Basic Concepts

MODULE 1 A. decision making C. directing operational activities

BASIC CONCEPTS IN MANAGEMENT ACCOUNTING B. planning D. only A and B Bobadilla

1. The major functions of management is (are): 7. Which of the following statements is true when comparing managerial accounting to financial
A. strategic management and long-range planning. accounting?
B. planning and decision making. A. Managerial accounting places more emphasis on precision than financial accounting.
C. identifying threats and opportunities for the firm. B. Both are highly dependent on timely information.
D. all of the above. Bobadilla C. Both rely on the same accounting information system.
D. Managerial accounting is concerned with external decision makers. Bobadilla
2. The process of identifying, measuring, analyzing, interpreting, and communicating information
in pursuit of an organization's goals is called 8. Which of the following is true of managerial accounting rather than financial accounting?
A. managerial accounting C. management A. The outputs of this accounting system are the primary financial statements.
B. financial accounting D. promotional activities Bobadilla B. The methods of this accounting system are established by an overseeing board.
C. The accounting methods are standardized to allow comparisons among companies.
3. The primary objective of management accounting is D. The accounting system would be unique to each company. Bobadilla
A. to provide stockholders and potential investors with useful information for decision
making. 9. Management accountings role in the control processes is to provide
B. to provide banks and other creditors with information useful in making credit decisions. A. managers with information that can be used to determine customer satisfaction levels.
C. to provide management with information useful for planning and control of operations. B. investors and creditors information on the financial stability of the company.
D. to provide supervising government agencies with information about the companys C. managers with relevant information to compare with expectations.
management affairs. Bobadilla D. input to managers on the best ways to achieve continuous improvement in the production
process. Bobadilla
4. Management accounting information
A. uses historical cost as the basis for reports to managers who are making decisions about 10. Which of the following statements are true regarding financial and managerial accounting?
future courses of action. I. Both are mandatory.
B. should be developed and provided only if its benefits exceed its costs. II. Both rely on the same underlying financial data.
C. does not reflect the financial criteria of verifiability or consistency. III. Both emphasize the segments of an organization, rather than just looking at the
D. should serve the basic needs of investors and creditors. Bobadilla organization as a whole.
IV. Both are geared to the future, rather than to the past.
5. Which of the following is included in the day-to-day work of the management team? A. I, II, III, and IV C. Only II and III
A. decision making C. controlling B. Only II, III and IV D. Only II Bobadilla
B. planning D. all of the above Bobadilla
11. Managerial accounting activity adds value to an organization by pursuing five major objectives,
6. Paying rent, purchasing supplies, and purchasing inventory are which of the day-to-day work which include
activities of the management team? A. providing information for decision making and planning.

