Managerial accounting final revision

A] True / False statements

1- Managerial accounting places less emphasis on precision and more emphasis
on flexibility and relevance of data than does financial accounting. (True)
2- Managerial accounting is not governed by generally accepted accounting
principles (GAAP). (True)
3- Managerial accounting produces information for external parties, such as
stockholders, suppliers and banks.
4- Managerial accounting relied on by managers to plan and control an
organization's operations.
5- Planning is measuring the performance of managers against preset target.
6- Control involves comparing actual performance against targets.
7- Part of the planning process involves making a choice between available
alternatives.
8- Contribution Margin = Total revenues - Total variable costs (True)
9- Contribution margin = Total revenues - Total manufacturing costs (False)
10- Contribution margin percentage = Selling price - Variable cost per unit
(False)
11- Only variable production costs are used when calculating contribution
margin (False)
12- You can find the breakeven revenues using total revenues, total variable
costs, and total fixed costs; you don't need unit prices and costs. (True)
13- If variable costs per unit increase, then the breakeven point will decrease.
(False)
14- A planned increase in advertising would be considered an increase in
variable costs in CVP analysis. (False)
15- If a companyʹʹs breakeven revenue is $1,000 and its budgeted revenue is
$1,250, then its margin of safety percentage is 20%. (True)
16- Past costs themselves are always irrelevant when making decisions. (true)
17- The rent paid for an already existing facility is an example of a sunk cost.
(true)
18- A cost may be relevant for one decision, but NOT relevant for a different
decision. (true)
19- Revenues that remain the same for two alternatives being examined are
relevant revenues. (false)
20- Sunk costs are irrelevant to decision making. (true)
21- Marketing costs will be an irrelevant cost in the decision making of a one-
time-only special order. (true)
22- In the decision making of a one-time-only special order, it is assumed that
accepting the special order is not expected to affect the selling price to other
customers. (true)
23- Bid prices and costs that are relevant for regular orders are the same costs
that are relevant for one-time-only special orders. (false)
24- In relevant-cost analysis, managers should not consider all variable as
relevant and all fixed costs as irrelevant. (true)
25- Variable cost per unit is the best product cost to use for one-time-only
special order decisions. (true)

Q2: Choose the best answer

1- Obtaining feedback is generally identified most directly with which of the
functions of
management?
a. Planning
b. Directing and motivating
c. Controlling
d. Decision making
Answer C
2- The plans of management are expressed formally in:
a. the annual report to shareholders.
b. Form 10-Q submitted to the Securities and Exchange Commission (SEC).
c. performance reports.
d. budgets
Answer D
3- Managerial accounting:
a. has its primary emphasis on the future.
b. is required by regulatory bodies such as the SEC.
c. focuses on the organization as a whole, rather than on the
organization's segments.
d. Responses a, b, and c are all correct
Answer: A
4- What type of accounting system is part of an organisation's management
information system for internal use only?
a. Financial accounting. b. Management accounting.
c. Governmental accounting. d. All of the above.
Answer: B
5- Which of the following is not an objective of management accounting?
a. Providing information for making decision.
b. Providing information for planning.
c. Providing information for control.
d. Providing information for preparing profit and loss statement.
Answer: D
6- Relevant information refers to ________ that will differ among the alternative
courses of action.
a. future costs only. b. future revenues only.
c. past costs and revenues. d. future costs and revenues.
Answer: D
7- Cantrall Company is trying to decide which product to manufacture.
Expected direct materials costs are $4.00 per unit for each product. The
expected direct labor costs are $2.00 per unit for one product and $4.00 per unit
for another product. In choosing between the two products, the direct materials
costs are ________ and the direct labor costs are ________.
a. relevant; irrelevant. b. irrelevant; relevant.
c. relevant; relevant. d. irrelevant; irrelevant.
Answer: B
8- Managers use cost-volume-profit (CVP) analysis to ________.
a. forecast the cost of capital for a given period of time.
b. to study the behavior of and relationship among the elements such as total
revenues, total costs, and income.
c. estimate the risks associated with a given job.
d. analyse a firm's profitability and help to decide wealth distribution among its
stakeholders.
Answer: B
9- The breakeven point revenues is calculated by dividing ________.
a. fixed costs by total revenues.
b. total revenues by fixed costs.
c. fixed costs by contribution margin percentage.
d. contribution margin percentage by fixed costs.
10- At breakeven point, ________.
a. operating income is equal to zero.
b. breakeven revenues equal fixed costs divided by the variable cost per unit.
c. contribution margin minus fixed costs is equal to profits earned.
d. revenues equal fixed costs minus variable costs.
11- The breakeven point decreases if ________.
a. the variable cost per unit increases.
b. the contribution margin per unit decreases.
c. the total fixed costs decrease.
d. the selling price per unit decreases.
12- If unit outputs exceed the breakeven point ________.
a. there will be an increase in fixed costs.
b. total sales revenue will exceed fixed costs.
c. there will be a profit.
d. total sales revenue will exceed variable costs.
13- The margin of safety is the difference between ________.
a. budgeted expenses and breakeven expenses.
b budgeted revenues and breakeven revenues.
c. actual operating income and budgeted operating income.
d actual sales margin and budgeted sales margin.
14- Historical or past information can have an indirect bearing on a manager's
decision
because ________.
a. the past decision resulted in a favorable outcome.
b. it can help predict the future.
c. the past decision resulted in a bonus for the manager.
d. the manager wants to repeat the past decisions made some of the time
Answer: B
15- For decision making, a listing of the relevant costs ________.
A) will help the decision maker concentrate on the pertinent data
B) will only include historical costs
C) will only include costs that that are same among alternatives
D) will include both sunk costs and opportunity costs
Answer : A
16- Sunk costs ________.
A) are future costs for decision making
B) are avoidable costs
C) are irrelevant for decision making
D) are foregone contribution by not using a limited resource in its next-best
alternative use
Answer: C
17- In evaluating different alternatives, it is useful to concentrate on ________.
A) variable costs
B) fixed costs
C) total costs
D) relevant costs
Answer: D
18- Which of the following costs always differ among future alternatives?
A) fixed costs
B) historical costs
C) relevant costs
D) variable costs
Answer: C
19- Which of the following costs is relevant in a decision-making process?
A) prepaid insurance costs
B) historical costs
C) sunk costs
D) variable costs
Answer: D
20- When deciding to accept a one-time-only special order from a wholesaler,
management should ________.
A) consider the sunk costs and opportunity costs
B) not consider the special order's impact on future prices of their products
C) determine whether excess capacity is available
D) verify past design costs for the product
Answer: C
C] Exercises
1] use the following data to answer questions
The Drosselmeier Corporation, located in Munich, makes Christmas
nutcrackers and has an annual plant capacity of 2,400 product units. Suppose its
predicted operating results (Production and sale 2000 units) for the year are as
follows:

Production and sale 2000 units, total sales $180,000

Manufacturing costs
Fixed $70,000
Variable per unit $25
Selling and administrative expenses
fixed $30,000
variable $10

1. If the company accepts a special order for 300 units at a selling price of €40
each, how would the total predicted net income for the year be affected,
assuming no effect on regular sales at regular prices?
2. Without decreasing its total net income, what is the lowest unit price for
which the Drosselmeier Corporation could sell an additional 100 units not
subject to any variable selling and administrative expenses, assuming no effect
on regular sales at regular prices?
3. List the numbers given in the problem that are irrelevant (not relevant) in
solving number 2.
4. Compute the expected annual net income (with no special orders) if plant
capacity can be doubled by adding additional facilities at a cost of €500,000.
Assume that these facilities have an estimated life of 4 years with no residual
scrap value, and that the current unit selling price can be maintained for all
sales. Total sales are expected to equal the new total plant capacity each year. No
changes are expected in variable costs per unit or in total fixed costs except for
depreciation.
Answer:
1. Net income will be increased by 300 × (€40 - €25 - €10) = €1,500.

2. The lowest sales price per unit is equal to the variable manufacturing costs
per unit: €25.

3. €180,000, €70,000, €30,000, €10; i.e., all numbers are irrelevant except €25.

4. Selling price: €180,000 ÷ 2,000 units = €90

Total sales: 2,400 × 2 × €90 =€432,000
Less expenses:
Fixed: €70,000 + €30,000 + €125,000* €225,000
Variable: 2,400 × 2 × (€25 + €10) 168,000 393,000
Net income € 39,000
*Depreciation: €500,000 ÷ 4 = €125,000.

2] use the following data to answer questions 1 & 2

Shamokin Manufacturing produces a Tourbillon watch movement called
OM362. Shamokin expects to sell 10,000 units of OM362 and to have an ending
finished inventory of 2,000 units. Currently, it has a beginning finished
inventory of 800 units. Each unit of OM362 requires two labor operations, one
labor hour of assembling and two labor hours of polishing. The direct labor rate
for assembling is $10 per assembling hour and the direct labor rate for polishing
is $12.50 per polishing hour.
1- The expected number of hours of direct labor for OM362 Bigger is:
a. 8,800 hours of assembling; 17,600 hours of polishing
b. 11,200 hours of assembling; 22,400 hours of polishing
c. 17,600 hours of assembling; 8,800 hours of polishing
d. 22,400 hours of assembling; 11,200 hours of polishing
2- The expected cost of direct labor for OM362 is ________.
a. $350,000. b. $378,000. c. $392,000. d. $420,000.

3] use the following data to answer questions 1 to 4

Coroid Manufacturers Inc. is approached by a European customer to fulfill a
one-time-only special order for a product similar to one offered to domestic
customers. The company has excess capacity. The following per unit data apply
for sales to regular customers:

Variable costs:
Direct materials $120
Direct labor 60
Manufacturing support105
Marketing costs 45
Fixed costs:
Manufacturing support135
Marketing costs 45
Total costs 510
Markup (50%) 255
Targeted selling price $765
1) What is the full cost of the product per unit?
A) $330
B) $765
C) $510
D) $255
Answer: C
Explanation: C) Full cost = $120 + $60 + $105 + $45 + $135 + $45 = $510

2- What is the contribution margin per unit?

A) $170
B) $220
C) $435
D) $510
Answer: C
Explanation: C) Contribution margin per unit = $765 - ($120 + $60 + $105 +
$45) = $435
3- For Coroid Manufacturers Inc., what is the minimum acceptable price of this
special order?
A) $330
B) $290
C) $340
D) $510
Answer: A
Explanation: A) Minimum acceptable price = $120 + $60 + $105 + $45 = $330

4- What is the change in operating profits if the one-time-only special order for
1,000 units is accepted for $540 a unit by Coroid?
A) $210,000 increase in operating profits
B) $30,000 increase in operating profits
C) $30,000 decrease in operating profits
D) $225,000 decrease in operating profits
Answer: A
Explanation: A) Contribution margin per unit = $540 - ($120 + $60 + $105 +
$45) = $210
Change in operating profit = 1,000 × $210 = $210,000 increase