Final Exam
Financial information provides a summary of the (1) of resources used and outputs produced in a process. Thus, it is (2) to direct (physical) measures of the quality, cycle time, and throughput of a process. Be specific about the types of financial information that would be helpful and the specific decisions or actions that could be made better by supplementing physical and operational information with financial information.
(1) costs (2) a valuable complement A. The relative cost of inputs, quality, responsiveness to customers, and output would be helpful. It would assist the employees with prioritizing where improvements might have the biggest impact
One principal advantage of separating the financial and management accounting functions is that employees (1) The management accounting department can (2) and the financial accounting department can (3) The disadvantage of separate accounting departments is that the information prepared for internal use (4) be immediately compatible with external reporting requirements. Also, (5) total accounting and finance personnel may be required.
(1) develop expertise in their particular tasks. (2) work closely with the functional areas (3) concentrate on the financial accounting and tax standards. (4) may not (5) more
The senior management team (1) actively involved in order to articulate the organization's strategy. The head of the information technology group (2) the company's strategy, mission, and objectives. The head of the information technology group may attempt to build the scorecard alone rather than with the (3) making implementation and acceptance of the Balanced Scorecard (4) Finally, the information technology group may focus on the (5) , rather than focusing on the (6)
(1) should be (2) may not fully understand (3) entire management team (4) difficult. (5) data-gathering aspects of the performance measurement system (6) key data for monitoring and implementing the strategy.
Olive Company provides the following data for the year 20X3: Net sales revenue $398,000 Cost of goods sold $255,000 Operating expenses $95,000 Income tax expense $9,000 On a vertical analysis, what percentage would be shown for operating expenses?
23.9%
Explain how a Balanced Scorecard approach is helpful in identifying critical processes and evaluating the processes.
B. It forces the company to determine the means by which it will produce and deliver the value propositions for customers and achieve the productivity improvements for the financial objectives. It includes objectives and measures to evaluate performance on these critical processes.
What is management accounting?
B. The process of supplying the managers and employees in an organization with relevant information, both financial and nonfinancial, for making decisions, allocating resources, and monitoring, evaluating, and rewarding performance.
Kramer Company manufactures coffee tables and uses an activity based costing system to allocate all manufacturing conversion costs. Each coffee tables consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: − Activity Allocation Base Cost Allocation Rate Materials handling Number of parts $2.00 per part Machining Machine hours $2.75 per machine hour Assembling Number of parts $1.00 per part Packaging Number of finished units $3.00 per finished unit What is the cost of machining per coffee table?
B. $13.75
Cooper's Bags Company manufactures cloth grocery bags to be sold to grocery stores and other retailers. Cooper's Bags Company sells the bags in cases of 1,000 bags. The bags come in three sizes: Large, Medium, and Small. Currently, Cooper's Bags Company uses a single plant wide overhead rate to allocate its $8,088,000 of annual manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag line, $3,418,800 is associated with the Medium Bag line, and $2,459,200 is associated with the Small Bag line. Cooper's Bags Company is currently running a total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and 11,600 in the Small Bag line. Cooper's Bags Company uses machine hours as the cost driver for manufacturing overhead costs. − The plant − wide manufacturing overhead rate would be closest to
B. $202.20 per machine hour.
Kramer Company manufactures coffee tables and uses an activity based costing system to allocate all manufacturing conversion costs. Each coffee table consists of 20 separate parts totaling $240 in direct materials, and requires 5.0 hours of machine time to produce. Additional information follows: − Activity Allocation Base Cost Allocation Rate Materials handling Number of parts $2.00 per part Machining Machine hours $2.75 per machine hour Assembling Number of parts $1.00 per part Packaging Number of finished units $3.00 per finished unit What is the total manufacturing cost per coffee table?
B. $316.75
What is a strategy map?
B. A comprehensive visual representation of the linkages among essential elements for the organization's strategy.
In what order should the following steps occur? A. Assess client business risk B. Understand the client's business and industry C. Perform preliminary analytical procedures D. Assess acceptable audit risk
B. B, A, C, D
The Arlington Company prepared a common size income statement to compare its results with its key competitor, Bardo Company. Please refer to the following data: − Arlington Co. Bardo Co. Revenues 100.0% 100.0% Cost of goods sold 42.1% 47.8% Gross Profit 57.9% 52.2% Operating expenses: Sales and marketing expense 26.3% 8.6% General and administrative expense 12.0% 10.8% Research and development expense 4.1% 10.2% Total operating expenses 42.4% 29.6% Income before income tax 15.5% 22.6% Income tax expense 3.3% 5.8% Net income (loss) 12.3% 16.8% Which of the following statements can be correctly concluded from the above data?
B. Bardo has more effective cost control than Arlington in the area of operating expenses.
As the risk of material misstatement increases, detection risk should:
B. Decrease
Select the two broad approaches that companies can use to generate additional revenues.
B. Deepening relationships with existing customers by selling additional products or services., C. Introducing new products, selling to new customers, or expanding into new markets.
