Chapter 1 Full Test Bank Mgmt Accounting & Decisions

Chapter 1

How Management Accounting Information Supports Decision Making

Learning Objectives―Coverage by question type

LO1 – Understand the major differences between financial and management accounting.

True / False Multiple Choice Exercises, Problems & Short Answer

1-8 1-18 1, 2

LO2 – Appreciate the historical evolution of management accounting to its present set of practices.

True / False Multiple Choice Exercises, Problems & Short Answer

9, 10 19 3

LO3 – Explain why management accounting uses nonfinancial as well as financial measures.

True / False Multiple Choice Exercises, Problems & Short Answer

11 20-24 4-6

LO4 – Explain the role for the balanced scorecard in measuring a company’s intangible assets and capabilities.

True / False Multiple Choice Exercises, Problems & Short Answer

12-16 25-33 7, 8

LO5 – Be sensitive to the behavioral consequences that result from the introduction of new measurement and management systems.

True / False Multiple Choice Exercises, Problems & Short Answer

17-19 34-39 9

Chapter 1: How Management Accounting Information Supports Decision Making

True / False

LO1

Terms: Management accounting

Difficulty: 1

1. Management accounting is subject to the rules formulated by standard setters such as the Financial Accounting Standards Board (FASB).

Difficulty: 1

2. Management accounting information is primarily oriented to external stakeholders, such as investors, creditors, regulators, and tax authorities.

Difficulty: 1

3. The International Accounting Standards Board sets the guidelines used for management accounting.

Difficulty: 1

4. A good management accounting system can become a source of competitive advantage for a company.

Difficulty: 1

5. Management accounting information is sometimes predictive and forward looking.

Difficulty: 2

6. Management accounting has no prescribed rules about its content, how the content is to be developed, and how the content is to be presented.

Difficulty: 1

7. Management accounting measures can provide advance warnings of problems.

Difficulty: 1

8. Information about customer satisfaction is an example of financial information.

Difficulty: 2

9. During the history of management accounting, innovations were developed to address the decision-making needs of managers.

Difficulty: 2

10. Management accounting innovations are usually developed by academics.

Difficulty: 1

11. Operating profit is an example of nonfinancial information.

Difficulty: 1

12. Database and information systems are physical assets that create distinctive value for companies.

Difficulty: 1

13. The balanced scorecard measures organizational performance across five different but linked perspectives.

Difficulty: 1

14. The learning and growth perspective addresses what employee capabilities, information systems, and organizational capabilities we need to continually improve.

Difficulty: 2

15. The customer perspective of the balanced scorecard focuses on excellence in processes which satisfy customers.

Difficulty: 2

16. Important measures in the customer perspective usually include the percentage of repeat customers and growth in sales to existing customers.

Difficulty: 2

17. The design and introduction of new measurements and systems must be accompanied by an analysis of the behavioral and organizational reactions to the measurements.

Difficulty: 2

18. People react when they are being measured, and they react to the measurements.

Difficulty: 2

19. Information is never neutral; just the act of measuring and reporting information affects the individuals involved.

Difficulty: 2

1. Management accounting information can be used for all of the following except:

A) Calculate the cost of a product or service.

B) evaluate the performance of a company.

C) project materials needs.

D) evaluate the market price of the stock.

Difficulty: 1

2. Which of the following types of information are used in management accounting?

A) financial information

B) nonfinancial information

C) information focused on the long term

D) All of the above are correct.

Difficulty: 2

3. Management accounting:

A) is both retrospective, providing feedback about past operations, and also prospective, incorporating forecasts and estimates about future events.

B) is primarily oriented to external stakeholders.

C) must be consistent with rules formulated by the Financial Accounting Standards Board (FASB).

D) provides information that is generally available only on a quarterly or annual basis.

Difficulty: 2

4. Which of the following descriptors refer to management accounting information?

A) It is only retrospective, reporting and summarizing in financial terms the results of past decisions and transactions.

B) It is driven by rules.

C) It is prepared for shareholders.

D) It is oriented to meeting the decision making needs of employees and managers inside the organization.

Difficulty: 1

5. Which of the following would be considered management accounting information?

A) Budgeted production for the current year.

B) Budgeted Balance Sheet.

C) Analysis of trend in stock prices.

D) Both budgeted production for the current year and the budgeted balance sheet.

