A—Introduction to Managerial Accounting

PROBLEM 1 TRUE/FALSE

1. Management accounting information is only used by manufacturing organizations.

2. The managerial activity of monitoring a plan's implementation and taking corrective action as needed is referred
to as decision making.
3. The process of choosing among competing alternatives is decision making.
4. Managerial accounting information is not important for not-for-profit organizations.
5. Managerial Accounting is designed primarily for internal users.
6. Managerial accounting has its emphasis on the future.
7. Financial accounting is governed by GAAP.
8. The value chain is the set of activities required to design, develop, produce, market, and deliver products and
service to customers.
9. Time is not a crucial element in all phases of the value chain.
10. Activity-based costing is a less detailed approach to determining the cost of goods and services than traditional
cost accounting.
11. Excellent customer service is an example of a value-added activity.
12. A cost accountant would normally occupy a staff position within an organization.
13. Positions that have direct responsibility for the basic objectives of an organization are referred to as line
positions.
14. Virtually all managerial accounting practices were developed to assist managers in maximizing profits.
15. The belief that each member of a group bears no responsibility for the well-being of other members is a
common principle underlying all ethical systems.
16. The four emphasized areas of the CMA examination reflect the needs of managerial accounting and highlights
that managerial accounting has more of an interdisciplinary flavor than other areas of accounting.
17. The purpose of the Certificate in Public Accounting is to provide minimal professional qualification for external
auditors.
18. Direct materials and direct labor are the only product costs.
19.Total period costs are deducted from total cost of work in process to calculate cost of goods manufactured.
20.Period costs are not inventoriable costs.

PROBLEM 2 MULTIPLE CHOICE

1. Which of the following is not an objective of managerial accounting?

a. To prepare external reports for investors, creditors, government agencies, and other outside users.
b. To provide information for costing of services, products, and other objects of interest to
management.
c. To provide information for planning, controlling, evaluating and continuous improvement.
d. To provide information for decision making.

2. Which of the following is an example of the management activity referred to as planning?

a. Developing a strategy for disposing of hazardous waste.
b. The decision to eliminate an unprofitable segment of an organization.
c. The decision to outsource an organization's payroll processing.
d. All of these are correct

3. Developing a company strategy for responding to anticipated new markets is an example of

a. planning.
b. controlling.
c. decision making.
d. all of these are correct.

4. Investigating production variances and adjusting the production process is an example of

a. planning.
b. controlling.
c. decision making.
d. all of these.
 5. The primary objective of managerial accounting is
a. to provide stockholders and potential investors with useful information for decision making.
b. to provide banks and other creditors with information useful in making credit decisions.
c. to provide management with information useful for planning and control of operations.
d. to provide the Internal Revenue Service with information about taxable income.

6. Managerial accounting
a. is primarily for external users.
b. has no mandatory rules.
c. provides information based on historical information.
d. must adhere to GAAP.

7. Managerial accounting reports are prepared

a. according to GAAP guidelines.
b. to meet the needs of decision makers within the firm.
c. for external users.
d. all of these are correct

8. Financial accounting
a. is concerned with the information about the firm as a whole.
b. has to adhere to GAAP policies.
c. focuses on external users.
d. all of these are correct

9. Which of the following would not be an example of a value-added activity?

a. timely delivery of products
b. offering the customer a variety of products
c. storage of finished products
d. excellent customer service

10. Total quality management emphasizes

a. zero defects.
b. continuous improvement.
c. elimination of waste.
d. all of these are correct.

11. Activity-based costing

a. strives to create an environment that will enable works to manufacture zero-defect products.
b. is the process of choosing among competing alternatives.
c. was established in response to financial scandals.
d. encourages process-value analysis.

12. Which of the following would normally occupy a line position?

a. staff accountant
b. accounting manager
c. vice-president of marketing
d. treasurer

13. Which of the following would normally occupy a staff position?

a. assembly worker
b. cost accounting manager
c. factory manager
d. all of these

14. Which of the following would occupy a line position in a hospital?

a. manager of the cafeteria
b. hospital administrator
c. chief of surgery
d. none of these
15. The controller of an organization participates in
a. planning.
b. controlling.
c. decision making.
d. all of these are correct

16. The objective of profit maximization

a. should be the only goal of an organization.
b. is an objective of financial accounting but not managerial accounting.
c. should be achieved through legal and ethical means.
d. should outweigh the goal of product quality.

17. The standards of ethical conduct for managerial accountants include

a. competence and performance.
b. integrity and respect for others.
c. confidentiality, confidence, integrity, and observance.
d. competence, confidentiality, integrity, and credibility.

