MANAGEMENT ADVISORY SERVICES HO 001

Introduction to Management
Advisory Services
1. Management Advisory Services may be defined as
a. A branch of accounting concerned with the
preparation of budgets, financial statements
analyses and other management reports to maximize
the clients profits.
b. An area of accounting that provides technical
assistance to management to increase the efficiency
and effectiveness of use of resources in achieving
companys goals.
a.
b.
c.

c.
d.
e.
2.

Only S1 is true
Only S2 is true
Both are true

f.
The primary purpose of MAS is to help the client
a. identify its problems and maximize its resources
b. improve the use of its resources and capabilities to
achieve its objectives
c. obtain benefits that are guaranteed implicitly by the
practitioner
d. become more profitable by relying upon the
practitioners existing personal knowledge about the
clients business
a. Only S1 is true
b. Only S2 is true
c. Both are true
f.
5. Which of the following is not an advantage of a CPA over
other professionals in the practice of MAS?
a. They are equipped with technical knowledge about
accounting and taxation which are crucial areas in
the practice of MAS.
b. They are members of a professional organization
duly recognized by the government and holds to the
code of ethics being implemented by this
organization.
c. They are familiar with the clients business due to
their wide knowledge about different business
industries acquired through their practice of
accounting.
d. They are more credible and possess the highest
qualifications among the professionals.
e. Answer not given.
g.
6. MAS consultation as opposed to MAS engagement
generally involves advice or information given by a CPA
or practitioner based upon
a. Existing personal knowledge about the client
b. An analytical approach and process
c. Information obtained during an examination of the
clients financial statements
d. The results of an operational audit
e. Answer not given
h.
7. Which of the following is the least characteristic of MAS?
a. It relates both to the future and past.
b. It involves a wide range of assignments.
c. It requires highly qualified staff.
a. Only S1 is true
b. Only S2 is true
c. Both are true
f.
11. A CPAs scope of MAS is broad and covers the following
except
a. Change management engagement
c. audit
engagement
e. answer not given
b. Computerization engagement
d. Reengineering job
a. Only S1 is true
b. Only S2 is true
c. Both are true
f.

A service that covers everything including financial

accounting, taxation and audit.
A service being rendered by practitioners primarily to
implement a decision for the benefit of the
management.
Answer not given.

S1: Although financial and managerial accounting differ in

many ways, they are similar in that both rely on the same
underlying financial data. S2: Managerial accounting is a
branch of financial accounting and serves essentially the
same purposes as financial accounting.
d.
e.

Both are false

Cannot be determined.

e.

document and quantify its future plans without

impairing the practitioners objectivity or allowing the
practitioner to assume the role of management.

3.

g.
4.

S1: Increase in complexity in managing and conducting

business can contribute to the growth of management
consultancy. S2: Lack of competent staff by businesses
can also contribute to the growth of management
consultancy.
d.
e.

Both are false

Cannot be determined.

d. It involves usually nonrecurring engagements.

e. Answer not given.
i.
8. Management advisory services is basically the same as
management consultancy, except that
a. Management consultancy is broader than
management advisory services.
b. Management advisory is exclusive to professionals
like CPAs and engineers
c. CPAs are not allowed by law to call themselves
management consultants.
d. Management advisory aims to give advice while
management consultancy is simply for diagnosis
purposes.
e. Answer not given.
j.
9. MAS can relate to the following areas except:
a. the basic management functions
b. the introduction of new ideas, concepts and methods
to management
c. the improvement of policies, procedures, systems,
methods and personal relationships
d. the application and use of management accounting,
control systems and mathematical techniques
e. answer not given
k.
10. S1: The consultant has the responsibility to determine the
scope of services he is competent to offer, subject to the
pronouncements of his profession. S2: The consultant is
expected to maintain independence to enable him to
render professional judgment.
d.
e.

Both are false

Cannot be determined

g.
12. S1: MAS may be rendered by any person, provided that
he is competent enough for such engagement. S2: Audit
may be rendered by any person provided that he is
competent enough for such engagement.
d.
e.

Both are false

Cannot be determined

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13. MAS areas which are not normally related to accounting

and finance function may include
a. preparation of accounting systems and procedure
manuals
b. development of management oriented accounting
and reporting system
c. cost reduction studies
d. establishment of budgetary controls
e. answer not given
g.
14. The following relates to MAS by CPAs except:
a. Financial analysis for a project feasibility study
b. Design and installation of accounting systems
c. Cost analysis of major investment decisions
d. None of the above
e. Answer not given
h.
15. Which is not classifiable as MAS by CPAs?
a. Lease or buy analysis
d. public relations work
b. Information systems
e. assistance in budget preparation
c. Financial planning
i.
16. MAS services of CPAs cover the following except:
a. Audit, tax and legal services
b. Organizational development & planning
c. system design, development & implementation
d. Project feasibility study
e. Answer not given
j.
17. The MAS engagement that involves providing assistance
to management in relation to planning, controlling and
decision making.
a. Financial management
d.
taxation
b. Management accounting
e.
auditing
c. financial accounting
k.
18. Management advisory services may also be called as ____
, except
a. Business Support Services
b. Business and Financial Advisory Services
c. Non-assurance Services
d. Corporate Finance Services
e. Answer not given.
l.
19. A management science which uses mathematical
techniques like linear programming, queuing theory and
simulation to solve complex operational problems.
a. PERT-CPM
c. operations research
b. Industrial engineering
d.
sensitivity analysis
m.
20. Services rendered to troubled businesses by emphasizing
the implementation, rationalization and recovery
programs designed to rebuild value
a. Business recovery services
d. valuation services
b. Risk management services
d. dispute analysis and investigation
n.
21. Cost accounting is an area of MAS. Which of the following
is least likely a useful knowledge about cost accounting
for MAS practitioners?
a. Development of standard cost system.
b. Cost analysis and control
c. Variance analysis
d. Investigation of variances
e. Cannot be determined
o.

22. MAS classified as usual services include the following

except:
a. design and installation of accounting systems
b. assisting in bankruptcy and receivership
proceedings
c. suggestions for improvements in internal control
system
d. assistance in preparation of forecasts and budgets
e. answer not given
p.
23. MAS classified as somewhat specialized services include
the following except:
a. calculations of government contracts and allocating
costs in compliance with reporting requirement
b. advising on accounting and tax matters relative to
estate planning in cooperation with legal and
insurance counsel
c. giving advice on dividend policy and plans for
expansion
d. analysis of financial and operating statements for
management, shareholders and creditors.
e. Answer not given
q.
24. MAS classified as highly specialized services include the
following except:
a. research and evaluation of alternative methods of
handling a transaction for its effect on finance and
tax consequence
b. auditing management policies for their effectiveness
c. conducting motion studies for standard cost system
d. evaluating the desirability of a particular area of
plant location
e. Answer not given
r.
25. Which statement is incorrect?
a. Consultant is considered a catalyst for change that
can assist management in the administration o f the
business entity.
b. A consultant is hired because generally he is
considered independent, objective and detached to
the problems faced by the client.
c. An experienced management consultant possesses
special knowledge, skills and a variety of personal
attributes that make him the most desirable
candidate to undertake MAS engagement involving
his area of expertise
d. The use of consultants is generally less expensive to
the company than hiring full time new managers and
employees to provide professional advisory services.
e. None of the above
s.
26. S1: Management consultancy is an exclusive filed of
practice for CPAs and is regulated by law. S2: As an
advisory expert, the CPA should take responsibility for
making policy and management decisions in the MAS
engagements he has performed.
a. Both statements are true
c. S1 is
true
b. Both statements are false
d. S2 is true
t.
27. CPAs are in a more advantageous position than members
of other professions to render MAS because
a. most CPAs are highly educated
b. a CPA is a person with recognized standing
c. the CPA is already familiar with the client business
and enjoy the clients confidence
d. only CPAs are capable of rendering MAS.
u.
28. The following are characteristics of MAS except:
a. MAS engagements are nonrecurring
b. Actions to be taken are identified, the benefits of
which will be received in the future.
c. In MAS engagements, the nature of work involved
requires a lesser need for junior assistance.

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d.

A wider variety of assignments are encountered in

MAS than in audit engagement.
None of the above.

e.
v.
29. In providing MAS, the consultant applies an analytical
approach and process which typically involves the
following, except:
a. ascertaining the pertinent facts and circumstances
b. seeking and identifying objectives
c. defining the problem or opportunity for improvement
d. evaluating and implementing possible solutions
e. answer not given
w.
30. The analytic approach and process in MAS engagements
involves the following except
a. Problem definition
b.

Identification and analysis of alternative solution

c. Selection of the most desirable alternative

d. Implementation of the chosen solution
e. answer not given
x.
31. Which statement is incorrect?
a. full scope engagements require client
representations from both the working and decision
making levels
b. In carrying out full scope engagements, the
consultant should participate up to implementation
stage and should see to it the client management
accepts overall responsibility for implementation of
the chosen course of action
c. the consultants role in full scope engagement should
be limited to that of an objective adviser; and in the
implementation stage, his job is merely to provide
technical assistance, degrees of which depend on the
knowledge and experience available in the clients
organization
d. once the implementation stage is concluded, the
consultants participation is also concluded and only
the consultants personnel remain to carry on the
solution
y.
32. The problem definition phase of the problem solving
process begins with the initial recognition of a symptom
pointing to the problem and ends with the complete
problem description. Among the key facts of the problem
description are the following except:
z.
a. Human elements involved in the problem
d.
Tracking system related to the problem
b. Support system surrounding the problem
e.
answer not given
c. specific person in charge of managing the problem
aa.
33. The following pitfalls should be avoided by the consultant
in identifying the problem in a consultancy engagement,
except:
a. Mistaking symptoms for the underlying problem
b.

Unqualified acceptance of the opinion of others

c. Overlooking the various causes of the problem

d. All of the above
e. None of the above
ab.
34. Solution development phase of the problem solving
process involves the following steps:
1. Detailed development of selected solution 3.
Evaluation of alternative solution
2. Choice of preferred alternative solution
4.
Generation of alternative solution
ac.

ad. In what order should the above listed activities be

performed?
a. 1, 2, 3, 4
d. 4, 3,
1, 2
b.
2, 1, 3, 4
e. answer not given
c. 4, 3, 2, 1

ae.
35. Among the sources of information that the consultant
could avail of are external sources. Information about the
market conditions could best be provided by:
a. Industry reports
d.
customers
b. Database retrieval systems
e. answer not given
c. distributors
af.
36. Which is not a MAS practice standard?
a. In performing MAS, a practitioner must act with
integrity and objectivity and be independent in
mental attitude
b. MAS engagement is to be performed by a person
having adequate technical training as management
consultant
c. MAS engagement is to be performed by practitioners
having competence in the analytical approach and
process and in the technical subject matter under
consideration
d. Before undertaking a MAS engagement, a
practitioner is to notify the client of any reservations
he has regarding anticipated benefits
ag.
37. S1: Before accepting an engagement, a practitioner is to
inform his client of all significant matters related to the
engagement. S2: MAS practice standards are applicable
only to organized MAS engagements and therefore not
practical to informal advice engagement.
a. Both statements are true
c. S1 is
true
b. Both statements are false
d. S2 is
true
ah.
38. The following are factors considered in determining the
scope of MAS that a CPA may render except:
a. Independence
d. requirements for specialization
b. Competence
e. answer not given
c. Professional fee
ai.
39. The following are major factors to be considered when
defining the target level of competence of MAS
practitioner, except:
a. scope of practice area
d. service variety
b. client requirements
e. service delivery capability
c. investment required
aj.
40. To attain the highest standards of professionalism,
highest level of performance and meet public interest
requirement, a CPA who provides MAS should meet the
following basic requirement except:
a. Credibility
d. confidence
b.

Professionalism
answer not given
world class facilities

e.

c.
ak.
41. To achieve the objectives of the accountancy profession,
CPAs, including those who render MAS should observe
the following principles except:
a. Integrity
b. Confidentiality

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c.
d.

Careful selection of clients to include only big and

financially capable business entities
knowledge of up to date technical and professional
standards

al.
42. A personal attribute of a consultant which ensures that
his findings and recommendations are free of intentional
distortions or misstatements.
a. Independence in mental attitude
d.
objectivity
b. Integrity
e. answer not given
c. maturity
am.
43. Which action of a CPA is not acceptable?
a. A CPA represents 3 major players in the industry in
rationalizing the industrys incentives before
government public hearings
b. A CPA provides consulting services to 2 major
competing clients.
c. A CPA provides consulting services to an existing
audit client
d. A CPA share with a new and substantial client
information about another client belonging in the
same industry
e.
All of the above
an.
44. The ability of a consultant to maintain his role as an
objective adviser without making any attempt to make
decisions for the client.
a. Independence in mental attitude
c.
objectivity
b. Integrity
d. maturity
ao.
45. In which situation is the independence of a CPA rendering
MAS not impaired?
a. The CPA performs services wherein he is in effect,
acting as employee of the client
b. The CPA loses objectivity and acts in a manner
advocating for the interest of the client
c. The CPA performs decision making for the client
d. The CPA limits his services to presenting
recommendations or giving of advice
e. Answer not given
ap.
46. Randy Manzano is the external auditor of UC Inc. He was
asked to perform MAS for UC
aq. Inc. in the area of inventory management, which is
believed to be one area of inefficiency of the companys
operations. Which action would impair Mr. Manzanos
independence?
a. Identify the inventory management problem as
caused by the presently operative procedures in the
purchasing, receiving and issuance operations.
b. Study and evaluate the inventory management
problem and suggest solutions.
c. Develop a time schedule for implementation of the
solution to be adapted by UC Inc.
d. Supervise management of purchasing, receiving
and issuance operations
e. None of the above
ar.
47. Refers to the consultants technical qualifications and
ability to supervise the personnel assigned, evaluate the
quality of work performed and accept responsibility to the
client for successful completion of the engagement.
a. Competence
c. Competence in MAS
b. Competence in professional work
d. all of
the above
as.
48. Which statement does not refer to competence of CPAs
in MAS?
a. It is acquired by education, actual experience,
research and actual performance of MAS.

b.

c.
d.

49.

50.

51.

52.

53.

54.

It refers to the technical qualifications of the

practitioner, his ability to supervise and evaluate the
quality of work of his staff and being responsible for
the successful completion of the project
It is the ability to identify clients needs, use the
analytical process, actual experience and research.
It must be retained in the rendition work and can be
impaired if the CPA performs decision making for the
client.
Answer not given

e.
at.
Mr. Armand Bolislis is a distinguished CPA providing
auditing services to different clients. UC Inc. asked him to
study the companys executive compensation package.
He has no prior experience in this area. What will be the
most appropriate action of Mr. Bolislis?
a. Decline the engagement since he cant expect to
complete it without undertaking research in the area
b. Accept the engagement and issue a report which
may guarantee the achievement of results indicated
by his recommended actions
c. Accept the engagement and study, research and or
consult with knowledgeable experts in order to
increase his competences
d. Accept the engagement and perform it in accordance
to GAAS.
e. Answer not given
au.
Due professional care in the performance of MAS implies
the following except:
a. Diligence and appropriate attention in carrying out
the engagement
b. Systematic critical review of the work done and
judgment exercised
c. Infallibility
d. None of the above
av.
The following statements pertaining to the CPAs practice
of MAS are true except
a. A CPA may not designate himself as a management
consultant although he may actually be engaged in
the said practice
b. A CPA would not violate the Accountancy Law if he
enters into a partnership with a non-CPA for the
exclusive purpose of rendering MAS.
c. To maintain independence, a CPA should limit his
services to that of recommendation to the client.
d. None of the above
e. Answer not given
aw.
Which statement/s is/are not true?
a. In the rendition of MAS, independence must be
observed so as to maintain impartiality and
objectivity.
b. All provisions of the code of professional ethics are
applicable to the practice of MAS except those rules
related to the expression of opinion on financial
statements.
c. Before accepting an engagement, a practitioner
should notify the client of any reservations he has
regarding anticipated benefits
d. None of the above
ax.
A personal attribute of a consultant which refer to his
ability to view situations in perspective and to take action
needed on a calm and controlled basis without being
diverted from a sound, logical and ethical course by
outside pressure.
a. Judgment
d. psychological maturity
b. Courage
e. answer not given
c. Physiological balance
ay.
A consultants ability to identify what information is
needed in a particular situation is an example of;

Page 4 of 21

a.
b.

Analytical skills
project management skills
Interpersonal skills
e. all of the above
Rapport building skills

d.

c.
az.
55. Project management skills require the following except:
a. Ability to define objectives and outcomes
b. Ability to develop formal plans
c. Ability to sequence and prioritize tasks
d. Ability to accept numerous clients which limits his
time per client
e. None of the above
ba.
56. In which situation is an MAS practitioner not allowed to
disclose confidential information?
a. When disclosure is authorized by client
b. To respond to an inquiry of shareholders and
creditors of the client
c. When disclosure is necessary to protect the
professional interests of the MAS practitioner in legal
proceedings
d. To produce documents to give evidence in the course
of legal proceedings
e. None of the above
bb.
57. A CPA should reject an MAS engagement if
a. it would require him to make management
decisions for an audit client
b. his recommendations are to be subject to review by
the client
c. he audits the F/S of a subsidiary of the prospective
client
d. the proposed engagement is not accounting related
e. answer not given
bc.
58. Before entering a consulting practice, the prospective
consultant should conduct market research to identify
opportunities in the market place. This involves the
following except:
a. Study of the listing of actively practicing consultants
b. Survey of local firms to determine which are offering
consulting services
c. News release in a newspaper or television about
the opening of a consultancy firm
d. Identification of new services that may provide a
competitive edge.
e. All of the above
bd.
59. Consultants could trace most of their current
engagements to the following sources except:
a. Speeches in professional and business organizations
b. Referrals from clients
c. Advertisement in radio, TV and newspaper
d. Books written
e. None of the above
be.
60. Which activity is not involved during the negotiation
stage of MAS engagement?
a. A survey to ascertain the problem of the client and
what is required to reach a solution
b. Identification of the end product of the assignment
c. Agreement on the role to be performed by the
practitioner
d. Agreement on the final fee to be charged for the
service of the practitioner
e. None of the above
bf.
61. An offer of service, which when accepted, becomes a
contractual agreement.
a. Proposal letter
d.
Engagement letter
b. Confirmation
e.
answer not given
c. Contract
bg.

62. The engagement proposal letter generally includes the

following except:
a. Objectives and benefits
d. fee
and billing arrangement
b. scope of work
e. role of consultant and client
c. engagement team members
bh.
63. The objectives of an engagement program include the
following except:
a. To facilitate time and efficiency control over
personnel assigned to the engagement
b. To provide means for arranging, distributing and
assigning responsibility for various segments of an
engagement
c. To provide a means for evaluating whether all
segments of the engagement have in fact been
completed
d. To provide a means of determining the exact
amount and timing of bill to the client
e. Answer not given
bi.
64. The most important factor in selecting an engagement
team is to assign consultants:
a. who have high imaginative thinking or unusual skill
in the interpretation and use of financial and
statistical data.
b. with the appropriate skills, experience and types of
thinking to deal with the clients problems
c. with prior experience in the clients industry
d. with combination of skills and experience in various
business functional areas as well as in different
industries
bj.
65. During interviews with client staff, the consultant should
avoid:
a. Confirming the understanding of the interviewees
job responsibilities
b. Avoiding actions that projects a know it all person
c. Conducting the interview too lengthy
d. Pursuing in a pleasant way, vague answers, until
questions are fully clarified
e. None of the above
bk.
66. The following are ways through which the consultant can
establish an attitude of helpfulness towards the client
staff, except:
a. Maintain an open-door policy
b. Welcoming questions and communications with
anyone at any time
c. Arrange meetings for discussion of the problem and
provide written summaries of the meetings
d. Require employees to submit to him a written
memo on matters they want to be clarified about
e. None of the above
bl.
67. Which is a potential barrier to effective communication
between a client and practitioner?
a. Ability to understand technical language
b. Adequate background or knowledge of subject
matter discussed with the client
c. Know it all attitude and or prejudice of some
personnel of client or practitioner
d.
Positive attitude to possible changes
e. None of the above
bm.
68. In MAS engagements, sufficient relevant data should be
obtained, documented and evaluated to develop
conclusions and recommendations. Which need not be
documented?
a. Evidences obtained and its source
b. Alternatives considered
c. Analytical process leading to specific
recommendations
d. None of the above
bn.

