I1421718-01

IAC 14- INTEGRATED REVIEW IN MANAGEMENT ACCOUNTING

2nd Semester/ AY 2021 to 2022

INTRODUCTION TO MANAGEMENT ACCOUNTING & COST

CONCEPTS

NAME: __________________________________________________ SECTION: ____________

MANAGEMENT ACCOUNTING  Involves the application of appropriate techniques and

concepts to economic data so as to assist management
in establishing plans for reasonable economic objectives
in the making of rational decisions with a view toward
achieving these objectives (Cabrera, 2014)
 The application of appropriate techniques and concepts
in processing the historical and projected economic data
of an entity to assist management in establishing a plan
for reasonable economic objectives and in making of
rational decisions with a view towards these objectives
(Roque, 1990)
 Is the process of identifying, measuring, analyzing,
interpreting, and communication information in pursuit of
an organization’s goals (Hilton and Platt, 2015)
 Measures, analyzes, and reports financial and
nonfinancial information that helps managers make
decisions to fulfill the goals of an organization (Hongren,
et.al, 12th ed.)

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

Purpose Communicate Financial Position, Performance Help Managers Achieve its
and Cash Flow Objectives
Primary Users External Users (Creditors and Stockholders) Internal Users (Management- line
position)
Focus Past Oriented Future Oriented
Rules GAAP Cost-benefit
Time Span Annual/ Quarter Varies (as the needs arises)

THE MANAGEMENT ACCOUNTANT ROLE IN ORGANIZATION

As a support or staff function, the management accountant provide analysis and advice to management,
particularly:

1. In Planning, helping managers develop strategies, improve business process, prepare budget,
prepare standard cost rates, etc.
2. In Directing and Motivating, management accountants help managers in their day to day or
routine activities such as choosing between different alternatives in a short-term decision making
(make or buy, special order, etc.), by preparing a budget and variance analysis, management
accountant directs management on material or specific areas that needs more attention, by
providing information about management performance, management are motivated in the
pursuit of achieving organizational goals (like target sales, or limiting costs to specific amount).
3. In Controlling, planning and controlling are linked together by a feedback. By having a timely
feedback (feedback involves studying the performance of the management and looking for
proper actions) (Controlling is about ensuring that the organization operates in the intended
manner and achieves its goals (Hilton, 2015)).
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STAFF May involve in supervising activities within its own department, but indirectly involves
POSITION in organizational operating activities, main task is to provide advice and support to
line function position
LINE Are directly involve in achieving the organizational objectives particularly provisioning
POSITION of goods or services
CFO Is the executive position responsible in managing the financial activities of an
organization, the primary task of CFO or finance director is managing the investing
and financing activities of the organization
CONTROLLER The manager of the accounting department, and primary task includes providing
financial information (internal or external)to different stakeholders of the firm
TREASURY Includes overseeing the management of cash and financial investment of the firms,
including collection

COST CLASSIFCATION

1. Assigning Cost to Cost Object

a. Direct Cost
b. Indirect Cost
2. Financial Statements Presentation
a. Product Cost
b. Period Cost
3. Cost Behavior
a. Variable Cost
b. Fixed Cost
c. Mixed Cost
4. Decision Making
a. Relevant Cost
b. Non-relevant Cost
c. Opportunity Cost
d. Sunk Cost

Direct Cost Cost that CONVINIENTLY traceable to the cost object

Indirect Cost Cost that are NOT conveniently traceable to the cost object
Product Cost Cost that form part of a product
Period Cost Cost that has no economic benefit and recognized as expense
Variable Cost A cost that varies in total, and remain the same on per unit basis (with direct
relationship with the level of activity)
Fixed Cost A cost that remain the same in total and varies on per unit basis (with indirect
relationship with the level of activity)
Mixed Cost Cost with variable and fixed component
Relevant Cost A cost that is:
1. Future cost
2. Varies between alternatives
3. Cash flow
Non-relevant A cost that remain the same between alternatives
cost
Opportunity The potential benefit that is given up when one alternative is selected over another
Cost (Garisson and Noreen, 2015)
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Sunk Cost Cost already incurred and cannot be changed in short period of time.
Relevant Range The range of activity within which assumptions about variable and fixed cost
behavior are valid (Garisson and Noreen, 10th ed)
Cost Object Anything for which cost data are desired (Garisson and Noreen, 10th ed)
Outlier Is a data point that falls far away from the other points in the scatter diagram and is
not representative of the data

