CHAPTER 1: THE ACCOUNTANT’S ROLE IN THE

ORGANIZATION 21. Feedback links planning and control.

22. Control includes deciding what feedback to provide that will help with future
TRUE/FALSE decision making.
23. Attention-directing activities should focus on cost-reduction opportunities, and
1. Management accounting information focuses on external reporting. not on valued-adding opportunities.
2. A good cost accounting system is narrowly focused on a continuous reduction 24. For strategic decisions, scorekeeping is the most prominent role played by
of costs. management accounting.
3. Modern cost accounting plays a significant role in management decision 25. Management accountants often are simultaneously doing problem-solving,
making. scorekeeping, and attention-directing activities.
4. The balance sheet, income statement, and statement of cash flows are used for 26. Management accounting is playing an increasingly important role by helping
financial accounting, but not for management accounting. managers develop and implement strategy.
5. Financial accounting is broader in scope than management accounting. 27. An example of problem solving is evaluating bids from three different
6. Cost accounting measures and reports short-term, long-term, financial, and companies to supply a particular part used in manufacturing.
nonfinancial information. 28. Key success factors are geared to improving customer satisfaction.
7. Cost management provides information that helps increase value for customers. 29. Value chain refers to its value to the employee.
8. Just-in-time production and purchasing is a strategy used to reduce inventories. 30. Companies have to follow strict guidelines when designing a management
9. All strategies should be evaluated regarding the resources and capabilities of the accounting system.
company. 31. An effective way to cut costs is to eliminate activities that do not improve the
10. The best-designed strategies are valuable whether or not they are effectively product attributes that customers value.
implemented. 32. For optimal planning success it is best if each business function within the value
11. The key to a company’s success is creating value for customers while chain is performed one at a time in sequence.
differentiating itself from its competitors. 33. For best results, cost management emphasizes independently coordinating
12. Developing a network of relationships with customers and suppliers is a supply chain activities within your company and not interfering with other
valuable source of competitive advantage for a company. companies.
13. An important strategic decision is making the correct investments in productive 34. Tracking what is happening in other companies is illegal.
assets. 35. Customer focus is a key ingredient in new product development.

AY 2015-2016: PROF. MADELLE CONALES, CPA

14. It is difficult to control activities without a budget. 36. Technological innovation has led to shorter product-life cycles and a need to
15. To take advantage of changing market opportunities, the annual budget should bring new products to market more rapidly.
be strictly enforced. 37. Key success factors include cost, quality, timeliness, and innovation.
16. A budget is a tool used to plan and express strategy. 38. Customers are demanding increased levels of performance in all aspects of the
17. Linking rewards to performance is a major deterrent to good management value chain and the supply chain.
performance. 39. When a particular aspect of employee performance is measured, employees pay
18. Employees pay little attention to how their performance is measured. more attention to it.
19. A budget may be used as a planning tool, but not as a control tool. 40. It is generally easy to quantify expected benefits and costs when applying the
20. Financial accounting reports financial and nonfinancial information that helps cost-benefit approach.
managers implement company strategies. 41. The use of teams to achieve corporate objectives is increasing.

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42. By reporting and interpreting relevant data, the controller exerts an influence c. governmental taxing authority.
that impels management toward making informed decisions. d. assembly department supervisor.

43. The controller (also called the chief accounting officer) is the financial 49. Financial accounting provides the PRIMARY source of information
executive primarily responsible for both management accounting and financial a. for decision making in the finishing department.
accounting. b. for improving customer service.
44. Management accountants have important ethical responsibilities that are related c. for preparing the income statement for shareholders.
to competence, confidentiality, integrity, and objectivity. d. for planning next year’s operating budget.

MULTIPLE CHOICE 50. Which of the following descriptors refers to management accounting
information?
45. Management accounting a. It is verifiable and reliable.
a. focuses on estimating future revenues, costs, and other measures to b. It is driven by rules.
forecast activities and their results. c. It is prepared for shareholders.
b. provides information about the company as a whole. d. It provides reasonable and timely estimates.
c. reports information that has occurred in the past that is verifiable and
reliable. 51. Which of the following statements refers to management accounting
d. provides information that is generally available only on a quarterly or information?
annual basis. a. There are no regulations governing the reports.
b. The reports are generally delayed and historical.
46. Financial accounting c. The audience tends to be stockholders, creditors, and tax authorities.
a. focuses on the future and includes activities such as preparing next year's d. It primarily measures and records business transactions.
operating budget.
b. must comply with GAAP (generally accepted accounting principles). 52. Which of the following groups would be LEAST likely to receive detailed
c. reports include detailed information on the various operating segments of management accounting reports?
the business such as product lines or departments. a. Stockholders
d. is prepared for the use of department heads and other employees. b. Sales representatives

