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Principles of Accounting, Volume 2: Managerial Accounting

Exercise Set A

Principles of Accounting, Volume 2: Managerial AccountingExercise Set A
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Table of contents
  1. Preface
  2. 1 Accounting as a Tool for Managers
    1. Why It Matters
    2. 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management
    3. 1.2 Distinguish between Financial and Managerial Accounting
    4. 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants
    5. 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards
    6. 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Thought Provokers
  3. 2 Building Blocks of Managerial Accounting
    1. Why It Matters
    2. 2.1 Distinguish between Merchandising, Manufacturing, and Service Organizations
    3. 2.2 Identify and Apply Basic Cost Behavior Patterns
    4. 2.3 Estimate a Variable and Fixed Cost Equation and Predict Future Costs
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Cost-Volume-Profit Analysis
    1. Why It Matters
    2. 3.1 Explain Contribution Margin and Calculate Contribution Margin per Unit, Contribution Margin Ratio, and Total Contribution Margin
    3. 3.2 Calculate a Break-Even Point in Units and Dollars
    4. 3.3 Perform Break-Even Sensitivity Analysis for a Single Product Under Changing Business Situations
    5. 3.4 Perform Break-Even Sensitivity Analysis for a Multi-Product Environment Under Changing Business Situations
    6. 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  5. 4 Job Order Costing
    1. Why It Matters
    2. 4.1 Distinguish between Job Order Costing and Process Costing
    3. 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing
    4. 4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
    5. 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production
    6. 4.5 Compute the Cost of a Job Using Job Order Costing
    7. 4.6 Determine and Dispose of Underapplied or Overapplied Overhead
    8. 4.7 Prepare Journal Entries for a Job Order Cost System
    9. 4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment
    10. Key Terms
    11. Summary
    12. Multiple Choice
    13. Questions
    14. Exercise Set A
    15. Exercise Set B
    16. Problem Set A
    17. Problem Set B
    18. Thought Provokers
  6. 5 Process Costing
    1. Why It Matters
    2. 5.1 Compare and Contrast Job Order Costing and Process Costing
    3. 5.2 Explain and Identify Conversion Costs
    4. 5.3 Explain and Compute Equivalent Units and Total Cost of Production in an Initial Processing Stage
    5. 5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage
    6. 5.5 Prepare Journal Entries for a Process Costing System
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  7. 6 Activity-Based, Variable, and Absorption Costing
    1. Why It Matters
    2. 6.1 Calculate Predetermined Overhead and Total Cost under the Traditional Allocation Method
    3. 6.2 Describe and Identify Cost Drivers
    4. 6.3 Calculate Activity-Based Product Costs
    5. 6.4 Compare and Contrast Traditional and Activity-Based Costing Systems
    6. 6.5 Compare and Contrast Variable and Absorption Costing
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  8. 7 Budgeting
    1. Why It Matters
    2. 7.1 Describe How and Why Managers Use Budgets
    3. 7.2 Prepare Operating Budgets
    4. 7.3 Prepare Financial Budgets
    5. 7.4 Prepare Flexible Budgets
    6. 7.5 Explain How Budgets Are Used to Evaluate Goals
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Standard Costs and Variances
    1. Why It Matters
    2. 8.1 Explain How and Why a Standard Cost Is Developed
    3. 8.2 Compute and Evaluate Materials Variances
    4. 8.3 Compute and Evaluate Labor Variances
    5. 8.4 Compute and Evaluate Overhead Variances
    6. 8.5 Describe How Companies Use Variance Analysis
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  10. 9 Responsibility Accounting and Decentralization
    1. Why It Matters
    2. 9.1 Differentiate between Centralized and Decentralized Management
    3. 9.2 Describe How Decision-Making Differs between Centralized and Decentralized Environments
    4. 9.3 Describe the Types of Responsibility Centers
    5. 9.4 Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  11. 10 Short-Term Decision Making
    1. Why It Matters
    2. 10.1 Identify Relevant Information for Decision-Making
    3. 10.2 Evaluate and Determine Whether to Accept or Reject a Special Order
    4. 10.3 Evaluate and Determine Whether to Make or Buy a Component
    5. 10.4 Evaluate and Determine Whether to Keep or Discontinue a Segment or Product
    6. 10.5 Evaluate and Determine Whether to Sell or Process Further
    7. 10.6 Evaluate and Determine How to Make Decisions When Resources Are Constrained
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  12. 11 Capital Budgeting Decisions
    1. Why It Matters
    2. 11.1 Describe Capital Investment Decisions and How They Are Applied
    3. 11.2 Evaluate the Payback and Accounting Rate of Return in Capital Investment Decisions
    4. 11.3 Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities
    5. 11.4 Use Discounted Cash Flow Models to Make Capital Investment Decisions
    6. 11.5 Compare and Contrast Non-Time Value-Based Methods and Time Value-Based Methods in Capital Investment Decisions
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Balanced Scorecard and Other Performance Measures
    1. Why It Matters
    2. 12.1 Explain the Importance of Performance Measurement
    3. 12.2 Identify the Characteristics of an Effective Performance Measure
    4. 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added
    5. 12.4 Describe the Balanced Scorecard and Explain How It Is Used
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  14. 13 Sustainability Reporting
    1. Why It Matters
    2. 13.1 Describe Sustainability and the Way It Creates Business Value
    3. 13.2 Identify User Needs for Information
    4. 13.3 Discuss Examples of Major Sustainability Initiatives
    5. 13.4 Future Issues in Sustainability
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Thought Provokers
  15. A | Financial Statement Analysis
  16. B | Time Value of Money
  17. C | Suggested Resources
  18. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
  19. Index
EA 1.

