Horngren's Cost Accounting: A Managerial Emphasis 16th Edition Test Bank

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Cost Accounting: A Managerial Emphasis, 16e (Horngren)
Chapter 1 The Manager and Management Accounting
1.1 Objective 1.1
1) Management accounting ________.
A) focuses on estimating future revenues, costs, and other measures to forecast activities and their results
B) provides information about the company as a whole
C) reports information that has occurred in the past that is verifiable and reliable
D) provides information that is generally available only on a quarterly or annual basis
Answer: A
Explanation: Management accounting has a forward-looking orientation as opposed to financial
accounting which has a historical perspective.
Diff: 1
Objective: 1
AACSB: Analytical thinking
2) Managers use management accounting information to ________.
A) help external users such as investors, banks, regulators, and suppliers
B) communicate, develop, and implement strategies
C) communicate a firm's financial position to investors, banks, regulators, and other outside parties
D) ensure that financial statements are consistent with the SEC rules
Answer: B
Diff: 1
Objective: 1
AACSB: Analytical thinking
3) Financial accounting ________.
A) focuses on the future and includes activities such as preparing next year's operating budget
B) must comply with GAAP (generally accepted accounting principles)
C) is the process of measuring, analyzing, and reporting financial and nonfinancial information related to
the costs of acquiring or using resources in an organization
D) is prepared for the use of department heads and other employees
Answer: B
Diff: 1
Objective: 1
AACSB: Analytical thinking
4) Which of the following would most likely be the user of financial accounting information?
A) factory shift supervisor
B) distribution manager
C) current shareholder
D) department manager
Answer: C
Diff: 1
Objective: 1
AACSB: Analytical thinking
5) The primary user of management accounting information is a(n) ________.

A) the controller
B) a shareholder evaluating a stock investment
C) bondholder
D) external regulator
Answer: A
Diff: 1
Objective: 1
AACSB: Analytical thinking
6) Financial accounting provides the primary source of information for ________.
A) decision making in the assembly and finishing department
B) improving distribution and customer service
C) preparing the income statement for shareholders and other external parties
D) planning next year's plans and specifically; the operating budget
Answer: C
Diff: 1
Objective: 1
AACSB: Analytical thinking
7) Which of the following is true of management accounting information?
A) It focuses on documenting past business actions of a firm.
B) It is prepared based on SEC rules and FASB accounting principles.
C) It is prepared for shareholders.
D) It helps with the coordination of elements of the value chain.
Answer: D
Diff: 2
Objective: 1
AACSB: Analytical thinking
8) Which of the following statements refers to management accounting information?
A) There are no regulations governing the reports.
B) The reports are generally delayed and historical.
C) The audience tends to be stockholders, creditors, and tax authorities.
D) It primarily measures manager's compensation on reported financial results.
Answer: A
Diff: 2
Objective: 1
AACSB: Analytical thinking
9) Which of the following groups would be least likely to receive detailed management accounting
reports?
A) stockholders
B) sales managers
C) production supervisors
D) distribution managers
Answer: A
Diff: 1
Objective: 1
AACSB: Analytical thinking
10) Management accounting information typically includes ________.
A) tabulated results of customer satisfaction surveys

B) the cost of producing a product
C) the percentage of units produced that are defective
D) All of these answers are correct.
Answer: D
Diff: 1
Objective: 1
AACSB: Application of knowledge
11) Cost accounting ________.
A) measures the costs of acquiring or using resources in an organization
B) measures the financial and nonfinancial information that helps managers make decisions to fulfill the
goals of an organization
C) coordinates product design, production, and marketing decisions and evaluate a company's
performance
D) communicates information to investors, banks, regulators, and other outside parties
Answer: A
Diff: 1
Objective: 1
AACSB: Analytical thinking
12) Which of the following differentiates cost accounting and financial accounting?
A) The primary users of cost accounting are the investors, whereas the primary users of financial
accounting are the managers.
B) Cost accounting deals with product design, production, and marketing strategies, whereas financial
accounting deals mainly with pricing of the products.
C) Cost accounting measures only the financial information related to the costs of acquiring fixed assets
in an organization, whereas financial accounting measures financial and nonfinancial information of a
company's business transactions.
D) Cost accounting measures information related to the costs of acquiring or using resources in an
organization, whereas financial accounting measures a financial position of a company to investors,
banks, and external parties.
Answer: D
Diff: 2
Objective: 1
AACSB: Analytical thinking
13) Which of the following is true of financial accounting information?
A) It is prepared based on cost-benefit analysis.
B) It is primarily used by managers to make internal business decisions.
C) It focuses on the past-oriented financial performance of a company.
D) It only measures the cash transactions of a company.
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking

14) A data warehouse or infobarn ________.
A) is reserved for exclusive use by the CFO
B) is primarily used for financial reporting purposes
C) stores information used by different managers for multiple purposes
D) gathers only nonfinancial information
Answer: C
Diff: 1
Objective: 1
AACSB: Analytical thinking
15) Which of the following is true of cost accounting?
A) It is a subset of management accounting and therefore its information is used only to meet the needs of
managers.
B) It is used only by manufacturers.
C) It is part of both management and financial accounting systems.
D) The distinction between management accounting and cost accounting is clear-cut.
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking
16) Which of the following deals with management accounting?
A) identifying the costs of acquiring the resources of the company
B) developing budgets
C) preparing the income statement
D) preparing the statement of cash flows
Answer: B
Diff: 1
Objective: 1
AACSB: Analytical thinking
17) Financial accounting is concerned primarily with ________.
A) external reporting to investors, creditors, and government authorities
B) cost planning and cost controls
C) product design and marketing strategies
D) providing information for strategic and tactical decisions
Answer: A
Diff: 1
Objective: 1
AACSB: Analytical thinking

18) Financial accounting provides a historical perspective, whereas management accounting emphasizes
________.
A) the future
B) past transactions
C) a current perspective
D) reports to shareholders
Answer: A
Diff: 1
Objective: 1
AACSB: Analytical thinking
19) Rules for measurement and reporting for management accounting ________.
A) state that information must only be useful to management.
B) do not need to follow GAAP but must meet the cost-benefit test.
C) must follow GAAP.
D) must follow GAAP, IRS rules or government standards.
Answer: B
Diff: 2
Objective: 1
AACSB: Analytical thinking
20) The approaches and activities of managers in short-run and long-run planning and control decisions
that increase value for customers and lower costs of products and services are known as ________.
A) value chain management
B) enterprise resource planning
C) cost management
D) customer value management
Answer: C
Diff: 1
Objective: 1
AACSB: Analytical thinking
21) Financial accounting information focuses on internal reporting.
Answer: FALSE
Explanation: Management accounting information focuses on internal reporting and financial accounting
focuses on external reporting.
Diff: 1
Objective: 1
AACSB: Analytical thinking
22) Cost accounting provides information for both management accounting and financial accounting
professionals.
Answer: TRUE
Diff: 2
Objective: 1
AACSB: Analytical thinking

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23) Management accounting information and reports do not have to follow set principles or rules such as
GAAP but should be useful to its audience and meet the cost/benefit test.
Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking
24) Management accounting ensures communication of an organization's financial position to investors,
banks, and regulators.
Answer: FALSE
Explanation: Financial accounting, not management accounting, ensures communication of an
organization's financial position to investors, banks, and regulators.
Diff: 1
Objective: 1
AACSB: Analytical thinking
25) The balance sheet and income statement are primarily management accounting reports.
Answer: FALSE
Explanation: The balance sheet and income statement are primarily financial accounting reports
produced for owners, investors, and other external parties that provide capital or regulate the business.
Diff: 1
Objective: 1
AACSB: Analytical thinking
26) Financial accounting is broader in scope than management accounting in that financial accounting can
include external reporting and reporting that helps managers plan and control operations.
Answer: FALSE
Explanation: Management accounting is broader in scope than financial accounting as it can encompass
some GAAP issues such as inventory valuation and cost of goods sold and it also provides reporting to
help managers make decisions and plan and control operations.
Diff: 1
Objective: 1
AACSB: Analytical thinking
27) Cost accounting measures and reports short-term, long-term, financial, and non financial information.
Answer: TRUE
Diff: 2
Objective: 1
AACSB: Analytical thinking
28) Cost accounting is the process of measuring, analyzing, and reporting financial and nonfinancial
information related to the costs of acquiring or using resources in an organization.
Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking

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29) Management accounting has to strictly follow the rules of generally accepted accounting principles
for the purposes of measurement and reporting.
Answer: FALSE
Explanation: Internal measures and reports do not have to follow GAAP. Usefulness and the cost/benefit
approach are the guiding principles of management accounting.
Diff: 2
Objective: 1
AACSB: Analytical thinking
30) For management accounting, internal measurement and reporting are based on cost-benefit analysis.
Answer: TRUE
Diff: 2
Objective: 1
AACSB: Analytical thinking
31) Management accounting report time spans can vary from one hour to many years, while financial
accounting report time periods usually span a quarter or a year.
Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking
32) Financial accounting provides an organization's past-oriented information such as the previous years'
financial statements.
Answer: TRUE
Explanation: Financial accounting provides an organization's past-oriented information such as the
previous years' financial statements.
Diff: 1
Objective: 1
AACSB: Analytical thinking
33) Cost management not only helps reduce costs but also improve customer satisfaction and the quality
of a firm's products.
Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking

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34) For each report listed below, identify whether the major purpose of the report is for (1) routine
internal reporting, (2) nonroutine internal reporting, or for (3) external reporting to investors and other
outside parties.
Item:
a. study detailing sale information of the top-ten selling products
b. weekly report of total sales generated by each store in the metropolitan area
c. annual Report sent to shareholders
d. monthly report comparing budgeted sales by store to actual sales
Answer:
a. (2) nonroutine internal reporting
b. (1) routine internal reporting
c. (3) external reporting to investors and other outside parties
d. (1) routine internal reporting
Diff: 3
Objective: 1
AACSB: Application of knowledge
35) Describe management accounting and financial accounting.
Answer: Management accounting provides information to internal decision makers of the business such
as top executives, managers, sales representatives, and production supervisors. Its purpose is to help
managers predict and evaluate future results. Reports are generated often and usually broken down into
smaller reporting divisions such as department or product line. There are no rules to be complied with
since these reports are for internal use only. Management accounting embraces more extensively such
topics as the development and implementation of strategies and policies, budgeting, special studies and
forecasts, influence on employee behavior, and nonfinancial as well as financial information.
Financial accounting, by contrast, provides information to external decision makers such as investors and
creditors. Its purpose is to present a fair picture of the financial condition of the company. Reports are
generated quarterly or annually and report on the company as a whole. The financial statements must
comply with GAAP (generally accepted accounting principles). A CPA audits, or verifies, that GAAP is
being followed.
Diff: 3
Objective: 1
AACSB: Analytical thinking
36) Cost accounting provides information for both management accounting and financial accounting
professionals. Explain.
Answer: Cost accounting is the process of measuring, analyzing, and reporting financial and
nonfinancial information related to the costs of acquiring or using resources in an organization. For
example, calculating the cost of a product is a cost accounting function that meets both the financial
accountant's inventory-valuation needs and the management accountant's decision-making needs such as
deciding how to price products and choosing which products to promote.
Diff: 3
Objective: 1
AACSB: Analytical thinking

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37) There is an overlap or intersection between management accounting and financial accounting.
Explain.
Answer: Management accounting develops the cost information that is necessary to value inventory for
the balance sheet and cost of goods sold for the income statement. GAAP requires absorption costing.
Diff: 2
Objective: 1
AACSB: Analytical thinking
38) What competitive advantage could a company obtain from having a successful cost management
program?
Answer: There are three broad outcomes from a successful cost management program: 1) costs are
reduced with no loss in customer value. In this scenario, a company might gain a competitive advantage
by lowering its price with no loss in profit, or maintain the same price and increase profit; 2) customer
value is increased with no change in costs. This scenario might increase customer satisfaction resulting in
increased customer loyalty and perhaps increase the overall demand for the product; 3) customer value
might be increased while costs are reduced simultaneously. This scenario would result in the benefits
described in both 1) and 2).
Diff: 3
Objective: 1
AACSB: Analytical thinking
1.2 Objective 1.2
1) Which of the following statements concerning an organization's strategy is true?
A) Strategy specifies how an organization matches its own capabilities with the opportunities in the
marketplace to accomplish its objectives.
B) Cost accountants formulate strategy in an organization since they have more inputs about costs.
C) A good strategy will always overcome poor implementation.
D) Businesses usually follow one of two broad strategies: offering a quality product at a high price, or
offering a unique product or service priced lower than the competition.
Answer: A
Diff: 2
Objective: 2
AACSB: Analytical thinking
2) Strategy specifies ________.
A) how an organization matches its own capabilities with the opportunities in the marketplace
B) standard procedures to ensure quality products
C) incremental changes for improved performance
D) the demand created for products and services
Answer: A
Diff: 2
Objective: 2
AACSB: Analytical thinking