One purpose of performing preliminary analytical procedures in the planning phase of an audit is to help the auditor make a preliminary assessment of control risk.
B. False
What are the three components of the learning and growth perspective in the Balanced Scorecard?
B. Human resources, information technology, and organizational culture and alignment.
If planned detection risk is reduced, the amount of evidence the auditor accumulates will:
B. Increase
What four categories of processes are useful in developing the process perspective measures for a Balanced Scorecard?
B. Operations management, customer management, innovation, and regulatory/social.
Why are service organizations often ideally suited for activity-based costing?
B. Service organizations are ideally suited for activity-based costing because virtually all of the costs for a service company are indirect and appear to be fixed.
Which of the following BEST describes trend analysis?
B. Showing each year's figures as a percentage of amounts for a base year
Cost allocation refers to an ________.
B. assignment of indirect costs to a cost object
Why are both financial and nonfinancial measures necessary to manage a company's strategy?
C. Financial performance measures indicate whether the company's strategy and its implementation are increasing shareholder value. Firms monitor nonfinancial measures to understand whether they are building or destroying their capabilities for future growth and profitability.
Why are both financial and nonfinancial measures necessary to manage a company's strategy?
C. Financial performance measures indicate whether the company's strategy and its implementation are increasing shareholder value. Firms monitor nonfinancial measures to understand whether they are building or destroying their capabilities for future growth and profitability.
"When a company produces both high-volume products and low-volume products, traditional product costing systems are likely to overcost high-volume products." Do you agree with this statement? Explain.
C. Yes, traditional costing systems are more likely to overcost high-volume products because all indirect and support costs are assigned to products in proportion to the number of production units and the low-volume products are likely to require higher indirect and support costs per unit.
Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases: Activities Indirect Activity Costs Allocation Base Account inquiry (hours) $86,400 2,700 Account billing (lines) $56,000 32,000 Account verification (accounts) $38,250 25,500 Correspondence (letters) $80,000 10,000 Potter & Weasley uses activity based costing. The above activities are used by Departments P and Q as follows: Department P Department Q Account inquiry (hours) 400 800 Account billing (lines) 10,000 4,000 Account verification (accounts) 6,000 7,000 Correspondence (letters) 1,000 2,000 What is the cost per driver unit for the account inquiry activity?
C. $32.00
What two essential components should a good strategy have?
C. A clear statement of the company's advantage in the competitive marketplace and the scope for the strategy.
Which of the following is the definition of benchmarking?
C. Benchmarking is the practice of comparing a company with other companies in that industry.
How can management accounting information produce behavioral and organizational reactions?
C. Both A and B A-Individuals react to measurements. They focus on the variables and behavior being measured and spend less attention on those not measured. B-Changes made to a management accounting system to introduce or redesign cost and performance measurement systems may be resisted by people familiar with a previous system.
The audit team gathers information about a new client's business and industry in order to obtain:
C. an understanding of how economic events and transactions have an effect on the company's financial statements.
During audit planning, the auditor uses analytical procedures primarily to:
C. determine the nature, extent, and timing of audit procedures.
Why do a company's operators/workers, managers, and executives have different informational needs than shareholders and external suppliers of capital?
D. A company's operators/workers, managers, and executives are responsible for developing and implementing a strategy to achieve the company's objectives. Shareholders and external suppliers of capital are not involved in managing the business or establishing and validating the company's strategy.
When inherent risk is high, there will need to be:
A lower assessment of audit risk -NO More evidence accumulated by the auditor-YES
A company reported the following amounts of net income: 20X1 $18,000 20X2 $24,000 20X3 $26,000 Which of the following is the percentage change in net income from 20X2 to 20X3?
D. 8.33%
Why may financial information alone be insufficient for the ongoing informational needs of operators/workers, managers, and executives?
D. All of the above.
Why might senior executives need measures besides financial ones to assess how well their business performed in the most recent period?
D. All of the above.
Arlington Company has prepared the following common − size income statement to compare its performance with industry averages: Arlington Co. Industry Revenues 100.0% 100.0% Cost of goods sold 43.8% 39.7% Gross Profit 56.2% 60.3% Operating expenses: Sales and marketing expense 18.1% 21.4% General and administrative expense 12.0% 14.2% Research and development expense 4.1% 4.0% Total operating expenses 34.2% 39.6% Income before income tax 22.0% 20.7% Income tax expense 4.4% 4.2% Net income (loss) 17.6% 16.5% Which of the following statements can be correctly concluded from the above data?
D. Arlington achieves better profitability than the industry, primarily by controlling operating expenses more effectively.
Given a selected strategy, how do organizations use management accounting information to implement the strategy?
D. Both A and B. A-Management accounting information provides feedback about where the strategy is working and where it is not, and guides actions to improve the performance from the strategy. B-Management accounting information is used to help implement, allocate resources, communicate, and link employees and operational processes to achieve the strategy.
What is a Balanced Scorecard?
D. Both A and B. A- A systematic approach to performance measurement that translates an organization's strategy into clear objectives, measures, and targets. B-An approach to performance measurement which integrates an appropriate mix of short- and long-term financial and non-financial performance measures used across the organization, based on the organization's strategy.
