Chapter 1 Quiz

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The value chain comprises activities from research and development through the production process, but does not include activities related to the distribution of products or services.

False. Distribution is included in the value chain.

A cost can be considered a differential cost for one particular course of action but not for another course of action.

True. A differential cost is a cost that changes in response to a particular course of action. A cost may change in response to one course of action but not in response to a different course of action.

It is important that the manager assigned to lead a responsibility center be held accountable for its operations.

True. Responsibility does not work without accountability.

Budgeting is primarily used to determine year-end bonuses based on managerial and organizational performance.

False. Budgeting is used primarily for planning. A budget is a financial plan of the revenues and resources needed to carry out activities and meet financial goals. Budgeting helps managers decide whether their goals can be achieved and, if not, what modifications are necessary.

Financial accounting information is designed for decision-makers who are directly involved in the daily management of the firm.

False. Financial accounting is designed for external parties; cost accounting is designed for managers.

It is more important for financial accounting information to be comparable between firms than to be useful for managerial decision-making.

True. Important criteria for financial accounting include comparability and decision relevance; decision relevance and timeliness are the important criteria for cost accounting.

Customer satisfaction is an example of a non-financial performance measure.

True. Very few customer satisfaction measures are financial in nature.

A person who makes unethical decisions in their personal life is likely to make unethical decisions in their professional life.

True. Ethics are a result of an internal moral compass.

Ethical behavior depends more on a firm's code of conduct than the individual's personal beliefs.*

False. Codes of conduct look good on paper, but ultimately much of ethical behavior comes from an individual's personal beliefs.

Cost accounting provides information only for cost accounting purposes.

False. Although it is designed for decision makers, cost accounting is commonly used in financial accounting information.

Managers do not make decisions about future events based on:

Perfect information. Perfect information is never available, there is always some uncertainty.

(CMA adapted) The process of creating a formal plan and translating goals into a quantitative format is referred to as

Budgeting.

According to the Institute of Management Accountants (IMA), the first step in resolving an ethical dilemma is to

Discuss the situation with an immediate supervisor. It is best to deal with the immediate problem before bringing in outsiders.

The cost accounting system that minimizes wasteful or unnecessary transaction processes is

Lean accounting.

Having one or more of the firms' activities performed by another firm or individual in the supply or distribution chain is called

Outsourcing.

The system that allows firms to target profitable customers by assessing customer revenue and costs is called

Customer relationship management (CRM).

Which of the following activities would not be included in the value chain of a manufacturing company?

Accounting. Accounting is not a separate item in the value chain, while the other choices are.

Financial accounting

Must comply with GAAP (generally accepted accounting principles). Financial accounting must comply with GAAP; the other choices are characteristics of cost accounting.

Surf Boards, Inc. had the following summarized results for the month ending July 30:

...
Assume that the budget was based on the sale of 104 surfboards at $500 each and the actual results reflect the sale of 104 surfboards. What is the most appropriate conclusion in the report to management?

If costs as a percentage of revenues had remained at the budgeted level, net income would be $985 above budget. Costs were 87.69% at $52,000 in sales; at $60,000, costs should be $52,615 not $53,600 for a difference of $985.

San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below:

...
Are the materials costs and processing costs differential in the choice between alternatives A and B? (Ignore the building costs and equipment rental in this question.)

Both materials costs and processing costs are differential.

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