MAS Theories
Sample questions ( for incoming Third Year )
1. The term “committed costs” refers to costs that
A. Are likely to respond to the amount of attention devoted to them by a specified manager
B. Are governed mainly by past decisions that established the present levels of operating and
organizational capacity and that only change slowly in response to small changes in capacity
C. Fluctuate in total in response to small changes in the rate of utilization of capacity
D. Management decides to incur in the current period to enable the company to achieve objectives other
than the filling of orders placed by customers
2. Costs that cannot be changed by any decision made now or in the future are
A. Sunk costs
B. Indirect costs
C. Avoidable costs
D. Fixed costs
3. Management accountants must satisfy their users; therefore, they should all do the following, EXCEPT
A. Provide them with high-quality information
B. Provide specialized information that specific managers can use
C. Focus on preparing information for external financial reporting
D. Continuously strive to provide better quality information faster and at a lower cost
4. A management information system should emphasize satisfying
A. external demands for information.
B. external and internal demands for information.
C. internal demands for information.
D. the Accounting Department's demands for information.
5. The plans of management are often expressed formally in:
A. financial statements.
C. budgets.
B. ledgers.
D performance reports.
6. The person MOST likely to use ONLY financial accounting information is a
A. factory shift supervisor.
C. current shareholder.
B. manager.
D. vice president of operations.
7. 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.
8. In financial accounting, certain rules and regulations must be followed on how financial statements
must be presented to readers. In managerial accounting, no such restrictions generally apply because it is
A. An entirely different field that need not observe the broad guidelines in financial accounting
B. Designed to provide management with non-financial information for decision-making.
C. Designed to provide accounting and other financial data to assist management in making
business decisions
D. A discipline that does not require preparation of financial statements
9. Which of the following involves decision making?
A. Controlling
B. Planning
C. Directing
D. All of the above
10. Fixed cost that would be considered a direct cost is
A salary of the sales manager when the cost object is the sales department.
B salary of the controller when the cost object is a unit of product.
C. fees of the Board of Directors when the cost object is the Production Department.
D. the rental cost of the finished goods warehouse when the cost object is the Accounting Department.
11. Overhead applied was 130,000 while actual overhead was 126,000. Which of the following is true?
A. Direct Labor activity was overestimated
B. Overhead was underapplied by 4000
C. Overhead was overapplied by 4000
D. The difference is reported as a loss
12. Which of the following statements about cost behavior is correct?
A. Within the relevant range, total variable costs may vary directly with activity, while total
fixed costs remain unchanged for a given period despite fluctuations in activity.
B. Within the relevant range, variable cost per unit varies directly with activity, while fixed cost per
unit remains unchanged for a given period despite fluctuations in activity.
C. Within the relevant range, fixed cost per unit varies directly with activity, while variable cost per
unit remains unchanged for a given period despite fluctuations in activity.
D. Within the relevant range, total variable costs may vary inversely with activity, while total fixed
costs remain unchanged for a given period despite fluctuations in activity.
13. The cost of the cushions that are used to manufacture sofas is best described as a:
A. manufacturing overhead cost.
B. period cost.
C. variable cost.
D. conversion cos
14. As volume increases,
A. total fixed costs remain constant and per-unit fixed costs increase.
B. total fixed costs remain constant and per-unit fixed costs decrease.
C. total fixed costs remain constant and per-unit fixed costs remain constant.
D. total fixed costs increase and per-unit fixed costs increase.
15. Which of the following best describes a fixed cost?
A. It may change in total when such change is unrelated to changes in production.
B. It may change in total when such change is related to changes in production.
C. It is constant per unit of change in production.
D. It may change in total when such change depends on production within the relevant range.
16. In comparing financial and management accounting, which of the following more accurately describes
management accounting information?
A. historical, precise, useful
B. required, estimated, internal
C. budgeted, informative, adaptable
D. comparable, verifiable, monetary
17.Operating leverage measures how sensitive the profit is to a change in
A. Fixed costs
C. sales price per unit
B. Sales Volume
D. in tax rates
18. If a company is operating at a loss
A. Fixed costs are greater than sales
B. Selling price is lower than the variable costs per unit
C. Selling price is less than the average total cost per unit.
D. Fixed cost per unit is greater than variable cost per unit.
19. Which of the following would not affect the breakeven point?
A. Number of units sold
B. Variable cost per unit
C. Total fixed costs
D. Sales price per unit
20. Which one of the following costs would not be classified as a production overhead cost in a
food processing company?
A. The cost of renting the factory building
B. The salary of the factory manager
C. The depreciation of equipment located in the materials store
D. The cost of ingredients
21. An activity that has a direct cause-effect relationship with the resources consumed is a(n)
A. cost driver.
B. overhead rate.
C. cost pool.
D. product activity.
22. Financial management process deals with?
A. Investments B. Financing decisions
C. Both a and b
D. None of the above
23. The only feasible purpose of financial management is
A. Wealth Maximization
B. Maximization
C. Profit Maximization
D. maximization
24. For every unit that a company produces and sells above the breakeven point, its profitability is
improved (ignoring taxes) by the unit’s
A. variable cost.
B. gross margin.
C. contribution margin.
D. selling price minus fixed cost per unit.
25. Operating leverage refers to the relative proportion of:
A. total costs to sales
B. fixed costs to variable costs
C. variable costs to contribution margin
D. sales price per unit to variable costs per unit
26. On the Schedule of Cost of Goods Manufactured, the final Cost of Goods Manufactured figure
represents: A. The amount of cost charged to Work in Process during the period.
B. The amount of cost transferred from Finished Goods to Cost of Goods Sold during the period.
C. The amount of cost placed into production during the period.
D. The amount of cost of goods completed during the current year whether they were
started before or during the current year
27. The cost of lubricants used to grease a production machine in a manufacturing company is an
example of a(n):
A. period cost.
B. direct material cost.
C. indirect material cost.
D. none of the above.
28. A job-order costing system is less likely to distort job costs if it assigns overhead costs to individual
jobs based on
A. Direct labor hours.
B. Machine hours.
C. Direct material cost.
D. The consumption of different cost drivers.
29. The ideal financial planning process would be
A. top-down planning.
B. bottom-up planning.
C. a combination of top-down and bottom-up planning.
D. none of the above.
30. Common sources of short-term financing include:
A. Stretching payables
C. Reducing inventory
B. Issuing bonds
D. All of the above
31. Which of the following is the major independent variable in constructing
pro forma income statements and balance sheets?
A. total assets
C. dividend payout
B. net income
D. sales
32. The first step in developing a pro forma income statement is to:
A. build a sales forecast
C. determine the cost of goods sold
B. determine the production schedule
D. none of the above
33. Which of the following will not permit a higher internal growth rate, other
things equal?
A. A higher plowback ratio
C. A higher return on equity
B. A higher debt-to-asset ratio
D. A higher return on assets
34. Which of the following statements is true?
A. Inventoriable costs are reported as an asset when incurred and expensed on the income
statement when the product is sold.
B. Costs of goods sold refer to the products brought to completion, whether they were started before or
during the current accounting period.
C. A cost object is always either a product or a service.
D. Costs are accounted for in two basic stages: assignment followed by accumulation.
35. Which of the following does not represent a problem with financial analysis?
A. Financial statement analysis is an art; it requires judgment decisions on the part of the analyst.
B. Financial analysis can be used to detect apparent liquidity problems.
C. There are as many ratios for financial analysis as there are pairs of figures.
D. Some industry ratio formulas vary from source to source.
36. Which of these statements is false?
A. Many companies will not clearly fit into any one industry.
B. A financial service uses its best judgment as to which industry the firm best fits.
C. The analysis of an entity's financial statements can be more meaningful if the results are compared
with industry averages and with results of competitors.
D. A company comparison should not be made with industry averages if the company does not
clearly fit into any one industry.
37. Which of the following is generally the most useful in analyzing companies of different sizes?
A. comparative statements
C. price-level accounting
B. common-sized financial statements
D. profitability index
38. Horizontal analysis is also known as
A. linear analysis.
C. trend analysis.
B. vertical analysis.
D. common size analysis.
39. In which of the following cases may a percentage change be computed?
A. The trend of the amounts is decreasing but all amounts are positive.
B. There is no amount in the base year.
C. There is a negative amount in the base year and a negative amount in the subsequent year.
D. There is a negative amount in the base year and a positive amount in the subsequent year
40. The ability of a business to pay its debts as they come due and to earn a
reasonable amount of income is referred to as:
A. solvency and leverage
C. solvency and liquidity
B. solvency and profitability
D. solvency and equity
41. The primary concern of short-term creditors when assessing the strength
of a firm is the entity’􆾙
A. short-term liquidity
C. market price of stock
B. profitability
D. leverage
42. Short-term creditors are usually most interested in assessing
A. solvency.
C. marketability.
B. liquidity.
D. profitability.
43. The ratios that are used to determine a company long term debt paying ability are
A. asset turnover, times interest earned, current ratio, and receivables turnover.
B. times interest earned, inventory turnover, current ratio, and receivables turnover.
C. times interest earned, acid-test ratio, current ratio, and inventory turnover.
D. current ratio, acid-test ratio, receivables turnover, and inventory turnover.
44. Which ratio is most helpful in appraising the liquidity of current assets?
A. current ratio
C. acid-test ratio
B. debt ratio
D. accounts receivable turnover
45. Which one of the following ratios would not likely be used by a short-term
creditor in evaluating whether to sell on credit to a company?
