ACC 222 EXAM 1 (CH 1-3) QUESTIONS & ANSWERS
4 Step Decision Making Framework (S.I.M.M.) - Answer -1. Specify problem and goals
2. Identify options
3. Measure costs and benefits of each option to determine its value
4. Make the decision
option value equation - Answer -option value = benefits - costs
opportunity costs - Answer -value of the next best option or value we give up by making
a decision
The best option... - Answer -maximizes profit or minimizes costs
Incentive Alignment Problem - Answer -Organizations don't make decisions, individuals
do. Individuals may choose decisions that benefit themselves over the org. We need to
motivate individuals to focus on the org's goals
Managerial Accounting purposes: - Answer -1) *Planning decisions:* how to acquire
and use resources to deliver products/services
2) *Control decisions:* how to motivate, monitor, and evaluate performance
Planning and control cycle (P.I.E.R.) - Answer -*Plan*
- products/services, prices, customers, resources
*Implement*
- use resources to make products/services, motivate employees, set performance
targets
*Evaluate*
- actual results, achievement of targets, reasons for deviations
*Revise*
- best mix of products/services, resources necessary, targets
Financial vs Managerial accounting - Answer -financial: for users OUTSIDE the org,
GAAP rules, always historical orientation, aggregated info, narrower breadth
Managerial: for users INSIDE the organization, past & future orientation, more
disaggregated, broader breadth
Ethics - Answer -common principle
(T/F?) The planning and control cycle includes planning, implementing, evaluating, and
revising - Answer -True. The planning and control cycle involves planning, then
implementing the plan, then evaluating how well it worked (or didn't), and revising as
needed to make the next plan better.
,(T/F?) Planning decisions relate to choices about acquiring and using resources to
deliver products and services to customers - Answer -True.
Which of the following is not one of the four steps in the decision-making process?
a) Specify the decision problem, including the decision maker's goals
b) Identify options
c) Separate routine decision problems from non-routine decision problems
d) Measure benefits and costs to determine the value of each option
e) Make the decision, choosing the option with the highest value - Answer -c) Separate
routine decision problems from non-routine decision problems
The value of an option equals its...
a) Benefits plus its costs
b) Benefits less its costs
c) Costs
d) Profit
e) None of the above - Answer -b) Benefits less its costs
Managerial accounting is an area of accounting which:
a) Provides financial information to creditors and stockholders
b) Summarizes financial information
c) Assists in predicting future profits
d) Assists in making business decisions
e) None of the above - Answer -d) Assists in making business decisions
John has three options for summer work. He can do lawn work for $100 per week,
babysit for $125 per week, or work at the pool for $175 per week. All the options require
approximately 20 hours of work per week. In addition, if he chooses to work at the pool,
he will incur $20 in gas costs per week. The opportunity cost if he chooses to babysit is:
a) $100
b) $175
c) $155
d) $105
e) None of the above - Answer -c) $155 (which is $175 less $20 in gas money)
The opportunity cost of any decision option is:
a) The value to the decision maker of the least-best option
b) The total profit associated with the best option
c) The total costs associated with the least profitable option
d) The value to the decision maker of the next best option
, e) None of the above - Answer -d) The value to the decision maker of the next best
option
The concepts of value and opportunity cost emphasize that every decision involves:
a) Eliminating any risks of making the decision
b) Estimating the time value of money
c) Trading off what the decision maker gets with what the decision maker gives up
d) Comparing the current period's opportunity costs with the previous period's
opportunity costs
e) None of the above - Answer -c) Trading off what the decision maker gets with what
the decision maker gives up
Greg, a college student, knows the opportunity cost of taking a class this summer is
$1,200. This means:
a) Instead of taking the class, Greg could earn $1,200 by working instead
b) Greg will need to pay $1,200 to take the class
c) The difference between what he would earn working less the cost of the class is
$1,200
d) The difference between what he would earn working less the cost of the class is
$1,200
e) None of the above - Answer -a) Instead of taking the class, Greg could earn $1,200
by working instead
(T/F?) The four stage decision framework applies to all business related decisions, but
not to personal decisions. - Answer -False. It applies to all decisions, whether personal
or business
(T/F?) Every option in making a decision presents a trade-off between benefits and
costs - Answer -True. Each option has its own costs and benefits. Value of option =
benefits - costs
(T/F?) To accomplish their goals, organizations not only need to allocate scarce
resources effectively, but also need to motivate employees to focus on organizational
goals - Answer -True
(T/F?) Decisions that best attain individual goals may not necessarily agree with the
organization's goal of maximizing profit - Answer -True
(T/F?) Control decisions relate to motivating, monitoring, and evaluating performance -
Answer -True
Relevant costs & benefits - Answer -differ across decision options.
- Opportunity cost of any resource used is always relevant
- We can only define relevance in the context of a decision
4 Step Decision Making Framework (S.I.M.M.) - Answer -1. Specify problem and goals
2. Identify options
3. Measure costs and benefits of each option to determine its value
4. Make the decision
option value equation - Answer -option value = benefits - costs
opportunity costs - Answer -value of the next best option or value we give up by making
a decision
The best option... - Answer -maximizes profit or minimizes costs
Incentive Alignment Problem - Answer -Organizations don't make decisions, individuals
do. Individuals may choose decisions that benefit themselves over the org. We need to
motivate individuals to focus on the org's goals
Managerial Accounting purposes: - Answer -1) *Planning decisions:* how to acquire
and use resources to deliver products/services
2) *Control decisions:* how to motivate, monitor, and evaluate performance
Planning and control cycle (P.I.E.R.) - Answer -*Plan*
- products/services, prices, customers, resources
*Implement*
- use resources to make products/services, motivate employees, set performance
targets
*Evaluate*
- actual results, achievement of targets, reasons for deviations
*Revise*
- best mix of products/services, resources necessary, targets
Financial vs Managerial accounting - Answer -financial: for users OUTSIDE the org,
GAAP rules, always historical orientation, aggregated info, narrower breadth
Managerial: for users INSIDE the organization, past & future orientation, more
disaggregated, broader breadth
Ethics - Answer -common principle
(T/F?) The planning and control cycle includes planning, implementing, evaluating, and
revising - Answer -True. The planning and control cycle involves planning, then
implementing the plan, then evaluating how well it worked (or didn't), and revising as
needed to make the next plan better.
,(T/F?) Planning decisions relate to choices about acquiring and using resources to
deliver products and services to customers - Answer -True.
Which of the following is not one of the four steps in the decision-making process?
a) Specify the decision problem, including the decision maker's goals
b) Identify options
c) Separate routine decision problems from non-routine decision problems
d) Measure benefits and costs to determine the value of each option
e) Make the decision, choosing the option with the highest value - Answer -c) Separate
routine decision problems from non-routine decision problems
The value of an option equals its...
a) Benefits plus its costs
b) Benefits less its costs
c) Costs
d) Profit
e) None of the above - Answer -b) Benefits less its costs
Managerial accounting is an area of accounting which:
a) Provides financial information to creditors and stockholders
b) Summarizes financial information
c) Assists in predicting future profits
d) Assists in making business decisions
e) None of the above - Answer -d) Assists in making business decisions
John has three options for summer work. He can do lawn work for $100 per week,
babysit for $125 per week, or work at the pool for $175 per week. All the options require
approximately 20 hours of work per week. In addition, if he chooses to work at the pool,
he will incur $20 in gas costs per week. The opportunity cost if he chooses to babysit is:
a) $100
b) $175
c) $155
d) $105
e) None of the above - Answer -c) $155 (which is $175 less $20 in gas money)
The opportunity cost of any decision option is:
a) The value to the decision maker of the least-best option
b) The total profit associated with the best option
c) The total costs associated with the least profitable option
d) The value to the decision maker of the next best option
, e) None of the above - Answer -d) The value to the decision maker of the next best
option
The concepts of value and opportunity cost emphasize that every decision involves:
a) Eliminating any risks of making the decision
b) Estimating the time value of money
c) Trading off what the decision maker gets with what the decision maker gives up
d) Comparing the current period's opportunity costs with the previous period's
opportunity costs
e) None of the above - Answer -c) Trading off what the decision maker gets with what
the decision maker gives up
Greg, a college student, knows the opportunity cost of taking a class this summer is
$1,200. This means:
a) Instead of taking the class, Greg could earn $1,200 by working instead
b) Greg will need to pay $1,200 to take the class
c) The difference between what he would earn working less the cost of the class is
$1,200
d) The difference between what he would earn working less the cost of the class is
$1,200
e) None of the above - Answer -a) Instead of taking the class, Greg could earn $1,200
by working instead
(T/F?) The four stage decision framework applies to all business related decisions, but
not to personal decisions. - Answer -False. It applies to all decisions, whether personal
or business
(T/F?) Every option in making a decision presents a trade-off between benefits and
costs - Answer -True. Each option has its own costs and benefits. Value of option =
benefits - costs
(T/F?) To accomplish their goals, organizations not only need to allocate scarce
resources effectively, but also need to motivate employees to focus on organizational
goals - Answer -True
(T/F?) Decisions that best attain individual goals may not necessarily agree with the
organization's goal of maximizing profit - Answer -True
(T/F?) Control decisions relate to motivating, monitoring, and evaluating performance -
Answer -True
Relevant costs & benefits - Answer -differ across decision options.
- Opportunity cost of any resource used is always relevant
- We can only define relevance in the context of a decision
