TEST BANK FOR
. .
Managerial Accounting 4th Edition by Charles E. Davis
. . . . . . .
Chapter 1 .
Accounting as a Tool for Management . . . . .
CHAPTERLEARNING OBJECTIVES
. .
1. Define managerial accounting (Unit 1.1)
. . . .
There.are.several.formal.definitions.of.managerial.accounting..A.simple.one.is.“the.generati
on.of.relevant.information.to.support.management’s.decision-making.activities.”
2. Describe the differences between managerial and financial accounting (U
. . . . . . . .
nit 1.1) .
Managerial.accounting’s.primary.users.are.managers.and.decision.makers.within.an.organi
zation,.whereas.financial.accounting.is.aimed.primarily.at.external.users..Unlike.GAAP.that.
guides.financial.accounting,.there.are.no.mandated.rules.in.managerial.accounting..Manag
erial.accounting.reports.focus.on.operating.segments,.while.financial.accounting.statement
s.report.results.for.the.organization.as.a.whole..Managerial.accounting.is.concerned.more.w
ith.projecting.future.results.than.reporting.past.results..Managerial.information.is.prepared.
to.take.advantage.of.a.window.of.opportunity,.even.if.some.accuracy.must.be.sacrificed..Fin
ancial.accounting.information.is.balanced.to.the.penny.and.is.delivered.after.the.end.of.the.
accounting.period.
3. List and describe the four functions of managers (Unit 1.1)
. . . . . . . . .
Planning.means.setting.a.direction.for.the.organization..Long-
term,.or.strategic.planning.provides.direction.for.a.five-.to.ten-year.period..Short-
term.or.operational.planning.provides.more.detailed.guidance.for.the.coming.year;.it.transl
ates.the.company’s.strategy.into.action.steps..Controlling.is.the.monitoring.of.day-to-
day.operations.to.identify.any.problems.that.require.corrective.action..Evaluating.is.the.pro
cess.of
comparing.a.particular.period’s.actual.results.to.planned.results,.for.the.purpose.of.assessin
g.managerial.performance..Decision.making.means.choosing.between.alternative.courses.
of.action.
4. Explain how the selection of a particular business strategy determines the inf
. . . . . . . . . . .
ormation that managers need to run an organization effectively (Unit 1.2)
. . . . . . . . . .
To.run.a.business.effectively,.managers.need.information.that.shows.how.well
operations.are.meeting.the.organization’s.strategic.goals..For.instance,.if.the
organization’s.strategy.is.to.be.a.low-
cost.producer,.information.about.product.costs.and.cost.variances.will.be.more.useful.to
.managers.than.information .about.research.and.development.
,5. Discuss the importance of ethical behavior in managerial accounting (Unit 1.3
. . . . . . . . . .
)
Ethical.behavior.means.knowing.right.from.wrong.and.then.doing.the.right.thing..Many.com
panies.and.most.professional.organizations.have.codes.of.conduct.to.guide
employees’.actions..Acting.unethically.can.lead.to.illegal.activity.and.ultimately.to.the.destr
uction.of.the.firm..Furthermore,.research.has.shown.that.a.public.commitment.to.ethical.be
havior.can.lead.to.superior.financial.performance.
, TRUE-FALSE STATEMENTS
.
1. Management.accounting.is.the.generation.of.relevant.information.and.analysis.provided.to.external.use
rs.
Ans:.False.–.Management.accounting.is.the.generation.of.relevant.information.and.analysis.to.support.managers’.decision-
.making.activities,.LO:.1,.Bloom:.K,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
2. The.American.Institute.of.Certified.Public.Accountants.is.the.leading.organization.for.management.acc
ountants.in.the.United.States.
Ans:.False.–
.The.Institute.of.Management.Accountants.(IMA).is.the.leading.organization.for.management.accountants.in.the.United.States,.L
O:.1,.Bloom:.K,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
3. The.primary.users.of.managerial.accounting.information.are.managers.and.other.internal.decision-
.makers.
Ans:.True,. LO:.2,.Bloom:.K,.Unit:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
4. Managerial.accounting.provides.reports.and.information.for.a.range.of.decision.makers.outside.an.org
anization.
