Q: A company is considering whether to make or buy a component. The variable cost to make the component is $$5 per unit, and the fixed cost is 10$$,000 per year. The supplier offers to sell the component for $6 per unit. If the company needs 8,000 units per year, what is the total cost to make versus buy, and which option is cheaper?

Make: $$5 \times 8,000 + 10,000 = 50$$,000; Buy: $$6 \times 8,000 = 48$$,000; Buying is cheaper.

Q: Which of the following formulas correctly calculates the break-even point in units?

$$\text{Break-even units} = \frac{\text{Total Fixed Costs}}{\text{Unit Selling Price} - \text{Unit Variable Cost}}$$

Q: A company is considering a capital investment that will generate annual cash inflows of $$20,000 for 5 years. If the required rate of return is 10%, what is the present value of these cash inflows? Use the formula $$\text{PV} = \text{CF} \times \left(\frac{1 - (1 + $$r)^{-n}$$}{r}\right)$$ where $$\text{CF} = 20,000$$, r = 0.10$, n = 5$.

$$20,000 \times 3.791 = 75$$,820$

Question 1

Which of the following best describes the primary difference between managerial accounting and financial accounting?

Accepted Answer

Managerial accounting provides information for internal decision-making, while financial accounting provides information for external reporting.

Question 2

A company incurs the following costs in May: import duties $$1,200, beginning raw materials inventory 1$$,300, ending raw materials inventory $$1,600, freight-in 400$$, and purchases of direct materials $$16,000. What is the total cost of direct materials used in May? Use the formula $$	ext{Direct Materials Used} = 	ext{Beginning Inventory} + 	ext{Purchases} + 	ext{Import Duties} + 	ext{Freight-in} - 	ext{Ending Inventory}$.

Accepted Answer

$$1,300 + 16,000 + 1,200 + 400 - 1,600 = 17$$,300$

Question 3

Which of the following is NOT a primary responsibility of managers according to managerial accounting principles?

Accepted Answer

Auditing

Question 4

A manufacturing company uses job costing. Which of the following costs would most likely be traced directly to a specific job?

Accepted Answer

Direct materials

Question 5

Which of the following best describes the purpose of Activity-Based Costing (ABC)?

Accepted Answer

To allocate indirect costs to products based on activities that drive costs.

Question 6

A company is considering whether to make or buy a component. The variable cost to make the component is $$5 per unit, and the fixed cost is 10$$,000 per year. The supplier offers to sell the component for $6 per unit. If the company needs 8,000 units per year, what is the total cost to make versus buy, and which option is cheaper?

Accepted Answer

Make: $$5 	imes 8,000 + 10,000 = 50$$,000; Buy: $$6 	imes 8,000 = 48$$,000; Buying is cheaper.

Question 7

Which of the following is an example of a period cost for a manufacturing company?

Accepted Answer

Sales office rent

Question 8

A company produces 1,000 units at a total variable cost of $$12,000 and total fixed costs of 8$$,000. What is the average cost per unit?

Accepted Answer

$$\frac{12,000 + 8,000}{1,000} = 20$

Question 9

Which of the following best describes a 'differential cost'?

Accepted Answer

A cost that differs between two alternative courses of action.

Question 10

Which of the following is a key benefit of lean operations?

Accepted Answer

Reduced waste and improved efficiency

Question 11

A company is preparing a comprehensive budget. Which of the following budgets is typically prepared first?

Accepted Answer

Sales budget

Question 12

If a company wants to evaluate its performance by comparing actual results to budgeted amounts, which type of analysis should it use?

Accepted Answer

Variance analysis

Question 13

Which of the following formulas correctly calculates the break-even point in units?

Accepted Answer

$$	ext{Break-even units} = \frac{	ext{Total Fixed Costs}}{	ext{Unit Selling Price} - 	ext{Unit Variable Cost}}$$

Question 14

A company is considering a capital investment that will generate annual cash inflows of $$20,000 for 5 years. If the required rate of return is 10%, what is the present value of these cash inflows? Use the formula $$	ext{PV} = 	ext{CF} 	imes \left(\frac{1 - (1 + $$r)^{-n}$$}{r}ight)$$ where $$	ext{CF} = 20,000$$, r = 0.10$, n = 5$.

Accepted Answer

$$20,000 	imes 3.791 = 75$$,820$

Question 15

Which of the following is NOT a component of the Institute of Management Accountants (IMA) ethical standards?

Accepted Answer

Objectivity

Question 16

Which of the following statements about process costing is TRUE?

Accepted Answer

Process costing averages costs over all units produced during a period.

Question 17

A company’s standard cost for direct materials is $$2.50 per unit. In one month, it produced 10,000 units, used 25,500 pounds of material at a total cost of 63$$,750. What is the materials price variance? Use the formula $$	ext{Materials Price Variance} = (	ext{Actual Price} - 	ext{Standard Price}) 	imes 	ext{Actual Quantity}.$$

Accepted Answer

$$(\frac{63,750}{25,500} - 2.50) 	imes 25,500 = 0$

Question 18

Which of the following is a limitation of Activity-Based Costing (ABC)?

Accepted Answer

It is more complex and costly to implement.

Question 19

Which of the following would be classified as a variable cost in a manufacturing company?

Accepted Answer

Direct labor

ACC503 – Managerial Accounting: Mini-Textbook Study Notes

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