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69. The PICPA Committee on MAS has stated its belief that a
CPA should not undertake MAS engagement for
implementation of the CPAs recommendation unless the:
a. Client does not understand the nature & implications
of recommended course of action
b. Client has made a decision to proceed with
implementation based on his complete
understanding and consideration of alternatives.
c. Client does not have sufficient expertise within his
organization to comprehend the significance of the
changes being made
d. CPA withdraws as independent auditor for the client.
e. Answer is not given
bo.
70. The following can generally conduct a post
implementation evaluation except:
a. Special audit team from the managers of the client
b. An internal audit team
c. External team of consultants
d. Independent external audit team
e. None of the above
bp.
71. Which business condition cant be used by the consultant
to justify abandonment of client?
a.
overly specialized
b. Unchallenging
c. Beneath the growing fee structure
d. The clients competitor engaged the services of the
practitioner for a higher fee
e. None of the above
bq.
72. Which statement is correct?
a. In practicing MAS, it is desirable but not necessary
that the practitioner acts with integrity, objectivity
and independence in mental attitude.
b. To be a consultant, one must pass a government
licensure examination given for that purpose
c. The CPAs competence, coupled with familiarity with
the clients operations, places him in logical position
to perform MAS for that client.
d. If a consulting firm is not reasonably competent to
undertake specific MAS engagement, it should
employ a specialist to undertake the job on
temporary basis.
e. None of the above
br.
73. Which statement is correct?
a. Documentation is not as essential in an MAS
engagement as it is in Audit engagement.
b. A CPA MAS practitioner need not be concerned with
independence in his clients since the overriding
consideration for the MAS engagement is
competence.
c. MAS by independent CPA may involve making
decisions for client.
d. To maintain his independence, a CPA limits his
services to that of recommending and designing an
accounting system but leave the actual
implementation and installation to the client.
e. None of the above
bs.
74. The following statements are incorrect except:
a. MAS include the consultative services to
management in decision making.
b. MAS include decision making services performed by
the practitioner for management.
c. Expertise in MAS is acquired education, auditing and
other experience as well as actual performance of
MAS.
d. A management letter is a report submitted by the
practitioner to management after the review of
management controls.
e. Answer not given
bt.

75. How should a management consultant undertake to

secure a consulting engagement when a prospective
client has inquired about the services he offers?
a.
The consultant should present the value of his
services as forcefully as he can because the potential
client will benefit from the use of these services.
b. The consultant should call to the prospective client,
listen to an explanation of the problem, and then
agree to do as the prospective client wishes provided
the work lies within the field of the consultants
competence.
c. The consultant should diagnose the existing
problem by personal investigation, help the
prospective client define it clearly, consider various
methods of solutions, recommend the approach
which will best meet the requirement of the situation
and make sure that the prospective client
understands what the consultant purposes to do,
how long it will take, how much it will cost and what
probable benefits will result.
d. The consultant should recommend the technique or
procedure which will solve the prospective clients
problem and should refer him to other clients who
have used the same technique or procedure
successfully in the past.
e. Answer not given.
bu.
76. Which of the following is not a qualification of a CPA in a
MAS practice?
a. Professional and technical competence.
b. Analytical experience in problem solving.
bv. c. Auditor of the client.
bw. d. Professional independence, objectivity and
integrity
bx.
77. Which of the following statements is True?
a. Adequate training and experience in both the
analytical approach and process in the
particular undertaking are requisites for the CPA
to be involved in a management service
engagement.
b.
A CPA with MBA and Ph.D. degrees is automatically
qualified to render management services.
c. Competence as a standard n the rendition of
management services by a CPA may be equated to
having excellent scholarly preparation to include the
usual baccalaureate degree, an MBA and other post
graduate studies.
d. A certified public accountant by virtue of having the
necessary academic preparation and by hurdling the
licensure examinations required to have a CPA
license can readily render management services to
the public.
e. Answer not given.
by.
bz.
78. The fields of cost accounting and financial management
are among the MAS areas that are normally related to the
accounting and finance functions. Financial management
cases may involve the following except
a. Establishment of capital budgeting procedures
b. Study of the cost of capital and cost of debt
c. Establishment of operating and cash budgets
d. Variance analysis
e. Answer not given
ca.
79. Which of the following is not an area related to the
performance of management services by independent
accounting firms?
a. Performing management functions and
making decisions
b. Introducing new ideas, concepts and methods to
management
c. Improving existing policies, methods and
procedures

Page 6 of 21

d.

80.

81.

82.

83.

84.

Performing special studies, preparing

recommendations, and formulating plans and
programs.
Answer not given.

e.
cb.
The following characterize management advisory services
except
a. Involve decision for the future
b. Broader in scope and varied in nature
c. Utilize more junior staf than senior member of
the firm
d. Relate to specific problems expert help is required.
e. Answer not given.
cc.
The most important factor in selecting an engagement
team is to assign consultants:
a. With prior experience in the clients industry
b. With a combination of skills and experience in
various business functional areas as well as in
different industries.
c. Who are likely to employ different approaches to
problem solving such as highly imaginative thinking,
or unusual skill in the interpretation and use of
financial and statistical data.
d. With the appropriate skills and experience and
types of thinking to deal with the clients problems.
cd.
ce.
Which of the following is not an area related to the
performance of management services by independent
accounting firms?
a. Performing management functions and making
decisions
b. Introducing new ideas, concepts and methods to
management
c. Improving existing policies, methods and procedures
d. Performing special studies, preparing
recommendations, and formulating plans and
programs.
e. Answer not given.
cf.
Which of the following is not covered by the MAS Practice
Standards by AICPA?
a. In performing MAS, a practitioner must act with
integrity and objectivity and be independent in
mental attitude.
b. Engagements are to be performed by a practitioner
having competence in the analytical approach and
process, and in the technical subject matter under
consideration.
c. Engagements are to be adequately planned,
supervised and controlled.
d. All significant matters relating to the result of the
engagement are to be communicated to the client.
e. Accurate data is to be obtained, documented,
and evaluated in developing conclusions and
recommendations.
cg.
S1: Prior to accepting and engagement, a practitioner
shall notify the client of any reservation he has regarding
anticipated benefits. S2: Before undertaking an
engagement, a practitioner shall inform his client of all
significant matter related in the engagement.
a. Only S1 is true
b. Only S2 is true
c. Both are true
d. Both are false
e. Cannot be determined
a. the market for similar services.
ch.
ci.
cj.
ck.
cl.
cm.
cn.

co.
cp.
cq.
cr.
cs.
ct.
cu.
cv.
cw.
cx.
cy.
cz.
db.
dc.
dd.
de.
df.
dg.
dh.
di.
dl.
dm.
dn.
do.
dp.
dq.
dr.
du.
dv.
dw.
dx.
dy.
dz.
ea.
ed.
ee.
ef.
eg.
eh.
ei.
ej.

em.
en.
eo.
ep.
eq.
er.
eu.

DA.

MULTIPLE CHOICE QUESTIONS

1.
Which of the following statements about
managerial accountants is false?
A. Managerial accountants more and more are
considered "business partners."
B. Managerial accountants often are part of
cross-functional teams.
C. An increasing number of organizations are
segregating managerial accountants in separate
managerial-accounting departments.
D. In a number of companies, managerial
accountants make significant business decisions
and resolve operating problems.
E. The role of managerial accountants has
changed considerably over the past decade.
dj.
Answer: C LO: 1 Type: RC
dk.
2.
The day-to-day work of management teams
will typically comprise all of the following activities
except:
A. decision making.
B. planning.
C. cost minimizing.
D. directing operational activities.
E. controlling.
ds.
Answer: C LO: 2 Type: RC
dt.
3.
Which of the following functions is best
described as choosing among available alternatives?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Budgeting.
eb.
Answer: A LO: 2 Type: RC
ec.
4.
Which of the following managerial functions
involves a detailed financial and operational
description of anticipated operations?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Measuring.
ek.
Answer: B LO: 2 Type: RC
el.
5.
Which of the following involves the
coordination of daily business functions within an
organization?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Motivating.
es.
Answer: C LO: 2 Type: RC
et.
6.
Titan Company has set various goals, and
management is now taking appropriate action to
ensure that the firm achieves these goals. One such

Page 7 of 21

ev.
ew.
ex.
ey.
ez.
fa.
fd.
fe.
ff.
fg.
fh.
fi.
fj.
fm.
fn.
fo.
fp.
fq.
fr.
fs.
fv.
fw.
fx.
fy.
fz.
ga.
gb.

ge.
gf.
gg.
gh.
gi.
gj.
gm.
gn.
go.
gp.
gq.
gr.
gs.
gv.
gw.
gx.
gy.
gz.
ha.
hb.

action is to reduce outlays for overhead, which have

exceeded budgeted amounts. Which of the following
functions best describes this process?
A. Decision making.
B. Planning.
C. Coordinating.
D. Controlling.
E. Organizing.
fb.
Answer: D LO: 2 Type: N
fc.
7.
Which of the following is not an objective of
managerial accounting?
A. Providing information for decision making
and planning.
B. Assisting in directing and controlling
operations.
C. Maximizing profits and minimizing costs.
D. Measuring the performance of managers
and subunits.
E. Motivating managers toward the
organization's goals.
fk.
Answer: C LO: 3 Type: RC
fl.
8.
The role of managerial accounting
information in assisting management is a(n):
A. financial-directing role.
B. attention-directing role.
C. planning and controlling role.
D. organizational role.
E. problem-solving role.
ft.
Answer: B LO: 3 Type: RC
fu.
9.
Employee empowerment involves
encouraging and authorizing workers to take
initiatives to:
A. improve operations.
B. reduce costs.
C. improve product quality.
D. improve customer service.
E. all of the above.
gc.
Answer: E LO: 3 Type: RC
gd.
10.
The process of encouraging and
authorizing workers to take appropriate initiatives to
improve the overall firm is commonly known as:
A. planning and control.
B. employee empowerment.
C. personnel aggressiveness.
D. decision making.
E. problem recognition and solution.

he.
hf.
hg.
hh.
hi.
hj.
hk.
hn.
ho.
hp.

hc.

Answer: E LO: 3 Type: RC

hl.
hm.
14.

hq.
hr.
hs.
ht.

hw.
hx.
hy.
hz.
ia.
ib.
ie.
if.
ig.
ih.
ii.
ij.
ik.
in.

gk.
Answer: B LO: 3 Type: RC
gl.
11.
Which of the following business models
considers financial, customer, internal operating, and
other measures in the evaluation of performance?
A. Deterministic simulation.
B. Balanced scorecard.
C. Payoff matrix.
D. Decision tree.
E. Chart of operating performance (COP).
gt.
Answer: B LO: 3 Type: RC
gu.
12.
Which of the following perspectives is
normally absent in a balanced scorecard?
A. Financial.
B. Customer.
C. Internal operations.
D. Learning and innovation/growth.
E. None of the above.

hd.
13.