SEPARATING MIXED COST

1. High-low method
2. Least-square method (regression)
3. Scatter graph method

The formula Y = a + bx is used for the following:

1. Separating mixed cost

2. Predicting or budgeting cost

Y = total mixed cost

a = total fixed cost

b = the variable cost per unit of activity

x = total level of activity (direct labor hours, units, etc)

HIGH-LOW METHOD
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Source: https://accountingexplained.com/managerial/cost-behavior/high-low-method

LEAST SQUARE METHOD

Source: https://stats.stackexchange.com/questions/94807/what-are-the-major-differences-between-the-
parameter-estimation-of-a-simple-line

REFERENCES:

Cecily, R., & Kinney, M. (2013). Cost accounting (2nd ed.). Singapore: Cengage Learning Asia Pte. Ltd.

Horngreen, C., Datar, S., & Rajan, M. (2012). Cost accounting: a managerial emphasis (14th ed.). Upper
Saddle River, NJ: Pearson/Prentice Hall.

Garisson, R., & Noreen, E. (2003). Managerial Accounting (10th ed.). New York: McGraw-Hill Companies,
Inc.

Hilton, R. & Platt, D. (2015). Managerial Accounting: Creating Value in a Dynamic Business Environment
(10th ed.) New York: McGraw-Hill Companies, Inc.
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Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. One major difference between financial and management accounting is that
a. financial accounting reports are prepared primarily for users external to the company.
b. management accounting is not under the jurisdiction of the Securities and Exchange
Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.

____ 2. Management accounting

a. is more concerned with the future than is financial accounting.
b. is less concerned with segments of a company than is financial accounting.
c. is more constrained by rules and regulations than is financial accounting.
d. all of the above are true.

____ 3. Cost and management accounting

a. require an entirely separate group of accounts than financial accounting uses.
b. focus solely on determining how much it costs to manufacture a product or provide a
service.
c. provide product/service cost information as well as information for internal decision
making.
d. are required for business recordkeeping as are financial and tax accounting.

____ 4. Which of the following is not an objective of managerial accounting?

a. To prepare external reports for investors, creditors, government agencies, and other
outside users.
b. To provide information for costing of services, products, and other objects of interest to
management.
c. To provide information for planning, controlling, evaluating and continuous improvement.
d. To provide information for decision making.

____ 5. The primary objective of managerial accounting is:

a. to provide stockholders and potential investors with useful information for decision
making.
b. to provide banks and other creditors with information useful in making credit decisions.
c. to provide management with information useful for planning and control of operations.
d. to provide the Internal Revenue Service with information about taxable income.

____ 6. The process of providing individuals with the authority to carry out their assigned responsibilities is
referred to as:
a. control circuit d. delegation
b. objective setting e. line-staff organization
c. accountability

____ 7. Examples of nonroutine planning include all of the following, except:

a. responses to the appearance of new competition
b. estimating the collection of receivables during the next month for the purpose of making
investment/borrowing decisions
c. responses to a proposed government regulation of the industry
d. responses to a significant change in consumer tastes
e. none of these

____ 8. Which of the following would normally occupy a line position?

a. staff accountant c. vice-president of marketing
b. accounting manager d. treasurer

____ 9. Which of the following would occupy a line position in a hospital?

a. manager of the cafeteria c. chief of surgery
b. hospital administrator d. none of these

____ 10. The controller of an organization participates in:

a. planning. c. decision making.
b. controlling. d. all of these are correct
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____ 11. In an attempt to resolve an ethical conflict when the immediate superior is involved, an accountant
should first:
a. go to the next higher level of management
b. report the problem to the SEC
c. resign
d. go to the company president
e. none of these

____ 12. The Standards of Ethical Conduct for Management Accountants presents fifteen responsibilities of the
management accountant that encompass all of the following categories except:
a. competence d. integrity
b. confidentiality e. objectivity
c. dependability

____ 13. 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.

____ 14. 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.

____ 15. According to the Institute of Management Accountants (IMA), the first step in resolving an ethical
dilemma is to
a. resign from the organization
b. call the IMA's ethics hotline
c. discuss the situation with an immediate supervisor
d. consult with an objective, independent advisor

