The Manager and Management Accounting

Cost Accounting: A Managerial Emphasis Chapter 1 The Manager and Management Accounting 1.1 Objective 1.1 1) Management accounting ________. A) focuses on estimating future revenues, costs, and other measures to forecast activities and their results B) provides information about the company as a whole C) reports information that has occurred in the past that is verifiable and reliable D) provides information that is generally available only on a quarterly or annual basis Answer: A Explanation: Management accounting has a forward-looking orientation as opposed to financial accounting which has a historical perspective. Diff: 1 Objective: 1 AACSB: Analytical thinking 2) Managers use management accounting information to ________. A) help external users such as investors, banks, regulators, and suppliers B) communicate, develop, and implement strategies C) communicate a firm's financial position to investors, banks, regulators, and other outside parties D) ensure that financial statements are consistent with the SEC rules Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking 3) Financial accounting ________. A) focuses on the future and includes activities such as preparing next year's operating budget B) must comply with GAAP (generally accepted accounting principles) C) is the process of measuring, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization D) is prepared for the use of department heads and other employees Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking 4) Which of the following would most likely be the user of financial accounting information? A) factory shift supervisor B) distribution manager C) current shareholder D) department manager Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking 1 5) The primary user of management accounting information is a(n) ________. A) the controller B) a shareholder evaluating a stock investment C) bondholder D) external regulator Answer: A Diff: 1 Objective: 1 AACSB: Analytical thinking 6) Financial accounting provides the primary source of information for ________. A) decision making in the assembly and finishing department B) improving distribution and customer service C) preparing the income statement for shareholders and other external parties D) planning next year's plans and specifically; the operating budget Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking 7) Which of the following is true of management accounting information? A) It focuses on documenting past business actions of a firm. B) It is prepared based on SEC rules and FASB accounting principles. C) It is prepared for shareholders. D) It helps with the coordination of elements of the value chain. Answer: D Diff: 2 Objective: 1 AACSB: Analytical thinking 8) Which of the following statements refers to management accounting information? A) There are no regulations governing the reports. B) The reports are generally delayed and historical. C) The audience tends to be stockholders, creditors, and tax authorities. D) It primarily measures manager's compensation on reported financial results. Answer: A Diff: 2 Objective: 1 AACSB: Analytical thinking 9) Which of the following groups would be least likely to receive detailed management accounting reports? A) stockholders B) sales managers C) production supervisors D) distribution managers Answer: A Diff: 1 Objective: 1 AACSB: Analytical thinking 2 10) Management accounting information typically includes ________. A) tabulated results of customer satisfaction surveys B) the cost of producing a product C) the percentage of units produced that are defective D) All of these answers are correct. Answer: D Diff: 1 Objective: 1 AACSB: Application of knowledge 11) Cost accounting ________. A) measures the costs of acquiring or using resources in an organization B) measures the financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization C) coordinates product design, production, and marketing decisions and evaluate a company's performance D) communicates information to investors, banks, regulators, and other outside parties Answer: A Diff: 1 Objective: 1 AACSB: Analytical thinking 12) Which of the following differentiates cost accounting and financial accounting? A) The primary users of cost accounting are the investors, whereas the primary users of financial accounting are the managers. B) Cost accounting deals with product design, production, and marketing strategies, whereas financial accounting deals mainly with pricing of the products. C) Cost accounting measures only the financial information related to the costs of acquiring fixed assets in an organization, whereas financial accounting measures financial and nonfinancial information of a company's business transactions. D) Cost accounting measures information related to the costs of acquiring or using resources in an organization, whereas financial accounting measures a financial position of a company to investors, banks, and external parties. Answer: D Diff: 2 Objective: 1 AACSB: Analytical thinking 13) Which of the following is true of financial accounting information? A) It is prepared based on cost-benefit analysis. B) It is primarily used by managers to make internal business decisions. C) It focuses on the past-oriented financial performance of a company. D) It only measures the cash transactions of a company. Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking 3 14) A data warehouse or infobarn ________. A) is reserved for exclusive use by the CFO B) is primarily used for financial reporting purposes C) stores information used by different managers for multiple purposes D) gathers only nonfinancial information Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking 15) Which of the following is true of cost accounting? A) It is a subset of management accounting and therefore its information is used only to meet the needs of managers. B) It is used only by manufacturers. C) It is part of both management and financial accounting systems. D) The distinction between management accounting and cost accounting is clear-cut. Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking 16) Which of the following deals with management accounting? A) identifying the costs of acquiring the resources of the company B) developing budgets C) preparing the income statement D) preparing the statement of cash flows Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking 17) Financial accounting is concerned primarily with ________. A) external reporting to investors, creditors, and government authorities B) cost planning and cost controls C) product design and marketing strategies D) providing information for strategic and tactical decisions Answer: A Diff: 1 Objective: 1 AACSB: Analytical thinking 4 18) Financial accounting provides a historical perspective, whereas management accounting emphasizes ________. A) the future B) past transaction s C) a current perspective D) reports to shareholders Answer: A Diff: 1 Objective: 1 AACSB: Analytical thinking 19) Rules for measurement and reporting for management accounting ________. A) state that information must only be useful to management. B) do not need to follow GAAP but must meet the cost-benefit test. C) must follow GAAP. D) must follow GAAP, IRS rules or government standards. Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking 20) The approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lower costs of products and services are known as ________. A) value chain management B) enterprise resource planning C) cost management D) customer value management Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking 21) Financial accounting information focuses on internal reporting. Answer: FALSE Explanation: Management accounting information focuses on internal reporting and financial accounting focuses on external reporting. Diff: 1 Objective: 1 AACSB: Analytical thinking 22) Cost accounting provides information for both management accounting and financial accounting professionals. Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking 5 23) Management accounting information and reports do not have to follow set principles or rules such as GAAP but should be useful to its audience and meet the cost/benefit test. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking 24) Management accounting ensures communication of an organization's financial position to investors, banks, and regulators. Answer: FALSE Explanation: Financial accounting, not management accounting, ensures communication of an organization's financial position to investors, banks, and regulators. Diff: 1 Objective: 1 AACSB: Analytical thinking 25) The balance sheet and income statement are primarily management accounting reports. Answer: FALSE Explanation: The balance sheet and income statement are primarily financial accounting reports produced for owners, investors, and other external parties that provide capital or regulate the business. Diff: 1 Objective: 1 AACSB: Analytical thinking 26) Financial accounting is broader in scope than management accounting in that financial accounting can include external reporting and reporting that helps managers plan and control operations. Answer: FALSE Explanation: Management accounting is broader in scope than financial accounting as it can encompass some GAAP issues such as inventory valuation and cost of goods sold and it also provides reporting to help managers make decisions and plan and control operations. Diff: 1 Objective: 1 AACSB: Analytical thinking 27) Cost accounting measures and reports short-term, long-term, financial, and non financial information. Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking 28) Cost accounting is the process of measuring, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking 6 29) Management accounting has to strictly follow the rules of generally accepted accounting principles for the purposes of measurement and reporting. Answer: FALSE Explanation: Internal measures and reports do not have to follow GAAP. Usefulness and the cost/benefit approach are the guiding principles of management accounting. Diff: 2 Objective: 1 AACSB: Analytical thinking 30) For management accounting, internal measurement and reporting are based on cost-benefit analysis. Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking 31) Management accounting report time spans can vary from one hour to many years, while financial accounting report time periods usually span a quarter or a year. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking 32) Financial accounting provides an organization's past-oriented information such as the previous years' financial statements. Answer: TRUE Explanation: Financial accounting provides an organization's past-oriented information such as the previous years' financial statements. Diff: 1 Objective: 1 AACSB: Analytical thinking 33) Cost management not only helps reduce costs but also improve customer satisfaction and the quality of a firm's products. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking 7 34) For each report listed below, identify whether the major purpose of the report is for (1) routine internal reporting, (2) nonroutine internal reporting, or for (3) external reporting to investors and other outside parties. Item: a. study detailing sale information of the top-ten selling products b. weekly report of total sales generated by each store in the metropolitan area c. annual Report sent to shareholders d. monthly report comparing budgeted sales by store to actual sales Answer: a. (2) nonroutine internal reporting b. (1) routine internal reporting c. (3) external reporting to investors and other outside parti es d. (1) routine internal reporting Diff: 3 Objective: 1 AACSB: Application of knowledge 35) Describe management accounting and financial accounting. Answer: Management accounting provides information to internal decision makers of the business such as top executives, managers, sales representatives, and production supervisors. Its purpose is to help managers predict and evaluate future results. Reports are generated often and usually broken down into smaller reporting divisions such as department or product line. There are no rules to be complied with since these reports are for internal use only. Management accounting embraces more extensively such topics as the development and implementation of strategies and policies, budgeting, special studies and forecasts, influence on employee behavior, and nonfinancial as well as financial information. Financial accounting, by contrast, provides information to external decision makers such as investors and creditors. Its purpose is to present a fair picture of the financial condition of the company. Reports are generated quarterly or annually and report on the company as a whole. The financial statements must comply with GAAP (generally accepted accounting principles). A CPA audits, or verifies, that GAAP is being followed. Diff: 3 Objective: 1 AACSB: Analytical thinking 36) Cost accounting provides information for both management accounting and financial accounting professionals. Explain. Answer: Cost accounting is the process of measuring, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization. For example, calculating the cost of a product is a cost accounting function that meets both the financial accountant's inventory-valuation needs and the management accountant's decision-making needs such as deciding how to price products and choosing which products to promote. Diff: 3 Objective: 1 AACSB: Analytical thinking 8 37) There is an overlap or intersection between management accounting and financial accounting. Explain. Answer: Management accounting develops the cost information that is necessary to value inventory for the balance sheet and cost of goods sold for the income statement. GAAP requires absorption costing. Diff: 2 Objective: 1 AACSB: Analytical thinking 38) What competitive advantage could a company obtain from having a successful cost management program? Answer: There are three broad outcomes from a successful cost management program: 1) costs are reduced with no loss in customer value. In this scenario, a company might gain a competitive advantage by lowering its price with no loss in profit, or maintain the same price and increase profit; 2) customer value is increased with no change in costs. This scenario might increase customer satisfaction resulting in increased customer loyalty and perhaps increase the overall demand for the product; 3) customer value might be increased while costs are reduced simultaneously. This scenario would result in the benefits described in both 1) and 2). Diff: 3 Objective: 1 AACSB: Analytical thinking 1.2 Objective 1.2 1) Which of the following statements concerning an organization's strategy is true? A) Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. B) Cost accountants formulate strategy in an organization since they have more inputs about costs. C) A good strategy will always overcome poor implementation. D) Businesses usually follow one of two broad strategies: offering a quality product at a high price, or offering a unique product or service priced lower than the competition. Answer: A Diff: 2 Objective: 2 AACSB: Analytical thinking 2) Strategy specifies ________. A) how an organization matches its own capabilities with the opportunities in the marketplace B) standard procedures to ensure quality products C) incremental changes for improved performance D) the demand created for products and services Answer: A Diff: 2 Objective: 2 AACSB: Analytical thinking 9 3) Which of the following is not a concern for management accountants in formulating a strategy? A) identifying the most important warehouse location for the distribution of goods B) substituting products that exist in the marketplace C) strategizing compliance with GAAP (Generally Accepted Accounting Principles) D) maintaining adequate fixed assets available to implement the strategy Answer: C Explanation: This is more of a concern of financial accountants than of management accountants. Diff: 2 Objective: 2 AACSB: Analytical thinking 4) Strategy is formulated ________. A) by identifying the most important customers B) by forecasting the composition of adequate fixed assets C) based on the qualified opinion of external auditors D) by eliminating sunk costs Answer: A Diff: 2 Objective: 2 AACSB: Analytical thinking 5) In designing strategy, a company must match its opportunities in the marketplace with ________. A) environmental friendly goals B) its resources and capabilities C) branding opportunities D) the requirements of credit rating agencies Answer: B Diff: 2 Objective: 2 AACSB: Analytical thinking 6) Which of the following statements about customer value is true? A) Customer value is shown in a corporation's balance sheet. B) Creating value for customers is an important part of planning and implementing strategy. C) Customer value is the only focus that helps managers to formulate strategies. D) Customer value is lost with increase in costs of the product. Answer: B Diff: 2 Objective: 2 AACSB: Analytical thinking 7) A company's strategy specifies how an organization matches its capabilities with the opportunities in the marketplace. Answer: TRUE Diff: 2 Objective: 2 AACSB: Analytical thinking 10 8) The two broad strategies that companies follow are cost leadership strategy and product differentiation strategy. Answer: TRUE Diff: 1 Objective: 2 AACSB: Analytical thinking 9) The best-designed strategies are valuable, whether or not they are effectively implemented. Answer: FALSE Explanation: Implementation is essential or the strategy is useless. Diff: 1 Objective: 2 AACSB: Analytical thinking 10) The key to a company's success is creating value for customers while differentiating itself from its competitors. Answer: TRUE Diff: 1 Objective: 2 AACSB: Analytical thinking 11) The key to a company's success is always to be the low cost producer in a particular industry. Answer: FALSE Explanation: The low cost producer in a particular industry will not necessarily be successful. Diff: 2 Objective: 2 AACSB: Analytical thinking 12) Management accountants work closely with managers in various departments to formulate strategies by providing information about the sources of competitive advantage. Answer: TRUE Diff: 2 Objective: 2 AACSB: Analytical thinking 13) Management accountants should have little or no role in deciding on a company's strategy. Answer: FALSE Explanation: Management accountants should play a significant role in deciding on a company's strategy. Diff: 1 Objective: 2 AACSB: Analytical thinking 14) Companies can decide on an appropriate strategy based strictly on internally available information. Answer: FALSE Explanation: Companies must obtain external information as well as internal information to decide on an appropriate strategy. Diff: 2 Objective: 2 AACSB: Analytical thinking 11 15) Strategic cost management describes cost management that specifically focuses on strategic issues. Answer: FALSE Explanation: Strategic cost management describes cost management that specifically focuses on strategic issues. Diff: 2 Objective: 2 AACSB: Analytical thinking 16) Identifying a company's most important customers helps to formulate a strategy. Answer: TRUE Diff: 1 Objective: 2 AACSB: Analytical thinking 17) The best-designed strategies and the best-developed capabilities are useless unless they are effectively executed. Answer: TRUE Diff: 1 Objective: 2 AACSB: Analytical thinking 18) Describe the major differences between management accounting and financial accounting for the following: 1. Primary users 2. Focus and emphasis 3. Rules of measurement and reporting Answer: 1. The primary users of management accounting information are managers of the organization. The primary users of financial accounting are external users such as investors, banks, regulators, and suppliers. 2. Management accounting is future oriented. Financial accounting is past oriented. 3. Management accounting measurement and reporting does not have to follow GAAP but are based on cost-benefit analysis. Financial accounting measurement and reporting must be prepared in accordance with GAAP and be certified by external, independent auditors. Diff: 3 Objective: 2 AACSB: Analytical thinking 19) What is strategy? Briefly describe the two broad types of strategies that companies may choose to pursue. Answer: Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. In other words, strategy describes how a company will compete. Companies follow one of two broad strategies. One is provide a quality product or service at low prices. The other is to compete on their ability to offer a unique product or service that is generally offered at a higher price. Diff: 2 Objective: 2 AACSB: Analytical thinking 12 20) Briefly describe the list of items that managers undertake to formulate strategies. Answer: ONE: Identifying the most important customers, and how the company can be competitive and deliver value to them. TWO: Identifying the substitute products existing in the marketplace, and how do they differ from our product in terms of features, price, cost, and quality. THREE: Identifying most critical capabili ty-whether it is technology, production or marketing. FOUR: Checking the adequacy of cash available to fund the strategy, or will additional funds need to be raised-through issue of debt or equity. Diff: 3 Objective: 2 AACSB: Analytical thinking 21) Generally, companies follow one of two broad strategies: offering a quality product at a low price, or offering a unique product or service priced higher than the competition. Assume you are opening a small food outlet across the street from your campus. How might that business be operated under each of the two broad strategies? Consider the following specific operational areas: a. target customers b. products offered c. product pricing d. location choice e. advertising content f. advertising media 13 Answer: The purpose of this question is to explore some of the differences in business operations as a result of a broad strategic choice. Answers will differ from student to student, but you should see some specific themes. Operational Area Target customers Low Price Strategy Target customers might be students on a tight budget. Products offered Few products, heavy emphasis on tight cost control, probably set up as a high volume operation. Priced at or lower than the competition in the area. Convenient to the target customers. Product pricing Location choice Advertising content Advertising would emphasize the low price of the products offered. Advertising media Media that would be looked at by the target customers, such as student newspapers. Differential Strategy Target customers might be more wealthy students, faculty, or perhaps neighbors who live nearby. High quality products, probably a reasonable choice, restaurant might have a lot of ambience. Higher priced products. Not as convenient, perhaps in a higher-end shopping or entertainment area. Customers might seek out the high quality and be willing to travel a bit for it. Advertising would emphasize quality or ambience. Media that would be looked at by the target customer, local magazines and newspapers. Diff: 3 Objective: 2 AACSB: Application of knowledge 22) Generally, companies follow one of two broad strategies: offering a quality product at a low price, or offering a unique product or service priced higher than the competition. Is it possible to follow a strategy that is "in the middle"? Answer: There is some dispute about the correct answer to this question. Some will argue that it is not good for companies to get "caught in the middle" because the customer might get confused as to whether or not the company is competing on price or is trying to make some other appeal. If the customer is confused about how the company is giving them value, they might perceive they are getting no value and abandon the product to a competitor with a clearer customer value proposition. The other side of the argument is that cost management is a necessary part of any strategy and even if the company chooses to pursue a differential strategy, management of the company should always be seeking ways to manage costs and increase customer value simultaneously regardless of their strategy. The student should be able to articulate one or the other arguments coherently. Diff: 3 Objective: 2 AACSB: Application of knowledge 14 1.3 Objective 1.3 1) Place the four business functions in the order they appear along the value chain: Customer service Design Marketing Production A) Customer Service, Design, Production, Marketing B) Customer Service, Marketing, Production, Design C) Design, Production, Marketing, Customer Service D) Design, Customer Service, Production, Marketing Answer: C Diff: 2 Objective: 3 AACSB: Analytical thinking 2) R&D, production, and customer service are business functions that are all included as part of ________. A) the value chain B) benchmarking C) customer relationship management D) the supply chain Answer: A Diff: 1 Objective: 3 AACSB: Analytical thinking 3) The value chain is the sequence of business functions in which ________. A) value is deducted from the products or services of an organization B) producing and delivering the product or service is of prime importance C) products and services are evaluated with respect to their value to the supply chain D) usefulness is added to the products or services of an organization Answer: D Diff: 2 Objective: 3 AACSB: Analytical thinking 4) ________ is the generation of, and experimentation with, ideas related to new products, services, or processes. A) Research and development B) Design of products, services, or processes C) Production D) Marketing Answer: A Diff: 1 Objective: 3 AACSB: Analytical thinking 15 5) ________ is the detailed planning and engineering and testing of products, services, or processes. A) Plan of implementation B) Design C) Production D) Research and development Answer: B Diff: 1 Objective: 3 AACSB: Analytical thinking 6) Production is the ________. A) generation of, and experimentation with, ideas related to new products, services, or processes B) processing orders and shipping products or services to customers C) acquisition, coordination, and assembly of resources to produce a product or deliver a service D) detailed planning and engineering of products, services, or processes Answer: C Diff: 2 Objective: 3 AACSB: Analytical thinking 7) That part of the value chain that includes ordering and shipping the product to retail outlets is ________. A) Customer service B) Production C) Marketing D) Distribution Answer: D Diff: 2 Objective: 3 AACSB: Analytical thinking 8) Which of the following differentiates marketing from customer service? A) Marketing is the process of promoting and selling products or services to customers or prospective customers, whereas customer service is the process of providing after-sales service