Chapter 1 Managerial Accounting and the Business Environment

True/False Questions

1. Managerial accounting places less emphasis on precision and more emphasis on

flexibility and relevance than financial accounting.

Answer: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA
FN: Measurement LO: 1 Level: Medium

2. Managerial accounting is not governed by generally accepted accounting principles

(GAAP).

Answer: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA
FN: Decision Making, Measurement LO: 1 Level: Easy

3. Financial accounting and managerial accounting reports must be prepared in

accordance with generally accepted accounting principles (GAAP).

Answer: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

AICPA FN: Measurement LO: 1 Level: Easy

4. When carrying out their directing and motivating activities, managers mobilize the
organization's human and other resources so that the organization's plans are carried
out.

Answer: True AACSB: Reflective Thinking AICPA BB: Resource Management,

Critical Thinking AICPA FN: Decision Making LO: 2 Level: Easy

5. When carrying out planning activities, managers rely on feedback to ensure that the
plan is actually carried out and is appropriately modified as circumstances change.

Answer: False AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Medium

6. When carrying out their directing and motivating activities, managers select a course
of action and specify how the action will be implemented.

Answer: False AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Medium

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Chapter 1 Managerial Accounting and the Business Environment

7. Persons occupying staff positions provide support and assistance to other parts of the
organization.

Answer: True AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Easy

8. Staff departments generally have direct authority over line departments in an

organization.

Answer: False AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Medium

9. Informal relationships and channels of communication often develop that do not

appear on the organization chart.

Answer: True AACSB: Reflective Thinking AICPA BB: Resource Management,

Critical Thinking AICPA FN: Decision Making LO: 2 Level: Easy

10. The controller's position in a retail company is considered a line position rather than a
staff position.

Answer: False AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Medium

11. The Chief Financial Officer of an organization should present facts and refrain from
offering advice and personal opinion.

Answer: False AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Medium

12. A strategy is a game plan that enables a company to attract customers by

distinguishing itself from competitors.

Answer: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA
FN: Decision Making LO: 2 Level: Easy

13. A strategy requires effective use of Six Sigma improvement techniques.

Answer: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

AICPA FN: Decision Making LO: 2 Level: Medium

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Chapter 1 Managerial Accounting and the Business Environment

14. A customer value proposition is essentially a reason for customers to choose a

company's products over its competitors' products.

Answer: True AACSB: Reflective Thinking AICPA BB: Marketing AICPA FN:
Decision Making LO: 2 Level: Easy

15. Customer value propositions tend to fall into three broad categories--customer
intimacy, operational excellence, and product leadership.

Answer: True AACSB: Reflective Thinking AICPA BB: Marketing AICPA FN:
Decision Making LO: 2 Level: Easy

16. Companies that adopt a customer intimacy strategy are in essence saying to their target
customers, “The reason you should choose us is because we understand and respond to
your individual needs better than our competitors.”

Answer: True AACSB: Reflective Thinking AICPA BB: Marketing AICPA FN:
Decision Making LO: 2 Level: Easy

17. Companies that choose an operational excellence strategy are in essence saying to
their customers, “Choose us rather than our competitors because we strive for zero
defects.”

Answer: False AACSB: Reflective Thinking AICPA BB: Marketing AICPA FN:
Decision Making LO: 2 Level: Medium

18. A value chain consists of the major business functions that add value to the company's
products and services.

Answer: True AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Easy

19. Efforts designed to increase the rate of output should generally be applied to the
workstation that is the constraint.

Answer: True AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 3 Level: Easy

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Chapter 1 Managerial Accounting and the Business Environment

20. The lean thinking model is a five step management approach that organizes resources
such as people and machines around the flow of business processes and that pulls units
through theses processes in response to customer orders.

Answer: True AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 3 Level: Easy

21. Supply chain management involves acquiring and bringing inside the company all of
the processes that bring value to customers.

Answer: False AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 3 Level: Medium

22. An enterprise system integrates data across an organization into a single software
system that enables all employees to have simultaneous access to a common set of
data.

Answer: True AACSB: Reflective Thinking AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology LO: 3 Level: Easy

23. Corporate governance is the legal framework that allows managers to control and
direct lower-level workers on the job.

Answer: False AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 3 Level: Medium

24. The Sarbanes-Oxley Act of 2002 was intended to protect the interests of those who
invest in publicly traded companies by improving the reliability and accuracy of
corporate financial reports and disclosures.

Answer: True AACSB: Reflective Thinking AICPA BB: Legal AICPA FN:
Measurement LO: 3 Level: Easy

25. The Standards of Ethical Conduct promulgated by the Institute of Management

Accountants specifically states, among other things, that management accountants
have a responsibility to disclose fully all relevant information that could be reasonably
be expected to influence an intended user's understanding of the reports, comments
and recommendations presented.

