Test Bank For Horngren's Cost Accounting: A Managerial Emphasis, 16th Edition

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1Copyright © 2018 Pearson Education, Inc.Cost Accounting: A Managerial Emphasis, 16e(Horngren)Chapter 1The Manager and Management Accounting1.1Objective 1.11) Management accounting ________.A) focuses on estimating future revenues, costs, and other measures to forecast activities and their resultsB) provides information about the company as a wholeC) reports information that has occurred in the past that is verifiable and reliableD) provides information that is generally available only on a quarterly or annual basisAnswer: AExplanation: Management accounting has a forward-looking orientation as opposed to financialaccounting which has a historical perspective.Diff: 1Objective: 1AACSB: Analytical thinking2) Managers use management accounting information to ________.A)helpexternal users such as investors, banks, regulators, and suppliersB) communicate, develop, and implement strategiesC) communicate a firm's financial position to investors, banks, regulators, and other outside partiesD) ensure that financial statements are consistent with the SEC rulesAnswer: BDiff: 1Objective: 1AACSB: Analytical thinking3) Financial accounting ________.A) focuses on the future and includes activities such as preparing next year's operating budgetB) must comply with GAAP (generally accepted accounting principles)C) is the process of measuring, analyzing, and reporting financial and nonfinancial information related tothe costs of acquiring or using resources in an organizationD) is prepared for the use of department heads and other employeesAnswer: BDiff: 1Objective: 1AACSB: Analytical thinking4) Which of the following would most likely be the user of financial accounting information?A) factory shift supervisorB) distribution managerC) current shareholderD) department managerAnswer: CDiff: 1Objective: 1AACSB: Analytical thinking

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2Copyright © 2018 Pearson Education, Inc.5) The primary user of management accounting information is a(n) ________.A) the controllerB) a shareholder evaluating a stock investmentC) bondholderD) external regulatorAnswer: ADiff: 1Objective: 1AACSB: Analytical thinking6) Financial accounting provides the primary source of information for ________.A) decision making in the assembly and finishing departmentB) improving distribution and customer serviceC) preparing the income statement for shareholders and other external partiesD) planning next year's plans and specifically; the operating budgetAnswer: CDiff: 1Objective: 1AACSB: Analytical thinking7) 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: DDiff: 2Objective: 1AACSB: Analytical thinking8) 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: ADiff: 2Objective: 1AACSB: Analytical thinking9) Which of the following groups would be least likely to receive detailed management accountingreports?A) stockholdersB) sales managersC) production supervisorsD) distribution managersAnswer: ADiff: 1Objective: 1AACSB: Analytical thinking

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3Copyright © 2018 Pearson Education, Inc.10) Management accounting information typically includes ________.A) tabulated results of customer satisfaction surveysB) the cost of producing a productC) the percentage of units produced that are defectiveD) All of these answers are correct.Answer: DDiff: 1Objective: 1AACSB: Application of knowledge11) Cost accounting ________.A) measures the costs of acquiring or using resources in an organizationB) measures the financial and nonfinancial information that helps managers make decisions to fulfill thegoals of an organizationC) coordinates product design, production, and marketing decisions and evaluate a company'sperformanceD) communicates information to investors, banks, regulators, and other outside partiesAnswer: ADiff: 1Objective: 1AACSB: Analytical thinking12) 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 financialaccounting are the managers.B) Cost accounting deals with product design, production, and marketing strategies, whereas financialaccounting deals mainly with pricing of the products.C) Cost accounting measures only the financial information related to the costs of acquiring fixed assetsin an organization, whereas financial accounting measures financial and nonfinancial information of acompany's business transactions.D) Cost accounting measuresinformationrelated to the costs of acquiring or using resources in anorganization, whereas financial accounting measures a financial position of a company to investors,banks, and external parties.Answer: DDiff: 2Objective: 1AACSB: Analytical thinking13) 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: CDiff: 2Objective: 1AACSB: Analytical thinking

