PRELIM MAS 1-TEST

1. The distinction between direct and indirect costs depends on whether a cost
a. is controllable or non-controllable.
b. is variable or fixed.
c. can be conveniently and physically traced to a cost object under consideration.
d. will increase with changes in levels of activity.

2. Broussard Company is a construction company that builds houses on special request.

What is the proper classification of the carpenters' wages?

Product Period Direct

a. yes yes no
b. yes no yes
c. no no no
d. no yes yes

3. Broussard Company is a construction company that builds houses on special request.

What is the proper classification of the cost of the cement building slab used?

Direct Fixed

a. no no
b. no yes
c. yes yes
d. yes no

4. Broussard Company is a construction company that builds houses on special request.

What is the proper classification of indirect material used?

Prime Conversion Variable

a. no no no
b. no yes yes
c. yes yes yes
d. yes no no

5. Which of the following costs would be considered overhead in the production of

chocolate chip cookies?
a. flour
b. chocolate chips
c. sugar
d. oven electricity

6. All costs related to the manufacturing function in a company are

a. prime costs.
b. direct costs.
c. product costs.
d. conversion costs.

7. Prime cost consists of

direct material direct labor overhead

a. no yes no
b. yes yes no
 c. yes no yes
d. no yes yes

8. Plastic used to manufacture dolls is a

prime cost product cost direct cost fixed cost

a. no yes yes yes

b. yes no yes no
c. yes yes no yes
d. yes yes yes no

9. The term "prime cost" refers to

a. all manufacturing costs incurred to produce units of output.
b. all manufacturing costs other than direct labor and raw material costs.
c. raw material purchased and direct labor costs.
d. the raw material used and direct labor costs.

10. Conversion of inputs to outputs is recorded in the

a. Work in Process Inventory account.
b. Finished Goods Inventory account.
c. Raw Material Inventory account.
d. both a and b.

11. If abnormal spoilage occurs in a job order costing system, has a material dollar value,
and is related to a specific job, the recovery value of the spoiled goods should be

debited to credited to

a. a scrap inventory account the specific job in process

b. the specific job in process overhead
c. a loss account the specific job in process
d. factory overhead sales

12. In a job order costing system, the net cost of normal spoilage is equal to
a. estimated disposal value plus the cost of spoiled work.
b. the cost of spoiled work minus estimated spoilage cost.
c. the units of spoiled work times the predetermined overhead rate.
d. the cost of spoiled work minus the estimated disposal value.

13. Shrinkage should be treated as

a. defective units.
b. spoiled units.
c. miscellaneous expense.
d. a reduction of overhead.

14. Spoiled units are

a. units that cannot be economically reworked to bring them up to standard.
b. units that can be economically reworked to bring them up to standard.
c. the same as defective units.
d. considered abnormal losses.

15. Abnormal spoilage is

a. spoilage that is forecasted or planned.
b. spoilage that is in excess of planned.
c. accounted for as a product cost.
d. debited to Cost of Goods Sold.
16. Normal spoilage is defined as unacceptable production that
a. arises because of a special job or process.
b. occurs in on-going operations.
c. is caused specifically by human error.
d. is in excess of that which is expected.

17. Which of the following would fall within the range of tolerance for a production cycle?

Abnormal loss Normal loss

a. yes yes
b. yes no
c. no no
d. no yes

18. The net cost of normal spoilage in a job order costing system in which spoilage is
common to all jobs should be
a. assigned directly to the jobs that caused the spoilage.
b. charged to manufacturing overhead during the period of the spoilage.
c. charged to a loss account during the period of the spoilage.
d. allocated only to jobs that are completed during the period.

