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1. ( ) Managerial accounting assists managers in
carrying out their responsibilities, which
include planning , directing and motivating, and
controlling.
2. ( ) Managers use costs organized by behavior as a
basis for many decisions.
3. ( ) If NPV is Zero, then the project is not
acceptable, since it promises no return.
4. ( ) To avoid negative attitudes towards budgets,
accountants and top management must demonstrate
how budgets can help each manager and employee
achieve better results.
5. ( ) To fully benefit from budgets, an organization
needs the support of all the firms employees.
6. ( ) ROI encouraged managers to make profitable
investments that would be rejected by managers
using residual income.
7. ( ) Budgets created with active participation of all
affected employees are generally less effective than
budgets imposed on subordinates.
8. ( ) Management accounting information is used
across the entire value chain of activities.
9. ( ) Budgets are often used to develop standards.
10. ( ) When making decisions, focus on the costs
that differ between the alternatives being
considered.
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1. The point where total contribution margin equals
total fixed expenses.
( a ) Break-even point ( b ) Split-off point
( c ) Price indifference point .( d ) Cost indifference point
2. Costs that will not continue if an ongoing operation
is changed or deleted.
( a ) Unavoidable Costs ( b ) Opportunity Costs
( c ) Avoidable Costs ( d ) Sunk Costs

3. Cost has already been incurred and, therefore, is

irrelevant to the decision-making process.
( a ) Sunk Cost ( b ) Opportunity Cost
( c ) Fixed Cost ( d ) Differential Cost

4. The amounts charged by one segment of an

organization for a product or service that it supplies to another
segment of the same organization
( a ) International Transfer Prices
( b )Negotiated Transfer Prices
(c ) Dual Transfer Pricing ( d ) Transfer Prices

5. The excess of Sales over Variable Costs

( a ) Gross margin ( b ) Contribution Margin
( c ) Margin of safty ( d ) Margianl Income Tax Rate

6. It is the study of the effects of output volume on

revenue , costs , and net profit.
( a ) ABM ( b ) CMS
( c ) CVP ( d ) ABC

7. It shows the financial consequences that would

occur if actual Cash inflows and outflows differ from those
expected.
( a ) Sensitivity analysis ( b ) DCF analysis
( c ) Relevent-Costs analysis ( d ) Break-even analysis

8. How managers plan significant outlays on projects

that have long term implications.
( a ) Capital Budget ( b ) Flexible Budget
( c ) Cash Budget ( d ) Master Budget

9. Cash inflows include:

 ( a ) Release of working capital ( b ) Initial investment
( c ) Reduction of cost (d) a+c

10. Costs that can be eliminated by choosing one

alternative over another are :
( a ) Sunk Costs ( b ) Future Costs
( c ) Unavoidable Costs ( d ) Relevent Costs

11. A Company shold drop a business segment only if

its :
( a ) fixed cost saving < lost contribution margin
( b ) lost contribution margin < fixed cost saving
( c ) fixed cost saving = lost contribution margin.
( d ) None.

12. Three ways to improve ROI :

( a ) Increase sales, Reduce expenses and assets.
( b ) Increase assets, Reduce expenses.
( c ) Increase sales and assets, Reduce expenses.
( d ) Reduce expenses, sales, and assets.

13. Net Operating income that is earned above the

required return on operating assets:
( a ) ROI ( b ) RI
( c ) ARR ( d ) IRR

14. Benefits of ABC:

( a ) Benefits of implementation exceed costs
( b ) Products costs are relevant for making decisions
( c ) Improves the accuracy of product costs
( d ) All of the above

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) ( Flexible Budget ) ( Static Budget
+) ( ) ( Dynamic Budget

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" Balanced Scorecard" :

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Selected sales and operating data for three divisions of three different
companies are given below:
Divison A Division B Divison C
 Sales $ 6,000,000 $ 10,000,000 $ 8,000,000
Average operating assets $ 1,500,000 $ 5,000,000 $ 2,000,000
Net operating income $ 300,000 $ 900,000 $ 180,000
Minimum required rate of return 15% 18% 12%

Requried:
1- Compute the return on investment ( ROI) for each division.
2- Compute the residual income for each division.
3- What advantages can you see in breaking down the ROI
computation into two separate elements , margin and turnover?

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Gaza Company has three service departments and two operating departments.
Selected data on the five departments are presented below:

Service Departments Operating Total

Departments
SD1 SD2 SD3 OD1 OD2
Overhead $ 36,000 $ 67,800 $ 84,000 $ 256,100 $ 498,600 $ 942,500
Costs
Number of 240 60 80 600 300 1,280
employees
Square feet of 10,000 12,000 3,000 20,000 70,000 115,000
space occupied
Machine-hours - - - 10,000 30,000 40,000

The Costs of the three service departments are allocated on the following bases:
Department Allocation Base
SD1 Number of employees
SD2 Space occupied
SD3 Machine-hours

Required: Using the step method , allocate the service department costs to
the operating departments.

