Fundamentals of Cost Accounting, 6e (Lanen)
Chapter 1 Cost Accounting: Information for Decision Making
1) The value chain comprises activities from research and development through the production
process but does not include activities related to the distribution of products or services.
2) Administrative functions are not included as part of the value chain because they are
implicitly included in every business function.
3) Under the value chain concept, value-added activities are those that firms perform and that
customers perceive as adding utility to the goods they purchase.
4) The value chain is comprised of the activities that take place only during the production
process.
5) If a poor facility layout exists and work-in-process inventory must be moved during the
production process, the company is likely to be performing value-added activities.
6) Cost information itself is a product with its own customers.
7) Financial accounting information is sufficient for making operational decisions.
8) Cost accounting information is commonly used in developing financial accounting
information.
9) Financial accounting information is designed for decision-makers who are directly involved in
the daily management of the firm.
10) It is more important for financial accounting information to be comparable between firms
than to be useful for managerial decision-making.
11) Cost accounting information developed for managers to use in making decisions must
comply with generally accepted accounting principles (GAAP) and international financial
reporting standards (IFRS).
12) A cost driver is a factor that causes costs.
13) A cost can be considered a differential cost for one particular course of action but not for
another course of action.
14) A responsibility center can be a department, division, or segment, but not a subsidiary of the
parent company.
15) It is important that the manager assigned to lead a responsibility center be held accountable
for its operations.
1
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
,16) Budgeting is primarily used to determine year-end bonuses based on managerial and
organizational performance.
17) Managers are usually responsible for the revenues needed to achieve the targets set during
the budgeting process, but not the resources consumed to achieve those targets.
18) In general, if activities that do not add value to the company can be eliminated, then costs
associated with them will also be eliminated.
19) Accounting systems are important because they are a primary source of information for
managers.
20) Benchmarking is a continuous process of measuring a company's products, services, or
activities against competitors' performance.
21) Activity-based costing (ABC) is a management tool that focuses on the continuous
improvement of all dimensions of a business.
22) Lean manufacturing techniques are used only in the production process.
23) Typical ERP systems integrate information systems that link production, purchasing, human
resources, and finance into a single comprehensive information system.
24) Managers face ethical situations on a daily basis, while accountants face them infrequently.
25) Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her
ethical responsibilities.
26) Ethical behavior depends more on a firm's code of conduct than the individual's personal
beliefs.
27) Cost accounting information can be used by managers to defraud customers, creditors, and
owners.
28) The boundary between what is cost accounting and what belongs in another discipline is
often blurred.
29) The set of activities that transforms raw resources into the goods and services end users
purchase and consume is called the:
A) value chain.
B) supply chain.
C) demand chain.
D) cost-benefit analysis.
2
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
,30) Which of the following activities would not be considered a value-added activity?
A) Production
B) Marketing
C) Accounting
D) Distribution
31) Which of the following statements is false?
A) In essence, the value chain and the supply chain are similar; each creates something for which
the customer is willing to pay.
B) Financial accounting information is important because it is sufficient to provide all the
information for operational decisions commonly made by managers.
C) The supply or distribution chain is a linked set of organizations that exchange goods and
services in combination to provide a final product or service to the customer.
D) Eliminating nonvalue-added activities always reduces costs without affecting the value of the
product to customers.
32) Managers do not make decisions about future events based on:
A) Perfect information.
B) Estimated information.
C) Actual information.
D) Financial information.
33) Which of the following is a nonvalue-added activity?
A) Product design
B) Customer service
C) Research and development
D) Rework of defective items
34) (CMA adapted) A costing method that first assigns costs to activities and then assigns them
to products based on the products' consumption of those activities is:
A) full-absorption costing.
B) activity-based costing.
C) variable costing.
D) benchmarking.
35) (CMA adapted) Cost drivers are:
A) activities that cause costs to increase as the activity increases.
B) accounting techniques and practices used to control costs.
C) accounting reimbursements used to evaluate whether performance is proceeding according to
plan.
D) a mechanical basis, such as machine hours, computer time, or factory square footage, used to
assign costs to activities.
3
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
, 36) During 2020, the Beach Restaurant had sales revenues and food costs of $800,000 and
$600,000, respectively. During 2021, Beach plans to introduce a new menu item that is expected
to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are
expected for the other food items, operating profits for 2021 are expected to increase by:
A) $260,000.
B) $100,000.
C) $60,000.
D) $40,000.
37) (CMA adapted) The process of creating a financial plan of the revenues and resources
needed to carry out activities and meet financial goals is referred to as:
A) budgeting.
B) benchmarking.
C) cost-benefit analysis.
D) value-added analysis.
38) The field of accounting that reports according to generally accepted accounting principles
(GAAP) is called:
A) cost accounting.
B) financial accounting.
C) managerial accounting.
D) responsibility accounting.
39) The field of accounting that focuses on the criterion of relevant information rather than
comparability of firms is:
A) cost accounting.
B) financial accounting.
C) responsibility accounting.
D) international accounting.
40) The just-in-time (JIT) method of production focuses on:
A) increasing sales revenue.
B) reducing inventories.
C) increasing customer service.
D) reducing operating expenses.
41) (CIA adapted) The primary reason for adopting total quality management (TQM) is to
achieve:
A) reduced delivery time.
B) reduced delivery charges.
C) greater customer satisfaction.