1
 Basic Concept

B. measuring the performance of activities within an organization. A. It involves decision for the future
C. assisting managers in directing and controlling operational activities. B. It broader in scope and varied in nature
D. all of them Bobadilla C. It utilizes more junior staff than senior members of the firm
D. It relates to specific problems where expert help is required Bobadilla
12. Managerial accounting places considerable weight on:
A. generally accepted accounting principles. 17. Which of the following statements is incorrect?
B. the financial history of the entity. A. CPAs provide management advisory services to go around the ethical constraints as
C. ensuring that all transactions are properly recorded. mandated by the Accountancy Law.
D. detailed segment reports about departments, products, and customers. Bobadilla B. Businesses hire management consultants to help define specific problems and develop
solutions.
13. Which of the following statement is FALSE? C. CPAs who are performing management advisory services may be considered to be in the
A. Managerial accounting need not conform to GAAP. practice of management consulting.
B. Financial accounting reports focus on subunits of the organization. D. Included in the practice of consulting is the provision of confidential service in which the
C. Managerial accounting is not required identity of the client is concealed. (RPCPA)
D. Managerial accounting focuses on the needs of internal users. Bobadilla
18. The primary purpose of management advisory services is
14. For internal uses, managers are more concerned with receiving information that is: A. To conduct special studies, preparation of recommendations, development of plans and
A. completely objective and verifiable. programs, and provision of advice and assistance in their implementation.
B. completely accurate and precise. B. To provide services or to fulfill some social needs.
C. relevant, flexible, and immediately available. C. To improve the clients use of its capabilities and resources to achieve the objectives of
D. relevant, completely accurate, and precise. Bobadilla the organization.
D. To earn the best rate of return on resources entrusted to its care with safety of investment
15. Which of the following statements is correct? being taken into account and consistent with firms social and legal responsibilities.
A. A certified public accountant can readily render management advisory services to the Bobadilla
public.
B. A CPA with MBA and DBM degrees is automatically qualified to render management 19. Managerial accounting information:
advisory services. A. pertains to the entity as a whole and is highly aggregated.
C. Competence as a standard in the rendition of management advisory services by a CPA B. pertains to subunits of the entity and may be very detailed.
may be equated to having excellent scholarly preparation to include the usual C. is prepared only once a year. Bobadilla
baccalaureate degree, an MBA and other post graduate studies. D. is constrained by the requirements of generally accepted accounting principles.
D. Adequate training and experience in both the analytical approach and process in a
particular undertaking are requisites for the CPA to be involved in a management advisory 20. Managerial accounting is primarily concerned with:
service engagement. (RPCPA) A. segments of a company rather than the company as a whole.
B. the data needs of stockholders and creditors.
16. The following characterize management advisory services except C. meeting the requirements of generally accepted accounting principles.

2
 Basic Concept

D. the company as a whole rather than a segment of the organization. Bobadilla B. financial accounting is oriented toward the future
C. financial a ccounting is primarily concerned with providing information for internal users
21. The major reporting standard for presenting managerial accounting information is D. managerial accounting is oriented more toward the planning and control aspects of
A. relevance management Bobadilla
B. generally accepted accounting principles
C. the cost principle 27. How does managerial decision making compare with external performance evaluation?
D. the current tax law Bobadilla Managerial Decision Making External Performance Evaluation
A. Detailed Detailed
22. With respect to the time dimension, how does managerial decision compare with external B. Detailed More aggregated
performance evaluation? C. More aggregated Detailed
Bobadilla A. B. C. D. D. More aggregated More aggregated
Managerial Decision Making Past Past Future Future Bobadilla
External Performance Past Future Past Future
28. Management accountants would not
23. Managerial accounting differs from financial accounting in that it is A. assist in budget planning.
A. more concerned with segments of a company. B. prepare reports primarily for external users.
B. less constrained by rules and regulations. C. determine cost behavior.
C. more concerned with the future. D. be concerned with the impact of cost and volume on profits. Bobadilla
D. all of the above. Bobadilla
29. In the contemporary business environment, cost management focus is on
24. The distinction between traditional accounting and cost management is A. financial reporting and cost analysis.
A. the focus of the former on accounting matters and the latter in support to management in B. common emphasis on standardization and standard costs.
making the right decisions for staying on a competitive position C. development and implementation of the business strategy.
B. the emphasis of former on record keeping and the latter on reporting D. all of the above. Bobadilla
C. the focus of the former on cost cutting and the latter on product differentiation
D. the focus of the former on efficiency and the latter on quality. Bobadilla 30. Management accounting is similar to financial accounting in that
A. both are governed by generally accepted accounting principles.
25. Which of the following activities is not usually performed by a management accountant? B. both deal with economic events.
A. Assisting managers to interpret data in managerial accounting reports. C. both concentrate on historical data.
B. Designing systems to provide information for internal and external reports. D. both classify reported information in the same manner. Bobadilla
C. Gathering data from sources other than the accounting system.
D. Deciding the best level of inventory to be maintained. Bobadilla 31. How frequent is management accounting report when compared to report to external users?
Management Accounting Report External Report
26. Which of the following statements correctly distinguishes financial and managerial accounting? A. More frequent Less frequent
A. managerial accounting reports on the whole organization B. More frequent More frequent

3
 Basic Concept

C. Less frequent Less frequent B. The frequency with which decisions are made that require the information in the report.
D. Less frequent More frequent C. The c ost of preparing the report.
Bobadilla D. All of t he above. Bobadilla