to customers. B) Marketing is the process of processing orders and shipping products or services to customers, whereas customer service is the process of providing additional information to customers about the product. C) Marketing is the process of detailed planning, engineering, and testing of products and processes, whereas customer service concentrates on existing customers. D) Marketing is the process of processing orders and shipping products or services to customers, whereas customer service is concerned with choosing the right customer for the product. Answer: A Diff: 2 Objective: 3 AACSB: Analytical thinking 16 9) ________ is an after-sale support provided to customers. A) Distribution B) Customer service C) Production D) Marketing Answer: B Diff: 1 Objective: 3 AACSB: Analytical thinking 10) ________ is a strategy that integrates people and technology in all business functions to enhance relationships with customers, partners, and distributors. A) Supply-chain analysis B) Customer relationship management C) Value-chain analysis D) Continuous quality improvement Answer: B Diff: 1 Objective: 3 AACSB: Analytical thinking 11) Customer relationship management initiatives use technology to coordinate all ________. A) advertising and marketing techniques to attract customers B) research activities C) customer-facing activities D) quality control management activities Answer: C Diff: 1 Objective: 3 AACSB: Analytical thinking 12) ________ describes the flow of goods, services, and information from the purchase of materials to the delivery of products to consumers, regardless of whether those activities occur in the same organization or with other organizations. A) Supply chain B) Production process C) Quality control D) Customer relationship management Answer: A Diff: 1 Objective: 3 AACSB: Analytical thinking 17 13) Processing orders and shipping products or providing services to customers is known as ________. A) after-sales services B) distribution C) marketing D) supply chain Answer: B Diff: 1 Objective: 3 AACSB: Analytical thinking 14) ________ is a philosophy in which management improves operations throughout the value chain to deliver products and services that exceed customer expectations. A) Cost-benefit approach B) Customer focus C) Customer relationship management D) Total quality management Answer: D Diff: 1 Objective: 3 AACSB: Analytical thinking 15) Which of the following is an area that customers want to see improved levels of performance? A) higher sales margin B) quality of the product C) lower marginal costs D) profit margins Answer: B Diff: 2 Objective: 3 AACSB: Analytical thinking 16) Which of the following statements about a company's supply chain is true? A) A company's supply chain is always internal to a firm. B) A company's supply chain is always external to a firm. C) A company's supply chain is the same thing as a company's value chain. D) Management accountants provide information to enhance a company's supply chain. Answer: D Diff: 2 Objective: 3 AACSB: Analytical thinking 18 17) When managers determine whether it is less expensive to buy products from a vendor or make them in house they are performing ________. A) Cost-benefit analysis B) Supply-chain analysis C) Value-chain analysis D) Research and development Answer: A Diff: 2 Objective: 3 AACSB: Analytical thinking 18) The ________ function supports the six functions of value-chain analysis. A) controlling B) administration C) planning D) direction Answer: B Diff: 1 Objective: 3 AACSB: Analytical thinking 19) ________ aims to improve operations throughout the value chain and to deliver products and services that exceed customer expectations. A) Total Quality Management B) Innovation C) Customer response time D) Cost and efficiency Answer: A Diff: 1 Objective: 3 AACSB: Analytical thinking 20) New-product development time is the time taken to ________. A) test the prototype and start the large scale production of a product B) design and develop the prototype product C) create new products and bring them to market D) improvise existing products and re-launch them to market Answer: C Diff: 2 Objective: 3 AACSB: Analytical thinking 19 21) Customer response time involves ________. A) the speed it takes a customer to respond to an advertisement and place an order B) the speed at which an organization responds to customer requests C) the speed it takes to develop a new product D) the speed it takes an organization to develop a Total Quality Management (TQM) program Answer: B Diff: 2 Objective: 3 AACSB: Analytical thinking 22) Sustainability is a strategy to achieve long term ________. A) cost reductions and efficiency objectives. B) financial and quality goals. C) financial, social, and environmental goals. D) innovation and technology goals. Answer: C Diff: 2 Objective: 3 AACSB: Analytical thinking 23) The supply chain refers to the sequence of business functions in which customer usefulness is added to products or services. Answer: FALSE Explanation: The value chain refers to the sequence of business functions in which customer usefulness is added to products or services. Diff: 2 Objective: 3 AACSB: Analytical thinking 24) An effective way to cut costs is to eliminate activities that do NOT improve the product attributes that customers value. Answer: TRUE Diff: 1 Objective: 3 AACSB: Analytical thinking 25) For optimal planning success it is best if each business function within the value chain is performed one at a time in sequence. Answer: FALSE Explanation: Optimally, success is achieved when two or more of the individual business functions work concurrently as a team. Diff: 2 Objective: 3 AACSB: Analytical thinking 26) For best results, cost management emphasizes independently coordinating supply chain activities within your company and with other companies that act as suppliers and customers. Answer: TRUE Diff: 2 Objective: 3 AACSB: Analytical thinking 20 27) Technological innovation has led to shorter product-life cycles and increased the need to bring new products to market more rapidly. Answer: TRUE Diff: 1 Objective: 2 AACSB: Analytical thinking 28) Management accounting information helps managers calculate a target cost for a product by subtracting from the target price the net income per unit of product that the company wants to earn. Answer: FALSE Explanation: Management accounting information helps managers calculate a target cost for a product by subtracting from the target price the operating income per unit of product that the company wants to earn. Diff: 2 Objective: 2 AACSB: Analytical thinking 29) Customer relationship management initiatives use technology to coordinate all customer-facing activities (such as marketing, sales calls, distribution, and after-sales support) and the design and production activities necessary to get products to customers. Answer: TRUE Diff: 2 Objective: 3 AACSB: Analytical thinking 30) The supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers. Answer: TRUE Diff: 2 Objective: 3 AACSB: Analytical thinking 31) The supply chain always occurs within a single organization. Answer: FALSE Explanation: The supply chain can include organizations external to a single organization. Diff: 1 Objective: 3 AACSB: Analytical thinking 32) Distribution refers to promoting and selling products or services to customers or prospective customers. Answer: FALSE Explanation: Marketing refers to promoting and selling products or services to customers or prospective customers. Diff: 1 Objective: 3 AACSB: Analytical thinking 21 33) The design of products, services, and processes component of the supply chain refers to the detailed planning, engineering, and testing of products and processes. Answer: TRUE Diff: 2 Objective: 3 AACSB: Analytical thinking 34) Management accountants might provide information on decisions on whether to buy a product from outside or manufacture it in-house. Answer: TRUE Diff: 1 Objective: 3 AACSB: Analytical thinking 35) The parts of the value chain associated with producing and delivering a product or service– production and distribution – are referred to as the supply chain. Answer: TRUE Diff: 2 Objective: 3 AACSB: Analytical thinking 36) Value chain refers to its value to the employee. Answer: FALSE Explanation: Value chain refers to its value to the customer. Diff: 1 Objective: 3 AACSB: Analytical thinking 37) Managers track the costs incurred in each value-chain category is to reduce costs and to improve efficiency. Answer: TRUE Diff: 1 Objective: 3 AACSB: Analytical thinking 38) Competitive information serves as a benchmark that managers use to continuously improve their operations. Answer: TRUE Diff: 1 Objective: 3 AACSB: Analytical thinking 39) Increased global competition is placing pressure on companies to reduce costs. Answer: TRUE Diff: 1 Objective: 3 AACSB: Analytical thinking 22 40) The increasing pace of technological information has resulted in longer product life cycles. Answer: FALSE Explanation: The increasing pace of technological