 3. C. Taking actions to implement the plan 4. D. Arranging the necessary resources to carry out the plan Which of the following describes the Control function of management? 1. A. Setting short and long-term objectives 2. B. Comparing actual to budgeted results and taking corrective action 3. C. Taking actions to implement the plan 4. D. Arranging the necessary resources to carry out the plan

(12) Which of the following describes the Organizing function of management? 1. A. Setting short and long-term objectives 2. B. Comparing actual to budgeted results and taking corrective action if needed 3. C. Taking actions to implement the plan 4. D. Arranging the necessary resources to carry out the plan Which of the following describes one of the Directing/Leading functions of management? 1. A. Setting short and long-term objectives 2. B. Comparing actual to budgeted results and taking corrective action 3. C. Taking actions to implement the plan 4. D. Arranging the necessary resources to carry out the plan Which of the following does the term "ethics" not refer to? 1. A. The standards of conduct for judging fair from unfair 2. B. The standards of conduct for judging right from wrong 3. C. The standards of conduct for judging opportunity from incentives 4. D. The standards of conduct for judging honest from dishonest Which of the following is not one of the factors affecting the accounting reporting environment focused on by the Sarbanes-Oxley Act? 1. A. Line of business 2. B. Opportunity 3. C. Character 4. D. Incentives

(13) Which of the following is a requirement under the Sarbanes-Oxley Act? 1. A. Financial statements must be audited by a Big Four accounting firm. 2. B. Management must issue a report that indicates whether the financial statements are free of error. 3. C. Management must conduct a review of the company's internal control system. 4. D. Background checks must be performed on all employees. Which of the following is not a provision of the Sarbanes-Oxley Act? 1. A. Executives can avoid penalties for fraud by declaring personal bankruptcy. 2. B. Stiffer penalties for fraud in terms of monetary fines and jail time. 3. C. Public companies must adopt a code of ethics for senior financial officers. 4. D. Management must issue a report that indicates whether internal controls are effective at preventing errors and fraud. Which of the following is not true about how the Sarbanes-Oxley Act counteracts incentives for committing fraud? 1. A. It provides for stiffer monetary penalties. 2. B. It increases the maximum jail sentence for fraudulent reporting. 3. C. It removes legal protection from whistleblowers. 4. D. It provides that violators must repay any money obtained via fraud plus pay fines.

(14) The Sarbanes-Oxley Act places responsibility for the accuracy of the reporting system on 1. A. Accounting managers. 2. B. Marketing managers. 3. C. Top executives. 4. D. All managers. Which of the following changes introduced by the Sarbanes-Oxley Act is not one intended to reduce opportunities for error and fraud? 1. A. Internal control report from management 2. B. Code of ethics 3. C. Stronger oversight by directors 4. D. Internal control audit by external auditors Which of the following changes introduced by the Sarbanes-Oxley Act is not one intended to encourage good character? 1. A. Anonymous tip lines 2. B. Whistle-blower protection 3. C. Code of ethics 4. D. Stiffer fines and prison terms Which of the following changes introduced by the Sarbanes-Oxley Act is intended to counteract incentives for fraud? 1. A. Stronger oversight by directors 2. B. Code of ethics 3. C. Stiffer fines and prison terms 4. D. Anonymous tip lines

(15) Which of the following is not true about how the Sarbanes-Oxley Act emphasizes the importance of the character of managers and employees? 1. A. It requires that ethics be embedded in the organizational culture. 2. B. It requires that audit committees establish anonymous tip lines. 3. C. It provides protection for whistle-blowers. 4. D. It requires that public companies adopt a code of ethics for senior financial officers. Which of the following is not one of the categories used to sort costs in managerial accounting? 1. A. Relevant or irrelevant 2. B. Variable or fixed 3. C. Out-of-pocket or opportunity 4. D. Direct or indirect Which of the following statements concerning costs is incorrect? 1. A. Costs are treated differently depending on how the information will be used. 2. B. Out-of-pocket costs include the costs associated with not taking a particular course of action. 3. C. Any single cost can be classified in more than one way. 4. D. Costs can be categorized on the basis of relevant or irrelevant costs. The cost of not doing something is a(n) 1. A. out-of-pocket cost. 2. B. opportunity cost. 3. C. direct cost. 4. D. cost object.

(16) An actual outlay of cash is a(n) 1. A. out-of-pocket cost. 2. B. opportunity cost. 3. C. direct cost. 4. D. cost object. An opportunity cost is 1. A. the foregone benefit of the path not taken. 2. B. an actual outlay of cash. 3. C. the initial investment required to pursue an opportunity. 4. D. a cost that cannot be traced to a specific cost object. An out-of-pocket cost involves which of the following? 1. A. Choosing to do one thing instead of another. 2. B. Tracing the cost directly to a cost object. 3. C. An actual outlay of cash. 4. D. Determining how the cost changes with a change in activity level. To earn summer money, Joe could mow lawns in his neighborhood, or he could work at a local grocery store. Which of the following is an opportunity cost of mowing lawns? 1. A. Cash paid for gas to run the lawnmower. 2. B. The time spent mowing the lawns. 3. C. The wages he could have earned working at the grocery store. 4. D. Depreciation on the lawnmower.