AY 2015-2016: PROF. MADELLE CONALES, CPA

c. Production supervisors
47. The person MOST likely to use ONLY financial accounting information is a d. Managers
a. factory shift supervisor.
b. vice president of operations. 53. Management accounting information includes
c. current shareholder. a. tabulated results of customer satisfaction surveys.
d. department manager. b. the cost of producing a product.
c. the percentage of units produced that are defective.
48. The person MOST likely to use management accounting information is a(n) d. all of the above.
a. banker evaluating a credit application.
b. shareholder evaluating a stock investment. 54. Cost accounting

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a. provides information on the efficiency of factory labor. a. external reporting to investors, creditors, and government authorities.
b. provides information on the cost of servicing commercial customers. b. cost planning and cost controls.
c. provides information on the performance of an operating division. c. profitability analysis.
d. all of the above. d. providing information for strategic and tactical decisions.

55. Which of the following types of information are used in management 61. Financial accounting provides a historical perspective, whereas management
accounting? accounting emphasizes
a. Financial information a. the future.
b. Nonfinancial information b. past transactions.
c. Information focused on the long term c. a current perspective.
d. All of the above d. reports to shareholders.

56. Modern cost accounting plays a role in 62. Which of the following is NOT a function of a management accounting system?
a. planning new products. a. Budget preparation
b. evaluating operational processes. b. Financial reporting
c. controlling costs. c. Operational control
d. all of the above. d. Product and customer costing

57. A data warehouse or infobarn 63. Strategy specifies

a. is reserved for exclusive use by the CFO. a. how an organization matches its own capabilities with the opportunities in
b. is primarily used for financial reporting purposes. the marketplace.
c. stores information used by different managers for multiple purposes. b. standard procedures to ensure quality products.
d. gathers only nonfinancial information. c. incremental changes for improved performance.
d. the demand created for products and services.
58. Cost accounting provides all EXCEPT
a. information for management accounting and financial accounting. 64. Strategy is formulated by answering all of the following EXCEPT
b. pricing information from marketing studies. a. Who are our most important customers?

AY 2015-2016: PROF. MADELLE CONALES, CPA

c. financial information regarding the cost of acquiring resources. b. Is industry demand growing or shrinking?
d. nonfinancial information regarding the cost of operational efficiencies. c. How can we continue to reduce production costs?
d. How sensitive are purchasers to price, quality, and service?
59. Management accounting includes
a. implementing strategies. 65. Building resources and capabilities includes
b. developing budgets. a. reducing available cash.
c. preparing special studies and forecasts. b. keeping inventory information private from suppliers.
d. all of the above. c. building raw-material inventory levels.
d. building a strong distribution network.
60. Financial accounting is concerned PRIMARILY with

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66. Well-implemented just-in-time production and purchasing techniques
a. result in large stockpiles of inventory to keep production running. 72. The process of preparing a budget
b. strengthen a company’s ability to compete in the marketplace. a. forces coordination and communication across business functions.
c. increase reliance on long-term consumer forecasts. b. increases accounting efficiencies.
d. reduce a company’s competitive edge. c. reduces overcapacity.
d. promotes production automation.
67. Long-term productive assets include
a. cash. 73. Control includes
b. manufacturing equipment and buildings. a. implementing planning decisions.
c. patents and trademarks. b. evaluating performance.
d. brand names. c. providing feedback to help with future decision making.
d. all of the above.
68. Computer-integrated manufacturing (CIM) plants allow management to do all
EXCEPT 74. A budget
a. create brand recognition. a. is a quantitative expression of a proposed management plan.
b. diagnose the reason for a defect. b. helps translate strategy into actions.
c. access timely and accurate information regarding production costs. c. aids in the coordination and communication among various business
d. respond faster to changes in customer preferences. functions.
d. does all of the above.
69. The Internet and the World Wide Web are PRIMARILY used to
a. create performance reports. 75. A budget can serve
b. collect cost data. a. as a planning tool.
c. enhance contact with customers and suppliers. b. as a control tool.
d. prepare budget information. c. as a basis for preparing financial statements.
d. both (a) and (b).
70. Investments in long-term productive assets include all EXCEPT
a. investments in robotics. 76. Employees __________ how their performance is measured.