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4Copyright © 2018 Pearson Education, Inc.14) A data warehouse or infobarn ________.A) is reserved for exclusive use by the CFOB) is primarily used for financial reporting purposesC) stores information used by different managers for multiple purposesD) gathers only nonfinancial informationAnswer: CDiff: 1Objective: 1AACSB: Analytical thinking15) 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 ofmanagers.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: CDiff: 2Objective: 1AACSB: Analytical thinking16) Which of the following deals with management accounting?A) identifying the costs of acquiring the resources of the companyB) developing budgetsC) preparing the income statementD) preparing the statement of cash flowsAnswer: BDiff: 1Objective: 1AACSB: Analytical thinking17) Financial accounting is concerned primarily with ________.A) external reporting to investors, creditors, and government authoritiesB) cost planning and cost controlsC) product design and marketing strategiesD) providing information for strategic and tactical decisionsAnswer: ADiff: 1Objective: 1AACSB: Analytical thinking

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5Copyright © 2018 Pearson Education, Inc.18) Financial accounting provides a historical perspective, whereas management accounting emphasizes________.A) the futureB) past transactionsC) a current perspectiveD) reports to shareholdersAnswer: ADiff: 1Objective: 1AACSB: Analytical thinking19) 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: BDiff: 2Objective: 1AACSB: Analytical thinking20) The approaches and activities of managers in short-run and long-run planning and control decisionsthat increase value for customers and lower costs of products and services are known as ________.A) value chain managementB) enterprise resource planningC) cost managementD) customer value managementAnswer: CDiff: 1Objective: 1AACSB: Analytical thinking21) Financial accounting information focuses on internal reporting.Answer: FALSEExplanation: Management accounting information focuses on internal reporting and financial accountingfocuses on external reporting.Diff: 1Objective: 1AACSB: Analytical thinking22) Cost accounting provides information for both management accounting and financial accountingprofessionals.Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking

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6Copyright © 2018 Pearson Education, Inc.23) Management accounting information and reports do not have to follow set principles or rules such asGAAP but should be useful to its audience and meet the cost/benefit test.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking24) Management accounting ensures communication of an organization's financial position to investors,banks, and regulators.Answer: FALSEExplanation: Financial accounting, not management accounting, ensures communication of anorganization's financial position to investors, banks, and regulators.Diff: 1Objective: 1AACSB: Analytical thinking25) The balance sheet and income statement are primarily management accounting reports.Answer: FALSEExplanation: The balance sheet and income statement are primarily financial accounting reportsproduced for owners, investors, and other external parties that provide capital or regulate the business.Diff: 1Objective: 1AACSB: Analytical thinking26) Financial accounting is broader in scope than management accounting in that financial accounting caninclude external reporting and reporting that helps managers plan and control operations.Answer: FALSEExplanation: Management accounting is broader in scope than financial accounting as it can encompasssome GAAP issues such as inventory valuation and cost of goods sold and it also provides reporting tohelp managers make decisions and plan and control operations.Diff: 1Objective: 1AACSB: Analytical thinking27) Cost accounting measures and reports short-term, long-term, financial, and non financial information.Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking28) Cost accounting is the process of measuring, analyzing, and reporting financial and nonfinancialinformation related to the costs of acquiring or using resources in an organization.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking

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7Copyright © 2018 Pearson Education, Inc.29) Management accounting has to strictly follow the rules of generally accepted accounting principlesfor the purposes of measurement and reporting.Answer: FALSEExplanation: Internal measures and reports do not have to follow GAAP. Usefulness and the cost/benefitapproach are the guiding principles of management accounting.Diff: 2Objective: 1AACSB: Analytical thinking30) For management accounting, internal measurement and reporting are based on cost-benefit analysis.Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking31) Management accounting report time spans can vary from one hour to many years, while financialaccounting report time periods usually span a quarter or a year.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking32) Financial accounting provides an organization's past-oriented information such as the previous years'financial statements.Answer: TRUEExplanation: Financial accounting provides an organization's past-oriented information such as theprevious years' financial statements.Diff: 1Objective: 1AACSB: Analytical thinking33) Cost management not only helps reduce costs but also improve customer satisfaction and the qualityof a firm's products.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking

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8Copyright © 2018 Pearson Education, Inc.34) For each report listed below, identify whether the major purpose of the report is for (1) routineinternal reporting, (2) nonroutine internal reporting, or for (3) external reporting to investors and otheroutside parties.Item:a.study detailing sale information of the top-ten selling productsb.weekly report of total sales generated by each store in the metropolitan areac.annual Report sent to shareholdersd.monthly report comparing budgeted sales by store to actual salesAnswer:a.(2) nonroutine internal reportingb.(1) routine internal reportingc.(3) external reporting to investors and other outside partiesd.(1) routine internal reportingDiff: 3Objective: 1AACSB: Application of knowledge35) Describe management accounting and financial accounting.Answer: Management accounting provides information to internal decision makers of the business suchas top executives, managers, sales representatives, and production supervisors. Its purpose is to helpmanagers predict and evaluate future results. Reports are generated often and usually broken down intosmaller reporting divisions such as department or product line. There are no rules to be complied withsince these reports are for internal use only. Management accounting embraces more extensively suchtopics as the development and implementation of strategies and policies, budgeting, special studies andforecasts, influence on employee behavior, and nonfinancial as well as financial information.Financial accounting, by contrast, provides information to external decision makers such as investors andcreditors. Its purpose is to present a fair picture of the financial condition of the company. Reports aregenerated quarterly or annually and report on the company as a whole. The financial statements mustcomply with GAAP (generally accepted accounting principles). A CPA audits, or verifies, that GAAP isbeing followed.Diff: 3Objective: 1AACSB: Analytical thinking36) Cost accounting provides information for both management accounting and financial accountingprofessionals. Explain.Answer: Cost accountingis the process of measuring, analyzing, and reporting financial andnonfinancial information related to the costs of acquiring or using resources in an organization. Forexample, calculating the cost of a product is a cost accounting function that meets both the financialaccountant's inventory-valuation needs and the management accountant's decision-making needs such asdeciding how to price products and choosing which products to promote.Diff: 3Objective: 1AACSB: Analytical thinking

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9Copyright © 2018 Pearson Education, Inc.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 forthe balance sheet and cost of goods sold for the income statement. GAAP requires absorption costing.Diff: 2Objective: 1AACSB: Analytical thinking38) What competitive advantage could a company obtain from having a successful cost managementprogram?Answer: There are three broad outcomes from a successful cost management program: 1) costs arereduced with no loss in customer value. In this scenario, a company might gain a competitive advantageby lowering its price with no loss in profit, or maintain the same price and increase profit; 2) customervalue is increased with no change in costs. This scenario might increase customer satisfaction resulting inincreased customer loyalty and perhaps increase the overall demand for the product; 3) customer valuemight be increased while costs are reduced simultaneously. This scenario would result in the benefitsdescribed in both 1) and 2).Diff: 3Objective: 1AACSB: Analytical thinking1.2Objective 1.21) 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 themarketplace 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, oroffering a unique product or service priced lower than the competition.Answer: ADiff: 2Objective: 2AACSB: Analytical thinking2) Strategy specifies ________.A) how an organization matches its own capabilities with the opportunities in the marketplaceB) standard procedures to ensure quality productsC) incremental changes for improved performanceD) the demand created for products and servicesAnswer: ADiff: 2Objective: 2AACSB: Analytical thinking