information has resulted in shorter product life cycles. Diff: 2 Objective: 3 AACSB: Application of knowledge 41) Managers rely on management accounting information to evaluate alternative investment and R&D decisions. Answer: TRUE Diff: 1 Objective: 3 AACSB: Analytical thinking 42) Classify each cost item into one of the business functions of the value chain, either (1) R&D, (2) design, (3) production, (4) marketing, (5) distribution, or (6) customer service. Item: a. cost of samples mailed to promote sales of a new product b. labor cost of workers in the manufacturing plant c. bonus paid to a person with a 90% satisfaction rating in handling customers with complaints d. transportation costs for shipping products to retail outlets Answer: a. (4) marketing b. (3) production c. (6) customer service d. (5) distribution Diff: 3 Objective: 3 AACSB: Application of knowledge 23 43) Classify each cost item of Ripon Printers given below into one of the business functions of the value chain, either (1) R&D, (2) design of products and processes, (3) production, (4) marketing (including sales), (5) distribution, or (6) customer service. Item: a. cost of customer order forms b. cost of paper used in manufacture of books c. cost of paper used in packing cartons to ship books d. cost of paper used in display at national trade show e. depreciation of trucks used to transport books to college bookstores f. cost of the wood used to manufacture paper g. salary of the scientists attempting to find another source of printing ink h. cost of designing the book size so that a standard-sized box is filled to capacity Answer: a. (4) marketing (including sales) b. (3) production c. (5) distribution d. (4) marketing (including sales) e. (5) distribution f. (3) production g. (1) research and development h. (2) design of products and processes Diff: 3 Objective: 3 AACSB: Application of knowledge 44) Describe the value chain and how it can help organizations become more effective. Answer: A value chain is a sequence of business functions whose objective is to provide a product to a customer or provide an intermediate good or service in a larger value chain. These business functions include R&D, design, production, marketing, distribution, and customer service. An organization can become more effective by focusing on whether each link in the chain adds value from the customer's perspective by focusing on the organization's objectives. Diff: 2 Objective: 3 AACSB: Application of knowledge 24 45) Value chain and classification of costs, car company. General Motors incurs the following costs: a. Electricity costs for the plant assembling the Chevrolet Camaro b. Transportation costs for shipping the Camaro to dealers c. Payment to Shelby Designs for the design of the Camaro. d. Salary of an engineer working on the next generation of Camaros e. Cost of GM employees' visit to an auto show to demonstrate the Camaro f. Testing the Camaro at the GM track g. Payment to television network for running Camaro advertisements h. Cost of brake pads purchased from outside supplier to be installed on the Camaro Required: Classify each of the cost items (a-h) into one of the business functions of the value chain. 1) Research and development 2) Design of products and processes 3) Production 4) Marketing and sales 5) Distribution 6) Customer service Answer: a. 3) Production b. 5) Distribution c. 2) Design of products and processes d. 1) Research and development e. 4) Marketing and sales f. 2) Design of products and processes g. 4) Marketing and sales h. 3) Production Diff: 3 Objective: 3 AACSB: Application of knowledge 25 1.4 Objective 1.4 1) Place the five steps in the decision-making process in the correct order: A = Obtain information B = Make decisions by choosing among alternatives C = Identify the problem and uncertainties D = Implement the decision, evaluate performance, and learn E = Make predictions about the future A) C D B E A B) E D A B C C) C A E B D D) A E B D C Answer: C Diff: 2 Objective: 4 AACSB: Analytical thinking 2) Which of the following is true of planning in decision making? A) It helps an organization to select goals and strategies. B) It improves the quality of products. C) It helps in evaluating performance. D) It helps in the analysis of actual performance. Answer: A Diff: 1 Objective: 4 AACSB: Analytical thinking 3) Which of the tools shown below would be the most effective planning tool? A) performance evaluation report B) fishbone diagram C) control chart D) budget Answer: D Diff: 2 Objective: 4 AACSB: Analytical thinking 4) A report showing the actual financial results for a period compared to the budgeted financial results for that same period would most likely be called a ________. A) strategic plan B) management forecast C) performance report D) revised plan Answer: C Diff: 2 Objective: 4 AACSB: Analytical thinking 26 5) A budget ________. A) is the qualitative expression of a proposed plan of action by management B) is an aid for coordinating what needs to be done to execute a plan C) helps in identifying problems and uncertainties D) promotes production automation Answer: B Diff: 2 Objective: 4 AACSB: Analytical thinking 6) Management accountants serve as key business partners in the planning process because they understand the key ________ factors that create ________. A) success ... value B) accounting .... profits C) financial ... value. D) success ..... income Answer: A Diff: 1 Objective: 4 AACSB: Analytical thinking 7) A budget serves as much as a control tool as a planning tool because ________. A) it aids in the coordination and communication among various business functions B) it helps to evaluate customer needs and feedback C) it is a benchmark against which actual performance can be compared D) it helps to make predictions about the future Answer: C Diff: 2 Objective: 4 AACSB: Analytical thinking 8) Which of the following is an example of an extrinsic reward? A) receiving a high rating on customer service B) appreciation mail from a customer C) promotions based on performance D) verbal appreciation from CEO Answer: C Diff: 1 Objective: 4 AACSB: Application of knowledge 27 9) Which of the following is an example of an intrinsic reward? A) bonuses paid to employees B) recognition of job well done C) promotions based on performance D) salaries paid to employees Answer: B Diff: 1 Objective: 4 AACSB: Application of knowledge 10) Linking rewards to performance ________. A) helps to motivate managers B) allows companies to charge premium prices C) should only be based on financial information D) enhances agency costs Answer: A Diff: 2 Objective: 4 AACSB: Analytical thinking 11) Control measures should ________. A) be set and not changed until the next budget cycle so as to provide an effective benchmark B) be set by excluding nonfinancial information C) be kept confidential from employees so that competitors don't have an opportunity to gain a competitive advantage D) be linked by feedback to help learning and future planning Answer: D Diff: 2 Objective: 4 AACSB: Analytical thinking 12) A well-conceived plan allows managers the ability to ________. A) set static goals and still be flexible B) control lower-level managers from implementing change C) conservatively estimate costs so that actual operating results will be favorable when comparisons are made D) take advantage of unforeseen opportunities Answer: D Diff: 2 Objective: 4 AACSB: Analytical thinking 28 13) Which of the following statements is true of performance reports? A) The performance report shows actual performance as compared to the budget. B) The performance report depicts the performance of a firm's competitors. C) The performance report compares only the budgeted performance over the years. D) The performance report contains no actual results due to confidentiality. Answer: A Diff: 2 Objective: 4 AACSB: Analytical thinking 14) Examining past performance and exploring alternative ways to make better informed decisions in the future is ________. A) control B) planning C) learning D) implementation Answer: C Diff: 2 Objective: 4 AACSB: Analytical thinking 15) The last step in the decision-making process is to make decisions by choosing among alternatives. Answer: FALSE Explanation: The last step in the decision-making process is to implement the decision, evaluate performance, and learn. Diff: 1 Objective: 4 AACSB: Analytical thinking 16) One of the steps in planning is evaluating the performance and taking corrective measures. Answer: FALSE Explanation: Evaluating the performance and taking corrective measures is a benefit to installing a budgeting system. This is not one of the steps in planning, but a guideline for management.. Diff: 2 Objective: 4 AACSB: Analytical thinking 17) A budget helps to control activities by adhering to the prescribed plan. Answer: TRUE Diff: 1 Objective: 4 AACSB: Analytical thinking 18) To take advantage of changing market opportunities, the annual budget should be strictly enforced. Answer: FALSE Explanation: To take advantage of changing market opportunities, the annual budget should be updated to reflect those changes. Diff: 2 Objective: 4 AACSB: Analytical thinking 29 19) A budget is a qualitative expression of a plan. Answer: FALSE Explanation: Explanation: A budget is a quantitative expression of a plan. Diff: 1 Objective: 4 AACSB: Analytical thinking 20) The process of preparing a budget encourages coordination and communication throughout the company. Answer: TRUE Diff: 1 Objective: 4 AACSB: Analytical thinking 21) Linking rewards to performance helps motivate managers and leads to good management performance. Answer: TRUE Diff: 1 Objective: 4 AACSB: Analytical thinking 22) Control comprises taking actions that implement the planning decisions, evaluating past performance, and providing feedback and learning to help future decision making. Answer: TRUE Diff: 1 Objective: 4 AACSB: Analytical thinking 23) A budget can only be used as a planning tool. Answer: FALSE Explanation: A budget may be used as a planning tool and also as a control tool. Diff: 1 Objective: 4 AACSB: Analytical thinking 24) Gathering information before making a decision is not efficient within the decision-making process. Answer: FALSE Explanation: Gathering information before making a decision helps managers gain a better understanding of uncertainties. Diff: 1 Objective: 4 AACSB: Analytical thinking 25) Evaluating actual performance, receiving feedback and learning from that feedback helps in the future decision-making process. Answer: TRUE Diff: 1 Objective: 4 AACSB: Analytical thinking 30 26) Bonuses given to employees based on performance is an example of extrinsic reward. Answer: TRUE Diff: 2 Objective: 4 AACSB: Application of knowledge 27) A budget is a benchmark against which actual performance can be compared. Answer: TRUE Diff: 2 Objective: 4 AACSB: Analytical thinking 28) A performance report compares actual performance to the amount budgeted. Answer: TRUE Diff: 1 Objective: 4 AACSB: Analytical thinking 29) Management accounting is playing an increasingly important role by helping managers develop and implement strategy. Answer: TRUE Diff: 1 Objective: 4 AACSB: Analytical thinking 30) In order, list the five steps in the decision-making process. Answer: 1. Identify the problem and uncertainties 2. Obtain information 3. Make predictions about the future 4. Make decisions by choosing among alternatives 5. Implement the decision, evaluate performance, and learn Diff: 2 Objective: 4 AACSB: Analytical thinking 31 31) For each type of report listed below, identify one planning decision and one controlling decision for which the information would be helpful. Assume you are a Walgreen Company store. Item: a. annual financial statements for the past three years b. report detailing sales by department by each hour of the day for the past week c. special study regarding increased road traffic due to the construction of a new shopping mall at a near-by intersection Answer: Please note that answers will vary, but may include the following: a. Planning: Decision by shareholder about whether to purchase more stock in the company. Control: Decision by bank to determine if financial ratios maintained in the line-of-credit (LOC) agreement warrant increasing the LOC amount. b. Planning: Decisions regarding future staffing needs. Control: Decision regarding whether the recent sales promotion led to an increase in revenue. c. Planning: Decision of the store manager about whether to change the types of retail items carried. Control: Decision of the store manager regarding performance of the analyst that prepared the special study. Diff: 3 Objective: 4 AACSB: Application of knowledge 32) Briefly explain the planning and control activities in management accounting. How are these two activities linked to each other? Answer: Planning business operations relates to designing, producing, and marketing a product or service. This includes preparing budgets and determining the prices and cost of products and services. A company must know the cost of each product and service to decide which products to offer and whether to expand or discontinue product lines. Controlling business operations includes comparing actual results to the budgeted results and taking corrective action when needed. Feedback links planning and control. The control function provides information to assist in better future planning. Diff: 3 Objective: 4 AACSB: Analytical thinking 33) Explain how a budget can help management implement strategy. Answer: A budget is a planning tool, a quantitative expression of a plan of action. First, actions are planned and then they are communicated to the entire organization. The budget also helps with coordination. Diff: 1 Objective: 4 AACSB: Analytical thinking 32 34) What is planning in decision making? Explain how a budget helps in planning. Answer: Planning consists of selecting an organization's goals and strategies, predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and communicating the goals and how to achieve them to the entire organization. Management accountants serve as business partners in these planning activities because they understand the key success factors and what creates value. The most important planning tool when implementing strategy is a budget. A budget is the quantitative expression of a proposed plan of action by management and is an aid to coordinating what needs to be done to execute that plan. It helps in the production, distribution, and customer-service costs to achieve the company's sales goals; the anticipated cash flows; and the potential financing needs. Diff: 3 Objective: 4 AACSB: Analytical thinking 35) Complete a performance report for the month of May, 2018, for First News Corp, a regional newspaper showing four columns: 1) Actual Result; 2) Budgeted Amount; 3) Difference: Actual Result minus Budgeted Amount; 4) Difference as a Percentage of Budgeted Amount, given the following data: Actual pages sold Budgeted advertising pages Actual Advertising revenue Budgeted Advertising revenue 600 510 $4,200,000 $4,000,000 Does the report indicate any cause for managerial investigation? Answer: The performance report should look something like the following: Actual Result (1) Advertising pages sold Average rate per page (Advertising Revenues) / (Advertising pages sold) Advertising revenues Budgeted Amount (2) 600 pages 510 pages $7,000 $7,843.14 Difference (Actual Result - Budgeted Amount) (3) = (1) - (2) 90 pages Favorable Difference as a Percentage of Budgeted Amount (4) = (3) / (2) 17.6% Favorable $843.14 Unfavorable 10.75% Unfavorable $4,200,000 $4,000,000 $200,000 Favorable 5% Favorable The overall 5% favorable difference in advertising revenue is caused by offsetting differences in advertising pages sold (favorable) and the average rate per page (unfavorable). The performance report highlights the favorable increase in the advertising pages sold. The percentage drop in advertising revenue per page is marginal in comparison with the favorable increase of the pages sold. Diff: 3 Objective: 4 AACSB: Application of knowledge 33 1.5 Objective 1.5 1) Which of the following is a guideline used by management accountants to assist in strategic and operational decision making? A) employing a cost-benefit approach B) employing a supply chain approach C) employing a six sigma approach D) employing a regression approach Answer: A Diff: 1 Objective: 5 AACSB: Analytical thinking 2) The scenario that says resources should be spent if the expected benefits to the company exceed the expected costs describes ________. A) cost-benefit approach B) behavioral and technical considerations C) balanced scorecard D) different costs for different purposes Answer: A Diff: 1 Objective: 5 AACSB: Analytical thinking 3) Which of the following is true of a budgeting system? A) It compels managers to plan ahead. B) It increases agency costs. C) It is easy to measure the exact benefits of a budgeting system. D) It leads to operational inefficiency. Answer: A Diff: 2 Objective: 5 AACSB: Analytical thinking 4) In a cost-benefit approach, managers should spend resources if the ________. A) marginal costs to the company exceed the marginal benefits B) expected benefits to the company exceed the expected costs C) marginal costs to the company equal the marginal benefits D) expected benefits to the company equal the expected costs Answer: B Diff: 3 Objective: 5 AACSB: Analytical thinking 34 5) Technical consideration ________. A) help managers make wise economic decisions by providing them with the desired information B) focuses on encouraging individuals to do their jobs better C) focuses on compensating the managers for good performance D) emphasize on different costs for different purposes Answer: A Diff: 2 Objective: 5 AACSB: Analytical thinking 6) Which of the following statements about the cost-benefit approach is true? A) Resources should be spent if the expected costs exceed the expected