AY 2015-2016: PROF. MADELLE CONALES, CPA

b. investments in information infrastructures. a. pay close attention to
c. investments in a high-quality parts inventory. b. pay no attention to
d. investments in Internet applications. c. rarely know
d. both (b) and (c)
71. In designing strategy, a company must match the opportunities and threats in the
marketplace with 77. Linking rewards to performance
a. those of the CFO (Chief Financial Officer). a. helps to motivate managers.
b. its resources and capabilities. b. allows companies to charge premium prices.
c. branding opportunities. c. should only be based on financial information.
d. capabilities of current suppliers. d. does all of the above.

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c. attention directing.
78. Control measures should d. both (a) and (b).
a. be set and not changed until the next budget cycle.
b. be flexible to allow for employees who are slackers. 84. Making a recommendation regarding the leasing or purchasing of a fleet of
c. be kept confidential from employees so that competitors don’t have an vehicles is a PRIMARY example of
opportunity to gain a competitive advantage. a. problem solving.
d. be linked by feedback to planning. b. scorekeeping.
c. attention directing.
79. A well-conceived plan allows managers the ability to d. both (a) and (b).
a. not make decisions again until the next planning session. 85. _______________ means reporting and interpreting information that helps
b. keep lower-level managers from implementing change. managers to focus on operating problems, imperfections, inefficiencies, and
c. underestimate costs so that actual operating results will be favorable when opportunities.
comparisons are made. a. Scorekeeping
d. take advantage of unforeseen opportunities. b. Attention directing
c. Problem solving
80. For control decisions, emphasis is place on the __________ role(s) of d. None of the above
management accounting.
a. problem-solving 86. _______________ identifies several available alternatives and often
b. scorekeeping recommends the best course to follow.
c. attention-directing a. Scorekeeping
d. both (b) and (c) b. Attention directing
81. For strategic decisions, emphasis is placed on the __________ role(s) of c. Problem solving
management accounting. d. None of the above
a. problem-solving 87. Management accounting is considered successful when it
b. scorekeeping a. helps creditors evaluate the company's performance.
c. attention-directing b. helps managers improve their decisions.
d. both (b) and (c)

AY 2015-2016: PROF. MADELLE CONALES, CPA

c. is accurate.
82. Tracking the type of product returned is a PRIMARY example of d. is relevant and reported annually.
a. problem solving. 88. Strategy should focus PRIMARILY on the organization’s
b. scorekeeping. a. shareholders.
c. attention directing. b. customers.
d. both (a) and (b). c. products.
83. A daily sales report is a PRIMARY example of d. employees.
a. problem solving. 89. Customers are demanding improved performance related to
b. scorekeeping. a. reduced costs.

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b. both reduced costs and increased quality. d. have only been evident in the employee reward system.
c. lower costs, improved quality, and improved customer service.
d. lower costs, improved quality, improved customer service, and innovative 95. The Institute of Management Accountants (IMA)
products and services. a. is a professional organization of management accountants.
b. is a professional organization of financial accountants.
90. The act of simply measuring and reporting information c. issues standards for management accounting.
a. focuses the attention of employees on those processes. d. issues standards for financial accounting.
b. diverts employee’s attention to other activities.
c. disproves the saying “What gets measured gets managed.” 96. Line management includes
d. has no effect on employee behavior. a. manufacturing managers.
b. human-resource managers.
91. Which statement is FALSE? c. information-technology managers.
a. “What gets measured gets managed.” d. management-accounting managers.
b. People react to measurements.
c. Employees spend more attention on those variables that are not getting 97. Staff management includes
measured. a. manufacturing managers.
d. “If I can’t measure it, I can’t manage it.” b. human-resource managers.
c. purchasing managers.
92. The PRIMARY criterion when faced with a resource allocation decision is d. distribution managers.
a. cost minimization.
b. reduction in the amount of time required to perform a particular job. 98. Responsibilities of a CFO include all EXCEPT
c. achievement of organizational goals. a. providing financial reports to shareholders.
d. how well the alternative options help achieve organizational goals in b. managing short-term and long-term financing.
relation to the costs incurred for these systems. c. investing in new equipment.
d. preparing federal, state, and international tax returns.
93. The person(s) directly responsible for the attainment of organizational
objectives is/are 99. The ______________ is primarily responsible for management accounting and