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10Copyright © 2018 Pearson Education, Inc.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 goodsB) substituting products that exist in the marketplaceC) strategizing compliance with GAAP (Generally Accepted Accounting Principles)D) maintaining adequate fixed assets available to implement the strategyAnswer: CExplanation: This is more of a concern of financial accountants than of management accountants.Diff: 2Objective: 2AACSB: Analytical thinking4) Strategy is formulated ________.A) by identifying the most important customersB) by forecasting the composition of adequate fixed assetsC) based on the qualified opinion of external auditorsD) by eliminating sunk costsAnswer: ADiff: 2Objective: 2AACSB: Analytical thinking5) In designing strategy, a company must match its opportunities in the marketplace with ________.A) environmental friendly goalsB) its resources and capabilitiesC) branding opportunitiesD) the requirements of credit rating agenciesAnswer: BDiff: 2Objective: 2AACSB: Analytical thinking6) 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: BDiff: 2Objective: 2AACSB: Analytical thinking7) A company's strategy specifies how an organization matches its capabilities with the opportunities inthe marketplace.Answer: TRUEDiff: 2Objective: 2AACSB: Analytical thinking

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11Copyright © 2018 Pearson Education, Inc.8) The two broad strategies that companies follow are cost leadership strategy and product differentiationstrategy.Answer: TRUEDiff: 1Objective: 2AACSB: Analytical thinking9) The best-designed strategies are valuable, whether or not they are effectively implemented.Answer: FALSEExplanation: Implementation is essential or the strategy is useless.Diff: 1Objective: 2AACSB: Analytical thinking10) The key to a company's success is creating value for customers while differentiating itself from itscompetitors.Answer: TRUEDiff: 1Objective: 2AACSB: Analytical thinking11) The key to a company's success is always to be the low cost producer in a particular industry.Answer: FALSEExplanation: The low cost producer in a particular industry will not necessarily be successful.Diff: 2Objective: 2AACSB: Analytical thinking12) Management accountants work closely with managers in various departments to formulate strategiesby providing information about the sources of competitive advantage.Answer: TRUEDiff: 2Objective: 2AACSB: Analytical thinking13) Management accountants should have little or no role in deciding on a company's strategy.Answer: FALSEExplanation: Management accountants should play a significant role in deciding on a company'sstrategy.Diff: 1Objective: 2AACSB: Analytical thinking14) Companies can decide on an appropriate strategy based strictly on internally available information.Answer: FALSEExplanation: Companies must obtain external information as well as internal information to decide on anappropriate strategy.Diff: 2Objective: 2AACSB: Analytical thinking

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12Copyright © 2018 Pearson Education, Inc.15) Strategic cost management describes cost management that specifically focuses on strategic issues.Answer: FALSEExplanation: Strategic cost management describes cost management that specifically focuses on strategicissues.Diff: 2Objective: 2AACSB: Analytical thinking16) Identifying a company's most important customers helps to formulate a strategy.Answer: TRUEDiff: 1Objective: 2AACSB: Analytical thinking17) The best-designed strategies and the best-developed capabilities are useless unless they are effectivelyexecuted.Answer: TRUEDiff: 1Objective: 2AACSB: Analytical thinking18) Describe the major differences between management accounting and financial accounting for thefollowing:1. Primary users2. Focus and emphasis3. Rules of measurement and reportingAnswer:1.The primary users of management accounting information are managers of the organization. Theprimary users of financial accounting are external users such as investors, banks, regulators, andsuppliers.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 oncost-benefit analysis. Financial accounting measurement and reporting must be prepared in accordancewith GAAP and be certified by external, independent auditors.Diff: 3Objective: 2AACSB: Analytical thinking19) What is strategy? Briefly describe the two broad types of strategies that companies may choose topursue.Answer: Strategy specifies how an organization matches its own capabilities with the opportunities inthe marketplace to accomplish its objectives. In other words, strategy describes how a company willcompete.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 ahigher price.Diff: 2Objective: 2AACSB: Analytical thinking