____ 16. Which of the following is not one of the basic standards of the Institute of Management Accountants
(IMA) Code of Ethics?
a. Competence c. Honesty
b. Confidentiality d. Integrity

____ 17. Having one or more of the firms' activities performed by another firm or individual in the supply or
distribution chain is called
a. lean accounting. c. activity-based costing
b. responsibility centers d. outsourcing

____ 18. A long-term plan that fulfills the goals and objectives of an organization is known as a(n)
a. management style.
b. strategy.
c. mission statement.
d. operational mission.

____ 19. The value chain

a. reflects the production of goods within an organizational context.
b. is concerned with upstream suppliers, but not downstream customers.
c. results when all non-value-added activities are eliminated from a production process.
d. is the foundation of strategic resource management.

____ 20. The standards of ethical conduct for managerial accountants include:
a. competence and performance.
b. integrity and respect for others.
c. confidentiality, confidence, integrity, and observance.
d. competence, confidentiality, integrity, and credibility.

____ 21. Total quality management emphasizes

a. zero defects. c. elimination of waste.
b. continuous improvement. d. all of these are correct.

____ 22. An expense that is likely to contain both fixed and variable components is:
a. security guard wages d. small tools
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b. supplies e. taxes on real estate

c. heat, light, and power

____ 23. A type of employee whose wages are not a component of indirect labor is a(n):
a. inspector d. maintenance worker
b. supervisor e. shop clerk
c. assembler

____ 24. The term "variable costs" refers to:

a. all costs whose total amounts change in proportion to changes in activity within a relevant
range
b. all costs that are likely to respond to the amount of attention devoted to them by a
specified manager
c. all costs that are associated with marketing, shipping, warehousing, and billing activities
d. all costs that do not change in total for a given period and relevant range, but become
progressively smaller on a per-unit basis as volume increases
e. all manufacturing costs incurred to produce units of output

____ 25. The following statement that best describes a fixed cost is:
a. it may change in total when such change depends on production within the relevant range
b. it increases on a per-unit basis as production increases
c. it decreases on a per-unit basis as production increases
d. it may change in total when such change is related to changes in production
e. it is constant per unit of production

____ 26. The term "relevant range" as used in cost accounting means the range over which:
a. cost relationships are valid d. costs may fluctuate
b. production may vary e. none of these
c. relevant costs are incurred

____ 27. Common costs are:

a. costs that occur when the production of one product is possible only if one or more other
products are manufactured at the same time
b. intended to benefit future periods
c. variable in direct proportion to the level of production
d. chargeable directly to the product
e. costs of facilities or services employed by two or more operations

____ 28. Joint costs are:

a. direct costs
b. costs of facilities or services employed by two or more operations
c. revenue expenditures
d. incurred when the production of one product is possible only if other products are
produced at the same time
e. always variable

____ 29. Of the following items, a cost object is:

a. a unit of product d. a division of the company
b. a customer order e. all of these
c. a project

____ 30. An example of a cost that is irrelevant to a future decision is a(n):

a. differential cost d. opportunity cost
b. sunk cost e. variable cost
c. out-of-pocket cost

____ 31. The distinction between direct and indirect costs depends on whether a cost
a. is controllable or non-controllable.
b. is variable or fixed.
c. can be conveniently and physically traced to a cost object under consideration.
d. will increase with changes in levels of activity.

____ 32. A mathematical technique used to fit a straight line to a set of plotted points is:
a. integral calculus d. the method of least squares
b. linear programming e. PERT network analysis
c. the EOQ model
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____ 33. One advantage of using multiple regression analysis is that:

a. computations are simplified
b. only two data points need be considered
c. a two-dimensional graph may be used to show cost relationships
d. costs may be grouped into one independent variable
e. the effects of several variables on costs may be analyzed

____ 34. The coefficient of determination indicates:

a. causal relationships among costs and other factors
b. the percentage of explained variance in the dependent variable
c. the linear relationship between two variables
d. whether several variables fluctuate
e. the size of the standard deviation

____ 35. The technique that can be used to determine the variable and fixed portions of a company's costs is:
a. scattergraph method d. game theory
b. poisson analysis e. queuing theory
c. linear programming

