Accounts – Chapter 1

Here are 20 multiple-choice questions with answer keys based on Chapter 1 of

"Introduction to Management Accounting, 16th Edition" by Horngren:
1. Which credential is associated with management accountants?
A. CPA
B. CMA
C. CFP
D. IMA
Answer: B. CMA
2. The largest U.S. association of professional accountants whose major
interest is management accounting is the ________.
A. American Institute of Certified Public Accountants
B. American Institute of Certified Management Accountants
C. Institute of Management Accountants
D. American Institute of Management Accountants
Answer: C. Institute of Management Accountants
3. ________ is the field that produces information used primarily by
managers within an organization.
A. Financial accounting
B. Management accounting
C. Internal auditing
D. External auditing
Answer: B. Management accounting
4. The primary users of management accounting information are
________.
A. Bankers
B. Governmental regulatory bodies
C. Managers in organizations
D. Managerial accountants
Answer: C. Managers in organizations
5. 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 coordinates product design, production, and marketing decisions.
Answer: D. It coordinates product design, production, and marketing decisions.
6. 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. There are no regulations governing the reports.
7. 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. Stockholders
8. Financial accounting provides the primary source of information for
________.
A. Decision making in the finishing department
B. Improving customer service
C. Preparing the income statement for shareholders
D. Planning next year's operating budget
Answer: C. Preparing the income statement for shareholders
9. 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. Focuses on estimating future revenues, costs, and other measures to
forecast activities and their results
10.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. Communicate, develop, and implement strategies
11.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. Must comply with GAAP (generally accepted accounting principles)
12.The primary user of financial accounting information is a ________.
A. Factory shift supervisor
B. Distribution manager
C. Current shareholder
Answer: C
Here are the remaining multiple-choice questions along with their answer keys:
13.Which of the following is a characteristic of management
accounting?
A. It is externally focused.
B. It provides information for decision-making within the organization.
C. It must comply with GAAP.
D. It reports only financial data.
Answer: B. It provides information for decision-making within the
organization.
14.Which of the following best describes a cost-benefit approach in
management accounting?
A. Measuring only financial benefits of a decision
B. Evaluating costs but ignoring qualitative factors
C. Comparing expected benefits and costs to guide decision-making
D. Using only historical data for analysis
Answer: C. Comparing expected benefits and costs to guide decision-
making
15.Which of the following statements about financial and management
accounting is true?
A. Financial accounting provides information for internal decision-making.
B. Management accounting follows GAAP.
C. Management accounting focuses on future projections.
D. Financial accounting focuses on cost analysis.
Answer: C. Management accounting focuses on future projections.
16.The primary role of a management accountant is to:
A. Ensure tax compliance
B. Provide information for internal decision-making
C. Audit the financial statements
D. Prepare SEC filings
Answer: B. Provide information for internal decision-making
17.Which of the following is NOT a primary objective of management
accounting?
A. Planning and budgeting
B. Decision-making support
C. Ensuring financial statement accuracy for investors
D. Performance measurement
Answer: C. Ensuring financial statement accuracy for investors
18.A key difference between management accounting and financial
accounting is that management accounting:
A. Focuses on past transactions
B. Is designed primarily for external users
C. Helps managers make decisions about future activities
D. Must follow strict legal reporting requirements
Answer: C. Helps managers make decisions about future activities
19.Which of the following is an example of a management accounting
report?
A. A company's balance sheet
B. A report analyzing product profitability
C. A tax return filed with the IRS
D. A statement of cash flows
Answer: B. A report analyzing product profitability
20.Which of the following best describes the role of management
accountants in an organization?
A. They ensure compliance with external regulatory bodies.
B. They focus on providing information to support managerial decision-making.
C. They primarily prepare financial reports for shareholders.
D. They conduct external audits.
Answer: B. They focus on providing information to support managerial
decision-making.

Chapter 2:

21.Which of the following is considered a direct cost?