32. Managerial accounting differs from financial accounting in that financial accounting is
A. more oriented toward the future.
B. primarily concerned with external financial reporting.
C. concerned with nonquantative information.
D. heavily involved with decision analysis and implementation of decisions.
38. Which of the following statements about internal reports is not true?
A. The content of internal reports may extend beyond the double-entry accounting system.
B. Internal reports may show all amounts at market values.
C. Internal reports may discuss prospective events.
Bobadilla D. Most internal reports are summarized rather than detailed. Bobadilla

33. Managerial accounting provides data for all of the following major objectives except: 39. Management accountants help develop and maintain reporting systems that are aligned with
A. planning and control of costs organizational structures and that provide useful information on an organizations performance.
B. supporting management planning Management decision processes fall into three categories that consist of
C. compliance with SEC reporting requirements A. Nonrepetitive, nonprogrammed, and nonstrategic.
D. determining the costs of products Bobadilla B. Repetitive, nonprogrammed, and strategic.
C. Repetitive, programmed, and strategic.
34. Which statement is false? Managerial accounting information: D. Nonrepetitive, nonprogrammed, and strategic. Bobadilla
A. involves planning for the future
B. should be requested and used by management even if it is very costly to gather and 40. Internal reports are generally
analyze A. aggregated C. regulated
C. helps managers make financing decisions B. detailed D. unreliable Bobadilla
D. need not comply with generally accepted accounting principles Bobadilla
41. Managerial accounting reports can be described as:
35. Internal reports must be communicated A. general-purpose C. classified financial statements
A. daily C. annually B. special purpose D. macro-report Bobadilla
B. monthly D. as needed Bobadilla
42. The informational needs of internal users/management:
36. Which of the following does not apply to the content of managerial reports? A. are historical in nature
A. Reporting standard is relevant to the decision to be made. B. emphasize the company as a whole
B. May extend beyond double-entry accounting system. C. emphasize accuracy over timeliness
C. Pertain to subunits of the entity and may be very detailed. D. may require more customized reports than external financial statements Bobadilla
D. Pertains to the entity as a whole and is highly aggregated. Bobadilla
43. The role of the managerial accountant in todays corporate world includes all of the following
37. Which consideration influences the frequency of an internal report? except:
A. The wishes of the managers receiving the report. A. interpreting financial information C. financial modeling

4
 Basic Concept

B. financial planning D. bookkeeping Bobadilla 49. The following are inherent to either management accounting or financial accounting:
1. External report
44. Which of the following is most associated with managerial accounting? 2. Historical information
A. Must follow generally accepted accounting principles. 3. Contribution approach income statement
B. May rely on estimates and forecasts. 4. Generally accepted accounting principles
C. Is prepared for users outside the organization. 5. Prospective financial statements
D. Always reports on the entire entity. Bobadilla Which of the foregoing are related to management accounting and financial accounting,
respectively?
45. Which statement about the extent of detail in a management accounting report is true? Bobadilla A. B. C. D.
A. It may depend on the frequency of the report. Management Accounting 1, 2, 5 3, 5 2, 3 3
B. It depends on the type of manager receiving the report. Financial Accounting 3, 4 1, 2, 4 1, 4, 5 1, 2, 4, 5
C. It depends on the level of the manager receiving the report.
D. All of the above. Bobadilla 50. Which of the following is an incorrect statement?
A. There is no overlap between financial and managerial accounting.
46. Managerial accounting information B. Managerial accounting sometimes relies on past information.
A. pertains to the entity as a whole and is highly aggregated. C. Managerial accounting does not need to conform to generally accepted accounting
B. pertains to subunits of the entity and may be very detailed. principles. Bobadilla
C. is prepared only once a year. Bobadilla D. Financial accounting must conform to generally accepted accounting principles.
D. is constrained by the requirements of generally accepted accounting principles.
51. For managerial reports, the accounting data used:
47. Which of the following characteristics is inherent to management accounting? A. must be the same accounting data for reporting to shareholders, but may use different
A. Reporting of historical information data for tax purposes.
B. Compliance to generally accepted accounting principles B. must be the same accounting data for tax purposes, but may use different data for
C. Contribution approach income statement reporting to shareholders. Bobadilla
D. External users of financial report Bobadilla C. must be the same accounting data for both tax purposes and reporting to shareholders.
D. may be different accounting data for both tax purposes and reporting to shareholders.
48. In order to be useful to managers, management accounting reports should possess all of the
following characteristics except: 52. Which of the following is an ethical standard of conduct for managerial accountants?
A. Provide objective measures of past operations and subjective estimates about future 1. competence
decisions. 2. confidentiality
B. Be prepared in accordance with generally accepted accounting principles. 3. integrity
C. Be provided at any time management needs information. 4. objectivity
D. Be prepared to report information for any unit of the business to support decision making. A. All of them C. 1, 2, 3 only
Bobadilla B. 1, 3, 4 only D. 1 and 3 only Bobadilla