D) greater employee participation.
4
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
Chapter 1 Cost Accounting: Information for Decision Making
1) The value chain comprises activities from research and development through the production
process but does not include activities related to the distribution of products or services.
2) Administrative functions are not included as part of the value chain because they are
implicitly included in every business function.
3) Under the value chain concept, value-added activities are those that firms perform and that
customers perceive as adding utility to the goods they purchase.
4) The value chain is comprised of the activities that take place only during the production
process.
5) If a poor facility layout exists and work-in-process inventory must be moved during the
production process, the company is likely to be performing value-added activities.
6) Cost information itself is a product with its own customers.
7) Financial accounting information is sufficient for making operational decisions.
8) Cost accounting information is commonly used in developing financial accounting
information.
9) Financial accounting information is designed for decision-makers who are directly involved in
the daily management of the firm.
10) It is more important for financial accounting information to be comparable between firms
than to be useful for managerial decision-making.
11) Cost accounting information developed for managers to use in making decisions must
comply with generally accepted accounting principles (GAAP) and international financial
reporting standards (IFRS).
12) A cost driver is a factor that causes costs.
13) A cost can be considered a differential cost for one particular course of action but not for
another course of action.
14) A responsibility center can be a department, division, or segment, but not a subsidiary of the
parent company.
15) It is important that the manager assigned to lead a responsibility center be held accountable
for its operations.
1
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
,16) Budgeting is primarily used to determine year-end bonuses based on managerial and
organizational performance.
17) Managers are usually responsible for the revenues needed to achieve the targets set during
the budgeting process, but not the resources consumed to achieve those targets.
18) In general, if activities that do not add value to the company can be eliminated, then costs
associated with them will also be eliminated.
19) Accounting systems are important because they are a primary source of information for
managers.
20) Benchmarking is a continuous process of measuring a company's products, services, or
activities against competitors' performance.
21) Activity-based costing (ABC) is a management tool that focuses on the continuous
improvement of all dimensions of a business.
22) Lean manufacturing techniques are used only in the production process.
23) Typical ERP systems integrate information systems that link production, purchasing, human
resources, and finance into a single comprehensive information system.
24) Managers face ethical situations on a daily basis, while accountants face them infrequently.
25) Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her
ethical responsibilities.
26) Ethical behavior depends more on a firm's code of conduct than the individual's personal
beliefs.
27) Cost accounting information can be used by managers to defraud customers, creditors, and
owners.
28) The boundary between what is cost accounting and what belongs in another discipline is
often blurred.
29) The set of activities that transforms raw resources into the goods and services end users
purchase and consume is called the:
A) value chain.
B) supply chain.
C) demand chain.
D) cost-benefit analysis.
2
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
,30) Which of the following activities would not be considered a value-added activity?
A) Production
B) Marketing
C) Accounting
D) Distribution
31) Which of the following statements is false?
A) In essence, the value chain and the supply chain are similar; each creates something for which
the customer is willing to pay.
B) Financial accounting information is important because it is sufficient to provide all the
information for operational decisions commonly made by managers.
C) The supply or distribution chain is a linked set of organizations that exchange goods and
services in combination to provide a final product or service to the customer.
D) Eliminating nonvalue-added activities always reduces costs without affecting the value of the
product to customers.
32) Managers do not make decisions about future events based on:
A) Perfect information.
B) Estimated information.
C) Actual information.
D) Financial information.
33) Which of the following is a nonvalue-added activity?
A) Product design
B) Customer service
C) Research and development
D) Rework of defective items
34) (CMA adapted) A costing method that first assigns costs to activities and then assigns them
to products based on the products' consumption of those activities is:
A) full-absorption costing.
B) activity-based costing.
C) variable costing.
D) benchmarking.
35) (CMA adapted) Cost drivers are:
A) activities that cause costs to increase as the activity increases.
B) accounting techniques and practices used to control costs.
C) accounting reimbursements used to evaluate whether performance is proceeding according to
plan.
D) a mechanical basis, such as machine hours, computer time, or factory square footage, used to
assign costs to activities.
3
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
, 36) During 2020, the Beach Restaurant had sales revenues and food costs of $800,000 and
$600,000, respectively. During 2021, Beach plans to introduce a new menu item that is expected
to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are
expected for the other food items, operating profits for 2021 are expected to increase by:
A) $260,000.
B) $100,000.
C) $60,000.
D) $40,000.
37) (CMA adapted) The process of creating a financial plan of the revenues and resources
needed to carry out activities and meet financial goals is referred to as:
A) budgeting.
B) benchmarking.
C) cost-benefit analysis.
D) value-added analysis.
38) The field of accounting that reports according to generally accepted accounting principles
(GAAP) is called:
A) cost accounting.
B) financial accounting.
C) managerial accounting.
D) responsibility accounting.
39) The field of accounting that focuses on the criterion of relevant information rather than
comparability of firms is:
A) cost accounting.
B) financial accounting.
C) responsibility accounting.
D) international accounting.
40) The just-in-time (JIT) method of production focuses on:
A) increasing sales revenue.
B) reducing inventories.
C) increasing customer service.
D) reducing operating expenses.
41) (CIA adapted) The primary reason for adopting total quality management (TQM) is to
achieve:
A) reduced delivery time.
B) reduced delivery charges.
C) greater customer satisfaction.
D) greater employee participation.
4
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