19. Cajun Company. uses a job order costing system. During April 20X6, the following costs
appeared in the Work in Process Inventory account:

Beginning balance $ 24,000

Direct material used 70,000
Direct labor incurred 60,000
Applied overhead 48,000
Cost of goods manufactured 185,000

Cajun Company applies overhead on the basis of direct labor cost. There was only one
job left in Work in Process at the end of April which contained $5,600 of overhead. What
amount of direct material was included in this job?
a. $4,400
b. $4,480
c. $6,920
d. $8,000

20. Quest Co. is a print shop that produces jobs to customer specifications. During January
20X6, Job #3051 was worked on and the following information is available:

Direct material used $2,500

Direct labor hours worked 15
Machine time used 6
Direct labor rate per hour $7
Overhead application rate per hour of machine time $18

What was the total cost of Job #3051 for January?

a. $2,713
b. $2,770
c. $2,812
d. $3,052

Maxwell Company
 Maxwell Company adds material at the start of production. The following production
information is available for June:

Beginning Work in Process Inventory

(45% complete as to conversion) 10,000 units
Started this period 120,000 units
Ending Work in Process Inventory
(80% complete as to conversion) 8,200 units

Beginning Work in Process Inventory Costs:

Material $24,500
Conversion 68,905
Current Period Costs:
Material $ 75,600
Conversion 130,053

21. Refer to Maxwell Company. How many units must be accounted for?
a. 118,200
b. 128,200
c. 130,000
d. 138,200

22. Refer to Maxwell Company. What is the total cost to account for?
a. $ 93,405
b. $205,653
c. $274,558
d. $299,058

23. Refer to Maxwell Company. How many units were started and completed in the period?
a. 111,800
b. 120,000
c. 121,800
d. 130,000

ANS: A

Units started this period 120,000

Less: Ending Work in Process 8,200
Units started and completed this period 111,800

DIF: Easy OBJ: 6-2

24. Refer to Maxwell Company. What are the equivalent units for material using the
weighted average method?
a. 120,000
b. 123,860
c. 128,360
d. 130,000
25. Refer to Maxwell Company. What are the equivalent units for material using the FIFO
method?
a. 111,800
b. 120,000
c. 125,500
d. 130,000
 Ratcliff Company

Ratcliff Company produces two products from a joint process: X and Z. Joint processing
costs for this production cycle are $8,000.

Disposal
Sales price cost per Further Final sale
per yard at yard at processing price per
Yards split-off split-off per yard yard
X 1,500 $6.00 $3.50 $1.00 $ 7.50
Z 2,200 9.00 5.00 3.00 11.25

If X and Z are processed further, no disposal costs will be incurred or such costs will be
borne by the buyer.

26. Refer to Ratcliff Company. Using a physical measure, what amount of joint processing
cost is allocated to X (round to the nearest dollar)?
a. $4,000
b. $4,757
c. $5,500
d. $3,243

27. Refer to Ratcliff Company. Using a physical measure, what amount of joint processing
cost is allocated to Z (round to the nearest dollar)?
a. $4,000
b. $3,243
c. $5,500
d. $4,757

28. Refer to Ratcliff Company. Using sales value at split-off, what amount of joint
processing cost is allocated to X (round to the nearest dollar)?
a. $5,500
b. $2,500
c. $4,000
d. $3,243

29. Refer to Ratcliff Company. Using sales value at split-off, what amount of joint
processing cost is allocated to Z (round to the nearest dollar)?
a. $5,500
b. $4,000
c. $2,500
d. $4,757
30. Refer to Ratcliff Company. Using net realizable value at split-off, what amount of joint
processing cost is allocated to X (round to the nearest dollar)?
a. $4,000
b. $5,610
c. $2,390
d. $5,500
31. In a multiple-product firm, the product that has the highest contribution margin per unit
will
a. generate more profit for each $1 of sales than the other products.
b. have the highest contribution margin ratio.
c. generate the most profit for each unit sold.
d. have the lowest variable costs per unit.

ANS: C DIF: Easy OBJ: 9-4,9-6

32. _____________ focuses only on factors that change from one course of action to
another.
a. Incremental analysis
b. Margin of safety
c. Operating leverage
d. A break-even chart

33. The margin of safety would be negative if a company('s)

a. was presently operating at a volume that is below the break-even point.
b. present fixed costs were less than its contribution margin.
c. variable costs exceeded its fixed costs.
d. degree of operating leverage is greater than 100.

34. The margin of safety is a key concept of CVP analysis. The margin of safety is the
a. contribution margin rate.
b. difference between budgeted contribution margin and actual contribution margin.
c. difference between budgeted contribution margin and break-even contribution
margin.
d. difference between budgeted sales and break-even sales.

