Chapter 1
Managerial Accounting and the Business Environment
True/False 1.
F Medium
Decision making is a distinct management activity that should be separated from planning, directing and motivating, and controlling activities.
2. T Easy
When carrying out their directing and motivating activities, managers mobilize the organization's human and other resources so that the organization's plans are carried out. 3.
F Medium
When carrying out planning activities, managers rely on feedback to ensure that the plan is actually carried out and is appropriately modified as circumstances change.
4. F Medium
When carrying out their controlling activities, managers select a course of action and specify how the action will be implemented.
5. T Medium
The controller occupies a staff position in an organization.
6. T Easy
Persons occupying staff positions provide support and assistance to other parts of the organization.
7. T Easy
Informal relationships and channels of communication often develop that do not appear on the organization chart.
8. T Medium
Managerial accounting places less emphasis on precision and more emphasis on flexibility and relevance of data than does financial accounting.
T
Medium with Total Quality Management 13.
T Easy
Total Quality Management involves a focus on serving the customer and systematic problem-solving using teams made up of front-line workers.
14. T Easy
The Plan-Do-Act-Check Cycle involves applying the scientific method to problem-solving.
15. T Easy
In Process Reengineering, a business process is diagrammed in detail, questioned, and then completely redesigned in order to eliminate unnecessary steps, reduce opportunities for errors, and reduce costs.
16. F Easy
In JIT purchasing, as many suppliers as possible are used so as to avoid relying too much on a few suppliers.
17. F Medium
Efforts designed to increase the rate of output should generally be applied to non-constraint workstations.
18. T Easy
The Standards of Ethical Conduct promulgated by the Institute of Management Accountants specifically states, among other things, that management accountants have a responsibility to disclose fully all relevant information that could be reasonably be expected to influence an intended user's understanding of the reports, comments and recommendations presented. 19.
F Medium
The Standards of Ethical Conduct promulgated by the Institute of Management Accountants specifically states, among other things, that management accountants have a responsibility to inform responsible journalists of any wrongdoing they uncover in the organization.
20 T Easy
Work in process inventories consist of units that are only partially complete and will require further work before they are ready for sale to a customer.
Multiple Choice 21.
C Medium
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 22.
D Easy
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. 23. B Easy A staff position:
a. relates directly to the carrying out of the basic objectives of the organization.
b. is supportive in nature, providing service and assistance to other parts of the organization. c. is superior in authority to a line position.
d. none of these. 24.
B Medium
Which of the following persons would occupy a line position in a department store? I. Sales manager
II. Manager, furniture department III. Manager, advertising department IV. Manager, personnel department a. Only I
b. Only I and II c. Only I, II, III d. I, II, III, IV 25.
B Easy
The controller occupies: a. a line position. b. a staff position.
c. neither a line nor a staff position, since the accounting department must be independent.
d. both a line and a staff position. 26.
A Easy
Managerial accounting:
a. has its primary emphasis on the future.
27. D Medium
Which of the following statements are true regarding financial and managerial accounting? I. Both are mandatory.
II. Both rely on the same underlying financial data. III. Both emphasize the segments of an organization, rather than just looking at the organization as a whole. IV. Both are geared to the future, rather than to the past. a. I, II, III, and IV
b. Only II, III and IV c. Only II and III d. Only II 28.
D Easy
Managerial accounting places considerable weight on: a. generally accepted accounting principles.
b. the financial history of the entity.
c. ensuring that all transactions are properly recorded.
d. detailed segment reports about departments, products, and customers. 29.
C Easy
For internal uses, managers are more concerned with receiving information that is: a. completely objective and verifiable.
b. completely accurate and precise.
c. relevant, flexible, and immediately available. d. relevant, completely accurate, and precise. 30.
B Medium
The benefits of a successful Just-In-Time system include all of the following except: a. funds tied up in inventories are released for use elsewhere.
b. inventory buffers are increased. c. throughput time is reduced. d. defect rates are decreased. 31.
D Medium
A key concept of the JIT inventory system is:
a. the raw materials, work in process, and finished goods inventories of manufacturing companies act as buffers so that operations can proceed smoothly even if suppliers are
late with deliveries or a department is unable to operate for a brief period due to breakdowns or other reasons.
b. the use of many suppliers so as to ensure rapid delivery of materials for production. c. the maintenance of a stock of raw materials so that defective materials can be replaced quickly so as to maintain a high rate of productivity.
d. inventories are costly to carry and can be kept to minimum levels or eliminated completely with careful planning.
32. C Easy
The just in time (JIT) concept applies to which of the following: I. The acquisition of raw materials.
II. The assembly of manufactured parts in products. III. The shipment of finished products to customers. a. I. b. I, III. c. I, II, III. d. II, III. 33. D Medium
The flow of goods through a JIT system is based on:
a. a workstation efficiently completing its processing of a batch of units so that the units can proceed forward to the next workstation before the next workstation is ready to
receive them.
b. processing goods in large batch sizes rather than less economical small batches. c. maintaining a stockpile of raw materials in anticipation of materials shortages.
d. producing to meet customer demand with no buildup of inventory at any point in the production process.