18. Which of the following areas is not emphasized on the CMA examination?
a. external auditing and business law
b. economics, finance, and management
c. decision analysis and information systems
d. financial accounting and reporting

19. Accountants that have a Certificate in Public Accounting (CPA):

a. are the only accountants permitted to serve as external auditors.
b. must pass a national examination and be licensed by the state in which they practice.
c. may be held responsible to provide assurance concerning the reliability of a firm's financial
statements.
d. all of these statements are true.

20. Persons in the United States who provide assurance service are designated as
a. Certified Public Accountants.
b. Certified Financial Accountants.
c. Chartered Accountants.
d. Certified Management Accountants.

PROBLEM 3
Indicate whether each of the following costs of a pencil manufacturer would be classified as direct materials
(DM), direct labor (DL), or manufacturing overhead (MO).
a. ____ Depreciation of pencil painting machinery
b. ____ Lead inserted into pencils
c. ____ Factory utilities
d. ____ Wages of assembly line worker
e. ____ Salary of supervisor
f. ____ Factory machinery maintenance
g. ____ Wood
h. ____ Eraser compound

PROBLEM 4
Identify whether each of the following is classified as a product cost or a period cost.
______________ 1. Direct labor
______________ 2. Direct materials
______________ 3. Factory utilities
______________ 4. Repairs to office equipment
______________ 5. Property taxes on factory building
______________ 6. Sales salaries

PROBLEM 5. Match the items in the two columns below by entering the appropriate code letter in the space
provided.
 A. Managerial accounting F. Work in process inventory
B. Financial accounting G. Direct materials
C. Planning H. Manufacturing overhead
D. Directing I. Period costs
E. Controlling J. Value chain

_____ 1. The cost of products that are partially complete.

_____ 2. The function of keeping activities in accordance with plans.

_____ 3. Primarily concerned with internal users and reports pertain to subunits of the entity.

_____ 4. Materials that can be physically and directly associated with manufacturing a product.

_____ 5. The function of setting goals and objectives.

_____ 6. Indirect costs of manufacturing a product.

_____ 7. Primarily concerned with external users and reports pertain to the entity as a whole.

_____ 8. Costs that are non inventoriable.

_____ 9. All activities associated with providing a product or service.

_____ 10. The function of coordinating diverse activities to produce a smooth-running operation.

PROBLEM 6
Financial accounting information and managerial accounting information have a number of distinguishing
characteristics. For each of the characteristics listed below, indicate which characteristics are more closely
related to financial accounting by placing the letter "F" in the space to the left of the item and indicate those
characteristics which are more closely associated with managerial accounting by placing the letter "M" to the
left of the item.
____ 1. General-purpose reports
____ 2. Reports are used internally
____ 3. Prepared in accordance with generally accepted accounting principles
____ 4. Special purpose reports
____ 5. Limited to historical cost data
____ 6. Reporting standard is relevance to the decision to be made
____ 7. Financial statements
____ 8. Reports generally pertain to the business as a whole
____ 9. Reports generally pertain to subunits
____ 10. Reports issued quarterly or annually

PROBLEM 7
Raynor Manufacturing Company has the following data:
Direct labor $46,000
Direct materials used 84,000
Total manufacturing overhead 60,000
Ending work in process 30,000
Beginning work in process 40,000
Instructions Compute (a) total manufacturing costs and (b) cost of goods manufactured.
PROBLEM 8
Isaac Company manufactures boats. During September, 2020, the company purchased 100 cellular phones at a
cost of $100 each. Isaac withdrew 70 phones from the warehouse during the month. Twenty of these phones
were installed in salespersons’ cars and the remaining 50 phones were put in boats manufactured during the
month. Of the boats put into production during September, 2020, 80% were completed and transferred to the
company's storage lot. Fifty percent of the boats completed during the month were sold by September 30.
Instructions Determine the cost of cellular phones that would appear in each of the following accounts at
September 30, 2020:
Raw materials inventory Work in process inventory Finished goods inventory
Cost of goods sold Selling expenses

Problem 9
The following costs and inventory data were taken from the accounts of Reser Company for 2022:
January 1, 2022 December 31, 2022
Inventories:Raw materials $ 8,000 $ 7,000
Work in process 15,000 13,000
Finished goods 16,000 10,000
Costs incurred:
Raw materials purchases $93,000
Direct labor 42,000
Factory rent 8,000
Factory utilities 7,000
Indirect materials 4,000
Indirect labor 6,000
Selling expenses 5,000
Administrative expenses 12,000
Instructions
a. Prepare a schedule showing the amount of direct materials used in production during the year.
b. Compute the amount of manufacturing overhead incurred during the year.
c. Prepare a schedule of Cost of Goods Manufactured for Reser Company for the year ended December 31,
2022 in good form.
d. Prepare the Cost of Goods Sold section of the Income Statement for Reser Company for the year ended
December 31, 2022 in good form.