Managerial accounting:
A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel
within the organization.
D. provides information for parties external to
the organization.
E. focuses on financial statements and other
financial reports.
Answer: C LO: 4 Type: RC
Managerial accounting:
A. is unregulated.
B. produces information that is useful only for
manufacturing organizations.
C. is based exclusively on historical data.
D. is regulated by the Securities and Exchange
Commission (SEC).
E. generally focuses on reporting information
about the enterprise in its entirety rather than
by subunits.

hu.
Answer: A LO: 4 Type: N
hv. 15.
Which of the following would likely be
considered an internal user of accounting information
rather than an external user?
A. Stockholders.
B. Consumer groups.
C. Lenders.
D. Middle-level managers.
E. Government agencies.
ic.
Answer: D LO: 4 Type: RC
id.
16.
All of the following entities would have a
need for managerial accounting information except:
A. Dell Computer.
B. The Los Angeles Dodgers baseball club.
C. Office Depot.
D. The Federal Bureau of Investigation (FBI).
E. None of the above responses is correct, as
all of these entities would use managerial
accounting information.
il.
Answer: E LO: 4 Type: N
im.
17.
Which of the following choices correctly
depicts whether Bank of America, Microsoft, and
Florida State University would have a need for
managerial accounting?
io.
ip. Ban
ir.
it.
k
is. Microsoft
iq. of
iu.
Am
eric
a
iv.
iw. Yes
ix. Yes
A
iz.
B

ja.

Yes

jd.
C

je.

Yes

jf.

Yes

No

jj.

Yes

jn.

Yes

jh.
D

ji.

jl.
E

jm. No

jb.
No

jc.

Florida
State
Univers
ity
iy.
N
o

jg.

Yes

o
jo. Yes

jp.
jq.
jr.

Yes

Answer: C LO: 4 Type: N

Page 8 of 21

jk.
N

js.
jt.
ju.
jv.
jw.
jx.
jy.
kb.
kc.
kd.
ke.
kf.
kg.
kh.

kl.
km.
kn.
ko.
kp.
kq.
kt.
ku.
kv.
kw.
kx.
ky.
kz.
lc.
ld.
le.
lf.
lg.
lh.
li.
ll.
lm.
ln.
lo.
lp.
lq.
lr.
lu.
lv.

18.
Financial accounting focuses primarily on
reporting:
A. to parties outside of an organization.
B. to parties within an organization.
C. to an organization's board of directors.
D. to financial institutions.
E. for financial institutions.
jz.
Answer: A LO: 4 Type: RC
ka.
19.
Which of the following statements
represents a similarity between financial and
managerial accounting?
A. Both are useful in providing information for
external users.
B. Both are governed by GAAP.
C. Both draw upon data from an organization's
accounting system.
D. Both rely heavily on published financial
statements.
E. Both are solely concerned with historical
transactions.
ki.
Answer: C LO: 4 Type: N
kj.
kk.
20.
Which of the following employees
at American Airlines would not be considered as
holding a line position?
A. Pilot.
B. Chief financial officer (CFO).
C. Flight attendant.
D. Ticket agent.
E. Baggage handler.
kr.
Answer: B LO: 5 Type: N
ks.
21.
Which of the following employees would be
considered as holding a line position?
A. The controller of Exxon Corporation.
B. The vice-president for government relations
of Microsoft.
C. The manager of food and beverage services
at Disney's Magic Kingdom.
D. A secretary employed by Hewlett-Packard.
E. None of the above.
la.
Answer: C LO: 5 Type: N
lb.
22.
Which of the following employees at
Starbucks would likely be considered as holding a
staff position?
A. The company's chief operating officer
(COO).
B. The manager of a store located in Kansas
City, Missouri.
C. The company's lead, in-house attorney.
D. The company's chief financial officer (CFO).
E. Both the company's lead, in-house attorney
and the chief financial officer.
lj.
Answer: E LO: 5 Type: N
lk.
23.
The chief managerial and financial
accountant of an organization is the:
A. chief executive officer (CEO).
B. treasurer.
C. vice-president of accounting.
D. internal auditor.
E. chief financial officer (CFO).
ls.
Answer: E LO: 5 Type: RC
lt.
24.
Which of the following typically does not
relate to the role of a controller?
A. A controller supervises the accounting
department.

lw.

B. A controller safeguards an organization's

assets.
C. A controller oversees the preparation of
reports required by governmental authorities.
D. A controller normally assumes a narrow role
within the organization, often preventing the
individual's rise to top management ranks.
E. Choices "B" and "D" above.

lx.
ly.
lz.
ma.

mb.
mc. 25.

md.
me.
mf.
mg.
mh.
mi.
ml.
mm.
mn.
mo.
mp.
mq.
mr.

mj.
Answer: A LO: 6 Type: RC
mk.
26.
Which of the following is not a function of
the treasurer?
A. Safeguarding assets.
B. Managing investments.
C. Preparing financial statements.
D. Being responsible for an entity's credit
policy.
E. Raising capital.
ms.
mt.
27.

mu.
mv.
mw.
mx.
my.
mz.
na.

Answer: C LO: 6 Type: RC

Managerial accountants:
A. often work on cross-functional teams.
B. are located throughout an organization.
C. are found throughout an organization and
work on cross-functional teams.
D. are found primarily at lower levels of the
organizational hierarchy.
E. are found primarily at higher levels of the
organizational hierarchy.

nb.
Answer: C LO: 6 Type: RC
nc.
28.
The two dimensions of managerial
accounting are:
A. a decision-facilitating dimension and a
decision-influencing dimension.
B. a decision-facilitating dimension and a
financial-influencing dimension.
C. a decision-influencing dimension and a costminimizing dimension.
D. a cost-minimizing dimension and a profitmaximizing dimension.
E. a decision-influencing dimension and a
profit-maximizing dimension.

nd.
ne.
nf.
ng.
nh.
ni.
nj.

nk.
nl.
29.
is based
A.
B.
C.
D.
E.

nm.
nn.
no.
np.
nq.
nr.
ns.
nu.
nv.
nw.
nx.
ny.
nz.
oa.

Answer: E LO: 6 Type: RC

A controller is normally involved with:
A. preparing financial statements.
B. managing investments.
C. raising capital.
D. safeguarding assets.
E. managing the firm's credit policy.

Answer: A LO: 7 Type: RC

Much of managerial accounting information
on:
a cost-benefit theme.
profit maximization.
cost minimization.
the generation of external information.
effectiveness but not efficiency.

nt.
Answer: A LO: 7 Type: N
30.
Which of the following is not normally
considered to be an element of e-business?
A. E-budgeting.
B. Supply-chain management.
C. E-commerce.
D. Balanced scorecards.
E. Choices "B" and "D" above.
ob.
oc.

Answer: D LO: 7 Type: RC

Page 9 of 21

od.

31.
Managerial accounting has changed in
recent years because of:
A. the growth of e-business.
B. increased global competition.
C. the emergence of new industries.
D. an increased focus on the customer.
E. all of the above factors.

oe.
of.
og.
oh.
oi.
oj.

ok.
Answer: E LO: 7 Type: RC
ol.
32.
Managerial accounting has changed in
recent years because of:
A. a growing service economy in the United
States.
B. the growing popularity of cross-functional
teams.
C. computer-integrated manufacturing (CIM).
D. time-based competition.
E. all of the above factors.

om.
on.
oo.
op.
oq.
or.
os.

ot.
Answer: E LO: 7 Type: RC
ou.
33.
Which of the following statement(s) about
just-in-time (JIT) inventory management is (are) true?

ov.
ow.

I.
II.
III.

ox.
oy.
oz.
pa.
pb.
pc.
pd.

ph.
pi.
pj.
pk.
pl.
po.
pp.
pq.
pr.
ps.
pt.
pu.
px.
py.
pz.
qa.
qb.
qc.
qd.

The emphasis of JIT is on "pull" manufacturing.

Raw materials are purchased just in time to be
used in production.
JIT is an inventory technique that focuses on
reduction of both inventory and related
inventory costs.
A.
B.
C.
D.
E.

pf.

pg.

qg.

I only.
II only.
III only.
II and III.
I, II, and III.

pe.
Answer: E LO: 7 Type: RC
34.
Ohio Corporation recently implemented a
just-in-time (JIT) production system along with a
series of continuous improvement programs. If the
firm is now considering adopting a total quality
management (TQM) program, it would likely find that
TQM:
A. is consistent with both JIT and continuous
improvement.
B. is consistent with JIT but inconsistent with
continuous improvement.
C. is consistent with continuous improvement
but inconsistent with JIT.
D. is inconsistent with both JIT and continuous
improvement.
E. is an antiquated management technique.
pm.
Answer: A LO: 7 Type: N
pn.
35.
Cost management systems tend to focus on
an organization's:
A. machines.
B. employees.
C. activities.
D. customers.
E. rules and regulations.
pv.
pw.
36.
tend to
A.
B.
C.
D.
E.
qe.

Answer: C LO: 7 Type: RC

The value chain of a manufacturer would
include activities related to:
manufacturing.
research and development.
product design.
marketing.
all of the above.
Answer: E LO: 8 Type: RC

qf.
37.
Which of the following choices correctly
depicts activities that would be included in a
manufacturer's value chain?
qh.
qi. Resea
qk.
qm.
rch
ql. Marketi
qn. Distri
and
ng
butio
qj. Devel
n
opme
nt
qo.
qp. Yes
qq. Yes
qr.
A
N
o
qs.
qt. Yes
qu.
qv. Yes
B
N
o
qw.
qx. Yes
qy. Yes
qz. Yes
C
ra.
D

rb.
No

rc. Yes

re.
E

rf.
No

rg. Yes

o
rh. Yes

ri.
rj.
Answer: C LO: 8 Type: RC
rk.
rl.
38.
Which of the preceding activities would
likely not be considered part of The Gap clothing
companys value chain?
A.
Designing a new product
line.
B.
Locating and then
negotiating terms with a clothing manufacturer.
C.
Marketing an existing
product line.
D.
Distributing goods from
regional warehouses to local stores.
E.
All of the above activities
would be an element in the companys value
chain.
rm.
rn.
Answer: E LO: 8 Type: RC
ro.
39.
The activities performed by a
manufacturing organization could be categorized as preproduction (such as research and development and
product design), production-related, and post-production
(such as marketing and customer service). Which
activities should the firm focus on if management
understands the value chain concept and desires to meet
organizational goals?
rp.
A. Pre-production activities.
rq.
B. Production-related activities.
rr.
C. Post-production activities.
rs.
D. Pre-production, production-related, and
post-production activities.
rt.
E. Pre-production and production-related
activities.
ru.
rv.
Answer: D LO: 8 Type: N
rw.
rx.
40.
In order for a company to achieve a
sustainable competitive advantage, it must perform
value chain activities:
ry.
A. at the same quality level as competitors, at
the same cost.
rz.
B. at the same quality level as competitors, but
at a lower cost.
sa.
C. at a higher quality level than competitors, at
a higher cost.
sb.
D. at a higher quality level than competitors,
but at no greater cost.
sc.
E. at either the same quality level as
competitors, but at a lower cost, or at a higher
quality level than competitors, but at no greater

Page 10 of 21

rd.
N

cost.

sd.
se.
sf.
sg.