34. D Medium
A successful JIT system is based upon which of the following concepts?
a. The company must rely upon a large number of suppliers to ensure frequent deliveries of small lots.
b. The company should always choose those suppliers offering the lowest prices. c. The company should avoid long-term contracts with suppliers so as to exert pressure on suppliers to make prompt and frequent deliveries.
d. A small number of suppliers make frequent deliveries of specific quantities thus avoiding the buildup of large inventories of materials on hand.
35. B Medium
The plant layout under the JIT concept emphasizes:
a. a functional approach in which machines performing the same function are grouped together.
b. a product approach in which all machines needed in the production of a particular product are grouped together.
c. a facilities approach in which all machines of a similar nature are located in one plant building.
d. a concentrated approach in which the processing of certain subassemblies is performed by a small number of independent machine shops under contract to the manufacturing company.
36. C Medium
The key point of a focused factory is that: a. the flow line of a product must be straight. b. the flow line of product must be U-shaped.
c. all machines in a product flow line are tightly grouped together so that partially-completed units are not shifted from place to place all over the factory.
d. products should be moved from one group of machines to another even if this involves movements across the plant or to another building so as to exploit fully the benefits of
worker specialization. 37.
B Medium
A company adopting the JIT approach would:
a. produce large batches of products so as to recoup the costs associated with setups. b. attempt to reduce setup time so as to economically produce in smaller batches. c. adapt a functional plant layout so as to enhance production flexibility. d. require workers to become highly specialized in operating a single machine. 38.
B Medium
The Plan-Do-Check-Act Cycle includes all of the following except: a. studying the current process.
b. determining which manager is responsible for existing problems. c. implementing a plan on a small scale if possible.
d. analyzing data to identify possible causes for any problems. 39.
C Easy
In Total Quality Management, problems are solved by teams consisting of: a. top managers.
b. outside consultants and quality control engineers. c. front-line workers.
d. customers and sales representatives. 40.
C Medium
40. A danger in Process Reengineering is that: a. non-value-added activities may be eliminated. b. some resources may no longer be required. c. employee morale may suffer.
41. C Hard
The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management contains a policy regarding confidentiality that requires that management accountants:
a. refrain from disclosing confidential information acquired in the course of their work except when authorized by management.
b. refrain from disclosing confidential information acquired in the course of their work in all situations.
c. refrain from disclosing confidential information acquired in the course of their work except when authorized by management, unless legally obligated to do so.
d. refrain from disclosing confidential information acquired in the course of their work in all cases since the law requires them to do so.
42. A Medium
The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management states that significant ethical issues should be discussed first with an immediate superior unless the superior is involved. If satisfactory resolution cannot be achieved when the problem is initially presented, then the issues should be:
a. submitted to the next higher managerial level. b. submitted to the chief executive officer of the firm.
c. submitted to the audit committee, executive committee, board of directors, or owners. d. submitted to outside legal counsel.
43. B Medium
A traditional functional factory layout results in: a. minimal material handling.
b. large work in process inventories. c. minimal throughput time. d. low storage costs. 44.
D Medium
An example of a performance report would be:
a. an income statement reporting actual results for the past month. b. an income statement showing the amounts budgeted for the past month.
c. a balance sheet showing the actual financial position at the end of the past month. d. a production report showing budgeted and actual production for the past month.
Essay 45.
Medium You have recently been hired by a manufacturing company. Two days ago, you met with the top management of the your company to discuss future strategies for the firm. During the meeting the president of the company expressed concern about the profitability of the company and the company's ability to compete effectively in the future. You responded to the president's concerns by mentioning some articles you had read in professional accounting journals regarding JIT. The president responded to your comments by saying that although the JIT concept sounded interesting, no one in the company was knowledgeable about JIT. The president then requested that you prepare a brief summary of JIT for the next strategic planning meeting.
Required:
a. List the five key elements involved in the successful operation of a JIT system. b. List at least five benefits cited as coming from a JIT system.
Answer:
a. The five key elements involved in the successful operation of JIT system are:
1. A company must learn to rely on a few suppliers who are willing to make frequent deliveries in small lots of defect-free material.
2. A company must improve the manufacturing flow lines in its plants by physically locating together all of the machines needed in the production of a particular product.
3. A company must reduce setup times by creating flow lines that are dedicated to a single product so that production occurs in smaller batches resulting in reduced levels of work in process and finished goods inventories.
4. A company must develop a system of total quality control over its part and materials, such quality being monitored by both suppliers and employees so as to avoid interruptions in production.
5. A company must develop a flexible work force of
multi-skilled workers capable of operating the various machines in the manufacturing flow lines as well as performing minor repairs and maintenance work when no demands are made by the next work station.
b. A JIT system should produce the following benefits:
1. Worker productivity is increased through teams working in a cellular plant layout organized in product flow lines.
2. Setup time is decreased, resulting in smaller batch sizes and smoother flow of goods between workstations.
3. Total production time is decreased, resulting in greater output and quicker response to customer needs.
4. Waste is reduced as a result of implementation of a Total Quality Control program.
5. Inventories of all types are reduced through better control by suppliers, less wait time between work stations, smaller production runs, and the production of goods to customer orders.
6. Investment funds previously tied up in inventories are released for use elsewhere in the company.
7. Usable space in the plant is increased as areas
previously used to store inventory are made available for other, more productive uses.