LO 1.2Indicate whether each statement describes financial accounting or managerial accounting.

  1. The information is directed at external users who are making decisions pertaining to investing, extending credit, and other decisions.
  2. The principal users are the organization’s managers.
  3. The key focus is on the entity as a whole.
  4. The rules and principles are very flexible.
  5. The information gathered is usually available after an independent audit has been completed.
EA 2.

LO 1.2Identify the following as True or False:

  1. Managerial accounting reports must comply with the rules set in place by the FASB.
  2. Financial accounting reports are typically general-purpose reports.
  3. Financial accounting reports pertain to the entity as a whole, whereas managerial accounting focuses more on subunits of the organization.
  4. The main users of the financial accounting information are the internal users.
  5. Managerial reports are prepared on an as-needed basis.
  6. Financial accounting reports often must be audited at least annually by an independent auditor.
EA 3.

LO 1.2Define each of these users of accounting information as an internal user of external user:

  1. Management
  2. Employees
  3. Investors
  4. Creditors
  5. Customers
  6. Tax authorities
EA 4.

LO 1.2Discuss what information would be most useful for these users of accounting information:

  1. Management
  2. Employees
  3. Investors
  4. Creditors
  5. Customers
  6. Tax authorities
EA 5.

LO 1.3Taylor Speedy has prepared the following list of statements about managerial accounting, financial accounting, and the functions of management. Identify each statement as true or false.

  1. Financial accounting centers on providing information to internal users.
  2. Staff positions are directly involved in the company’s primary revenue-generating activities.
  3. Preparation of budgets is part of financial accounting.
  4. Managerial accounting applies only to merchandising and manufacturing companies.
  5. Both managerial accounting and financial accounting deal with many of the same economic events.
EA 6.

LO 1.3Match the term with the description:

A. Certified Public Accountant i. Specialist in corporate accounting management; favors financial analytics, budgeting, and strategic domains
B. Chartered Financial Analyst ii. Considered the top tier in accounting certifications; must pass a four-part exam, with education and work experience requirements
C. Certified Management Accountant iii. Designation that is exclusively for auditors of the public sector
D. Certified Internal Auditor iv. Credential for auditors who work within organizations and is one of a few that is accepted worldwide
E. Certified Fraud Examiner v. Certification for those with a career in finance and investment areas
F. Certified Government Auditing Professional vi. Designation that proves proficiency in fraud prevention, detection, and deterrence
EA 7.

LO 1.4After the passage of the Sarbanes-Oxley Act in 2002, many new responsibilities were put into place for organizations and their management. What are the four significant issues that were addressed by the act and its provisions as presented in this chapter? How does the act and its various requirements help deter fraudulent activity?

EA 8.

LO 1.4Indicate whether each of the following statements is true or false.

  1. Bribery in the world of business typically happens when an organization or representative of an organization gives financial benefits to an official to gain favor or manipulate a business decision.
  2. The Foreign Corrupt Practices Act was implemented in the aftermath of disclosures that businesses were violating the IMA Code of Ethics.
  3. Managers are required to follow specific rules issued by the IMA for internal financial reporting.
  4. Ethics is more than obeying laws.
  5. The Sarbanes-Oxley Act addressed public company accounting reform.
EA 9.

LO 1.5Match each lean business method to the best description:

A. Just-in-time manufacturing i. The focus is on quality throughout the entire process.
B. Continuous improvements ii. Inventory is attained or produced only as needed.
C. Total quality management iii. A combined effort of team members is used to eliminate waste and defects.
D. Lean Six Sigma iv. All managers and employees are always looking for ways to improve operations.
EA 10.

LO 1.5For each of the activities listed, choose the manufacturing concept that applies: (i) just-in-time inventory, (ii) continuous improvement, or (iii) total quality management.

  1. A company receives inventory daily based on customer orders.
  2. Manufacturing factories have been arranged in such a fashion to reduce inefficiencies.
  3. Companies organize customer focus groups in order to look at customer needs and expectations.
  4. The entire production process is standardized and written down with procedures.
  5. Each customer receives a survey of satisfaction with their product.
  6. All orders are complete and shipped within three business days.
EA 11.

LO 1.5Look up the definitions for the following terms:

  1. Budget (Budgeting)
  2. Capital budget (Capital Budgeting Decisions)
  3. Balanced scorecard (Balanced Scorecard and Other Performance Measures)
  4. Break-Even point (Cost Volume Profit Analysis)

Provide examples of how each of these terms is used in your own life and how using these practices is useful.

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