35. Management is considering replacing an existing sales commission compensation plan

with a fixed salary plan. If the change is adopted, the company's
a. break-even point must increase.
b. margin of safety must decrease.
c. operating leverage must increase.
d. profit must increase.

36. As projected net income increases the

a. degree of operating leverage declines.
b. margin of safety stays constant.
c. break-even point goes down.
d. contribution margin ratio goes up.

37. A managerial preference for a very low degree of operating leverage might indicate that
a. an increase in sales volume is expected.
b. a decrease in sales volume is expected.
c. the firm is very unprofitable.
d. the firm has very high fixed costs.

Thompson Company

Below is an income statement for Thompson Company:

Sales $400,000
Variable costs (125,000)
Contribution margin $275,000
Fixed costs (200,000)
Profit before taxes $ 75,000

38. Refer to Thompson Company. What is Thompson’s degree of operating leverage?

a. 3.67
b. 5.33
c. 1.45
d. 2.67
39. Refer to Thompson Company. Based on the cost and revenue structure on the income
statement, what was Thompson’s break-even point in dollars?
a. $200,000
b. $325,000
c. $300,000
d. $290,909

40. Refer to Thompson Company. What was Thompson’s margin of safety?

a. $200,000
b. $75,000
c. $100,000
d. $109,091

41. Refer to Thompson Company. Assuming that the fixed costs are expected to remain at
$200,000 for the coming year and the sales price per unit and variable costs per unit are also
expected to remain constant, how much profit before taxes will be produced if the company
anticipates sales for the coming year rising to 130 percent of the current year’s level?
a. $97,500
b. $195,000
c. $157,500
d. A prediction cannot be made from the information given.

42. A company using very tight (high) standards in a standard cost system should expect
that
a. no incentive bonus will be paid.
b. most variances will be unfavorable.
c. employees will be strongly motivated to attain the standards.
d. costs will be controlled better than if lower standards were used.

Marley Company

The following July information is for Marley Company:

Standards:
Material 3.0 feet per unit @ $4.20 per foot
Labor 2.5 hours per unit @ $7.50 per hour
Actual:
Production 2,750 units produced during the month
Material 8,700 feet used; 9,000 feet purchased @ $4.50 per foot
Labor 7,000 direct labor hours @ $7.90 per hour

(Round all answers to the nearest dollar.)

43. Refer to Marley Company. What is the material price variance (calculated at point of
purchase)?
a. $2,700 U
b. $2,700 F
c. $2,610 F
d. $2,610 U

44. Refer to Marley Company. What is the material quantity variance?

a. $3,105 F
b. $1,050 F
c. $3,105 U
d. $1,890 U
45. Refer to Marley Company. What is the labor rate variance?
a. $3,480 U
b. $3,480 F
c. $2,800 U
d. $2,800 F

46. Refer to Marley Company. What is the labor efficiency variance?

a. $1,875 U
b. $938 U
c. $1,875 U
d. $1,125 U

McCoy Company

McCoy Company has the following information available for October when 3,500 units
were produced (round answers to the nearest dollar).

Standards:
Material 3.5 pounds per unit @ $4.50 per pound
Labor 5.0 hours per unit @ $10.25 per hour
Actual:
Material purchased 12,300 pounds @ $4.25
Material used 11,750 pounds
17,300 direct labor hours @ $10.20 per hour

47. Refer to McCoy Company. What is the labor rate variance?

a. $875 F
b. $865 F
c. $865 U
d. $875 U

48. Refer to McCoy Company. What is the labor efficiency variance?

a. $2,050 F
b. $2,050 U
c. $2,040 U
d. $2,040 F

49. Refer to McCoy Company. What is the material price variance (based on quantity
purchased)?
a. $3,075 U
b. $2,938 U
c. $2,938 F
d. $3,075 F

50. Refer to McCoy Company. What is the material quantity variance?

a. $2,250 F
b. $2,250 U
c. $225 F
d. $2,475 U
51. Refer to McCoy Company. Assume that the company computes the material price
variance on the basis of material issued to production. What is the total material variance?
a. $2,850 U
b. $5,188 U
c. $5,188 F
d. $2,850 F

52. The controller of a company or other organization is

a. a staff manager.
b. an operating manager.
c. an accountant, not a manager.
d. a natural manager.