benefits of the company. B) In a cost-benefit analysis, both costs and benefits are not easy to measure. C) Resources should be spent if the costs of a decision outweigh the benefits of the decision. D) A cost-benefit approach would not be appropriate for a decision to install a budgeting system. Answer: B Diff: 2 Objective: 5 AACSB: Analytical thinking 7) Exact quantification of costs and benefits is not always possible when making a decision. Answer: TRUE Diff: 1 Objective: 5 AACSB: Analytical thinking 8) The technical considerations of budgeting encourage managers and other employees to strive for achieving the goals of the organization. Answer: FALSE Explanation: The behavioral considerations of budgeting encourage managers and other employees to strive for achieving the goals of the organization. Diff: 2 Objective: 5 AACSB: Analytical thinking 9) A cost concept used for the purposes of external reporting will always be appropriate for internal reporting. Answer: FALSE Explanation: A cost concept used for the purposes of external reporting may not be appropriate for internal, routine reporting. For external reporting, GAAP requires costs to be fully expenses in the year they are incurred. However, those costs could be capitalized and than amortized or written off as expenses over several years. Diff: 2 Objective: 5 AACSB: Analytical thinking 35 10) Accounting methods for internal reporting purposes are specified by Generally Accepted Accounting Principles (GAAP). Answer: FALSE Explanation: Accounting methods for internal reporting are not specified by Generally Accepted Accounting principles (GAAP). Diff: 2 Objective: 5 AACSB: Analytical thinking 11) Discuss the cost-benefit approach guideline management accountants use to provide value in strategic decision making. Answer: Management accountants continually face resource allocation decisions. The cost-benefit approach should be used in making these decisions. Resources should be spent if the expected benefits to the company exceed the expected costs. The expected benefits and costs may not be easy to quantify, but it is a useful approach for making resource allocation decisions. Companies now use budgeting system that compels managers to plan ahead, compare actual to budgeted information, learn, and take corrective action. Diff: 3 Objective: 5 AACSB: Analytical thinking 12) Discuss the behavioral considerations that provide value to strategic decision making. Answer: Management is primarily a human activity that should focus on encouraging individuals to do their jobs better. Budgets have a behavioral effect by motivating and rewarding employees for achieving an organization's goals. So, when workers underperform, for example, behavioral considerations suggest that managers need to discuss ways to improve their performance with them rather than just sending them a report highlighting their underperformance. Diff: 3 Objective: 5 AACSB: Analytical thinking 1.6 Objective 1.6 1) Which of the following is true of line management? A) It is directly responsible for achieving the goals of the organization. B) It is responsible of management accounting functions. C) It provides advice, support, and assistance to staff management. D) It only includes the top level management. Answer: A Diff: 2 Objective: 6 AACSB: Analytical thinking 36 2) Which of the following is true of staff management? A) It plans income taxes, sales taxes, and international taxes. B) It is directly responsible for achieving the goals of the organization. C) It provides advice, support, and assistance to line management. D) It controls the main business functions such as production and marketing. Answer: C Diff: 2 Objective: 6 AACSB: Analytical thinking 3) ________ includes providing financial information for reports to managers and shareholders, and overseeing the overall operations of the accounting system. A) Risk management B) Treasury management C) Controllership D) Strategic planning Answer: C Diff: 1 Objective: 6 AACSB: Analytical thinking 4) ________ includes banking and short- and long-term financing, investments, and cash management. A) Risk management B) Strategic planning C) Controllership D) Treasury management Answer: D Diff: 1 Objective: 6 AACSB: Analytical thinking 5) Line management includes ________. A) distribution managers B) human-resource managers C) information-technology managers D) management-accounting managers Answer: A Diff: 1 Objective: 6 AACSB: Analytical thinking 6) Staff management includes ________. A) manufacturing managers B) management accountants C) purchasing managers D) distribution managers Answer: B Diff: 1 Objective: 6 AACSB: Application of knowledge 37 7) Which of the following is a responsibility of the CFO? A) budget funds for a plant upgrade B) managing short-term and long-term financing C) investing in new equipment D) conducting internal audit Answer: B Diff: 2 Objective: 6 AACSB: Analytical thinking 8) The ________ is primarily responsible for management accounting and financial accounting. A) COO (Chief Operating Officer) B) CIO (Chief Information Officer) C) treasurer D) controller Answer: D Diff: 2 Objective: 6 AACSB: Analytical thinking 9) Which of the following reports to the CFO? A) external auditor B) distribution manager C) production manager D) treasurer Answer: D Diff: 2 Objective: 6 AACSB: Application of knowledge 10) Which of the following is a function of a controller? A) operations administration B) controlling the stock price C) communication with the shareholders D) interest-rate risk management Answer: A Explanation: Found in exhibit 1-6 Diff: 2 Objective: 6 AACSB: Analytical thinking 11) Arrangement of long-term financing is an integral part of the ________ function in an organization. A) CFO's B) controller's C) auditor's D) president's Answer: A Diff: 1 Objective: 6 AACSB: Analytical thinking 38 12) Line management is directly responsible for attaining the goals of the organization. Answer: TRUE Diff: 1 Objective: 6 AACSB: Analytical thinking 13) Staff management, such as management accountants and information technology and humanresources management, provides advice, support, and assistance to line management. Answer: TRUE Diff: 1 Objective: 6 AACSB: Analytical thinking 14) Treasury includes banking and short- and long-term financing, investments, and cash management. Answer: TRUE Diff: 1 Objective: 6 AACSB: Analytical thinking 15) The controller is usually responsible for budgeting. Answer: TRUE Diff: 1 Objective: 6 AACSB: Analytical thinking 16) The treasurer (also called the chief accounting officer) is the financial executive primarily responsible for both management accounting and financial accounting. Answer: FALSE Explanation: The controller is also called the chief accounting officer. The controller is the financial executive primarily responsible for both management accounting and financial accounting. Diff: 2 Objective: 6 AACSB: Analytical thinking 17) Management accountants must work well in cross-functional teams and as a business partner. Answer: TRUE Diff: 1 Objective: 6 AACSB: Analytical thinking 18) A company's CFO oversees banking and short- and long-term financing, investments, and cash management. Answer: TRUE Diff: 2 Objective: 6 AACSB: Analytical thinking 39 19) Management accountants must promote fact-based analysis and make tough-minded, critical judgments without being adversarial. Answer: TRUE Diff: 1 Objective: 6 AACSB: Analytical thinking 20) What areas of responsibility does a chief financial officer have in a typical organization? Answer: The responsibilities vary among organizations, but generally include the following areas: controllership, treasury, risk management, taxation, investor relations, and internal audit. Diff: 2 Objective: 6 AACSB: Analytical thinking 21) The successful management accountant possesses several skills and characteristics that reach well beyond basic analytical abilities. Discuss. Answer: The skills required are as follows: Management accountants must work well in cross-functional teams and as a business partner. They must promote fact-based analysis and make tough-minded, critical judgments without being adversarial. They must lead and motivate people to change and be innovative. They must communicate clearly, openly, and candidly. They must have a strong sense of integrity. Diff: 3 Objective: 6 AACSB: Analytical thinking 1.7 Objective 1.7 1) Which of the following issues is addressed by the Sarbanes-Oxley legislation? A) safety aspects of products B) environmental damages caused by industries C) disclosure practices of public corporations D) disclosure practices of private companies Answer: C Diff: 2 Objective: 7 AACSB: Analytical thinking 2) The Standards of Ethical Conduct for management accountants include concepts related to ________. A) competence, performance, diligence, and reporting B) competence, confidentiality, integrity, and credibility C) experience, diligence, reporting, and objectivity D) diligence, objectivity, conflicts