5
 Basic Concept

53. Under which ethical standard of conduct does the managerial accountant have the D. Neither costs nor benefits, but some other criteria. Bobadilla
responsibility to prepare complete and clear reports and recommendations after appropriate
analyses of relevant and reliable information? 59. What is the primary criterion for the preparation of managerial accounting reports?
A. competence C. integrity A. Relevance of the reports. C. Timing of the reports.
B. confidentiality D. objectivity Bobadilla B. Meet the managers needs. D. Cost of the reports. Bobadilla

54. Under which ethical standard of conduct does the managerial accountant have the 60. The first step in managerial decision making is to
responsibility to communicate information fairly and objectively? A. specify the standard or expected outcome.
A. competence C. integrity B. gather information about the consequence of each alternative.
B. confidentiality D. objectivity Bobadilla C. identify a problem.
D. list alternative courses of action. Bobadilla
55. Under which ethical standard of conduct does the managerial accountant have the
responsibility to refuse any gift, favor, or hospitality that would influence or appear to influence 61. In a broad sense, cost accounting can be defined within the accounting system as
his or her decision? A. internal and external reporting that may be used in making nonroutine decisions and in
A. competence C. integrity developing plans and policies.
B. confidentiality D. objectivity Bobadilla B. external reporting to government, various outside parties, and stockholders.
C. internal reporting for use in management planning and control, and external reporting to
56. Under which ethical standard of conduct does the managerial accountant have the the extent its product-costing function satisfies external reporting requirements.
responsibility to refrain from either actively or passively subverting the attainment of an D. internal reporting for use in planning and controlling routing operations. Bobadilla
organization's legitimate and ethical objectives?
A. integrity C. objectivity 62. The cost management function is usually under
B. competence D. confidentiality Bobadilla A. the chief information officer. C. purchasing manager.
B. treasurer. D. controller. Bobadilla
57. Under which ethical standard of conduct does the managerial accountant have the
responsibility to disclose fully all relevant information that could reasonably be expected to 63. If a distinction is made between cost accounting and managerial accounting, managerial
influence an intended user's understanding of the reports, comments, and recommendations accounting is more oriented toward
presented? A. valuation of inventory.
A. objectivity C. confidentiality B. analysis of variances including spoilage.
B. competence D. integrity Bobadilla C. financial reporting to third parties.
D. the planning and controlling aspects of the management process. Bobadilla
58. For managerial decision purposes, the volume of information should be evaluated on the basis
of 64. Management accounting and financial accounting differ in that management accounting
A. cost-benefit relationship. information
B. A cost, but not benefit. A. is prepared following prescribed rules
C. A benefit, but not cost. B. is prepared using whatever methods the company finds beneficial