53. Which item is NOT an IMA Standard for Ethical Conduct?

a. Integrity.
b. Competence.
c. Loyalty.
d. Objectivity.

54. Which statement about the degree of detail in a report is true?

a. It depends on the level of the manager receiving the report.
b. It may depend on the frequency of the report.
c. It depends on the type of manager receiving the report.
d. All of the above.

55. Managerial accounting is similar to financial accounting in that

a. both are governed by generally accepted accounting principles.
b. both deal with economic events.
c. both concentrate on historical costs.
d. both classify reported information in the same way.

56. Managerial accounting differs from financial accounting in that it is

a. more concerned with the future.
b. more concerned with segments of a company.
c. less constrained by rules and regulations.
d. all of the above.

57. One of the ways managerial accounting differs from financial accounting is that
managerial accounting
a. is bound by generally accepted accounting principles.
b. classifies information in different ways.
c. does not use financial statements.
d. deals only with economic events.

58. Which activity is NOT normally performed by managerial accountants?

a. Assisting managers to interpret data in managerial accounting reports.
b. Designing systems to provide information for internal and external reports.
c. Gathering data from sources other than the accounting system.
d. Deciding the best level of inventory to be maintained.

59. Conventional and just-in-time manufacturers both

a. Maintain large inventories of their products.
b. Sell only to other manufacturing companies.
c. Desire to meet customers' deadlines.
d. Require about the same amount of space to operate.
60. Classifying costs by behavior is
a. associated primarily with financial accounting.
b. not relevant to a company that has only selling expenses.
c. common in reports prepared for external readers.
d. none of the above.

61. Which is NOT a common accounting classification of costs?

a. By the method of payment for the expenditure.
b. By the objective of expenditure.
c. By behavior.
d. By the function incurring the expenditure.

62. Which classification of costs is most relevant for income statements to be used internally?
a. Behavior.
b. Function.
c. Method of payment.
d. Object.

63. The set of processes that transform raw materials into finished products is known as a
a. differentiation strategy.
b. flexible manufacturing system.
c. lowest cost strategy.
d. value chain.

64. Income statements classifying costs by object show such items as

a. tax expense, wages expense, depreciation expense.
b. cost of goods sold, selling expenses, administrative expenses.
c. assets, liabilities, owners' equity.
d. all of the above.

65. The period that begins with the arrival of materials and ends with the shipment of a
completed good is the
a. cycle time.
b. manufacturing cell.
c. computer-integrated manufacturing.
d. performance period.

66. Which function is most directly related to management by objectives?

a. Planning.
b. Control.
c. Decision making.
d. Reporting.

67. Which consideration influences the frequency of an internal report?

a. The wishes of the managers receiving the report.
b. The frequency with which decisions are made that require the information in the report.
c. The cost of preparing the report.
d. All of the above.

68. A just-in-time manufacturer is more likely than a conventional manufacturer to

a. receive more frequent deliveries of materials.
b. spend less money on advertising.
c. need workers with fewer skills.
d. all of the above.

69. A conventional manufacturer is more likely than a just-in-time manufacturer to

a. have a short production cycle.
 b. produce goods in small batches.
c. hold large inventories to serve as buffers.
d. none of the above.

70. The professional certification most relevant for managerial accountants is the
a. CMA.
b. CPA.
c. CSA.
d. MAS.

71. A firm that is competing using a _______________________ strategy is attempting to

create a perception of uniqueness that will permit a higher selling price.
a. value chain
b. lowest cost
c. lead time
d. differentiation

72. Planning and control are

a. different names for the same thing.
b. the basic functions of management.
c. described equally well by the terms "decision making" and "performance evaluation."
d. exemplified by, respectively, financial statements and budgeting.

73. In contrast to a balance sheet, an income statement

a. is for a period of time, a balance sheet is at a point in time.
b. gives information about cash and a balance sheet does not.
c. is prepared after the statement of retained earnings.
d. has two columns, while a balance sheet has more than two.