A. Salary of the factory supervisor
B. Depreciation on factory equipment
C. Direct materials used in production
D. Rent for the administrative office
Answer: C. Direct materials used in production
22.Indirect costs are:
A. Easily traceable to a cost object
B. Not related to production
C. Costs that cannot be traced directly to a single cost object
D. Always variable costs
Answer: C. Costs that cannot be traced directly to a single cost object
23.Which of the following is a variable cost?
A. Monthly rent for the factory building
B. Depreciation on production equipment
C. Wages of assembly line workers
D. Salary of the CEO
Answer: C. Wages of assembly line workers
24.Fixed costs:
A. Vary in total with production levels
B. Remain constant in total regardless of production levels
C. Are constant per unit
D. Include direct materials
Answer: B. Remain constant in total regardless of production levels
25.Which of the following is a period cost?
A. Direct labor
B. Factory utilities
C. Sales commissions
D. Manufacturing supplies
Answer: C. Sales commissions
26.Product costs are:
A. Expensed in the period incurred
B. Capitalized as inventory until sold
C. Always variable costs
D. Not included in financial statements
Answer: B. Capitalized as inventory until sold
27.Which of the following is an example of a manufacturing overhead
cost?
A. Direct materials
B. Direct labor
C. Factory maintenance expenses
D. Sales salaries
Answer: C. Factory maintenance expenses
28.Conversion costs consist of:
A. Direct materials and direct labor
B. Direct labor and manufacturing overhead
C. Direct materials and manufacturing overhead
D. Direct materials, direct labor, and manufacturing overhead
Answer: B. Direct labor and manufacturing overhead
29.Prime costs are:
A. Direct materials and direct labor
B. Direct labor and manufacturing overhead
C. Direct materials and manufacturing overhead
D. Direct materials, direct labor, and manufacturing overhead
Answer: A. Direct materials and direct labor
30.The cost of goods manufactured includes:
A. Only direct materials and direct labor
B. Only manufacturing overhead
C. Direct materials, direct labor, and manufacturing overhead
D. Only period costs
Answer: C. Direct materials, direct labor, and manufacturing overhead
31.Which of the following costs is NOT included in manufacturing
overhead?
A. Indirect materials
B. Indirect labor
C. Factory utilities
D. Direct labor
Answer: D. Direct labor
32.Period costs are:
A. Included in the cost of goods sold
B. Expensed in the period incurred
C. Capitalized as inventory
D. Part of manufacturing overhead
Answer: B. Expensed in the period incurred
33.Which of the following is a direct labor cost?
A. Wages of factory janitors
B. Salary of the production manager
C. Wages of assembly line workers
D. Salary of the company president
Answer: C. Wages of assembly line workers
34.An example of a variable cost is:
A. Property taxes on the factory building
B. Depreciation on office equipment
C. Direct materials used in production
D. Salary of the factory supervisor
Answer: C. Direct materials used in production
35.As production volume increases, what happens to the total fixed
cost?
A. It increases.
B. It decreases.
C. It remains the same.
D. It fluctuates randomly.
Answer: C. It remains the same.
36.Which of the following would NOT be classified as manufacturing
overhead?
A. Factory rent
B. Indirect materials
C. Direct labor
D. Factory utilities
Answer: C. Direct labor
37.The cost of lubricants used for maintenance of production equipment
is classified as:
A. Direct material
B. Direct labor
C. Manufacturing overhead
D. Administrative cost
Answer: C. Manufacturing overhead
38.A cost that changes in total in direct proportion to changes in
activity level is known as a:
A. Fixed cost
B. Variable cost
C. Mixed cost
D. Step cost
Answer: B. Variable cost
39.The total cost of a product includes:
A. Only direct materials and direct labor
B. Only variable costs
C. Direct materials, direct labor, and manufacturing overhead
D. Period costs and administrative expenses
Answer: C. Direct materials, direct labor, and manufacturing overhead

Chapter 3:
40.What is the primary purpose of a cost-volume-profit (CVP) analysis?
1. To determine how costs behave in response to changes in production
B. To analyze how revenues, costs, and profits change at different sales
volumes
C. To allocate costs to different departments
D. To calculate tax liabilities
Answer: B. To analyze how revenues, costs, and profits change at
different sales volumes
41. The break-even point is the level of sales where:
1. Total revenue equals total cost
B. Total revenue is greater than total cost
C. Total revenue is less than total cost
D. Fixed costs are zero
Answer: A. Total revenue equals total cost

42. Which of the following is NOT an assumption of CVP analysis?

1. Selling price per unit remains constant
B. Total fixed costs change with production levels
C. Costs can be classified as either fixed or variable
D. The only factor affecting costs is the change in production volume