____ 36. Multiple regression analysis:

a. is not a sampling technique
b. involves the use of independent variables only
c. assumes that the independent variables are not correlated
d. establishes a cause-and-effect relationship
e. all of these

____ 37. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the
following relationship was found:

y bar = PHP1,000 + PHP2 x bar

This equation was probably found by using the mathematical techniques called:
a. simple regression analysis d. multiple regression analysis
b. dynamic programming e. none of these
c. linear programming

____ 38. A measure of the extent to which two variables are related linearly is referred to as:
a. sensitivity analysis d. cause-effect ratio
b. input-output analysis e. cost-benefit analysis
c. coefficient of correlation

____ 39. The appropriate range for the coefficient of correlation (r) is:
a. -infinity # r # infinity d. -100 # r # 100
b. 0 # r # 1 e. none of these
c. -1 # r # 1

____ 40. The covariation between two variables, such as direct labor hours and electricity expense, can best be
measured by:
a. correlation analysis d. high-low method
b. simple regression analysis e. scattergraph method
c. multiple regression analysis
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IAC14_Introduction to MAS and Cost Concept

Answer Section

MULTIPLE CHOICE

1. ANS: D PTS: 1 DIF: Easy OBJ: 1-1

2. ANS: A PTS: 1 DIF: Easy OBJ: 1-1
3. ANS: C PTS: 1 DIF: Easy OBJ: 1-1
4. ANS: A
OBJ: LO: 1-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Cost Management | ACBSP: APC-25-Managerial
Characteristics/Terminology KEY: Bloom's: Comprehension
NOT: 1 min.

PTS: 1
5. ANS: C
OBJ: LO: 1-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Cost Management | ACBSP: APC-25-Managerial
Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.

PTS: 1
6. ANS: D PTS: 1
7. ANS: B PTS: 1
8. ANS: C
OBJ: LO: 1-4 NAT: BUSPROG: Analytic
STA: AICPA: BB-Resource Management | IMA: Cost Management | ACBSP: APC-25-Managerial
Characteristics/Terminology KEY: Bloom's: Comprehension
NOT: 1 min.

PTS: 1
9. ANS: C
OBJ: LO: 1-4 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Cost Management | ACBSP: APC-01-Purpose
KEY: Bloom's: Comprehension NOT: 1 min.

PTS: 1
10. ANS: D
OBJ: LO: 1-4 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Cost Management | ACBSP: APC-01-Purpose
KEY: Bloom's: Knowledge NOT: 1 min.

PTS: 1
11. ANS: A PTS: 1
12. ANS: C

PTS: 1
13. ANS: B
The focus is on reducing inventories, the other items are all results or outcomes.

PTS: 1
14. ANS: C
TQM focuses on the customer.

PTS: 1
15. ANS: C
It is best to deal with the immediate problem before bringing in outsiders.

PTS: 1
16. ANS: C
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The other options are basic standards of the IMA Code of Ethics. Honesty is not.

PTS: 1
17. ANS: D
The statement is a definition of outsourcing.

PTS: 1
18. ANS: B PTS: 1 DIF: Easy OBJ: 1-4
19. ANS: D PTS: 1 DIF: Moderate OBJ: 1-5
20. ANS: D
OBJ: LO: 1-5 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Cost Management | ACBSP: APC-25-Managerial
Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.

PTS: 1
21. ANS: D
PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Decision Modeling | IMA: Cost Management | ACBSP: APC-25-Managerial
Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.

PTS: 1
22. ANS: C PTS: 1
23. ANS: C PTS: 1
24. ANS: A PTS: 1
25. ANS: C PTS: 1
26. ANS: A PTS: 1
27. ANS: E PTS: 1
28. ANS: D PTS: 1
29. ANS: E PTS: 1
30. ANS: B PTS: 1
31. ANS: C PTS: 1 DIF: Moderate OBJ: 2-3
32. ANS: D PTS: 1
33. ANS: E PTS: 1
34. ANS: B PTS: 1
35. ANS: A PTS: 1
36. ANS: C PTS: 1
37. ANS: A PTS: 1
38. ANS: C PTS: 1
39. ANS: C PTS: 1
40. ANS: A PTS: 1