AY 2015-2016: PROF. MADELLE CONALES, CPA

a. the treasurer. financial accounting.
b. line management. a. CFO (Chief Financial Officer)
c. the controller. b. CIO (Chief Information Officer)
d. the chief financial officer. c. treasurer
d. controller
94. As teamwork has become more prominent in the last few years, differences
between staff and line management 100. All of the following report to the CFO EXCEPT the
a. have increased. a. controller.
b. have become more important relative to promotions. b. tax department manager.
c. have diminished. c. production manager.

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d. treasurer. Davidson has a policy that individual expenditures in excess of $200,000 must be
approved by the firm's board of directors. Franklin, unfortunately, missed the
deadline to have the board consider this project at its regular September meeting.
EXERCISES AND PROBLEMS Not wanting to wait until the next meeting in December, he subdivided the project in
two parts—construction and decorating ($190,000) and equipment purchases
($60,000)—neither of which needed board approval because of the dollar amounts
1. For each report listed below, identify whether the major purpose of the report is involved.
for (1) routine internal reporting, (2) nonroutine internal reporting, or for (3)
external reporting to investors and other outside parties. The project was recently completed and sales have begun to recover. Customers
have raved about the new sales area, noting that it is far superior to those of
Required: Davidson's competitors.
a. Study detailing sale information of the top-ten selling products.
b. Weekly report of total sales generated by each store in the metropolitan Required:
area. A. Would Franklin's approach of subdividing the project in two parts have any
c. Annual Report sent to shareholders. effect on the company's financial statements? Briefly explain.
B. Briefly discuss whether Franklin behaved in an ethical manner.
d. Monthly report comparing budgeted sales by store to actual sales.
C. Which, if any, of the following standards of conduct would have applicability to
Franklin's conduct: competence, confidentiality, integrity, or credibility? Briefly
2. For each of the following activities, identify whether the main role of explain.
accounting is (1) problem solving, (2) scorekeeping, or (3) attention directing.
2. Many professions have adopted a series of ethical standards to provide guidance for
Required: their memberships. The Institute of Management Accountants (IMA), for example,
a. Analyzing the impact of introducing a new product on production. has published standards that focus on competence, confidentiality, integrity, and
b. Comparing results between actual costs and budgeted costs for each step credibility. In light of these standards, consider the three cases that follow.
of manufacturing a product.
c. Preparing a report that analyzes changes in cost resulting from reducing Case A—Leston Corporation has experienced serious financial difficulties in
the number of tubing sizes used during production from six down to two. recent years. John Young, the company’s chief financial officer, has just learned
that a major competitor was likely to file for bankruptcy; however, he failed to
d. Reporting sales by branch for the sales manager.
disclose this information at a board meeting held later that day when a plant
closure decision was being discussed. The board evaluated several proposals

AY 2015-2016: PROF. MADELLE CONALES, CPA

CASE ANALYSIS: during the session that focused on improving Leston’s financial position.

1. Ken Franklin is the sales manager of Davidson Enterprises, a very profitable Case B—QBX Company manufactures fertilizer from various raw materials,
distributor of office furniture to local businesses. A recent economic downturn has including a raw material know as Felstar. Paul Kelly, the firm’s purchasing
created an extremely tight cash position, and the company has been hurt by the manager, purposely acquired a lower grade of Felstar than normal because of a
bankruptcy of two key customers. very attractive price. The lower-grade product resulted in increased usage during
the manufacturing process but had no effect on the fertilizer’s overall quality. An
In late October, anticipating an economic recovery, Franklin began an extensive end-of-period report showed that QBX profited from Kelly’s actions, with the
remodeling of the company's sales floor. Construction costs, decorating, and overall savings in purchase price more than offsetting the cost of added
equipment purchases are projected to cost $250,000. consumption.