6
 Basic Concept

C. is prepared for stockholders D. includes performance evaluation by management. Bobadilla
D. is p repared following Generally Accepted Accounting Principles Bobadilla
71. Planning is a function that involves
65. Which of the following does not describe managerial accounting? A. hiring the right people for a particular job.
A. internally focused C. externally focused B. coordinating the accounting information system.
B. emphasis on the future D. detailed information Bobadilla C. setting goals and objectives for an entity.
D. analyzing financial statements. Bobadilla
66. Management accounting
A. reports are always objective 72. In determining whether planned goals are being met, a manager is performing the function of
B. provides information to external users A. planning C. motivating
C. generates general purpose financial statements and reports B. controlling D. follow-up Bobadilla
D. has few externally imposed standards Bobadilla
73. Which of the following is not a separate management function?
67. Management accounting reports are prepared A. Motivating C. Controlling
A. to meet the needs of decision makers within the firm B. Planning D. Decision-making Bobadilla
B. whenever stockholders request them
C. according to guidelines prepared by the SEC 74. Total quality management emphasizes
D. by CPAs Bobadilla A. zero defects C. elimination of waste
B. continual improvement D. all of the above Bobadilla
68. Which of the following is true of managerial accounting rather than financial accounting?
A. The outputs of this accounting system are the primary financial statements 75. Automation of the manufacturing process increases
B. The methods of this accounting system are established by an overseeing board. A. the quantity of information C. the number of production employees
C. The accounting methods are standardized to allow comparisons among companies B. the timeliness of information D. both a and b Bobadilla
D. The accounting system would be unique to each company Bobadilla
76. Which of the following emerging themes in cost accounting deals with managers striving to
69. Traditional managerial accounting systems are often criticized for: create and environment which will enable workers to manufacture perfect (zero defect)
A. not focusing on the activities that actually drive the costs. products?
B. only looking at historical data. A. customer orientation C. total quality management Bobadilla
C. being too GAAP oriented. B. global competition D. advance in information technology
D. not emphasizing cost control. Bobadilla
77. Managerial accounting creates value by:
70. The managerial function of controlling A. by forcing managers to analyze historical figures and interpret the results
A. is performed only by the controller of a company. B. by eliminating all pricing and costing errors
B. is only applicable when the company sustains a loss. C. by focusing managers attention on the relationship between financial and non-financial
C. is concerned mainly with a operating a manufacturing segment. factors

7
 Basic Concept

D. all of the above Bobadilla 85. All of the following would be considered staff functions EXCEPT:
A. the vice-president of finance
78. Systems implemented to reduce defects in finished products with the goal of achieving zero B. the vice-president of corporate planning
defects are C. the vice-president of research and development
A. activity-based costing systems. D. the vice president of marketing Bobadilla
B. enterprise resource planning systems.
C. value chain systems. 86. Management accountants generally exercise which type of authority?
D. total quality management systems. Bobadilla A. Company. C. Line.
B. Functional. D. Staff. Bobadilla
79. Which of the following functions is most directly related to management by objective?
A. Reporting C. Control 87. The treasurer function is usually not concerned with
B. Decision making D. Planning Bobadilla A. investor relations.
B. financial reports.
80. The setting of objectives and the identification of methods to achieve those objectives is called C. short-term financing.
A. planning C. decision making D. credit extension and collection of bad debts. Bobadilla
B. controlling D. performance evaluation Bobadilla
88. Which of the following duties is usually assigned to the controller?
81. Which of the following best describes what performance evaluation should be designed to do? A. directing the granting of credit to clients
A. Modify goal and objectives each month C. Compare actual results to plan B. investing the organizations funds
B. Establish sales goals and targets D. Establish blame Bobadilla C. tax planning
D. independently evaluating the firms financial statements Bobadilla
82. In the planning and control process, what is the proper sequence of events?
A. Set goals, set objectives, develop plans, implement plans, evaluate performance 89. Developing a company strategy for responding to anticipated new markets is an example of:
B. Establish a master budget, set standard costs, develop variance analysis Bobadilla A. decision making C. planning
C. Develop engineered costs, develop pricing targets, calculate contribution margins B. controlling D. motivating Bobadilla
D. Identify variable costs, identify fixed costs, project the sales mix, determine breakeven
90. Strategic cost management has emerged from a blending of:
83. Which of the following is a staff position? A. cost driver analysis C. value chain analysis
A. vice-president of production C. vice-president of finance B. strategic position analysis D. all of the above Bobadilla
B. vice-president of marketing D. plant foreman Bobadilla
91. Strategic cost management includes all of the following tools except:
84. Which management position is responsible for raising capital? A. standard cost variance analysis C. activity based management
A. Internal auditor C. Controller B. value chain analysis D. all of the above Bobadilla
B. Treasurer D. CFO Bobadilla
92. Strategic planning is different from operational planning in that operational planning:

8
 Basic Concept

A. involves large sums of money B. differentiation strategy D. flexible manufacturing system
B. would be involved in determining production levels for next quarter
C. involves only long range goals 99. The period that begins with the arrival of materials and ends with the shipment of a completed
D. operational and strategic planning are the same Bobadilla goods refers to
A. performance period. C. manufacturing cell.
93. Which of the following might be a performance measure for the financial perspective of a B. computer-integrated manufacturing. D. cycle time. Bobadilla
balanced scorecard?
A. percentage of on-time deliveries by the organization 100.Conventional and just-in-time manufacturers differ in that the conventional manufacturer is
B. percentage of product defects likely to
C. return on assets A. have a longer production cycle than its JIT competitors.
D. percentage of market share held by the organization Bobadilla B. need less storage space than its JIT competitors.
C. have a flexible manufacturing system.
94. The initiative to reduce non-value added activity is meeting which balanced scorecard D. a high degree of quality control. Bobadilla
objective?
A. internal operations perspective C. financial perspective Bobadilla 101.A form of strategy that a management may adopt in order to attempt in creating a perception of
B. customer perspective D. learning and growth perspective uniqueness that will permit a higher selling price.
A. Value chain. C. Lead time.
B. Lowest cost. D. Differentiation. Bobadilla
95. The balanced scorecard internal operations perspective includes
A. customer complaints C. market share 102.Deciding whether to sell a product or process it further is an example of a(n):
B. number of engineering changes D. inventory turnover Bobadilla A. controlling activity C. planning activity
B. operating activity D. none of the above Bobadilla
96. Items that prevent the organization from attaining a higher level of achievement within its value
chain are called the 103.The benefits lost or forfeited as a result of selecting one alternative over another are called
A. theory of constraints C. strategic costs management A. Differential costs C. Opportunity costs
B. value chain D. cost management systems Bobadilla B. Sunk costs D. Indirect costs Bobadilla

97. The overall recognition of the importance of cost relationships among the activities in the value 104.Obtaining feedback is generally identified most directly with which of the functions of
chain and the process of managing those cost relationships among the activities in the value management?
chain is called A. Planning C. Controlling
A. the theory of constraints C. activity-based management of activities B. Directing and motivating D. Decision making Bobadilla
B. the value chain D. strategic cost management Bobadilla
105.A staff position:
98. The set of processes that transform raw materials into finished products is known as a A. relates directly to the carrying out of the basic objectives of the organization.
A. value chain C. lowest cost strategy Bobadilla B. is supportive in nature, providing service and assistance to other parts of the

9
 Basic Concept

organization.
C. is superior in authority to a line position.
D. none of these. Bobadilla

106.The controller occupies:

A. a line position.
B. a staff position.
C. neither a line nor a staff position, since the accounting department must be
independent.
D. both a line and a staff position. Bobadilla

107.Racing with no finish refers to

A. developing the best selling product.
B. research and development.
C. benchmarking and continuous improvement.
D. designing the highest quality product in a given segmented market. Bobadilla

108.A companys value chain reflects the

A. organizational levels of authority and responsibility.
B. stages of production from raw materials to finished goods.
C. linked set of activities that increase the value of products or services.
D. sales distribution network for the companys products and services. Bobadilla

109.The process of comparing, investigating, and evaluating the companys processes or products
against the best level of performance is known as
A. attestation. C. product review.
B. feedback. D. benchmarking. Bobadilla

110.Benchmarking allows managers to:

A. determine who in the industry performs similar processes most effectively.
B. determine the processes that have high value-to-cost relationships.
C. compare certain internal processes, services and activities to those of other companies in
order to identify strengths and weaknesses.
D. reproduce another companys product design and manufacturing processes to eliminate
competitive advantage. Bobadilla

10