74. One characteristic of the conventional manufacturing environment is

a. flexible manufacturing systems.
b. manufacturing cells.
c. a just-in-case philosophy.
d. a high degree of quality control.

75. A characteristic of the just-in-time manufacturing environment is

a. frequent deliveries of materials.
b. manufacturing cells.
c. little or no inventory of finished product.
d. all of the above.

76. Conventional and just-in-time manufacturers differ in that the conventional

manufacturer is likely to
a. be a new entrant into its industry.
b. need less storage space than its JIT competitors.
c. give less credibility to management accounting reports.
d. have a longer production cycle than its JIT competitors.

True-False (A true, B fasle)

77. Published financial statements show costs classified by behavior.

78. Generally accepted accounting principles govern financial accounting but not managerial
accounting.

79. Economic events are the raw data for both financial and managerial accounting.
80. Internal financial statements must be prepared using generally accepted accounting
principles.

81. The form and content of reports can influence decisions made by managers.

82. Management-by-objectives and management-by-exception are two names for the same
general management principle.

83. "Pro forma" is the name given to an income statement that classifies costs by function.

84. Some managerial accounting reports contain costs not incorporated in the basic
accounting system.

85. A professional examination exists to test the competence of financial accountants, but not
of managerial accountants.

86. Managerial accountants should, but have no obligation to, maintain their professional
skills.

87. Which of the following employees would be considered as holding a line

position?
A. The controller of Exxon Corporation.
B. The vice-president for government relations of Microsoft.
C. The manager of food and beverage services at Disney's Magic Kingdom.
D. A secretary employed by Hewlett-Packard.
E. None of the above.

88. Which of the following employees at Starbucks would likely be considered as

holding a staff position?
A. The company's chief operating officer (COO).
B. The manager of a store located in Kansas City, Missouri.
C. The company's lead, in-house attorney.
D. The company's chief financial officer (CFO).
E. Both the company's lead, in-house attorney and the chief financial officer.

89. The chief managerial and financial accountant of an organization is the:

A. chief executive officer (CEO).
B. treasurer.
C. vice-president of accounting.
D. internal auditor.
E. chief financial officer (CFO).

90. Which of the following typically does not relate to the role of a controller?
A. A controller supervises the accounting department.
B. A controller safeguards an organization's assets.
C. A controller oversees the preparation of reports required by governmental
authorities.
D. A controller normally assumes a narrow role within the organization, often
preventing the individual's rise to top management ranks.
E. Choices "B" and "D" above.

91. A controller is normally involved with:

A. preparing financial statements.
B. managing investments.
C. raising capital.
D. safeguarding assets.
E. managing the firm's credit policy.

92. Which of the following is not a function of the treasurer?

A. Safeguarding assets.
B. Managing investments.
C. Preparing financial statements.
D. Being responsible for an entity's credit policy.
E. Raising capital.

93. Managerial accountants:

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

94. The two dimensions of managerial accounting are:

A. a decision-facilitating dimension and a decision-influencing dimension.
B. a decision-facilitating dimension and a financial-influencing dimension.
C. a decision-influencing dimension and a cost-minimizing dimension.
D. a cost-minimizing dimension and a profit-maximizing dimension.
E. a decision-influencing dimension and a profit-maximizing dimension.

95. Much of managerial accounting information is based on:

A. a cost-benefit theme.
B. profit maximization.
C. cost minimization.
D. the generation of external information.
E. effectiveness but not efficiency.

96. Which of the following is not normally considered to be an element of e-

business?
A. E-budgeting.
B. Supply-chain management.
C. E-commerce.
D. Balanced scorecards.
E. Choices "B" and "D" above.

97. Managerial accounting has changed in recent years because of:

A. the growth of e-business.
B. increased global competition.
C. the emergence of new industries.
D. an increased focus on the customer.
E. all of the above factors.

98. Managerial accounting has changed in recent years because of:

A. a growing service economy in the United States.
B. the growing popularity of cross-functional teams.
C. computer-integrated manufacturing (CIM).
D. time-based competition.
E. all of the above factors.

99. Which of the following statement(s) about just-in-time (JIT) inventory

management is (are) true?