43.Answer: B. Total fixed costs change with production levels

44. The contribution margin per unit is calculated as:

1. Sales price per unit - Fixed cost per unit
B. Sales price per unit - Variable cost per unit
C. Total revenue - Fixed costs
D. Total revenue - Total costs
Answer: B. Sales price per unit - Variable cost per unit

45. The contribution margin ratio is calculated as:

1. Contribution margin per unit ÷ Selling price per unit
B. Fixed costs ÷ Selling price per unit
C. Selling price per unit ÷ Variable cost per unit
D. Contribution margin per unit × Number of units sold
Answer: A. Contribution margin per unit ÷ Selling price per unit

46. If a company increases its selling price per unit while keeping
costs constant, what happens to the break-even point?
1. It increases
B. It decreases
C. It stays the same
D. It becomes zero
Answer: B. It decreases

47. If fixed costs increase, what happens to the break-even point?

1. It decreases
B. It increases
C. It remains unchanged
D. It fluctuates randomly
Answer: B. It increases

48. The margin of safety is calculated as:

1. Break-even sales - Fixed costs
B. Actual sales - Break-even sales
C. Fixed costs ÷ Contribution margin per unit
D. Total costs - Total revenue
Answer: B. Actual sales - Break-even sales

49. When sales volume increases, what happens to the total

contribution margin?
1. It increases
B. It decreases
C. It remains constant
D. It equals fixed costs
Answer: A. It increases

50. A company with high operating leverage:

1. Has a high proportion of fixed costs relative to variable costs
B. Has a low contribution margin ratio
C. Experiences smaller changes in profit with changes in sales volume
D. Has no fixed costs
Answer: A. Has a high proportion of fixed costs relative to variable
costs

51. A company’s degree of operating leverage is calculated as:

1. Contribution margin ÷ Net income
B. Fixed costs ÷ Variable costs
C. Total revenue ÷ Total expenses
D. Break-even sales ÷ Fixed costs
Answer: A. Contribution margin ÷ Net income

52. If a company has a high degree of operating leverage, what does

that mean?
1. It has high variable costs and low fixed costs
B. Its profits are more sensitive to changes in sales volume
C. It has a lower break-even point
D. It has no contribution margin
Answer: B. Its profits are more sensitive to changes in sales volume

53. The formula to calculate the break-even point in units is:

1. Fixed costs ÷ Contribution margin per unit
B. Contribution margin per unit ÷ Fixed costs
C. Selling price per unit ÷ Fixed costs
D. Variable costs ÷ Fixed costs
Answer: A. Fixed costs ÷ Contribution margin per unit

54. The break-even point in sales dollars is calculated as:

1. Fixed costs ÷ Contribution margin ratio
B. Selling price per unit ÷ Contribution margin per unit
 C. Variable costs ÷ Contribution margin ratio
D. Fixed costs × Selling price per unit
Answer: A. Fixed costs ÷ Contribution margin ratio

55. If a company sells more than its break-even quantity, what will
happen?
1. It will incur losses
B. It will generate a profit
C. Its total costs will exceed total revenues
D. Its fixed costs will increase
Answer: B. It will generate a profit

56. If a company sells fewer units than the break-even point, what
will happen?
1. It will have a positive net income
B. It will have a loss
C. Its total costs will be lower than total revenue
D. It will have no contribution margin
Answer: B. It will have a loss

57. A company wants to achieve a target profit. What formula should

it use to determine the required sales volume?
1. (Fixed costs + Target profit) ÷ Contribution margin per unit
B. Fixed costs ÷ Contribution margin per unit
C. Contribution margin per unit ÷ Fixed costs
D. (Target profit ÷ Fixed costs) × Selling price
Answer: A. (Fixed costs + Target profit) ÷ Contribution margin per unit

58. If variable costs per unit increase while the selling price remains
unchanged, what happens to the break-even point?
1. It increases
B. It decreases
C. It remains the same
D. It becomes zero
Answer: A. It increases

59. Which of the following best describes a multi-product break-even

analysis?
1. It considers the sales mix of different products
B. It assumes that all units have the same contribution margin
C. It ignores fixed costs
D. It is only applicable to service businesses
Answer: A. It considers the sales mix of different products
60. A company that wants to lower its break-even point should:
1. Increase fixed costs
B. Decrease the selling price
C. Increase the contribution margin
D. Reduce total revenue
Answer: C. Increase the contribution margin