Ans:.False.–
.Managerial.accounting.provides.reports.and.information.for.a.range.of.decision.makers.within.an.organization,.LO:.2,.Bloom:.C,.Uni
t:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
5. Managerial.accounting.differs.from.financial.accounting.in.that.managerial.accounting.has.no.comp
arable.set.of.rules.governing.what.information.must.be.provided.to.decision-
makers.or.how.that.information.is.presented.
Ans:.True,.LO:.2,.Bloom:.C,.Unit:.1-1,.Difficulty:.Easy.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
6. Managerial.accounting.uses.historical.information,.often.with.the.purpose.of.comparing.actual.res
ults.to.budgeted.results.
Ans:.True,.LO:.2,.Bloom:.K,.Unit:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
7. Decision.makers.might.have.a.long.list.of.information.they.would.find.helpful,.and.they.are.generally
not.willing.to.sacrifice.accuracy.for.having.the.information.quickly.
Ans:.False.–
.Decision.makers.might.have.a.long.list.of.information.they.would.find.helpful..But.sometimes.they.might.need.to.sacrifice.precisio
n.for.timeliness,.LO:.2,.Bloom:.C,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
8. Managerial.accounting.is.designed.to.assist.managers.with.four.general.activities:.planning,.co
ntrolling,.evaluating,.and.decision.making.
Ans:.True,.LO:.3,.Bloom:.K,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
9. Long-term.planning.is.often.referred.to.as.reporting.
Ans:.True,.LO:.3,.Bloom:.K,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
, 10. One.purpose.of.planning.activities.is.to.monitor.day-to-
day.operations.to.ensure.that.processes.are.operating.as.expected.
Ans:.False.–.One.purpose.of.controlling.activities.is.to.monitor.day-to-
day.operations.to.ensure.that.processes.are.operating.as.expected,.LO:.3,.Bloom:.C,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
11. All.other.things.held.equal,.the.more.frequent.the.controlling.activity,.the.faster.an.out-of-
control.process.can.be.corrected.
Ans:.True,.LO:.3,.Bloom:.C,.Unit:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
12. The.task.of.assessing.how.well.employees.have.performed.relative.to.expectations.is.a.controlling.acti
vity.
Ans:.False.–
.The.task.of.accessing.how.well.employees.have.performed.relative.to.expectations.is.considered.an.evaluation.activity,.LO:.3,.Bloo
m:.K,.Unit:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
13. Preparers.of.managerial.accounting.information.are.generally.not.active.participants.in.the.decision-
.making.process.
Ans:.False.–
.Preparers.of.managerial.accounting.information.are.no.longer.solely.number.crunchers,.but.active.participants.in.the.decision-
making.process,.LO:.3,.Bloom:.C,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
14. Managerial.accounting.information.is.always.prepared.by.the.controller.or.cost.accountant..Ans:.Fal
se.–
.Managerial.accounting.information.can.be.provided.by.a.controller,.a.plant.accountant,.a.cost.accountant,.a.financial.analys
t,.a.budget.or.cost.analyst,.a.general.accountant,.or.even.a.chief.financial.officer,.LO:.3,.Bloom:.C,.Unit.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
15. Managerial.accounting.information.provides.feedback.about.how.well.the.organization.is.im
plementing.its.strategy.and.achieving.its.goals.
Ans:.True,.LO:.4,.Bloom:.K,.Unit.1-2,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Strategy
16. For.the.product.differentiation.strategy,.companies.will.want.information.on.quality,.such.as.defect.rat
es,.percentage.of.on-time.deliveries,.and.customer.satisfaction.
Ans:.True,.LO:.4,.Bloom:.K,.Unit.1-2,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Strategy
17. If.a.company.follows.a.strategy.of.product.differentiation,.it.will.seek.ways.to.set.its.products.apart
from.competitors’.in.terms.of.quality,.design.or.service.
Ans:.True,.LO:.4,.Bloom:.K,.Unit.1-2,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Strategy
18. A.company.that.focuses.on.product.differentiation.does.not.need.to.monitor.product.costs.because.if.th
e.quality.is.sufficient,.customers.will.pay.the.price.
Ans:.False.–
.A.company.that.focuses.on.product.differentiation.must.monitor.product.costs.because.if.too.much.cost.is.incurred.for.quality,.the.s
ales.price.will.be.too.high.to.be.competitive,.LO:.4,.Bloom:.C,.Unit.1-
2,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Strategy
. .
Managerial Accounting 4th Edition by Charles E. Davis
. . . . . . .
