Skip to Content
OpenStax Logo
Buy book
  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. Financial Statement Analysis
  16. Time Value of Money
  17. 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
1.

LO 12.1Components of the organization that are demotivating for purposes of performance management are known as ________.

  1. business goals
  2. strategic plans
  3. uncontrollable factors
  4. incentives
2.

LO 12.1When managerial accountants design an evaluation system that is based on criteria for which a manager is responsible, and it is structured to encourage managers to make decisions that will meet the goals of the company as well as their own personal job goals, the framework used is ________.

  1. a controllable factors framework
  2. an uncontrollable factors framework
  3. a strategic plan framework
  4. a responsibility accounting framework
3.

LO 12.1Goal congruence in well-designed performance measurement systems best explains a congruence between ________.

  1. employees and the company
  2. strategic plans and the future
  3. decisions and outcomes
  4. feedback and measurement
4.

LO 12.1Responsibility accounting holds managers responsible for ________.

  1. all costs charged to their subunit
  2. all costs charged to their subunit plus a share of company-wide fixed costs
  3. only the costs that they can control
  4. only the costs that they have personally approved
5.

LO 12.1Performance measures are only useful if ________.

  1. there are both controllable and uncontrollable factors to evaluate managers
  2. manager reward systems are designed by the chief financial officer prior to implementation
  3. all of the measures used are accounting numbers
  4. there is a baseline against which to compare the measured results
6.

LO 12.2Which of the following is not a characteristic of a good performance measurement system?

  1. timely
  2. consistent
  3. based on activities over which managers have no control or influence
  4. uses both long- and short-term performances and standards
7.

LO 12.2A good performance measurement system will align the goals of management with ________.

  1. the goals of the city manager and the mayoral staff
  2. the goals of the corporation, and both parties will benefit
  3. the priorities of the stockholders as listed at the annual meeting
  4. the investment department’s response to the annual audit
8.

LO 12.2What should an organization do if performance measures change?

  1. Make sure that the manager being evaluated is aware of the measurement change, as this may affect his or her decision-making.
  2. Make sure that the manager benefits without the corporation also benefitting.
  3. Make sure that there are significant overriding opportunities for each manager, if the manager is unaware of the change.
  4. Obtain customer surveys on the change before communicating the change to the manager.
9.

LO 12.2A good performance measurement system will include which of the following?

  1. short-term goals
  2. long-term goals
  3. short-term and long-term goals
  4. no goals at all
10.

LO 12.2Without proper performance measures, goal congruence is almost impossible to achieve and will likely lead to ________.

  1. more stable targets
  2. decreased defects
  3. lost profits
  4. employees satisfied with the status quo
11.

LO 12.3Dixon Construction Materials has collected this information:

Cost of the machine $2,000,000. Income to be generated by the machine 1,000,000. Income without the new machine 7,000,000. Beginning of the year capital assets (without the machine) 12,000,000. End of the year capital assets (without the machine) 12,400,000. Tax rate 30 percent. Minimum required rate of return 15 percent. Weighted average cost of capital 9 percent. Sales revenue without the machine 18,000,000. Sales revenue with the machine 19,400,000.

Based on this information, what is the EVA for the project?

  1. $100,000
  2. $10,000
  3. $450,000
  4. ($110,000)
12.

LO 12.3The cost of equity is ________.

  1. the interest associated with debt
  2. the rate of return required by investors to incentivize them to invest in a company
  3. the weighted average cost of capital
  4. equal to the amount of asset turnover
13.

LO 12.3Which of the following measures the profitability of a division relative to the size of its investment in capital assets?

  1. residual income (RI)
  2. sales margin
  3. return on investment (ROI)
  4. economic value added (EVA)
14.

LO 12.3The capital structure of Ridley Enterprises is: Debt 40%, Equity 60%. The cost of debt is 13%, and the cost of equity is 16.5%. What is the weighted average cost of capital for Ridley Enterprises?

  1. 14.4%
  2. 15.1%
  3. 16.2%
  4. 13.8%
15.

LO 12.3Calculate the ROI for Gardner Chemical given the following information:

Income $6,000. Revenue $24,000. Average assets $10,000.
  1. 25%
  2. 24%
  3. 60%
  4. 40%
16.

LO 12.4Which of the following statements is false?

  1. The four dimensions of performance that are considered in a balanced scorecard are financial, customer, internal process, and learning and growth
  2. A balanced scorecard will include qualitative and quantitative measures.
  3. Stakeholders cannot include stockholders.
  4. A balanced scorecard is the compatibility between personal goals and the goals of the organization.
17.

LO 12.4The metrics based on nonfinancial information are known as ________.

  1. quantitative factors
  2. qualitative factors
  3. stakeholders
  4. stockholders
18.

LO 12.4The metrics based on financial numbers produced by the accounting system are ________.

  1. quantitative factors
  2. qualitative factors
  3. stakeholders
  4. stockholders
19.

LO 12.4People affected by decisions made by a company, including investors, creditors, employees, managers, regulators, customers, suppliers, and laypeople, are known as ________.

  1. quantitative factors
  2. qualitative factors
  3. stakeholders
  4. stockholders
20.

LO 12.4The owners of company stock are ________.

  1. quantitative factors
  2. qualitative factors
  3. stakeholders
  4. stockholders
Citation/Attribution

Want to cite, share, or modify this book? This book is Creative Commons Attribution-NonCommercial-ShareAlike License 4.0 and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters
Citation information

© Feb 14, 2019 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 4.0 license. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.