Which of the following BEST describes horizontal analysis?
D. Comparing figures year to year
Back Porch Company manufactures lawn chairs using an activity based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of June: − Activity Estimated Indirect Activity Costs Allocation Base Estimated Quantity of Allocation Base Materials handling $12,000 Number of parts 12,000 parts Assembling $16,800 Number of parts 12,000 parts Packaging $4,500 Number of lawn chairs 1,500 lawn chairs Each lawn chair consists of 8 parts; the total direct materials cost per pillow is $10.00. If the cost to purchase the same lawn chair from a supplier is $35.00, what should Back Porch do to maximize profits?
D. Continue to manufacture the lawn chair.
What are the four measurement perspectives in the Balanced Scorecard?
D. Financial, customer, process, and learning and growth.
What is the nature of the objective(s) that nonprofit and government organizations are likely to put at the top of their Balanced Scorecard and strategy maps?
D. Social impact and mission.
The following is a summary of information presented on the financial statements of The Cake Company on December 31, 20X4. Account 20X4 20X3 Current assets $ 65,000 $ 50,000 Accounts receivable 80,000 75,000 Merchandise inventory 50,000 40,000 Current liabilities 75,000 50,000 Long − term liabilities 3 0,000 5 0,000 Common stock 50,000 40,000 Retained earnings 40,000 25,000 Net sales revenue $525,000 $500,000 Cost of goods sold 400,000 395,000 Gross profit $125,000 $105,000 Selling and general expenses 45,000 50,000 Net income before income tax expense $ 80,000 $ 55,000 Income tax expense 24,000 16,500 Net income $ 56,000 $ 38,500 What would horizontal analysis report with respect to net income before income tax expense and net income?
A. A 45.45% increase in both net income before income tax expense and net income
What are some critical dimensions along which to measure regulatory and social processes in the operating processes part of the Balanced Scorecard's process perspective?
A. Environment, health and safety, employment practices, and community investment
Please refer to the following trend analysis of Pathways Company: 2015 2014 2013 2012 2011 2010 Net sales $4,970 $4,500 $3,980 $3,270 $4,750 $4,400 Percentages 113.0% 102.3% 90.5% 74.3% 108.0% 100.0% Which of the following is a correct conclusion from the above analysis?
A. Net sales in 2013 were equal to 90.5% of 2010 net sales.
Please refer to the following trend analysis of Pathways Company: 2015 2014 2013 2012 2011 2010 Net sales $4,970 $4,500 $3,980 $3,270 $4,750 $4,400 Percentages 113.0% 102.3% 90.5% 74.3% 108.0% 100.0% Which of the following is a correct conclusion from the above analysis?
A. Net sales in 2014 were 2.3% higher than 2010 net sales.
What are the two basic approaches to improving a company's financial performance?
A. Productivity improvements and revenue growth.
As acceptable audit risk is decreased, the likely cost of conducting an audit increases.
A. True
Auditors perform preliminary analytical procedures to better understand the client's business and to assess client business risk.
A. True
Determining materiality requires professional judgment.
A. True
If acceptable audit risk is low, and inherent risk and control risk are both low, then planned detection risk should be high.
A. True
Select the two broad approaches that companies can use to improve productivity.
A. Utilizing financial and physical assets more efficiently., B. Reducing costs by lowering direct and indirect expenses.
Inherent risk and control risk:
A. are inversely related to detection risk.
Based on audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:
A. decrease detection risk.
Benchmarking means comparing a company's financial results to:
A. industry standards or competitors.
As the acceptable level of detection risk increases, an auditor may change the:
A. timing of substantive tests by performing them at an interim date rather than year end.
If an auditor believes the chance of financial failure is high and there is a corresponding increase in business risk for the auditor, acceptable audit risk would likely:
D. be reduced
Business risk:
D. can include a new technology which threatens to erode a company's competitive advantage.
Where a specific manufactured product is the cost object, the hourly wages of assembly workers who work on only that product would be classified as a(n) ________.
D. direct; variable cost
The measurement of the auditor's assessment of the likelihood that there are material misstatements due to error or fraud in a segment before considering the effectiveness of internal controls is defined as:
D. inherent risk.
An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:
D. obtain a knowledge of matters that relate to the nature of the entity's business.
If an analyst wishes to see how operating expenses of a company have changed from one year to the next, using a horizontal analysis would be the best approach.
True
What are four common pitfalls in developing a Balanced Scorecard?
Scorecard responsibilities do not filter down. Senior management is not committed. The Balanced Scorecard is treated as a systems or consulting project. The solution is over-designed, or the scorecard is treated as a one-time event.
What is management accounting?
The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources
Benchmarking is the comparison of a company's current year results with an earlier year's performance.
False
Direct manufacturing costs are the same as manufacturing overhead costs.
False
Horizontal analysis compares each item in the income statement to the net sales amount.
False
The asset turnover rate is a way to evaluate how well a company can pay its short − term liabilities.
False