Chapter 1 .
Accounting as a Tool for Management . . . . .
CHAPTERLEARNING OBJECTIVES
. .
1. Define managerial accounting (Unit 1.1)
. . . .
There.are.several.formal.definitions.of.managerial.accounting..A.simple.one.is.“the.generati
on.of.relevant.information.to.support.management’s.decision-making.activities.”
2. Describe the differences between managerial and financial accounting (U
. . . . . . . .
nit 1.1) .
Managerial.accounting’s.primary.users.are.managers.and.decision.makers.within.an.organi
zation,.whereas.financial.accounting.is.aimed.primarily.at.external.users..Unlike.GAAP.that.
guides.financial.accounting,.there.are.no.mandated.rules.in.managerial.accounting..Manag
erial.accounting.reports.focus.on.operating.segments,.while.financial.accounting.statement
s.report.results.for.the.organization.as.a.whole..Managerial.accounting.is.concerned.more.w
ith.projecting.future.results.than.reporting.past.results..Managerial.information.is.prepared.
to.take.advantage.of.a.window.of.opportunity,.even.if.some.accuracy.must.be.sacrificed..Fin
ancial.accounting.information.is.balanced.to.the.penny.and.is.delivered.after.the.end.of.the.
accounting.period.
3. List and describe the four functions of managers (Unit 1.1)
. . . . . . . . .
Planning.means.setting.a.direction.for.the.organization..Long-
term,.or.strategic.planning.provides.direction.for.a.five-.to.ten-year.period..Short-
term.or.operational.planning.provides.more.detailed.guidance.for.the.coming.year;.it.transl
ates.the.company’s.strategy.into.action.steps..Controlling.is.the.monitoring.of.day-to-
day.operations.to.identify.any.problems.that.require.corrective.action..Evaluating.is.the.pro
cess.of
comparing.a.particular.period’s.actual.results.to.planned.results,.for.the.purpose.of.assessin
g.managerial.performance..Decision.making.means.choosing.between.alternative.courses.
of.action.
4. Explain how the selection of a particular business strategy determines the inf
. . . . . . . . . . .
ormation that managers need to run an organization effectively (Unit 1.2)
. . . . . . . . . .
To.run.a.business.effectively,.managers.need.information.that.shows.how.well
operations.are.meeting.the.organization’s.strategic.goals..For.instance,.if.the
organization’s.strategy.is.to.be.a.low-
cost.producer,.information.about.product.costs.and.cost.variances.will.be.more.useful.to
.managers.than.information .about.research.and.development.
,5. Discuss the importance of ethical behavior in managerial accounting (Unit 1.3
. . . . . . . . . .
)
Ethical.behavior.means.knowing.right.from.wrong.and.then.doing.the.right.thing..Many.com
panies.and.most.professional.organizations.have.codes.of.conduct.to.guide
employees’.actions..Acting.unethically.can.lead.to.illegal.activity.and.ultimately.to.the.destr
uction.of.the.firm..Furthermore,.research.has.shown.that.a.public.commitment.to.ethical.be
havior.can.lead.to.superior.financial.performance.
, TRUE-FALSE STATEMENTS
.
1. Management.accounting.is.the.generation.of.relevant.information.and.analysis.provided.to.external.use
rs.
Ans:.False.–.Management.accounting.is.the.generation.of.relevant.information.and.analysis.to.support.managers’.decision-
.making.activities,.LO:.1,.Bloom:.K,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
2. The.American.Institute.of.Certified.Public.Accountants.is.the.leading.organization.for.management.acc
ountants.in.the.United.States.
Ans:.False.–
.The.Institute.of.Management.Accountants.(IMA).is.the.leading.organization.for.management.accountants.in.the.United.States,.L
O:.1,.Bloom:.K,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
3. The.primary.users.of.managerial.accounting.information.are.managers.and.other.internal.decision-
.makers.
Ans:.True,. LO:.2,.Bloom:.K,.Unit:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
4. Managerial.accounting.provides.reports.and.information.for.a.range.of.decision.makers.outside.an.org
anization.
Ans:.False.–
.Managerial.accounting.provides.reports.and.information.for.a.range.of.decision.makers.within.an.organization,.LO:.2,.Bloom:.C,.Uni
t:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
5. Managerial.accounting.differs.from.financial.accounting.in.that.managerial.accounting.has.no.comp
arable.set.of.rules.governing.what.information.must.be.provided.to.decision-
makers.or.how.that.information.is.presented.