Difficulty: 2

6. Management accounting information includes all of the following except:

A) tabulated results of customer satisfaction surveys.

B) the cost of producing a product.

C) the percentage of units produced that is defective.

D) market price of the stock.

Difficulty: 2

7. Management accounting reports could include information about:

A) customer complaints.

B) net income for the year on budgeted income statement.

C) total assets on budgeted balance sheet.

D) All of the above are correct.

Difficulty: 2

8. The person MOST likely to use management accounting information is a(n):

A) banker evaluating a credit application.

B) shareholder evaluating a stock investment.

C) governmental taxing authority.

D) assembly department supervisor.

Difficulty: 2

9. Which of the following is NOT a function of a management accounting system?

A) strategic development

B) financial reporting

C) control

D) product costing

Difficulty: 1

10. Financial accounting:

A) focuses on the future and includes activities such as preparing next year's operating budget.

B) does not need to comply with GAAP (generally accepted accounting principles).

C) is primarily oriented to external stakeholders, such as investors, creditors, regulators and tax authorities.

D) is prepared for the use of department heads and other employees.

Difficulty: 2

11. The person MOST likely to use ONLY financial accounting information is a:

A) factory shift supervisor.

B) vice president of operations.

C) current shareholder.

D) department manager.

Difficulty: 2

12. Historically, management accounting innovations have been developed by:

A) the International Accounting Standards Board.

B) the Cost Accounting Standards Board.

C) Academic accountants.

D) Managers.

Difficulty: 2

13. In general, it was not until the 1970s that management accounting systems:

A) were improved because of demands by the FASB and the SEC.

B) stagnated and proved inadequate.

C) started to develop innovations in costing and performance-measurement systems due to intense pressure from overseas competitors.

D) started to address the decision-making needs of managers.

Difficulty: 2

14. Financial accounting information:

A) provides a signal that something is wrong.

B) identifies what is wrong.

C) explains what is wrong.

D) simply summarizes information but does not indicate whether anything is wrong.

Difficulty: 1

15. Management accounting information is BEST described as:

A) providing a signal that something is wrong.

B) identifying and helping to explain what is wrong.

C) simply summarizing information, but giving no indication that anything is wrong.

D) measuring overall organizational performance.

Difficulty: 1

16. Which of the following statements is not true about management accounting?

1. Management accounting follows strict reporting rules.
2. Management accounting can sometimes report nonfinancial information.
3. Management accounting reports can include estimated costs or revenues.
4. Management accounting information is seldom provided to people outside the organization.

Difficulty: 1

17. Which of the following statements is not true about strategy?

1. Strategy is about making choices about what decisions to make and not to make.
2. Strategy is about choosing the best fit between the organization’s resources and its opportunities.
3. Strategy is about finding ways to achieve the organization’s objectives.
4. Organizations are required to report their chosen strategy in their financial

Difficulty: 1

18. Which of the following organization levels is most likely to find detailed information about the cost of a particular component of a product most useful?

1. The board of directors.
2. The organization’s chief operating officer.
3. The organization’s chief financial officer.
4. A production supervisor.

Difficulty: 2

19. The first modern industry in the United States to develop and use large quantities of financial statistics to assess and monitor organizational performance was:

A) steel companies.

B) lumber companies.

C) the railroads.

D) automobile companies.

Difficulty: 2

20. Managers of service departments need all of the following information, except:

A) efficiency data on work performance.

B) quality data on work performance.

C) profitability data of the whole company.

D) profitability data of the service department.

Difficulty: 2

21. A law firm would use management accounting information for all of the following decisions except:

A) staffing needs.

B) performance evaluation of staff.

C) budgeted purchases of supplies.

D) location of annual holiday party.

Difficulty: 2

22. Management accounting can play a critical role in the service industry because of all the following reasons, except:

A) firms must be especially sensitive to the timeliness and quality of customer service.

B) many employees have very little contact with customers.

C) customers immediately notice defects and a delay in service.

D) dissatisfied customers may never return.

Difficulty: 2

23. For improving operational efficiencies and customer satisfaction, nonfinancial information is:

A) critical.

B) moderate.

C) infrequently used.

D) unnecessary.

Difficulty: 2

24. Nonfinancial information might be used for all of the following except:

A) improve product quality.