41.
The process of managing the
various activities in the value chain, along with the
associated costs, is commonly known as:
A. activity-based costing.
B. strategic cost management.
C. total quality management.
D. computer-integrated costing.
E. sound management practices (SMP).

sh.
si.
sj.
sk.
sl.
sm.

sn.
so.

sp.

Answer: B LO: 8 Type: RC

42.
A company has a bottleneck
operation that slows production. Which of the
following tools or approaches could the firm use to
determine the most cost-effective ways to eliminate
this problem?
A. Linear programming.
B. Theory of constraints.
C. Decision-tree diagrams.
D. Payoff matrices.
E. Strategic path analysis (SPA).

sq.
sr.
ss.
st.
su.
sv.
sx.
sy.
sz.
ta.
tb.
tc.
td.

sw.
Answer: B LO: 8 Type: RC
43.
Which of the following can be linked to the
relatively recent wave of corporate scandals?
A. Greedy corporate executives.
B. Managers who make over-reaching business
deals.
C. Lack of oversight by companies' audit
boards and boards of directors.
D. Shoddy work by external auditors.
E. All of the above.
te.
Answer: E LO: 9 Type: RC
tf.
44.
Which of the following acts strives to
improve corporate governance and the quality of
corporate accounting/reporting?
A. Robinson-Patman.
B. Taft-Hartley.
C. Sarbanes-Oxley.
D. Bush-Cheney.
E. Franks-Ashcroft.

tg.
th.
ti.
tj.
tk.
tl.
tm.
45.

Answer: E LO: 8 Type: RC

tn.
to.

Answer: C LO: 9 Type: RC

Which of the following statements about the ethical

climate of business is false?
A. Greedy corporate executives are, in part, to
blame for the relatively recent rash of corporate
scandals.
B. Unethical business behavior can have a negative
impact on our economy.
C. The Sarbanes-Oxley Act strives to improve the
overall quality of corporate reporting.
D. The Robinson-Patman Act strives to improve the
overall quality of corporate reporting.
E. Corporate scandals have served as the
accounting professions wake-up call to pay
increased attention to ethical issues in the
conduct of business.
tp.
tq.
Answer: D LO: 9 Type: RC
tr.
ts.
46.
Which of the following is not an ethical
standard of managerial accounting?
tt.
A. Competence.
tu.
B. Confidentiality.
tv.
C. Efficiency.
tw.
D. Integrity.
tx.
E. Credibility.
ty.

tz.
Answer: C LO: 9 Type: RC
ua.
47.
Which of the following is not an element of
competency?
A. To develop appropriate knowledge about a
particular subject.
B. To perform duties in accordance with
relevant laws.
C. To perform duties in accordance with
relevant technical standards.
D. To refrain from engaging in an activity that
would discredit the accounting profession.
E. To prepare clear reports after an analysis of
relevant and reliable information.

ub.
uc.
ud.
ue.
uf.
ug.
uh.
uj.

uk.
ul.
um.
un.
uo.
up.

ui.
Answer: D LO: 9 Type: RC
48.
Assume that a managerial accountant
regularly communicates with business associates to
avoid conflicts of interest and advises relevant
parties of potential conflicts. In so doing, the
accountant will have applied the ethical standard of:
A. objectivity.
B. confidentiality.
C. integrity.
D. credibility.
E. unified behavior.

uq.
Answer: C LO: 9 Type: RC
ur.
us.
ut. EXERCISES
uu.
UV. MANAGERS AND DECISIONS
uw.
ux.
49.
Present several examples of managerial
accounting information that could help a manager
make each of the following decisions:
A. A manufacturing company is currently making a
part that is a production headache. The firm is
deciding whether to abandon production and
buy the part from an outside supplier.
B. An operator of fast-food restaurants is deciding
whether to open a new store in Dallas.
uy.
uz.
LO: 1 Type: N
va.
vb.
Answer:
vc.
Note: Many correct answers are possible.
vd.
A. The cost of each alternative (make vs. buy)
would be needed along with information about
suppliers that pertains to reliability and product
quality (e.g., testimonials from a supplier's
current customers that cite any problems with
on-time deliveries, product stockouts, or
abnormally high spoilage rates of purchased
goods). Given the company is currently making
the part, what would happen to the facilities if
the firm begins to purchase from outside
suppliers? Could the facilities be subleased,
used for other profitable products, or downsized
(with equipment being sold)? What would
happen to existing employeeswould there be
any layoffs and how much would the company
save?
ve.
B. The manager needs information about
construction or leasing costs along with figures
that focus on subsequent operating costs. Also,
projected sales, market share figures, and data
about competitors would be helpful.
VF.
vg. BALANCED SCORECARD
vh.
vi. 50.
Continental Overnight operates an overnight
package delivery service that competes with Federal

Page 11 of 21

Express and United Parcel Service (UPS). Top

management is considering the use of a balanced
scorecard to evaluate operations.
A. What is a balanced scorecard and other than
customer-satisfaction measures, what are its
typical key components?
B. List four customer-satisfaction measures that
Continental might use to evaluate performance.
vj.

vk.
LO: 3 Type: RC, N
vl.
vm.
Answer:
A. The balanced scorecard is a business model that
helps to assess a firm's competitive position and
ensures that the firm is progressing toward longterm survival. Balanced scorecards differ from
organization to organization; however, in
addition to customer-satisfaction measures,
most have a combination of financial measures,
internal operating measures, and measures of
innovation/growth and learning.
vn.
B. Customer-satisfaction measures could include
number of packages delivered, market share,
number of packages lost or damaged, number of
customer complaints, average wait time when
calling and scheduling a package pickup, and
response time to customer problems.
vo.

Page 12 of 21

vs.
vt.
vu.
vv.
vw.
vx.
vy.

vp.
vq. MULTIPLE CHOICE QUESTIONS
vr.
1.
Which of the following statements is true?
A. The word "cost" has the same meaning in all
situations in which it is used.
B. Cost data, once classified and recorded for a
specific application, are appropriate for use in
any application.
C. Different cost concepts and classifications
are used for different purposes.
D. All organizations incur the same types of
costs.
E. Costs incurred in one year are always
meaningful in the following year.
vz.
wa.
2.

wb.
wc.
wd.
we.
wf.
wg.
wh.

wi.
wj.
3.

wk.
wl.
wm.
wn.
wo.
wp.
wq.

wu.
wv.
ww.
wx.
wy.
wz.
xb.

xc.
xd.
xe.
xf.
xg.
xh.
xk.
xl.
xm.
xn.
xo.
xp.
xq.
xt.
xu.
xv.
xw.
xx.

E.
ya.
yb.
8.

yc.
yd.
ye.
yf.
yg.
yh.
yi.

Product costs are:

A. expensed when incurred.
B. inventoried.
C. treated in the same manner as period costs.
D. treated in the same manner as advertising
costs.
E. subtracted from cost of goods sold.

yl.

ym.
yn.
yo.
yp.
yq.
yr.

Answer: B LO: 2 Type: RC

A.
B.
C.
D.
E.

Which of the following is a product cost?

Glass in an automobile.
Advertising.
The salary of the vice president-finance.
Rent on a factory.
Both "A" and "D."

xa.
Answer: E LO: 2 Type: RC, N
5.
The accounting records of Tacoma Company
revealed the following costs: direct materials used,
$170,000; direct labor, $350,000; manufacturing
overhead, $400,000; and selling and administrative
expenses, $220,000. Tacoma's product costs total:
A. $520,000.
B. $750,000.
C. $920,000.
D. $1,140,000.
E. some other amount.

yt.
yu.
yv.
yw.
yx.
yy.
yz.
zc.
zd.
ze.
zf.
zg.
zh.
zi.
zl.
zm.
zn.
zo.
zp.
zq.
zr.

xi.
xj.
6.
called:
A.
B.
C.
D.
E.

Answer: C LO: 2 Type: A

zu.

Costs that are expensed when incurred are

zv.
zw.
zx.
zy.
zz.
aaa.

xr.
xs.
7.

Answer: D LO: 2 Type: RC

product costs.
direct costs.
inventoriable costs.
period costs.
indirect costs.

Which of the following is a period cost?

A. Direct material.
B. Advertising expense.
C. Depreciation on cars driven by a firm's
president and treasurer.
D. Miscellaneous supplies used in production
activities.

aad.

aae.
aaf.

Both "B" and "C."

Answer: E LO: 2 Type: N

Which of the following is not a period cost?

A. Legal costs.
B. Public relations costs.
C. Sales commissions.
D. Wages of assembly-line workers.
E. The salary of a company's chief financial
officer (CFO).

yj.
Answer: D LO: 2 Type: RC, N
yk.
9.
The accounting records of Hill Corporation
revealed the following selected costs: Sales
commissions, $40,000; plant supervision, $94,000;
and administrative expenses, $185,000. Hill's period
costs total:
A. $40,000.
B. $94,000.
C. $185,000.
D. $225,000.
E. $319,000.

Answer: C LO: 1 Type: RC

wr.
Answer: E LO: 2 Type: N
ws.
4.
Which of the following would not be
classified as a product cost?
A. Direct materials.
B. Direct labor.
C. Indirect materials.
D. Insurance on the manufacturing plant.
E. Sales commissions.

wt.

xy.
xz.

ys.
Answer: D LO: 2 Type: A
10.
Which of the following entities would most
likely have raw materials, work in process, and
finished goods?
A. Exxon Corporation.
B. Macy's Department Store.
C. Wendy's.
D. Southwest Airlines.
E. Columbia University.
za.
Answer: A LO: 3 Type: N
zb.
11.
Selling and administrative expenses would
likely appear on the balance sheet of:
A. The Gap.
B. Texas Instruments.
C. Turner Broadcasting System.
D. all of the above firms.
E. none of the above firms.
zj.
Answer: E LO: 3 Type: N
zk.
12.
Which of the following inventories would a
discount retailer such as Wal-Mart report as an asset?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Merchandise inventory.
E. All of the above.
zs.
Answer: D LO: 3 Type: RC
zt.
13.
Which of the following inventories would a
company ordinarily hold for sale?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Raw materials and finished goods.
E. Work in process and finished goods.
aab.
Answer: C LO: 3 Type: RC
aac.
14.
Zeno Corporation engages in mass
customization and direct sales, the latter by
accepting customer orders over the Internet. As a
result, Zeno:
A. would probably begin the manufacturing
process upon receipt of a customer's order.
B. would typically have fairly low inventory
levels for the amount of sales revenue
generated.