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3) Which of the following is not a concern for management accountants in formulating a strategy?
A) identifying the most important warehouse location for the distribution of goods
B) substituting products that exist in the marketplace
C) strategizing compliance with GAAP (Generally Accepted Accounting Principles)
D) maintaining adequate fixed assets available to implement the strategy
Answer: C
Explanation: This is more of a concern of financial accountants than of management accountants.
Diff: 2
Objective: 2
AACSB: Analytical thinking
4) Strategy is formulated ________.
A) by identifying the most important customers
B) by forecasting the composition of adequate fixed assets
C) based on the qualified opinion of external auditors
D) by eliminating sunk costs
Answer: A
Diff: 2
Objective: 2
AACSB: Analytical thinking
5) In designing strategy, a company must match its opportunities in the marketplace with ________.
A) environmental friendly goals
B) its resources and capabilities
C) branding opportunities
D) the requirements of credit rating agencies
Answer: B
Diff: 2
Objective: 2
AACSB: Analytical thinking
6) Which of the following statements about customer value is true?
A) Customer value is shown in a corporation's balance sheet.
B) Creating value for customers is an important part of planning and implementing strategy.
C) Customer value is the only focus that helps managers to formulate strategies.
D) Customer value is lost with increase in costs of the product.
Answer: B
Diff: 2
Objective: 2
AACSB: Analytical thinking
7) A company's strategy specifies how an organization matches its capabilities with the opportunities in
the marketplace.
Answer: TRUE
Diff: 2
Objective: 2
AACSB: Analytical thinking

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8) The two broad strategies that companies follow are cost leadership strategy and product differentiation
strategy.
Answer: TRUE
Diff: 1
Objective: 2
AACSB: Analytical thinking
9) The best-designed strategies are valuable, whether or not they are effectively implemented.
Answer: FALSE
Explanation: Implementation is essential or the strategy is useless.
Diff: 1
Objective: 2
AACSB: Analytical thinking
10) The key to a company's success is creating value for customers while differentiating itself from its
competitors.
Answer: TRUE
Diff: 1
Objective: 2
AACSB: Analytical thinking
11) The key to a company's success is always to be the low cost producer in a particular industry.
Answer: FALSE
Explanation: The low cost producer in a particular industry will not necessarily be successful.
Diff: 2
Objective: 2
AACSB: Analytical thinking
12) Management accountants work closely with managers in various departments to formulate strategies
by providing information about the sources of competitive advantage.
Answer: TRUE
Diff: 2
Objective: 2
AACSB: Analytical thinking
13) Management accountants should have little or no role in deciding on a company's strategy.
Answer: FALSE
Explanation: Management accountants should play a significant role in deciding on a company's
strategy.
Diff: 1
Objective: 2
AACSB: Analytical thinking
14) Companies can decide on an appropriate strategy based strictly on internally available information.
Answer: FALSE
Explanation: Companies must obtain external information as well as internal information to decide on an
appropriate strategy.
Diff: 2
Objective: 2
AACSB: Analytical thinking
15) Strategic cost management describes cost management that specifically focuses on strategic issues.
Answer: FALSE

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Explanation: Strategic cost management describes cost management that specifically focuses on strategic
issues.
Diff: 2
Objective: 2
AACSB: Analytical thinking
16) Identifying a company's most important customers helps to formulate a strategy.
Answer: TRUE
Diff: 1
Objective: 2
AACSB: Analytical thinking
17) The best-designed strategies and the best-developed capabilities are useless unless they are effectively
executed.
Answer: TRUE
Diff: 1
Objective: 2
AACSB: Analytical thinking
18) Describe the major differences between management accounting and financial accounting for the
following:
1. Primary users
2. Focus and emphasis
3. Rules of measurement and reporting
Answer:
1. The primary users of management accounting information are managers of the organization. The
primary users of financial accounting are external users such as investors, banks, regulators, and
suppliers.
2. Management accounting is future oriented. Financial accounting is past oriented.
3. Management accounting measurement and reporting does not have to follow GAAP but are based on
cost-benefit analysis. Financial accounting measurement and reporting must be prepared in accordance
with GAAP and be certified by external, independent auditors.
Diff: 3
Objective: 2
AACSB: Analytical thinking
19) What is strategy? Briefly describe the two broad types of strategies that companies may choose to
pursue.
Answer: Strategy specifies how an organization matches its own capabilities with the opportunities in
the marketplace to accomplish its objectives. In other words, strategy describes how a company will
compete.
Companies follow one of two broad strategies. One is provide a quality product or service at low prices.
The other is to compete on their ability to offer a unique product or service that is generally offered at a
higher price.
Diff: 2
Objective: 2
AACSB: Analytical thinking
20) Briefly describe the list of items that managers undertake to formulate strategies.
Answer: ONE: Identifying the most important customers, and how the company can be competitive and
deliver value to them.