B) reduce cycle times.

C) satisfy customers' needs.

D) All of the above are used.

Difficulty: 1

25. The roles of performance measurement systems in organizations include all the following except:

A) motivate employees to help the organization achieve its strategic objectives.

B) help managers with resource allocation.

C) create value from intangible assets as well as their physical and financial assets.

D) communicate the company's strategic objectives.

Difficulty: 2

26. Many intangible assets:

A) do not appear on the balance sheet since it is difficult to place a reliable financial value on them.

B) should be evaluated with return on investment and other performance measures.

C) can be measured and managed with current financial control systems.

D) are unimportant because they have no physical substance.

Difficulty: 1

27. Intangible assets that are currently reported on the balance sheet include:

A) loyal and profitable customer relationships.

B) organizational culture.

C) employee skills and motivation.

D) the cost of a patent giving exclusive rights to a process.

Difficulty: 1

28. The use of multiple-performance measures in the balanced scorecard would be expected to lead to all of the following except:

A) more extensive use of financial measures such as cost and profit.

B) employees recognizing the various dimensions of their work.

C) the use of new performance measures such as customer satisfaction and employee morale.

D) group-level performance measures.

Difficulty: 1

29. The balanced scorecard is said to be "balanced" because it measures:

A) short-term and long-term objectives.

B) financial and nonfinancial objectives.

C) internal and external objectives.

D) All of the above are correct.

Difficulty: 1

30. ________ translate(s) an organization's mission, vision, and strategy into a comprehensive set of performance measures that provide the framework for implementing its strategy.

A) Critical success factors

B) The value proposition

C) Objectives

D) The balanced scorecard

Difficulty: 2

31. The ________ perspective of the balanced scorecard asks, "How is success measured by our shareholders?"

A) learning and growth

B) customer

C) financial

D) shareholder

Difficulty: 1

32. The ________ perspective of the balanced scorecard focuses on creating value for customers.

A) Value

B) Financial

C) Stakeholder

D) Customer

Difficulty: 1

33. Measures of employees' skills and capabilities are included in the ________ perspective of the balanced scorecard.

A) financial

B) internal

C) customer

D) learning and growth perspective

Difficulty: 2

34. The act of simply measuring and reporting information on certain processes:

A) focuses the attention of employees on those processes that are being measured.

B) diverts the employee's attention to other activities that are not being measured.

C) disproves the saying "What gets measured gets managed."

D) has no effect on employee behavior.

Difficulty: 2

35. Which statement below is false?

A) "What gets measured gets managed."

B) People react to measurements.

C) Employees spend more attention on those variables that are not getting measured.

D) "If I can't measure it, I can't manage it."

Difficulty: 1

36. When a change is introduced, employees tend to:

A) embrace the change.

B) be indifferent to the change.

C) exhibit no change in behavior.

D) resist the change.

Difficulty: 2

37. The introduction of a new management accounting system is MOST likely to motivate UNWANTED employee behavior when it is used for:

A) evaluation.

B) planning.

C) decision making.

D) coordinating individual efforts.

Difficulty: 2

38. Managers are MOST likely to feel outside pressure to influence the numbers favorably when the information is used for:

A) budgeting.

B) compensation and promotions.

C) continuous improvement.

D) product costing.

Difficulty: 2

39. The Hawthorne study revealed that:

A) individuals alter their behavior when they know they are being studied.

B) groups alter their behavior when they know they are being studied.

C) People react when they are being measured.

D) All of the above are correct.

Difficulty: 2

1. Compare and contrast the users and uses of management accounting and financial accounting.

Difficulty: 2

2. What are the main roles of management accounting?

Difficulty: 3

3. What role has the increasingly competitive business environment played in the development of management accounting?

Difficulty: 2

4. Why has the role of management accounting expanded to include both financial and nonfinancial information?

Difficulty: 3

5. Is financial accounting or management accounting more useful to an operations manager? Why?

Difficulty: 3

6. Give two examples of financial information and nonfinancial information.

Difficulty: 2

7. How does the balanced scorecard identify the role of the importance of measuring an organization’s intangible resources?

Difficulty: 2

8. Give at least two examples of intangible assets. Are intangible assets critical for success? Explain.

Difficulty: 3

9. Discuss the potential behavior implications of performance evaluation.