Page 13 of 21

aag.
aah.
aai.
aaj.

C. would typically have fairly high inventory

levels for the amount of sales revenue
generated.
D. would likely find choices "A" and "B" to be
applicable.
E. would likely find choices "A" and "C" to be
applicable.

aak.
Answer: D LO: 4 Type: RC
aal. 15.
Companies that engage in mass
customization:
aam.
A. tend to have a relatively low production
volume.
aan.
B. tend to have a high production volume that
involves highly standardized end-products.
aao.
C. tend to have a high production volume,
many standardized components, and customerspecified combinations of components.
aap.
D. tend to have a high production volume,
many unique components, and customerspecified combinations of components.
aaq.
E. could be typified by the refining operations
of Shell Oil.
aar.
aas.
Answer: C LO: 4 Type: RC
aat.
aau.
16.
Midwest Motors manufactures automobiles.
Which of the following would not be classified as
direct materials by the company?
aav.
A. Sheet metal used in the automobile's body.
aaw.
B. Tires.
aax.
C. Interior leather.
aay.
D. CD player.
aaz.
E. Wheel lubricant.
aba.
abb.
Answer: E LO: 5 Type: N
abc.
abd.
17.
Which of the following employees of a
commercial printer/publisher would be classified as
direct labor?
abe.
A. Book binder.
abf.
B. Plant security guard.
abg.
C. Sales representative.
abh.
D. Plant supervisor.
abi.
E. Payroll supervisor.
abj.
abk.
Answer: A LO: 5 Type: N
abl.
abm.
18.
Norwood Appliance produces washers and
dryers in an assembly-line process. Labor costs
incurred during a recent period were: corporate
executives, $100,000; assembly-line workers,
$80,000; security guards, $18,000; and plant
supervisor, $30,000. The total of Norwood's direct
labor cost was:
abn.
A. $80,000.
abo.
B. $98,000.
abp.
C. $110,000.
abq.
D. $128,000.
abr.
E. $228,000.
abs.
abt.
Answer: A LO: 5 Type: A
abu. 19.
Which of the following employees would not
be classified as indirect labor?
abv.
A. Custodian.
abw.
B. Salesperson.
abx.
C. Assembler of wooden furniture.
aby.
D. Plant security guard.
abz.
E. Choices "B" and "C."
aca.
acb.
Answer: E LO: 5 Type: RC, N
acc.
acd.
20.
Depreciation of factory equipment would be
classified as:
ace.
A. operating cost.
acf.
B. "other" cost.

acg.
ach.
aci.
acj.
acm.
acn.
aco.
acp.
acq.
acr.
acs.
acv.

C. manufacturing overhead.
D. depreciation expense.
E. administrative cost.
ack.
Answer: C LO: 5 Type: RC
acl.
21.
Which of the following costs is not a
component of manufacturing overhead?
A. Indirect materials.
B. Factory utilities.
C. Factory equipment.
D. Indirect labor.
E. Property taxes on the manufacturing plant.
act.
Answer: C LO: 5 Type: RC
acu.
22. The accounting records of Westcott Company
revealed the following costs:

acw.

acx. Factory utilities

acz. Wages of assembly-line personnel

adb.Customer entertainment
add.Indirect materials used
adf. Depreciation on salespersons' cars
adh.Production equipment rental costs
adj.
adk.
adl.
adm.
adn.
ado.
adp.
adq.

Costs that would be considered in the

calculation of manufacturing overhead total:
A. $164,000.
B. $215,000.
C. $385,000.
D. $430,000.
E. some other amount.
adr.
ads.

Answer: A LO: 5 Type: A

Page 14 of 21

adt.
adu.
adv.
adw.
adx.
ady.
adz.
aec.
aed.

23.
Which of the following statements is (are)
correct?
A. Overtime premiums should be treated as a
component of manufacturing overhead.
B. Overtime premiums should be treated as a
component of direct labor.
C. Idle time should be treated as a component
of direct labor.
D. Idle time should be accounted for as a
special type of loss.
E. Both "B" and "C" are correct.
aea.
aeb.
24.

aee.
aef.
aeg.
aeh.
aei.
ael.
aem.

aej.
aek.
25.

aen.
aeo.
aep.
aeq.
aer.
aeu.
aev.
aew.
aex.
aey.
aez.
afa.
afd.
afe.
aff.
afg.
afh.
afi.
afj.

aes.
aet.
26.

Answer: A LO: 5 Type: RC

Conversion costs are:
A. direct material, direct labor, and
manufacturing overhead.
B. direct material and direct labor.
C. direct labor and manufacturing overhead.
D. prime costs.
E. period costs.

overhead.
D. direct material only.
E. direct material, direct labor, and
manufacturing overhead.

afy.
afz.
aga.

agb.
Answer: E LO: 6 Type: RC
agc.
30.
Fort Walton Industries began July with a
finished-goods inventory of $48,000. The finishedgoods inventory at the end of July was $41,000 and
the cost of goods sold during the month was
$125,000. The cost of goods manufactured during
July was:
A. $77,000.
B. $84,000.
C. $118,000.
D. $132,000.
E. some other amount.

agd.

age.
agf.
agg.
agh.
agi.
agj.
agm.

Answer: C LO: 5 Type: RC

Prime costs are comprised of:
A. direct materials and manufacturing
overhead.
B. direct labor and manufacturing overhead.
C. direct materials, direct labor, and
manufacturing overhead.
D. direct materials and direct labor.
E. direct materials and indirect materials.
Answer: D LO: 5 Type: RC
Which of the following statements is true?
A. Product costs affect only the balance sheet.
B. Product costs affect only the income
statement.
C. Period costs affect only the balance sheet.
D. Period costs affect both the balance sheet
and the income statement.
E. Product costs eventually affect both the
balance sheet and the income statement.

agn.
ago.
agp.
agq.
agr.
ags.

agk.
Answer: C LO: 6 Type: A
agl.
31.
Kansas Plating Company reported a cost of
goods manufactured of $260,000, with the firm's
year-end balance sheet revealing work in process
and finished goods of $35,000 and $67,000,
respectively. If supplemental information disclosed
raw materials used in production of $40,000, direct
labor of $70,000, and manufacturing overhead of
$120,000, the company's beginning work in process
must have been:
A. $5,000.
B. $37,000.
C. $65,000.
D. $97,000.
E. some other amount.

agt.
Answer: C LO: 6 Type: A
agu. 32.
The accounting records of Bronco Company
revealed the following information:
agv.

agw.

agy. Direct labor

afb.
Answer: E LO: 6 Type: N
afc.
27.
In a manufacturing company, the cost of
goods completed during the period would include
which of the following elements?
A. Raw materials used.
B. Beginning finished goods inventory.
C. Marketing costs.
D. Depreciation of delivery trucks.
E. More than one of the above.

afk.
Answer: A LO: 6 Type: RC
afl. 28.
Which of the following equations is used to
calculate cost of goods sold during the period?
afm.
A. Beginning finished goods + cost of goods
manufactured + ending finished goods.
afn.
B. Beginning finished goods - ending finished
goods.
afo.
C. Beginning finished goods + cost of goods
manufactured.
afp.
D. Beginning finished goods + cost of goods
manufactured - ending finished goods.
afq.
E. Beginning finished goods + ending finished
goods - cost of goods manufactured.
afr.
afs.
Answer: D LO: 6 Type: RC
aft.
afu.
29.
Work-in-process inventory is composed of:
afv.
A. direct material and direct labor.
afw.
B. direct labor and manufacturing overhead.
afx.
C. direct material and manufacturing

Raw materials used

aha.Manufacturing overhead
ahc. Work-in-process inventory, 1/1
ahe.Finished-goods inventory, 1/1
ahg.Work-in-process inventory, 12/31
ahi. Finished-goods inventory, 12/31
ahk.
ahl.
ahm.
ahn.
aho.
ahp.
ahq.
ahr.
ahu.
ahv.

A.
B.
C.
D.
E.

Bronco's cost of goods manufactured is:

$519,000.
$522,000.
$568,000.
$571,000.
some other amount.

ahs.
Answer: A LO: 6 Type: A
aht.
33.
The accounting records of Dolphin Company
revealed the following information:
ahw.

Total manufacturing costs

ahy. Work-in-process inventory, Jan. 1

aia. Work-in-process inventory, Dec. 31
aic. Finished-goods inventory, Jan. 1

Page 15 of 21

aie. Finished-goods inventory, Dec. 31

aig.
aih.
aii.
aij.
aik.
ail.
aim.
ain.
aiq.

air.
ais.
ait.
aiu.
aiv.
aiw.
aiz.

aja.
ajb.
ajc.
ajd.
aje.
ajf.
aji.

ajj.
ajk.
ajl.
ajm.
ajn.
ajo.
ajr.
ajs.
ajt.
aju.
ajv.
ajw.