:
Arab Company manufactures sells a telephone answering machine. The
Companys Contribution format income statement for the most recent year is
given below:

Total
Sales ( 20,000 units ) $ 1,200,000
Less: variable expenses $ 900,000
Contribution margin 300,000
Less :fixed expenses 240,000
Net operating income $ 60,000
Management is anxious to improve the Companys profit performance and has
asked for an analysis of number of items.
Required:
1. Compute the Companys break-even point in both units and sales
dollars.
2. Assume that sales increase by $ 400,000 next year. If cost behavior
patterns remain unchanged, by how much will the Companys net
opaerating income increase?
3. Assume that next year management wants the Company to earn a
minmum net profit after tax of $ 90,000 . How many units will have to
be sold to meet this target profit figure while tax rate is 25%?
4. Compute the Companys margin of safty in both dollar and percentage
form.
5. Compute the Companys degree at operating leverage of the present
level of sales.
:
12,000
" "
:
$ 5,000 -
$ 7,000 -
$ 0.5 -
$ 0.1 -
$ 1.4 -

:
. -1
35000 -2

. $ 3,000
56000 35000 %60 -3
. $ 1.20
.

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Jereco Company makes two products, B1 and B2. The Company has
budgeted sales of 50,000 B1 Units and 200,000 B2 units.
- Both products require 2 direct labor-hours to complete.
- The Company plans to work 500,000 hours to meet the budgeted
production . All production is sold.
 - Direct materials cost $ 90 per unit for the B1 unit and $ 50 for the B2
unit.
- Direct labor costs at $ 10 per hour.
- Total overhead costs for the year ( 2003) are estimated to be $ 10
million.
- The ABC project team at Jereco Company has developed the following
basic information :
- Jereco has budgeted sales of 50,000 B1 units and 110,000 B2 units.

Activity and Activity Estimated Expected Activity

Measures Overhead Total B1 B2
Cost
Labor related (DLH) $ 800,000 500,000 100,000 400,000
Machine related (MH) 2,100,000 1,000,000 300,000 700,000
Machine Setups (setups) 1,600,000 4,000 3,000 1,000
Production orders (orders) 450,000 1,200 400 800
Product testing (tests) 1,700,000 20,000 16,000 4,000

Parts administration (parts) 350,000 700 400 300

$7,000,000
Required:
1. Compute the unit product cost for B1 and B2 based upon activity.

:
It certainly is nice to see that small variance on the income statement after all
the trouble weve had lately in controlling manufacturing costs, said Ali
Yousef, vice president of Sea Company. The $ 8,750 overall manufacturing
variance reported last period is well below the 3% limit we have set for
variances. We need to cogratulate everybody on a job well done.
The company produces and sells a single product. The standard cost card for the product follows:
Standard Cost Card-Per Unit
Direct materials, 4 yards at $ 3.50 per yard $ 14
Direct labor, 1.5 direct labor-hours at $ 12 per direct labor-hour 18
Variable overhead, 1.5 direct labor-hours at $2 per direct labor-hour 3
Fixed overhead, 1.5 direct-labor hours at $ 6 per direct labor-hour 9
Standard cost per unit $ 44
The following additional information is available for the year just completed:
a. The company manufactured 20,000 units of product during the year.
b. A total of 78,000 yards of material was purchased during the year at a
cost of $ 3.75 per yard. 77,000 yards of the material was used to
manufacture the 20,000 units. There were no beginning or ending
inventories for the year.
c. The company worked 32,500 direct labor-hours during the year at a cost
of $ 11.80 per hour.
d. Overhead cost is applied to products on the basis of direct labor-hours.
Data relating to manufacturing overhead costs follow:

Denominator activity level (direct labor-hours) 25,000

Budgeted fixed overhead costs (from the flexible budget) $ 150,000
Actual fixed overhead costs $ 148,000
Acutal variable overhead costs $ 68,250
Required:
1. Compute the direct materials price and quntity variances for the year.
2. Compute the direct labor rate and efficiency variances for the year.

3. For manufacturing overhead, compute the following:

a. The variable overhead spending and efficiency variances for the
year.
b. The fixed overhead budget and volume variances for the year.
4. Total the variances you have computed, and compare the net amount
with the $ 8750 mentioned by the vice president. Do you agree that
everyone should be congratulated for a job well done? Explain.