(17) To earn summer money, Joe could mow lawns in his neighborhood, or he could work at a local grocery store. Which of the following is an outof-pocket cost of mowing lawns? 1. A. The use of his father's truck to get to job sites. 2. B. The wages he could have earned working at the grocery store. 3. C. The time spent mowing the lawns. 4. D. Cash paid for gas to run the lawnmower. Which of the following cannot be an out-of-pocket cost? 1. A. A direct cost. 2. B. An opportunity cost. 3. C. A variable cost. 4. D. A period cost. Costs that can be traced to a specific cost object are 1. A. opportunity costs. 2. B. direct costs. 3. C. indirect costs. 4. D. irrelevant costs. Costs that are not worth the effort to trace to a specific cost object are 1. A. opportunity costs. 2. B. direct costs. 3. C. indirect costs. 4. D. irrelevant costs. A direct cost is one which 1. A. involves an actual outlay of cash for a specific cost object.

(18) 2. B. can be traced to a specific cost object. 3. C. cannot be traced to a specific cost object. 4. D. is not worth the effort of tracing to a specific cost object. What determines the difference between a direct and an indirect cost? 1. A. Whether it changes when activity levels change. 2. B. Whether it is relevant to a particular decision. 3. C. Whether it can be traced to a specific cost object. 4. D. Whether it is related to manufacturing or nonmanufacturing activities. Which of the following is an indirect cost of manufacturing a table made of wood and glass, for a firm that manufactures furniture? 1. A. The cost of the wood in the table. 2. B. The cost of the labor used to assemble the table. 3. C. The cost of the glass in the table. 4. D. The cost of rent on the factory where the table is manufactured. Which of the following is a direct cost of manufacturing a table made of wood and glass, for a firm that manufactures furniture? 1. A. The cost of the wood in the table. 2. B. The cost of rent on the factory where the table is manufactured. 3. C. The salary of the supervisor who oversees all production for the firm. 4. D. Depreciation on the tools used to manufacture the table. A cost object is 1. A. an item for which managers are trying to determine the cost. 2. B. an item to which managers must directly trace costs.

(19) 3. C. an item to which it is not worth the effort of tracing costs. 4. D. an item for sale by a business. Indirect costs are 1. A. costs that are not worth the effort to trace to a specific cost object. 2. B. costs that change, in total, in direct proportion to changes in activity levels. 3. C. always irrelevant. 4. D. costs that remain constant no matter the activity level. Variable costs are 1. A. costs that are not worth the effort to trace to a specific cost object. 2. B. costs that change, in total, in direct proportion to changes in activity levels. 3. C. always irrelevant. 4. D. costs that remain constant no matter the activity level. Variable costs are 1. A. costs that stay the same, in total, regardless of activity level. 2. B. costs that vary inversely, per unit, with the number of units produced. 3. C. costs that vary inversely, in total, with the number of units produced. 4. D. costs that change, in total, in direct proportion to changes in activity levels.

(20) A cost is $50,000 when 25,000 units are produced, and $100,000 when 50,000 units are produced. This is an example of a(n) 1. A. fixed cost. 2. B. direct cost. 3. C. variable cost. 4. D. indirect cost. A cost is $50,000 when 25,000 units are produced, and $50,000 when 50,000 units are produced. This is an example of a(n) 1. A. fixed cost. 2. B. direct cost. 3. C. variable cost. 4. D. indirect cost. What determines the difference between a variable and a fixed cost? 1. A. Whether the total cost changes when activity levels change. 2. B. Whether the total cost is relevant to a particular decision. 3. C. Whether the total cost can be traced to a specific cost object. 4. D. Whether the total cost is related to manufacturing or nonmanufacturing activities. Which of the following is an example of a variable cost for a manufacturing firm? 1. A. The cost of rent on the factory. 2. B. The cost of factory supervision. 3. C. The cost of raw materials. 4. D. The cost of depreciation on equipment.

(21) Fixed costs are 1. A. costs that are not worth the effort to trace to a specific cost object. 2. B. costs that change, in total, in direct proportion to changes in activity levels. 3. C. always irrelevant. 4. D. costs that remain constant, in total, no matter the activity level. A fixed cost 1. A. goes up in total when activity increases. 2. B. goes up per unit when activity increases. 3. C. goes down in total when activity increases. 4. D. goes down per unit when activity increases. A relevant cost is a cost that 1. A. has the potential to influence a decision. 2. B. changes in direct proportion to changes in activity level. 3. C. can be traced to a specific cost object. 4. D. is used for control purposes. An irrelevant cost 1. A. is also called a differential cost. 2. B. must differ between decision alternatives. 3. C. must be incurred in the future rather than in the past. 4. D. will not influence a decision. For a cost to be relevant, it must 1. A. differ between decision alternatives. 2. B. have already been incurred.