A. accounts receivable turnover. C. acid test ratio.
B. asset turnover.
D. current ratio.
46. A weakness of the current ratio is
A. the difficulty of the calculation.
B. that it does not take into account the composition of the current assets.
C. that it is rarely used by sophisticated analysts.
D. that it can be expressed as a percentage, as a rate, or as a proportion.
47. Trading on the equity (leverage) refers to the
A. amount of working capital.
B. amount of capital provided by owners.
C. use of borrowed money to increase the return to owners.
D. earnings per share.
48. Working capital management involves investment and financing decisions
related to:
A. plant and equipment and current liabilities.
B. current assets and capital structure.
C. current assets and current liabilities.
D. sales and credit.
49. The goal of managing working capital, such as inventory, should be to
minimize the:
A. costs of carrying inventory
B. opportunity cost of capital
C. aggregate of carrying and shortage costs
D. amount of spoilage or pilferage
50. Short-term financing plans with high liquidity have:
A. high return and high risk
B. moderate return and moderate risk
C. low profit and low risk
D. none of the above
51. Temporary working capital supports
A. the cash needs of the company.
B. payment of long term debt.
C. acquisition of capital equipment.
D. seasonal peaks.
52. As a firm's cash conversion cycle increases, the firm:
A. becomes less profitable
B. increases its investment in working capital
C. reduces its accounts payable period
D. incurs more shortage costs
53. The longer the firm's accounts payable period, the:
A. longer the firm's cash conversion cycle is.
B. shorter the firm's inventory period is.
C. more the delay in the accounts receivable period.
D. less the firm must invest in working capital.
54. Which of the following statements is most correct? If a company lowers its DSO, but no
changes occur in sales or operating costs, then:
A. the company might well end up with a higher debt ratio.
B. the company might well end up with a lower debt ratio.
C. the company would probably end up with a higher ROE.
D. the company's total asset turnover ratio would probably decline.
55. All but which of the following is considered in determining credit policy?
A. Credit standards
C. Accounts payable deferral period
B. Credit limits
D. Collection efforts
56. The use of safety stock by a firm will:
A. reduce inventory costs
C. have no effect on inventory costs
B. increase inventory costs
D. none of the above
57. When a specified level of safety stock is carried for an item in inventory, the average
inventory level for that item
A. decreases by the amount of the safety stock.
B. is one-half the level of the safety stock.
C. Increases by one-half the amount of the safety stock.
D. Increases by the number of units of the safety stock.
58. Which of the following statements is correct for a firm that currently has total costs of
carrying and ordering inventory that are 50% higher than total carrying costs?
A. Current order size is greater than optimal
B. Current order size is less than optimal
C. Per unit carrying costs are too high
D. The optimal order size is currently being used
60. Cost of capital is the
A. amount the company must pay for its plant assets.
B. dividends a company must pay on its equity securities.
C. cost the company must incur to obtain its capital resources.
D. cost the company is charged by investment bankers who handle the issuance of equity or long-term
debt securities.
61. How should the following projects be listed in order of increasing risk?
A. New venture, replacement, expansion.
B. Replacement, new venture, expansion.
C. Replacement, expansion, new venture.
D. Expansion, replacement, new venture.
62. A project that when accepted or rejected will not affect the cash flows of another project.
A. Independent projects
C. Mutually exclusive projects
B. Dependent projects
D. Both b and c
63. The normal methods of analyzing investments
A. cannot be used by not-for-profit entities.
B. do not apply if the project will not produce revenues.
C. cannot be used if the company plans to finance the project with funds already available internally.
D. require forecasts of cash flows expected from the project.
64. In addition to incremental revenues, cash inflows from capital investments can be generated from all
of the following sources except:
A. debt financing
B. cost savings
C. salvage value
D. reduction in the amount of working capital
65. If Helena Company expects to get a one-year bank loan to help cover the initial financing of one of its
capital projects, the analysis of the project should
A. offset the loan against any investment in inventory or receivables required by the project.
B. show the loan as an increase in the investment.
C. show the loan as a cash outflow in the second year of the project’s life.
D. ignore the loan
66. The primary advantages of the average rate of return method are its ease of computation and the fact
that:
A. It is especially useful to managers whose primary concern is liquidity
B. There is less possibility of loss from changes in economic conditions and obsolescence when the
commitment is short-term
C. It emphasizes the amount of income earned over the life of the proposal
D. Rankings of proposals are necessary
67. Which of the following is NOT a defect of the payback method?
A. It ignores cash flows because it uses net income.
B. It ignores profitability.
C. It ignores the present values of cash flows.
D. It ignores the pattern of cash flows beyond the payback period.
68. The payback method, as a capital budgeting technique, assumes that all intermediate cash inflows
are reinvested to yield a return equal to:
A. Zero C. The Discount Rate
B. The Time-Adjusted-Rate-of-Return D. The Cost-of-Capital
69. Discounted cash flow analysis is used in which of the following techniques?
A. Net present value C. Cost of capital
B. Payback period D. All of the above
70. The discount rate commonly used in present value calculations is the
A. treasury bill rate
B. weighted average return on assets adjusted for risk
C. risk free rate plus inflation rate
D. shareholders’ expected return on equity
71. Which is true of the net present value method of determining the acceptability of an investment?
A. The initial cost of the investment is subtracted from the present value of net cash flows
B. The net cash flows are not adjusted to present value
C. A negative net present value indicates the investment should be undertaken
D. The net present value method requires no subjective judgments
72. The rate of interest that produces a zero net present value when a project’s discounted cash
operating advantage is netted against its discounted net investment is the:
A. Cost of capital
B. Discount rate
C. Cutoff rate
D. Internal rate of return
73. A weakness of the internal rate of return method for screening investment projects is that it:
A. Does not consider the time value of money
B. Implicitly assumes that the company is able to reinvest cash flows from the project at the company’s
discount rate
C. Implicitly assumes that the company is able to reinvest cash flows from the project at the
internal rate of return
D. Fails to consider the timing of cash flows
74. If the present value of the future cash flows for an investment equals the required investment, the IRR
is
A. equal to the cutoff rate.
B. equal to the cost of borrowed capital.
C. equal to zero.
D. lower than the company’s cutoff rate return.
75. The relationship between payback period and IRR is that
A. a payback period of less than one-half the life of a project will yield an IRR lower than the target rate.
B. the payback period is the present value factor for the IRR.
C. a project whose payback period does not meet the company’s cutoff rate for payback will not meet the
company’s criterion for IRR.
D. none of the above.
76. When comparing NPV and IRR, which is not true?
A. With NPV, the discount rate can be adjusted to take into account increased risk and the uncertainty of
cash flows
B. With IRR, cash flows can be adjusted to account for risk
C. NPV can be used to compare investments of various size or magnitude
D. Both NPV and IRR can be used for screening decisions
77. An analysis of a proposal by the net present value method indicated that the present value of future
cash inflows exceeded the amount to be invested. Which of the following statements best describes the
results of this analysis?
A. The proposal is desirable and the rate of return expected from the proposal exceeds the
minimum rate used for the analysis
B. The proposal is desirable and the rate of return expected from the proposal is less than the minimum
rate used for the analysis
C. The proposal is undesirable and the rate of return expected from the proposal is less than the
minimum rate used for the analysis
D. The proposal is undesirable and the rate of return expected from the proposal exceeds the minimum
rate used for the analysis
78. NPV indicates a project is deemed desirable (acceptable) when the NPV is
A. greater than or equal to zero
B. less than zero
C. greater than or equal to the risk-adjusted cost of capital
D. less than or equal to the risk-adjusted cost of capital
79. In cost-volume-profit analysis, the greatest profit will be earned at
A. One hundred percent at normal productive capacity.
B. The production point with the lowest marginal cost.
C. The production point at which average total revenue exceeds average marginal cost.
D. The point at which marginal cost and marginal revenue are equal
80. Which of the following is not an assumption underlying C-V-P analysis?
A. The behavior of total revenue is linear.
B. Unit variable expenses remain unchanged as activity varies.
C. Inventory levels at the beginning and end of the period are the same.
D. The number of units produced exceeds the number of units sold.
12. Which of the following assumptions is inherent to C-V-P analysis?
A. In manufacturing firms, the beginning and ending inventory levels are the same.
B. In a multi-product organization, the sales mix varies over time.
C. The behavior of total revenue is curvilinear.
D. The relevant range is not a consideration.
81. As projected net income increases the
A. degree of operating leverage declines.
B. margin of safety stays constant.
C. break-even point goes down.
D. contribution margin ratio goes up.
82. Given the following notations, what is the breakeven sales level in units?
SP = selling price per unit
FC = total fixed cost
VC = variable cost per unit
A. SP / (FC/VC) C. VC/(SP – FC)
B. FC/(VC/SP) D. FC/(SP – VC)
83. If variable cost as a percentage of sales increases, the
A. contribution margin percentage increases.
B. selling price increases.
C. break-even point in pesos increases.
D. fixed costs decrease.
84. Introducing income taxes into cost-volume-profit analysis
A. raises the break-even point.
B. lowers the break-even point.
C. increases unit sales needed to earn a particular target profit.
D. decreases the contribution margin percentage. Bobadilla
85. If a company is earning a profit, its fixed costs
A. are less than total contribution margin.
B. are equal to total contribution margin.
C. are greater than total variable costs.
D. can be greater than or less than total contribution margin.