TEST BANK Managerial Accounting 8/E Hartgraves
Chapter 1
Managerial Accounting:
Tools for Decision Making
Learning Objectives – Coverage by Question
True/False Multiple Choice Exercises Problems Essays
LO1 – Contrast the different
uses of financial and 1-3,
1 22, 23, 25-27,
managerial accounting 60, 61
information.
LO2 – Describe the three
themes of strategic cost
management and illustrate
how strategic cost 2 4, 5, 24 1
management can be used to
create a long-term competitive
advantage.
LO3 – Examine how an
organization’s mission, goals, 6-12, 28-37,
3, 4 2, 3
and strategies affect 64-69
managerial accounting.
LO4 – Analyze how trends in
the business environment
5 13, 14, 38-42 4
impact the role of management
accounting.
LO5 – Assess the nature of the 20, 21,
ethical dilemmas managers 9, 10 50-59, 6
and accountants confront. 62, 63
LO6 – Demonstrate the use of
15-19, 43-49,
structural, organizational, and 6-8 5
70, 71
activity cost drivers.
,Chapter 1: Managerial Accounting: Tools for Decision Making
True/False
Topic: Role of Managerial Accounting
LO: 1
1. A primary goal of managerial accounting is to provide information to investment managers who
analyze a company’s stock for external investors.
Answer: False
Rationale: Providing information for external users is the role of financial accounting, not managerial
accounting. The role of managerial accounting is to provide information useful to internal managers.
Topic: Value Chain Analysis
LO: 2
2. Value chain analysis concerns the study of value-producing activities, stretching from basic raw
materials to the final consumer of a product or service.
Answer: True
Rationale: Value chain analysis involves all of the activities that affect the conversion of raw materials
into a final product or service.
Topic: Organization’s Mission
LO: 3
3. An organization’s mission is best described as the basic purpose toward which activities are directed.
Answer: True
Rationale: As opposed to an organization’s goals and strategies, its mission statement addresses the
broad purposes for which the organization exists.
Topic: Cost Leadership Strategy
LO: 3
4. One of the companies to first employ a successful cost leadership strategy was Carnegie Steel
Company.
Answer: True
Rationale: Carnegie’s operating strategy was to push its own direct costs below those of competitors
so that it could charge prices that would always ensure enough demand to keep its plants running at
full capacity.
Topic: Competition
LO: 4
5. Competition among companies normally takes place only on the dimension of price/cost.
Answer: False
Rationale: Competition occurs not only on the basis of price/cost, but also on the dimensions of
quality and service.
,Topic: Cost Drivers
LO: 6
6. The decision to use both full-time and part-time employees during the holiday season is an example
of a structural cost driver.
Answer: False
Rationale: The decision to use part-time employees instead of only full-time employees would be an
example of an organizational cost driver, not a structural cost driver. Structural cost drivers involve
fundamental choices about the size and scope of operations and technologies employed in delivering
products or services to customers.
Topic: Cost Drivers
LO: 6
7. All costs have at least one primary cost driver.
Answer: True
Rationale: Every cost is driven by either an activity, a structural or an organizational choice.
Topic: Cost Drivers
LO: 6
8. Most costs are actually incurred as a result of activity cost drivers.
Answer: True
Rationale: Strategic and organizational choices give rise to specific activities that drive costs.
Topic: Ethics
LO: 5
9. The best criterion for determining if a given action or choice is ethical is to determine if it is legal,
because all legal actions are inherently ethical.
Answer: False
Rationale: Ethics goes beyond legality, which refers to what is permitted under the law, to consider
the moral quality of an action.
Topic: Ethics in Managerial Accounting
LO: 5
10. Managers who prepare and/or have responsibility for managerial accounting information rarely
encounter choices that have questionable ethical dimensions or overtones.
Answer: False
Rationale: While some choices that managers face are clearly ethical or unethical, many choices
pose ethical dilemmas for managers. For example, when setting budgets for the next period, one
may be tempted to be unduly cautious so as to make it easier to meet the budget and receive a
favorable performance report (and possibly a larger bonus) for the next period.
, Multiple Choice
Topic: Focus of Managerial Accounting
LO: 1
1. Managerial accounting is primarily focused on:
A) Providing creditors information on the status of their loans
B) Providing investors with useful information for valuing securities
C) Providing the Internal Revenue Service with information to determine the amount of taxes owed
D) Providing managers with relevant information to help achieve organizational goals
Answer: D
Rationale: As the name implies, managerial accounting focuses on the information needs of
managers internal to the business, unlike financial accounting, which addresses the information
needs of investors, creditors, and other external stakeholders.
Topic: Managerial Accounting Reports
LO: 1
2. In order to be useful to managers, management accounting reports:
A) Should be prepared according to the stated Institute of Management Accounting guidelines
B) Should be prepared according to Generally Accepted Accounting Principals
C) Should be prepared to meet the specific needs of decision makers
D) Should not be prepared prior to the end of a fiscal reporting period
Answer: C
Rationale: There are no specific standards for preparing managerial accounting reports. They should
be tailored to meet the needs of each individual organization.
Topic: Limited Use of Financial Accounting Information
LO: 1
3. Financial accounting information is least useful in providing:
A) Aggregate information about an organization’s assets, obligations and performance
B) Information for stating corporate wide goals
C) Information for internal decision makers
D) Periodic reports for shareholders
Answer: C
Rationale: Financial accounting, which is concerned primarily with the information needs of a broad
population of parties external to the organization, has limited value in meeting the information needs
of internal managers.
Topic: Components of Strategic Cost Management
LO: 2
4. The three analyses that comprise strategic cost management include each of the following except:
A) Ratio analysis
B) Cost driver analysis
C) Strategic position analysis
D) Value chain analysis
Answer: A
Rationale: Strategic cost management has been defined to include all of the above except ratio
analysis.