A.
B.
C.
D.
E.

Dolphin's cost of goods sold is:

$508,000.
$529,000.
$531,000.
$553,000.
some other amount.

aio.
Answer: C LO: 6 Type: A
aip.
34.
For the year just ended, Cole Corporation's
manufacturing costs (raw materials used, direct
labor, and manufacturing overhead) totaled
$1,500,000. Beginning and ending work-in-process
inventories were $60,000 and $90,000, respectively.
Cole's balance sheet also revealed respective
beginning and ending finished-goods inventories of
$250,000 and $180,000. On the basis of this
information, how much would the company report as
cost of goods manufactured (CGM) and cost of goods
sold (CGS)?
A. CGM, $1,430,000; CGS, $1,460,000.
B. CGM, $1,470,000; CGS, $1,540,000.
C. CGM, $1,530,000; CGS, $1,460,000.
D. CGM, $1,570,000; CGS, $1,540,000.
E. Some other amounts.
aix.
Answer: B LO: 6 Type: A
aiy.
35.
Leggio Industries reported the following
data for the year just ended: sales revenue,
$950,000; cost of goods sold, $420,000; cost of
goods manufactured, $330,000; and selling and
administrative expenses, $170,000. Leggio's gross
margin would be:
A. $30,000.
B. $200,000.
C. $360,000.
D. $530,000.
E. $620,000.
ajg.
Answer: D LO: 6 Type: A
ajh.
36.
Pumpkin Enterprises began operations on
January 1, 20x1, with all of its activities conducted
from a single facility. The company's accountant
concluded that the year's building depreciation
should be allocated as follows: selling activities, 20%;
administrative activities, 35%; and manufacturing
activities, 45%. If Pumpkin sold 60% of 20x1
production during that year, what percentage of the
depreciation would appear (either directly or
indirectly) on the 20x1 income statement?
A. 27%.
B. 45%.
C. 55%.
D. 82%.
E. 100%.
ajp.
Answer: D LO: 6 Type: A
ajq.
37.
An employee accidentally overstated the
year's advertising expense by $50,000. Which of the
following correctly depicts the effect of this error?
A. Cost of goods manufactured will be
overstated by $50,000.
B. Cost of goods sold will be overstated by
$50,000.
C. Both cost of goods manufactured and cost
of goods sold will be overstated by $50,000.
D. Cost of goods sold will be overstated by
$50,000, and cost of goods manufactured will be
understated by $50,000.
E. None of the above.

ajx.
aka.
akb.
akc.
akd.
ake.
akf.
akg.

ajy.
Answer: E LO: 6 Type: A
ajz.
38.
Which of the following would likely be a cost
driver for the amount of direct materials used?
A. The number of units sold.
B. The number of direct labor hours worked.
C. The number of machine hours worked.
D. The number of employees working in the
factory.
E. The number of units produced.

akh.
Answer: E LO: 7 Type: N
aki. 39.
The choices below depict five costs of
Benton Corporation and a possible driver for each
cost. Which of these choices likely contains an
inappropriate cost driver?
akj.
A. Gasoline consumed; number of miles driven.
akk.
B. Manufacturing overhead incurred in a
heavily automated facility; direct labor hours.
akl.
C. Sales commissions; gross sales revenue.
akm.
D. Building maintenance cost; building square
footage.
akn.
E. Personnel department cost; number of
employees.
ako.
akp.
Answer: B LO: 7 Type: N
akq.
akr.
40.
Variable costs are those costs that:
aks.
A. vary inversely with changes in activity.
akt.
B. vary directly with changes in activity.
aku.
C. remain constant as activity changes.
akv.
D. decrease on a per-unit basis as activity
increases.
akw.
E. increase on a per-unit basis as activity
increases.
akx.
aky.
Answer: B LO: 8 Type: RC
akz.
ala.
41.
As activity decreases, unit variable cost:
alb.
A. increases proportionately with activity.
alc.
B. decreases proportionately with activity.
ald.
C. remains constant.
ale.
D. increases by a fixed amount.
alf.
E. decreases by a fixed amount.
alg.
alh.
Answer: C LO: 8 Type: RC
ali.
alj.
42.
Which of the following is not an example of
a variable cost?
alk.
A. Straight-line depreciation on a machine that
has a five-year service life.
all.
B. Wages of manufacturing workers whose pay
is based on hours worked.
alm.
C. Tires used in the production of tractors.
aln.
D. Aluminum used to make patio furniture.
alo.
E. Commissions paid to sales personnel.
alp.
alq.
Answer: A LO: 8 Type: N
alr.
als.
43.
Fixed costs are those costs that:
alt.
A. vary directly with changes in activity.
alu.
B. vary inversely with changes in activity.
alv.
C. remain constant on a per-unit basis.
alw.
D. increase on a per-unit basis as activity
increases.
alx.
E. remain constant as activity changes.
aly.
alz.
Answer: E LO: 8 Type: RC
ama. 44.
The fixed cost per unit:
amb.
A. will increase as activity increases.
amc.
B. will increase as activity decreases.
amd.
C. will decrease as activity increases.
ame.
D. will remain constant.
amf.
E. will exhibit the behavior described in
choices "B" and "C."

Page 16 of 21

amg.
amj.
amk.
aml.
amm.
amn.
amo.
amp.
ams.

amt.
amu.
amv.
amw.
amx.
amy.
anb.

anc.
and.
ane.
anf.
ang.
anh.
ank.

anl.
anm.
ann.
ano.
anp.
anq.

amh.
Answer: E LO: 8 Type: N
ami.
45.
Which of the following is an example of a
fixed cost?
A. Paper used in the manufacture of textbooks.
B. Property taxes paid by a firm to the City of
Los Angeles.
C. The wages of part-time workers who are
paid $8 per hour.
D. Gasoline consumed by salespersons' cars.
E. Surgical supplies used in a hospital's
operating room.
amq.
Answer: B LO: 8 Type: N
amr.
46.
The variable costs per unit are $4 when a
company produces 10,000 units of product. What
are the variable costs per unit when 8,000 units are
produced?
A. $4.00.
B. $4.50.
C. $5.00.
D. $5.50.
E. Some other amount.
amz.
Answer: A LO: 8 Type: A
ana.
47.
The fixed costs per unit are $10 when a
company produces 10,000 units of product. What
are the fixed costs per unit when 12,500 units are
produced?
A. $4.
B. $6.
C. $8.
D. $10.
E. Some other amount.
ani.
Answer: C LO: 8 Type: A
anj.
48.
Total costs are $120,000 when 10,000 units
are produced; of this amount, variable costs are
$48,000. What are the total costs when 12,000 units
are produced?
A. $57,600.
B. $72,000.
C. $120,000.
D. $129,600.
E. $144,000.
anr.
ans.

Answer: D LO: 8 Type: A

Page 17 of 21

ant.

anu.
anv.
anw.
anx.
any.
anz.
aob.

49.
Baxter Company, which pays a 10%
commission to its salespeople, reported sales
revenues of $210,000 for the period just ended. If
fixed and variable sales expenses totaled $56,000,
what would these expenses total at sales of
$168,000?
A. $16,800.
B. $35,000.
C. $44,800.
D. $51,800.
E. Some other amount.
aoa.

aoc.
aoe.
aof.
aog.
aoh.
aoi.
aoj.
aok.
aol.
aoo.
aop.
aoq.
aor.
aos.
aot.
aou.
aox.
aoy.
aoz.
apa.
apb.
apc.
apd.

Answer: E LO: 9 Type: N

51.
Costs that can be easily traced to a specific
department are called:
A. direct costs.
B. indirect costs.
C. product costs.
D. manufacturing costs.
E. processing costs.
aom.
Answer: A LO: 9 Type: RC
aon.
52.
Which of the following would not be
considered a direct cost with respect to the service
department of a new car dealership?
A. Wages of repair techniques.
B. Property taxes paid by the dealership.
C. Repair parts consumed.
D. Salary of the department manager.
E. Depreciation on new equipment used to
analyze engine problems.
aov.
aow.
53.

apy.
apz.
aqa.
aqb.
aqc.
aqd.
aqg.

Answer: D LO: 8 Type: A

50. Which of the following would not be

characterized as a cost object?
A. An automobile manufactured by General Motors.
B. The New York Fire Department.
C. A Burger King restaurant located in Cleveland,
Ohio.
D. A Delta Airlines flight from Atlanta to Miami.
E. All of the above are examples of cost objects.
aod.

apx.

Answer: B LO: 9 Type: N

Indirect costs:
A. can be traced to a cost object.
B. cannot be traced to a particular cost object.
C. are not important.
D. are always variable costs.
E. may be indirect with respect to Disney
World but direct with respect to one its major
components, Epcot Center.

ape.
Answer: B LO: 9 Type: RC, N
apf. 54.
The salary that is sacrificed by a college
student who pursues a degree full time is a(n):
apg.
A. sunk cost.
aph.
B. out-of-pocket cost.
api.
C. opportunity cost.
apj.
D. differential cost.
apk.
E. marginal cost.
apl.
apm.
Answer: C LO: 10 Type: N
apn.
apo.
55.
The tuition that will be paid next semester
by a college student who pursues a degree is a(n):
app.
A. sunk cost.
apq.
B. out-of-pocket cost.
apr.
C. indirect cost.
aps.
D. average cost.
apt.
E. marginal cost.
apu.
apv.
Answer: B LO: 10 Type: N

aqh.
aqi.
aqj.
aqk.
aql.
aqm.

apw.
56.
ignored
A.
B.
C.
D.
E.

Which of the following costs should be

when choosing among alternatives?
Opportunity costs.
Sunk costs.
Out-of-pocket costs.
Differential costs.
None of the above.

aqe.
Answer: B LO: 10 Type: RC
aqf.
57.
If the total cost of alternative A is $50,000
and the total cost of alternative B is $34,000, then
$16,000 is termed the:
A. opportunity cost.
B. average cost.
C. sunk cost.
D. out-of-pocket cost.
E. differential cost.

aqn.
Answer: E LO: 10 Type: N
aqo.
aqp.Use the following to answer questions 58-59:
aqq.
aqr. Wee Care is a nursery school for pre-kindergarten
children. The school has determined that the
following biweekly revenues and costs occur at
different levels of enrollment:
aqs.
aqt. Number of
aqv.
aqx.
aqu.Students
aqw.
To
aqy. Total
Enrolled
tal
Costs
Revenue
aqz. 10
ara. $3,0
arb.
arc. $2,
00
10
0
are. 15
arf. 4,50
arg.
arh. 2,7
0
00
arj. 16
ark. 4,80
arl.
arm.
0
2,800
aro. 20
arp. 6,00
arq.
arr. 3,2
0
00
art. 21
aru. 6,30
arv.
arw. 3,2
0
55
ary. 58.
The marginal cost when the twenty-first
student enrolls in the school is:
arz.
A. $55.
asa.
B. $155.
asb.
C. $300.
asc.
D. $3,045.
asd.
E. $3,255.
ase.
asf.
Answer: A LO: 10 Type: A
asg.
ash.
59.
The average cost per student when 16
students enroll in the school is:
asi.
A. $100.
asj.
B. $125.
ask.
C. $175.
asl.
D. $300.
asm.
E. $400.
asn.
aso.
Answer: C LO: 10 Type: A
asp.
60. The costs that follow all have applicability for a
manufacturing enterprise. Which of the choices
listed correctly denotes the costs applicability for a
service provider?
asr. Period Cost
ass. Uncontrollable Cost
ast.
A.
asv. Applicable
asw.
Applicable
asx.
B.
asz. Applicable
ata.
Not applicable
atb.
C.
atd. Applicable
ate.
Applicable
atf.
D.
ath. Not
ati.
Applicable
atj.
ap
plic
abl

Page 18 of 21

ar

ar

ar

ar

ar

Op
N
A
A
A

E.

atl. Not

atm.

ap
plic
abl
e
ato.

awe.
awf.Cost of goods manufactured

atn.
Applicable

awh.
awi.
awk.
awl.Finished goods, beg.
C
awn.
awo.Add: Cost of goods manufactured

atp. Answer: C LO: 10 Type: RC

atq.
atr.
ats. Elements of Financial Statements
att.
atu.
68.
The following selected information was
extracted from the 20x3 accounting records of Miami
Products:
atv.
atw. Raw materials used
aty. Direct labor
aua.Indirect labor

awq.
awr.Cost of goods available for sale
awt.
awu.Deduct: Finished goods, end.
aww.
awx.Cost of goods sold
awz.
axa. Income and Financial-Schedule Calculations:
Working Backwards
axb.
axc.
69. The selected amounts that follow were
taken from Kentucky Corporation's accounting
records:
axd.
axe. Raw material used

auc. Selling and administrative salaries

auk.

aul.

aum.
aun.

auo.
aup.

auq.

aue.Building depreciation*

axg.Direct labor

aug.Other selling and administrative

expenses
aui. Other factory costs

axi. Total manufacturing costs

axk. Work-in-process inventory, 1/1
axm.

*Seventy percent of the company's

building was devoted to production activities;
the remaining 30% was used for selling and
administrative functions.

axo. Cost of goods available for sale

axq.Finished-goods inventory, 12/31

Miami's beginning and ending work-inprocess inventories amounted to $306,000 and

$245,000, respectively. The company's beginning
and ending finished-goods inventories were
$450,000 and $440,000, respectively.
A.
B.
C.
aur.
aus.
aut.

Required:
Calculate Miami's manufacturing overhead for
the year.
Calculate Miami's cost of goods manufactured.
Compute the company's cost of goods sold.

axs. Sales revenue

axu.Selling and administrative expenses
axw.
axy.
axz.
aya.

LO: 5, 6 Type: A
Answer:
auu.
auv.Indirect labor
A
aux.
auy.Building depreciation ($330,000 x 70%)
ava.
avb.Other factory costs
avd.
ave.Total
avg.
avh.

Cost of goods manufactured

ayb.

A.
B.
C.
D.
E.
F.

Income tax expense

Required:
Compute the following:
Manufacturing overhead.
Work-in-process inventory, 12/31.
Finished-goods inventory, 1/1.
Cost of goods sold.
Gross margin.
Net income.

ayc.
ayd.
aye.
ayf.
A.

LO: 6 Type: A
Answer:
ayg.Total manufacturing costs

ayj.ayk.
ayn.

Less: Raw material used

ayo.

Direct labor

avj.avk.Raw material used

B
avm.
avn.Direct labor
avp.
avq.Manufacturing overhead

ayr.

ays. Manufacturing overhead

ayw.
B.

ayx. Total manufacturing costs

avs.avt.Total manufacturing costs

avv.avw.Add: Work in process, beg.
avy.avz.
awb.
awc.Deduct: Work in process, end.

aza.
azb.

Add: Work-in-process inventory, 1/1

Page 19 of 21

aze.

azi.azj.

azf.

Less: Cost of goods manufactured

azm.

azn. Work-in-process inventory, 12/31

azr.
C.

azs. Cost of goods available for sale

azv.
azw.

azz.

bch. Purchases
bcl. Beginning
inventory
bcp. Ending
inventory
bct. Direct
materials used
bcx. Direct labor
bdb.Manufacturing
overhead
bdc. (includes indirect
materials used of
$10,000)
bdi. Transferred to
finished goods
bdm.
Cost
of goods sold
bdq.
bdr.

Less: Cost of goods manufactured

baa.Finished-goods inventory, 1/1

bai.baj.

baf. Cost of goods available for sale

bcq. A

ban.Cost of goods sold

bcv.

bcy.
bdd.

bcz
bde.
bdf.
bdg. 115

bdj.

bav.
baw.

Answer:
bdz. Item A:
beb.Beginning materials

bej. Ending materials

bel.
bem.
Item B:
beo.Total production costs

Less: Cost of goods sold

beq.Less: Direct materials used

baz.

bes. Less: Manufacturing overhead

bba.Gross margin

beu.Direct labor

bbe.
bbi.
F.
bbm.
bbn.
bbq.

bbu.

bew.
bex.Item C:
bez. Beginning work in process

bbf.
bbj. Gross margin

bfb. Add: Total production costs

bfd. Less: Ending work in process

Less: Selling and administrative expenses

bbr.

bff. Transferred to finished goods

Income tax expense

bfh.
bfi.
bfj. Item D:
bfl. Sales

bbv. Net income

bby.
bbz.Flow of Costs, Missing Values
bca.
bcb.
70.
The Morton Company recorded the following
transactions for February 20x1:
bcc.
bcd.
bce.
M

bfn. Divided by rate

bfp. Cost of goods sold
bfr.
bfs. Item E:
bfu. Ending finished goods
bcf.

bdo.

LO: 6 Type: A

bef. Less: Direct materials used

bas. Sales revenue

90

bd

bdn.

beh.Less: Indirect materials used

bar.
E.

bcr.

bcu.

bed.Add: Purchases
bam.

Required:
Calculate the missing values.
bdw.
bdx.
bdy.

Less: Finished-goods inventory, 12/31

bcj.
bcn. $

Sales were $560,000, with sales prices

determined by adding a 40% markup to the firm's
manufacturing cost. The total cost of direct
materials used, direct labor, and manufacturing
overhead during the month was $285,000.

bds.
bdt.
bdu.
bdv.
bae.
D

aterials
bci. $100,000
bcm. 18,000

bfw. Add: Cost of goods sold

bea.
bec. $
18,000
bee. 100,00
0
beg.
(90,0
00)
bei.
(10,0
00)
bek. $
18,000
ben.
bep.$
285,000
ber.
(90,00
0)
bet.
(115,0
00)
bev. $
80,000
bey.
bfa. $
8,000
bfc. 285,00
0
bfe.
(20,00
0)
bfg. $273,00
0
bfk.
bfm.$560,00
0
bfo. 140%
bfq. $400,00
0
bft.
bfv. $
30,000
bfx. 400,00
0

Page 20 of 21

bfy. Less: Transferred to finished

goods
bga.Beginning finished goods

bfz.

(273,00
0)
bgb.$157,00
0

bgc.
bgd.Fixed and Variable Cost Behavior
bge.
bgf.
71.
Mighty Muffler, Inc., operates an automobile
service facility. The table below shows the cost
incurred during a month when 600 mufflers were
replaced.
bgg.
bgi.

bgj.

bgm.
Total costs:
bgq. Fixed costs

bgn.
bgr.

bgu. Variable costs

bgv.

bgy. Total costs

bgz.

bhc.
bhd.Cost per muffler replacement:
bhe. Fixed cost
bhi. Variable cost
bhm.
Total cost per muffler
replacement
bhq.
bhr.
bhs.
bht.

Required:
Fill in the missing amounts, labeled A
through O, in the table.
bhu.
LO: 8 Type: A
bhv. Answer:
bhw.
bhy.
bic. Total costs:
big. Fixed costs
bik. Variable costs
bio. Total costs

bjg.
bjh.
bji.
bjj.
bjk.
bjl.
bjm.
bjn.
bjo.

bhf.
bhj.
bhn.

bhx.
bhz. 5

00
bid.
bih. $
8,400.00
bil.
5,000.00
bip. $13,400.0
0

bis.
bit. Cost per muffler replacement:
biu. Fixed cost
biv. $
16.80
biy. Variable cost
biz.
10.00
bjc. Total cost per muffler
bjd. $
replacement
26.80

Explanatory notes:
A and C each equal $8,400, since fixed costs do not
vary with activity.
J, K, and L each equal $10 ($6,000 600), since
variable cost per replacement remains
constant.
B equals $5,000 (500 x $10)
D equals $7,000 (700 x $10)
G equals $16.80 ($8,400 500)
H equals $14.00 ($8,400 600)

bjp.
I equals $12.00 ($8,400 700)
bjq.Fixed and Variable Cost Behavior
bjr.
bjs.
72.
Global Systems began business on January
1 of the current year, producing a single product that
is popular with home builders. Demand was very
strong, allowing the company to sell its entire
manufacturing output of 80,000 units. The following
unit costs were incurred:
bjt.
bju. Manufacturing costs:
bjw.
Direct materials
bjx.
$15
bjy.
Direct labor
bjz.
8
bka.
Variable overhead
bkb.
11
bkc.
Fixed overhead
bkd.
6
bke. Selling and administrative costs:
bkf.
bkg.
Variable
bkh.
5
bki.
Fixed
bkj.
2
bkk.
bkl.
Global anticipates an increase in productive
output to 100,000 units and sales of 95,000 units in
the next accounting period. The company uses
appropriate drivers to determine cost behavior and
estimates.
bkm.
bkn. Required:
A. Assuming that present cost behavior patterns
continue, compute the total expected costs in
the upcoming accounting period.
B. George Levy is about to prepare a graph that
shows the unit cost behavior for variable selling
and administrative cost. If the graphs
horizontal axis is volume and the vertical axis is
dollars, briefly describe what Georges graph
should look like.
C. Determine whether the following costs are
variable or fixed in terms of behavior:
1. Yearly lease payments for a state-of-the-art
cutting machine.
2. A fee paid to a consultant who provided
advice about quality issues. The fee was
based on the number of consulting hours
provided.
3. Cost of an awards dinner for "star" salespeople.
bko.
bkp.
LO: 7, 8 Type: A, N
bkq.
bkr.
Answer:
A.
bkt. Direct materials (100,000 x $15)
bkw.
Direct labor (100,000 x $8)
bkz. Variable overhead (100,000 x $11)
blc. Fixed overhead (80,000 x $6)
blf. Variable selling and administrative (95,000 x $5)
bli. Fixed selling and administrative (80,000 x $2)
bll. Total costs
blm.
B.
blp. The variable selling and administrative costs are con
straight, horizontal line.
blq.
C.
1.
blt. Fixed
2.
blw. Variable
3.
blz. Variable
bma.

bmb.

Page 21 of 21