of interest, and credibility Answer: B Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 40 3) Which item is an indication of competence under the Standards of Ethical Conduct? A) Maintain an appropriate level of professional expertise by continually developing knowledge and skills. B) Keep information confidential except when disclosure is authorized or legally required. C) Abstain from engaging in or supporting any activity that might discredit the profession. D) Refrain from engaging in any conduct that would prejudice carrying out duties ethically. Answer: A Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 4) Which of the following differentiates confidentiality and credibility under the Standards of Ethical Conduct? A) Credibility deals with refraining from activities that would prejudice carrying duties ethically, while confidentiality deals with communicating information fairly and objectively. B) Confidentiality deals with refraining from the usage of critical information for unethical or illegal advantage, while credibility ensures disclosing the relevant information that would help the intended user's understanding. C) Credibility deals with refraining from the usage of critical information for unethical or illegal advantage, while confidentiality ensures disclosing the relevant information that would help the user's understanding. D) Credibility ensures appropriate level of professional expertise by continually developing knowledge and skills, while confidentiality encourages mitigation of actual conflicts of interest. Answer: B Diff: 3 Objective: 7 AACSB: Ethical understanding and reasoning 5) Which item is an indication of integrity under the Standards of Ethical Conduct? A) Refrain from engaging in any conduct that would prejudice carrying out duties ethically. B) Communicate information fairly and objectively. C) Keep information confidential except when disclosure is authorized or legally required. D) Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. Answer: A Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 6) Which item is an indication of credibility under the Standards of Ethical Conduct? A) Maintain an appropriate level of professional expertise by continually developing knowledge and skills. B) Refrain from using confidential information for unethical or illegal advantage. C) Abstain from engaging in or supporting any activity that might discredit the profession. D) Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. Answer: D Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 41 7) Ethical challenges for management accountants include ________. A) whether to accept gifts from suppliers, knowing it is an effort to indirectly influence decisions B) adhering to the principles of accounting C) whether to file a tax return this year D) whether to accept gifts higher incentives from the company for their performance Answer: A Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 8) Which of the following actions should a management accountant take first in confronting a potential ethical conflict concerning your direct supervisor? A) Inform the Board of Directors of the existence of a potential conflict. B) Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor. C) Consult the attorney as to legal obligations and rights concerning the ethical conflict. D) Follow the organization's procedures concerning resolution of such a conflict. Answer: D Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 9) If there is an ethical conflict concerning your direct supervisor, you should first contact ________. A) the local media B) an IMA Ethics Counselor C) an attorney D) the board of directors Answer: D Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 10) If there is an ethical conflict concerning your direct supervisor, when is it appropriate to contact authorities or individuals not employed by the organization? A) when there is a personal conflict B) when your supervisor is about to be promoted C) when there is a clear violation of the law D) when you face injustice from your supervisor Answer: C Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 11) Competence includes maintaining an appropriate level of professional expertise by continually developing knowledge and skills. Answer: TRUE Explanation: Competence includes maintaining an appropriate level of professional expertise by continually developing knowledge and skills. Diff: 1 Objective: 7 AACSB: Ethical understanding and reasoning 42 12) As part of the Sarbanes-Oxley Act, internal auditors are solely responsible for the fair representation of the business operations in the financial statements. Answer: FALSE Explanation: As part of the Sarbanes-Oxley Act, CEOs and CFOs must certify that the financial statements of their firms fairly represent the results of their operations. Diff: 2 Objective: 7 AACSB: Analytical thinking 13) A management accountant who is not capable of completing a project because her skills, knowledge, and abilities are lacking could be ethically in violation of the competence standard. Answer: TRUE Diff: 1 Objective: 7 AACSB: Ethical understanding and reasoning 14) As per IMA statement of ethical professional practice, integrity refers to disclosing all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations is a responsibility. Answer: FALSE Explanation: As per IMA statement of ethical professional practice, credibility refers to disclosing all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations is a responsibility. Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 15) Performing professional duties in accordance with relevant laws, regulations, and technical standards is a competent responsibility. Answer: TRUE Diff: 1 Objective: 7 AACSB: Ethical understanding and reasoning 16) If a managerial accountant suspected his or her immediate superior of unethical behavior, who happens to be a chief executive officer or equivalent, the managerial accountant should request an immediate meeting with the executive committee or the audit committee. Answer: TRUE Explanation: If a managerial accountant suspected his or her immediate superior of wrongdoing, the managerial accountant should first present the situation to the next higher managerial level. Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 17) The Institute of Management Accountants provides a hotline to discuss ethical issues. Answer: TRUE Diff: 1 Objective: 7 AACSB: Analytical thinking 43 18) When faced with a potential ethical conflict, the managerial accountant should first consult IMA ethics counselor. Answer: FALSE Explanation: The managerial account should first discuss the issue with their immediate supervisor except when it appears that the supervisor is involved. In that case, present the issue to the next level. Diff: 1 Objective: 7 AACSB: Ethical understanding and reasoning 19) IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Answer: TRUE Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 20) Integrity is to abstain from engaging in or supporting any activity that might discredit the profession. Answer: TRUE Diff: 1 Objective: 7 AACSB: Ethical understanding and reasoning 21) List the four standards of ethical conduct for management accountants. For each standard, give an example that demonstrates compliance with that standard. Answer: Please note that answers may vary, but may include the following: 1. Competence: Maintain an appropriate level of professional expertise by continually developing knowledge and skills 2. Confidentiality: Refrain from using confidential information for unethical or illegal advantage 3. Integrity: Abstain from engaging in or supporting any activity that might discredit the profession 4. Credibility: Communicate information fairly and objectively Diff: 2 Objective: 7 AACSB: Ethical understanding and reasoning 44 22) You have been employed as an entry-level management accountant for a little under a year. You suspect that your immediate supervisor is involved in a significant fraud involving diverting of company assets to personal use. Briefly describe the steps you might take to resolve this dilemma. Answer: The management accountant should first consult any internal company procedures concerning the resolution of ethical issues, and make sure these procedures are followed as closely as possible. If these policies do not resolve the situation, present the facts to the next higher managerial level. If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Clarify the relevant ethical issues with an objective advisor (e.g., Institute of Management Accountants hotline). Consult your own attorney to be aware of your own rights and responsibilities. If all internal review procedures have still not resolved the ethical situation, the managerial accountant might have to resign and write an informative letter to an appropriate representative of the organization, and perhaps notify other parties. Diff: 3 Objective: 7 AACSB: Ethical understanding and reasoning 45