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TWO: Identifying the substitute products existing in the marketplace, and how do they differ from our
product in terms of features, price, cost, and quality.
THREE: Identifying most critical capability-whether it is technology, production or marketing.
FOUR: Checking the adequacy of cash available to fund the strategy, or will additional funds need to be
raised-through issue of debt or equity.
Diff: 3
Objective: 2
AACSB: Analytical thinking
21) Generally, companies follow one of two broad strategies: offering a quality product at a low price, or
offering a unique product or service priced higher than the competition. Assume you are opening a small
food outlet across the street from your campus. How might that business be operated under each of the
two broad strategies? Consider the following specific operational areas:
a. target customers
b. products offered
c. product pricing
d. location choice
e. advertising content
f. advertising media

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Answer: The purpose of this question is to explore some of the differences in business operations as a
result of a broad strategic choice. Answers will differ from student to student, but you should see some
specific themes.
Operational Area Low Price Strategy Differential Strategy
Target customers Target customers might be
students on a tight budget.
Target customers might be
more wealthy students,
faculty, or perhaps neighbors
who live nearby.
Products offered Few products, heavy
emphasis on tight cost control,
probably set up as a high
volume operation.
High quality products,
probably a reasonable choice,
restaurant might have a lot of
ambience.
Product pricing Priced at or lower than the
competition in the area.
Higher priced products.
Location choice Convenient to the target
customers.
Not as convenient, perhaps in
a higher-end shopping or
entertainment area.
Customers might seek out the
high quality and be willing to
travel a bit for it.
Advertising
content
Advertising would emphasize
the low price of the products
offered.
Advertising would emphasize
quality or ambience.
Advertising media Media that would be looked at
by the target customers, such
as student newspapers.
Media that would be looked
at by the target customer,
local magazines and
newspapers.
Diff: 3
Objective: 2
AACSB: Application of knowledge
22) Generally, companies follow one of two broad strategies: offering a quality product at a low price, or
offering a unique product or service priced higher than the competition. Is it possible to follow a strategy
that is "in the middle"?
Answer: There is some dispute about the correct answer to this question. Some will argue that it is not
good for companies to get "caught in the middle" because the customer might get confused as to whether
or not the company is competing on price or is trying to make some other appeal. If the customer is
confused about how the company is giving them value, they might perceive they are getting no value and
abandon the product to a competitor with a clearer customer value proposition. The other side of the
argument is that cost management is a necessary part of any strategy and even if the company chooses to
pursue a differential strategy, management of the company should always be seeking ways to manage
costs and increase customer value simultaneously regardless of their strategy. The student should be able
to articulate one or the other arguments coherently.
Diff: 3
Objective: 2
AACSB: Application of knowledge
1.3 Objective 1.3

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1) Place the four business functions in the order they appear along the value chain:
Customer service
Design
Marketing
Production
A) Customer Service, Design, Production, Marketing
B) Customer Service, Marketing, Production, Design
C) Design, Production, Marketing, Customer Service
D) Design, Customer Service, Production, Marketing
Answer: C
Diff: 2
Objective: 3
AACSB: Analytical thinking
2) R&D, production, and customer service are business functions that are all included as part of ________.
A) the value chain
B) benchmarking
C) customer relationship management
D) the supply chain
Answer: A
Diff: 1
Objective: 3
AACSB: Analytical thinking
3) The value chain is the sequence of business functions in which ________.
A) value is deducted from the products or services of an organization
B) producing and delivering the product or service is of prime importance
C) products and services are evaluated with respect to their value to the supply chain
D) usefulness is added to the products or services of an organization
Answer: D
Diff: 2
Objective: 3
AACSB: Analytical thinking
4) ________ is the generation of, and experimentation with, ideas related to new products, services, or
processes.
A) Research and development
B) Design of products, services, or processes
C) Production
D) Marketing
Answer: A
Diff: 1
Objective: 3
AACSB: Analytical thinking
5) ________ is the detailed planning and engineering and testing of products, services, or processes.
A) Plan of implementation
B) Design

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