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Case C—Central Distributing has a participative budgeting process, allowing 46 ( ) ( ) ( ) ( ) 59 ( ) ( ) ( ) ( )
employees to have a say in projected sales targets for the upcoming period. 47 ( ) ( ) ( ) ( ) 60 ( ) ( ) ( ) ( )
These targets are reflected in a series of performance reports that compare actual 48 ( ) ( ) ( ) ( ) 61 ( ) ( ) ( ) ( )
sales achieved against targeted amounts. Hillary Baxter submitted very low sales 49 ( ) ( ) ( ) ( ) 62 ( ) ( ) ( ) ( )
targets because, as she confided in a colleague, "I always want to look good in 50 ( ) ( ) ( ) ( ) 63 ( ) ( ) ( ) ( )
terms of meeting targets, even if anticipated sales and closures don’t materialize." 51 ( ) ( ) ( ) ( ) 64 ( ) ( ) ( ) ( )
52 ( ) ( ) ( ) ( ) 65 ( ) ( ) ( ) ( )
Required: 53 ( ) ( ) ( ) ( ) 66 ( ) ( ) ( ) ( )
54 ( ) ( ) ( ) ( ) 67 ( ) ( ) ( ) ( )
Evaluate the three cases and determine the ethical issues, if any, that are involved.
55 ( ) ( ) ( ) ( ) 68 ( ) ( ) ( ) ( )
Cite the IMA’s standards if appropriate.
56 ( ) ( ) ( ) ( ) 69 ( ) ( ) ( ) ( )
A B C D A B C D
70 ( ) ( ) ( ) ( ) 86 ( ) ( ) ( ) ( )
============================================================ 71 ( ) ( ) ( ) ( ) 87 ( ) ( ) ( ) ( )
72 ( ) ( ) ( ) ( ) 88 ( ) ( ) ( ) ( )
T F T F T F T F 73 ( ) ( ) ( ) ( ) 89 ( ) ( ) ( ) ( )
1 ( ( ) 12 ( ( ) 23 ( ( ) 34 ( ( ) 74 ( ) ( ) ( ) ( ) 90 ( ) ( ) ( ) ( )
) ) ) )
75 ( ) ( ) ( ) ( ) 91 ( ) ( ) ( ) ( )
2 ( ( ) 13 ( ( ) 24 ( ( ) 35 ( ( )
76 ( ) ( ) ( ) ( ) 92 ( ) ( ) ( ) ( )
) ) ) )
77 ( ) ( ) ( ) ( ) 93 ( ) ( ) ( ) ( )
3 ( ( ) 14 ( ( ) 25 ( ( ) 36 ( ( )
78 ( ) ( ) ( ) ( ) 94 ( ) ( ) ( ) ( )
) ) ) )
79 ( ) ( ) ( ) ( ) 95 ( ) ( ) ( ) ( )
4 ( ( ) 15 ( ( ) 26 ( ( ) 37 ( ( )
80 ( ) ( ) ( ) ( ) 96 ( ) ( ) ( ) ( )
) ) ) )
81 ( ) ( ) ( ) ( ) 97 ( ) ( ) ( ) ( )
5 ( ( ) 16 ( ( ) 27 ( ( ) 38 ( ( )
) ) ) ) 82 ( ) ( ) ( ) ( ) 98 ( ) ( ) ( ) ( )
6 ( ( ) 17 ( ( ) 28 ( ( ) 39 ( ( ) 83 ( ) ( ) ( ) ( ) 99 ( ) ( ) ( ) ( )
) ) ) ) 84 ( ) ( ) ( ) ( ) 100 ( ) ( ) ( ) ( )
7 ( ( ) 18 ( ( ) 29 ( ( ) 40 ( ( ) 85 ( ) ( ) ( ) ( ) 101 ( ) ( ) ( ) ( )
) ) ) )
8 ( ( ) 19 ( ( ) 30 ( ( ) 41 ( ( )
) ) ) ) LEARNING POINTS:

AY 2015-2016: PROF. MADELLE CONALES, CPA

9 ( ( ) 20 ( ( ) 31 ( ( ) 42 ( ( )
) ) ) )
10 ( ( ) 21 ( ( ) 32 ( ( ) 43 ( ( )
) ) ) )
11 ( ( ) 22 ( ( ) 33 ( ( ) 44 ( ( )
) ) ) )

A B C D A B C D
44 ( ) ( ) ( ) ( ) 57 ( ) ( ) ( ) ( )
45 ( ) ( ) ( ) ( ) 58 ( ) ( ) ( ) ( )

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AY 2015-2016: PROF. MADELLE CONALES, CPA ACCOUNTING