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13Copyright © 2018 Pearson Education, Inc.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 anddeliver value to them.TWO:Identifying the substitute products existing in the marketplace, and how do they differ from ourproduct in terms of features, price, cost, and quality.THREE: Identifying most critical capability-whether it is technology, production or marketing.FOUR: Checking the adequacy of cash available to fund the strategy, or will additional funds need to beraised-through issue of debt or equity.Diff: 3Objective: 2AACSB: Analytical thinking21) Generally, companies follow one of two broad strategies: offering a quality product at a low price, oroffering a unique product or service priced higher than the competition. Assume you are opening a smallfood outlet across the street from your campus. How might that business be operated under each of thetwo broad strategies? Consider the following specific operational areas:a.target customersb.products offeredc.product pricingd.location choicee.advertising contentf.advertising media

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14Copyright © 2018 Pearson Education, Inc.Answer: The purpose of this question is to explore some of the differences in business operations as aresult of a broad strategic choice. Answers will differ from student to student, but you should see somespecific themes.Operational AreaLow Price StrategyDifferential StrategyTarget customersTarget customers might bestudents on a tight budget.Target customers might bemore wealthy students,faculty, or perhaps neighborswho live nearby.Products offeredFew products, heavyemphasis on tight cost control,probably set up as a highvolume operation.High quality products,probably a reasonable choice,restaurant might have a lot ofambience.Product pricingPriced at or lower than thecompetition in the area.Higher priced products.Location choiceConvenient to the targetcustomers.Not as convenient, perhaps ina higher-end shopping orentertainment area.Customers might seek out thehigh quality and be willing totravel a bit for it.AdvertisingcontentAdvertising would emphasizethe low price of the productsoffered.Advertising would emphasizequality or ambience.Advertising mediaMedia that would be looked atby the target customers, suchas student newspapers.Media that would be lookedat by the target customer,local magazines andnewspapers.Diff: 3Objective: 2AACSB: Application of knowledge22) Generally, companies follow one of two broad strategies: offering a quality product at a low price, oroffering a unique product or service priced higher than the competition. Is it possible to follow a strategythat is "in the middle"?Answer: There is some dispute about the correct answer to this question. Some will argue that it is notgood for companies to get "caught in the middle" because the customer might get confused as to whetheror not the company is competing on price or is trying to make some other appeal. If the customer isconfused about how the company is giving them value, they might perceive they are getting no value andabandon the product to a competitor with a clearer customer value proposition. The other side of theargument is that cost management is a necessary part of any strategy and even if the company chooses topursue a differential strategy, management of the company should always be seeking ways to managecosts and increase customer value simultaneously regardless of their strategy. The student should be ableto articulate one or the other arguments coherently.Diff: 3Objective: 2AACSB: Application of knowledge

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15Copyright © 2018 Pearson Education, Inc.1.3Objective 1.31) Place the four business functions in the order they appear along the value chain:Customer serviceDesignMarketingProductionA) Customer Service, Design, Production, MarketingB) Customer Service, Marketing, Production, DesignC) Design, Production, Marketing, Customer ServiceD) Design, Customer Service, Production, MarketingAnswer: CDiff: 2Objective: 3AACSB: Analytical thinking2) R&D, production, and customer service are business functions that are all included as part of ________.A) the value chainB) benchmarkingC) customer relationship managementD) the supply chainAnswer: ADiff: 1Objective: 3AACSB: Analytical thinking3) The value chain is the sequence of business functions in which ________.A) value is deducted from the products or services of an organizationB) producing and delivering the product or service is of prime importanceC) products and services are evaluated with respect to their value to the supply chainD) usefulness is added to the products or services of an organizationAnswer: DDiff: 2Objective: 3AACSB: Analytical thinking4) ________ is the generation of, and experimentation with, ideas related to new products, services, orprocesses.A) Research and developmentB) Design of products, services, or processesC) ProductionD) MarketingAnswer: ADiff: 1Objective: 3AACSB: Analytical thinking

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