(22) 3. C. not influence a decision. 4. D. not be a differential cost. A cost that has already been incurred is called a(n) _______________ cost. 1. A. indirect 2. B. sunk 3. C. relevant 4. D. opportunity You are to receive five gold coins from your great uncle as an incentive to study hard. The coins were originally purchased in 1982.Your great uncle will deliver the coins the week after finals (assuming your grades are "acceptable"). The amount your great uncle paid for the coins is a(n) 1. A. opportunity cost. 2. B. indirect cost. 3. C. sunk cost. 4. D. overhead cost. For a cost to be relevant, it must meet which of the following criteria? 1. A. It must not differ between the decision alternatives and it must be incurred in the future rather than in the past. 2. B. It must differ between the decision alternatives and it must be incurred in the future rather than in the past. 3. C. It must not differ between the decision alternatives and it must have occurred in the past rather than in the future. 4. D. It must differ between the decision alternatives and it must have occurred in the past rather than in the future.

(23) For a cost to be relevant, it must be 1. A. a differential cost and a sunk cost. 2. B. a differential cost, but not a sunk cost. 3. C. a sunk cost, but not a differential cost. 4. D. neither a differential cost nor a sunk cost. Which of the following costs is not relevant to the decision whether to replace an old computer with a new one? 1. A. The cost of the new computer. 2. B. The cost of the old computer. 3. C. The cost of a service plan on the new computer. 4. D. The cost to repair the old computer if a new computer is not purchased. Manufacturing costs are generally classified into which of the following categories? 1. A. relevant costs and irrelevant costs 2. B. direct materials, direct labor, and manufacturing overhead 3. C. prime costs and conversion costs 4. D. conversion costs, marketing costs, and administrative costs Prime costs are defined as 1. A. Manufacturing costs plus non-manufacturing costs. 2. B. Direct labor plus direct materials. 3. C. Variable costs equal fixed costs. 4. D. Manufacturing overhead plus direct labor. Which of the following is not a manufacturing cost? 1. A. Raw materials cost.

(24) 2. B. Marketing cost. 3. C. Direct labor cost. 4. D. Manufacturing overhead cost.: Nonmanufacturing costs are generally classified into what two groups? 1. A. Conversion costs and prime costs. 2. B. Direct materials and direct labor. 3. C. Marketing costs and administrative costs. 4. D. Direct labor and manufacturing overhead. Robin Company has the following balances for the current month: What are Robin's prime costs? 1. A. $60,800 2. B. $56,000 3. C. $75,200 4. D. $65,600 Conversion costs can be defined as 1. A. Manufacturing costs plus non-manufacturing costs. 2. B. Direct labor plus direct materials. 3. C. Variable costs plus fixed costs. 4. D. Manufacturing costs minus direct materials. Manufacturing costs are 1. A. always relevant. 2. B. always fixed. 3. C. the costs incurred to produce a final product. 4. D. split into prime costs and conversion costs.

(25) Prime costs are the same as 1. A. Manufacturing costs minus non-manufacturing costs. 2. B. Manufacturing costs minus manufacturing overhead. 3. C. Manufacturing costs minus fixed costs. 4. D. Manufacturing costs minus direct materials. Robin Company has the following balances for the current month: What is Robin's total manufacturing cost? 1. A. $115,200 2. B. $81,600 3. C. $33,600 4. D. $60,800 Robin Company has the following balances for the current month: What is Robin's total manufacturing overhead? 1. A. $14,400 2. B. $28,800 3. C. $20,800 4. D. $33,600 Robin Company has the following balances for the current month: What are Robin's conversion costs? 1. A. $70,400 2. B. $60,800 3. C. $91,200 4. D. $57,600

(26) GAAP reporting rules require that all manufacturing costs be treated as 1. A. period costs. 2. B. product costs. 3. C. value-added costs. 4. D. relevant costs. Product costs are sometimes called 1. A. relevant costs. 2. B. sunk costs. 3. C. differential costs. 4. D. inventoriable costs. Which of the following is true about product and period costs? 1. A. Product costs are usually manufacturing costs, and period costs are usually nonmanufacturing costs. 2. B. Product costs are usually nonmanufacturing costs, and period costs are usually manufacturing costs. 3. C. Both product and period costs are usually manufacturing costs. 4. D. Both product and period costs are usually nonmanufacturing costs. Product costs are 1. A. expensed on the income statement when incurred. 2. B. treated as an asset and depreciated. 3. C. inventoried until the units are sold. 4. D. considered current liabilities until paid.

(27) When are period costs counted as inventory? 1. A. Before products are sold. 2. B. After products are sold. 3. C. After products are completed, but before they are sold. 4. D. Never. What determines the difference between a product cost and a period cost? 1. A. Whether the cost changes when activity levels change. 2. B. Whether the cost is relevant to a particular decision. 3. C. Whether the cost can be traced to a specific cost object. 4. D. When the cost will be matched against revenue on the income statement. Product costs are reported 1. A. only on the balance sheet. 2. B. only on the income statement. 3. C. on the balance sheet before goods are sold, and on the income statement after goods are sold. 4. D. on the income statement before goods are sold, and on the balance sheet after goods are sold.

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