I. The emphasis of JIT is on "pull" manufacturing.

 II. Raw materials are purchased just in time to be used in production.
III. JIT is an inventory technique that focuses on reduction of both inventory and
related inventory costs.

A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.

100. Ohio Corporation recently implemented a just-in-time (JIT) production

system along with a series of continuous improvement programs. If the
firm is now considering adopting a total quality management (TQM)
program, it would likely find that TQM:
A. is consistent with both JIT and continuous improvement.
B. is consistent with JIT but inconsistent with continuous improvement.
C. is consistent with continuous improvement but inconsistent with JIT.
D. is inconsistent with both JIT and continuous improvement.
E. is an antiquated management technique.

101. Cost management systems tend to focus on an organization's:

A. machines.
B. employees.
C. activities.
D. customers.
E. rules and regulations.

102. The value chain of a manufacturer would tend to include activities related to:
A. manufacturing.
B. research and development.
C. product design.
D. marketing.
E. all of the above.

103. Which of the following choices correctly depicts activities that would be included
in a manufacturer's value chain?
Research and
Development Marketing Distribution
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes No
E. No Yes Yes

104. Which of the preceding activities would likely not be considered part of The Gap
clothing company’s value chain?
A. Designing a new product line.
B. Locating and then negotiating terms with a clothing manufacturer.
C. Marketing an existing product line.
D. Distributing goods from regional warehouses to local stores.
E. All of the above activities would be an element in the company’s value chain.

105. The activities performed by a manufacturing organization could be categorized

as pre-production (such as research and development and product design), production-
related, and post-production (such as marketing and customer service). Which
activities should the firm focus on if management understands the value chain concept
and desires to meet organizational goals?
A. Pre-production activities.
B. Production-related activities.
C. Post-production activities.
D. Pre-production, production-related, and post-production activities.
E. Pre-production and production-related activities.

106. In order for a company to achieve a sustainable competitive advantage, it must

perform value chain activities:
A. at the same quality level as competitors, at the same cost.
B. at the same quality level as competitors, but at a lower cost.
C. at a higher quality level than competitors, at a higher cost.
D. at a higher quality level than competitors, but at no greater cost.
E. at either the same quality level as competitors, but at a lower cost, or at a higher
quality level than competitors, but at no greater cost.

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

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

109. Which of the following can be linked to the relatively recent wave of
corporate scandals?
A. Greedy corporate executives.
B. Managers who make over-reaching business deals.
C. Lack of oversight by companies' audit boards and boards of directors.
D. Shoddy work by external auditors.
E. All of the above.

110. Which of the following acts strives to improve corporate governance and the
quality of corporate accounting/reporting?
A. Robinson-Patman.
B. Taft-Hartley.
C. Sarbanes-Oxley.
D. Bush-Cheney.
E. Franks-Ashcroft.

111 Which of the following statements about the ethical climate of business is false?
A. Greedy corporate executives are, in part, to blame for the relatively recent
rash of corporate scandals.
B. Unethical business behavior can have a negative impact on our economy.
C. The Sarbanes-Oxley Act strives to improve the overall quality of corporate
reporting.
D. The Robinson-Patman Act strives to improve the overall quality of corporate
reporting.
 E. Corporate scandals have served as the accounting profession’s wake-up call
to pay increased attention to ethical issues in the conduct of business.

112. Which of the following is not an ethical standard of managerial accounting?

A. Competence.
B. Confidentiality.
C. Efficiency.
D. Integrity.
E. Credibility.

113. Which of the following is not an element of competency?

A. To develop appropriate knowledge about a particular subject.
B. To perform duties in accordance with relevant laws.
C. To perform duties in accordance with relevant technical standards.
D. To refrain from engaging in an activity that would discredit the accounting
profession.
E. To prepare clear reports after an analysis of relevant and reliable information.

114 Assume that a managerial accountant regularly communicates with business

associates to avoid conflicts of interest and advises relevant parties of potential
conflicts. In so doing, the accountant will have applied the ethical standard of:
A. objectivity.
B. confidentiality.
C. integrity.
D. credibility.
E. unified behavior.