Ans:.True,.LO:.2,.Bloom:.C,.Unit:.1-1,.Difficulty:.Easy.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
6. Managerial.accounting.uses.historical.information,.often.with.the.purpose.of.comparing.actual.res
ults.to.budgeted.results.
Ans:.True,.LO:.2,.Bloom:.K,.Unit:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
7. Decision.makers.might.have.a.long.list.of.information.they.would.find.helpful,.and.they.are.generally
not.willing.to.sacrifice.accuracy.for.having.the.information.quickly.
Ans:.False.–
.Decision.makers.might.have.a.long.list.of.information.they.would.find.helpful..But.sometimes.they.might.need.to.sacrifice.precisio
n.for.timeliness,.LO:.2,.Bloom:.C,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
8. Managerial.accounting.is.designed.to.assist.managers.with.four.general.activities:.planning,.co
ntrolling,.evaluating,.and.decision.making.
Ans:.True,.LO:.3,.Bloom:.K,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
9. Long-term.planning.is.often.referred.to.as.reporting.
Ans:.True,.LO:.3,.Bloom:.K,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
, 10. One.purpose.of.planning.activities.is.to.monitor.day-to-
day.operations.to.ensure.that.processes.are.operating.as.expected.
Ans:.False.–.One.purpose.of.controlling.activities.is.to.monitor.day-to-
day.operations.to.ensure.that.processes.are.operating.as.expected,.LO:.3,.Bloom:.C,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
11. All.other.things.held.equal,.the.more.frequent.the.controlling.activity,.the.faster.an.out-of-
control.process.can.be.corrected.
Ans:.True,.LO:.3,.Bloom:.C,.Unit:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Reporting
12. The.task.of.assessing.how.well.employees.have.performed.relative.to.expectations.is.a.controlling.acti
vity.
Ans:.False.–
.The.task.of.accessing.how.well.employees.have.performed.relative.to.expectations.is.considered.an.evaluation.activity,.LO:.3,.Bloo
m:.K,.Unit:.1-1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
13. Preparers.of.managerial.accounting.information.are.generally.not.active.participants.in.the.decision-
.making.process.
Ans:.False.–
.Preparers.of.managerial.accounting.information.are.no.longer.solely.number.crunchers,.but.active.participants.in.the.decision-
making.process,.LO:.3,.Bloom:.C,.Unit:.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
14. Managerial.accounting.information.is.always.prepared.by.the.controller.or.cost.accountant..Ans:.Fal
se.–
.Managerial.accounting.information.can.be.provided.by.a.controller,.a.plant.accountant,.a.cost.accountant,.a.financial.analys
t,.a.budget.or.cost.analyst,.a.general.accountant,.or.even.a.chief.financial.officer,.LO:.3,.Bloom:.C,.Unit.1-
1,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Business.Operations
15. Managerial.accounting.information.provides.feedback.about.how.well.the.organization.is.im
plementing.its.strategy.and.achieving.its.goals.
Ans:.True,.LO:.4,.Bloom:.K,.Unit.1-2,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Strategy
16. For.the.product.differentiation.strategy,.companies.will.want.information.on.quality,.such.as.defect.rat
es,.percentage.of.on-time.deliveries,.and.customer.satisfaction.
Ans:.True,.LO:.4,.Bloom:.K,.Unit.1-2,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Strategy
17. If.a.company.follows.a.strategy.of.product.differentiation,.it.will.seek.ways.to.set.its.products.apart
from.competitors’.in.terms.of.quality,.design.or.service.
Ans:.True,.LO:.4,.Bloom:.K,.Unit.1-2,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Strategy
18. A.company.that.focuses.on.product.differentiation.does.not.need.to.monitor.product.costs.because.if.th
e.quality.is.sufficient,.customers.will.pay.the.price.
Ans:.False.–
.A.company.that.focuses.on.product.differentiation.must.monitor.product.costs.because.if.too.much.cost.is.incurred.for.quality,.the.s
ales.price.will.be.too.high.to.be.competitive,.LO:.4,.Bloom:.C,.Unit.1-
2,.Difficulty:.Easy,.Min:.1,.AACSB:.Analytic,.AICPA.FN:.Reporting,.AICPA.PC:.None,.IMA:.Strategy