Answer: True AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Decision
Making LO: 4 Level: Easy

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Chapter 1 Managerial Accounting and the Business Environment

Multiple Choice Questions

26. Managerial accounting places considerable weight on:

A) generally accepted accounting principles.
B) the financial history of the entity.
C) ensuring that all transactions are properly recorded.
D) detailed segment reports about departments, products, and customers.

Answer: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA

FN: Measurement LO: 1 Level: Easy

27. The plans of management are often expressed formally in:

A) financial statements.
B) performance reports.
C) budgets.
D) ledgers.

Answer: C AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Measurement LO: 1 Level: Easy

28. The phase of accounting concerned with providing information to managers for use in
planning and controlling operations and in decision making is called:
A) throughput time.
B) managerial accounting.
C) financial accounting.
D) controlling.

Answer: B AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Measurement LO: 1 Level: Easy

29. A staff position:

A) relates directly to the carrying out of the basic objectives of the organization.
B) is supportive in nature, providing service and assistance to other parts of the
organization.
C) is superior in authority to a line position.
D) none of these.

Answer: B AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Easy

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Chapter 1 Managerial Accounting and the Business Environment

30. For a manufacturing company, what type of position (line or staff) is each of the
following?

Manager of a Data Manager of a Production

Processing Department Department
A) Staff Staff
B) Staff Line
C) Line Staff
D) Line Line

Answer: B AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Easy

31. A _______________ position in an organization is directly related to the achievement

of the organization's basic objectives.
A) line
B) management
C) staff
D) None of the above.

Answer: A AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Easy

32. ______________ is an example of a line position.

A) Controller for a merchandising company
B) Chief financial officer of a merchandising company
C) Store manager for Best Buy
D) Human resources manager for a community college

Answer: C AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Easy

33. Which of the following is NOT one of the three major customer value propositions
discussed in the text?
A) customer intimacy
B) discount pricing
C) operational excellence
D) product leadership

Answer: B AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Easy

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Chapter 1 Managerial Accounting and the Business Environment

34. Which of the following is NOT one of the five steps in the lean thinking model
discussed in the text?
A) Continuously pursue perfection in the business process.
B) Identify value in specific products/services.
C) Implement an enterprise system.
D) Create a pull system that responds to customer orders.

Answer: C AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 2 Level: Easy

35. One consequence of a change from a push to a properly implemented pull production
system can be:
A) an increase in work in process inventories.
B) an extremely difficult cultural change due to enforced idleness when demand falls
below production capacity.
C) an increased mismatch between what is produced and what is demanded by
customers.
D) an increase in raw materials inventories.

Answer: B AACSB: Analytic AICPA BB: Industry, Resource Management

AICPA FN: Decision Making LO: 3 Level: Hard

36. All of the following are characteristics of a pull production system EXCEPT:
A) Inventories are reduced to a minimum by purchasing raw materials and producing
units only as needed to meet consumer demand.
B) Raw materials are released to production far in advance of being needed to ensure
no interruptions in work flows due to shortages of raw materials.
C) Products are completed just in time to be shipped to customers.
D) Manufactured parts are completed just in time to be assembled into products.

Answer: B AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 3 Level: Medium

37. The five step framework used to guide Six Sigma improvement efforts includes all of
the following EXCEPT:
A) Analyze.
B) Control.
C) Digitize.
D) Measure.

Answer: C AACSB: Reflective Thinking AICPA BB: Resource Management

AICPA FN: Decision Making LO: 3 Level: Medium

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Chapter 1 Managerial Accounting and the Business Environment

38. The Sarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT:
A) The audit committee of the board of directors of a company must hire,
compensate, and terminate the public accounting firm that audits the company's
financial reports.
B) Financial statements must be audited once every three years by the Government
Accounting Office.
C) Both the CEO and CFO must certify in writing that their company's financial
statements and accompanying disclosures fairly represent the results of operations.
D) A company's annual report must contain an internal control report.

Answer: B AACSB: Reflective Thinking AICPA BB: Legal AICPA FN:

Measurement LO: 3 Level: Medium

39. The Institute of Management Accountants' Standards of Ethical Conduct contains a

policy regarding confidentiality that requires that management accountants:
A) refrain from disclosing confidential information acquired in the course of their
work except when authorized by management.
B) refrain from disclosing confidential information acquired in the course of their
work in all situations.
C) refrain from disclosing confidential information acquired in the course of their
work except when authorized by management, unless legally obligated to do so.
D) refrain from disclosing confidential information acquired in the course of their
work in all cases since the law requires them to do so.

Answer: C AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Decision
Making LO: 4 Level: Hard

40. Which of the following is NOT one of the Institute of Management Accountants' five
Standards of Ethical Conduct?
A) Competence
B) Confidentiality
C) Independence
D) Integrity

Answer: C AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Decision
Making LO: 4 Level: Medium

1-10 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition