For each of the following activities, identify the primary function that the accountant is performing

scorekeeping, attention directing, or problem solving:

1. Preparing a schedule of depreciation for forklift trucks in the receiving department of a General
Electric factory in Scotland. (scorekeeping)
2. Analyzing, for a Sony production superintendent, the impact on costs of purchasing some non-
assembly equipment. (problem solving)
3. Preparing a scrap report for the finishing department of a Toyota parts factory. (scorekeeping)
4. Interpreting why the Colville Timber Resource Company did not adhere to its product schedule.
(attention directing)
5. Explaining the stamping department's performance report. (attention directing)
6. Preparing a monthly statement of European sales for the Ford Motor Company's vice of marketing.
(scorekeeping)
7. Preparing, for the manager of production control of a Mittal Steel plant, a cost comparison two
computerized manufacturing control systems. (problem solving)
8. Interpreting variances on the performance report for the University of Michigan's purchasing
department. (attention directing)
9. Analyzing, for an Airbus manufacturing manager, the desirability of having some parts for the A380
airplane made in Korea. (problem solving)
10. Preparing the budget for the dermatology department of Providence Hospital. (attention directing)
11. Estimating the operating costs and outputs that could be expected for each of two large metal-
stamping machines offered for sale by different manufacturers; only one of these machines is to be
acquired by your company. (problem solving)
12. Recording daily material purchase vouchers. (scorekeeping)
13. Analyzing the expected costs of acquiring and using each of two alternate types of welding
equipment. (problem solving)
14. Preparing a report of overtime labor costs by production department. (attention directing)
15. Estimating the costs of moving corporate headquarters to another city. (problem solving)
16. Interpreting increases in nursing costs per patient-day in a hospital. (attention directing)
17. Analyzing deviations from the budget of the factory maintenance department. (attention directing)
18. Assisting in a study by the manufacturing vice president to determine whether to buy certain parts
needed in large quantities for manufacturing products or to acquire facilities for manufacturing these
parts. (problem solving)
19. Preparing estimated costs for a new marketing campaign. (problem solving)
20. Recording overtime hours of the product finishing department. (scorekeeping)
21. Compiling data for a report showing the ratio of advertising expenses to sales for eat branch store.
(attention directing)
22. Investigating reasons for increased returns and allowances for drugs purchased by a hospital.
(attention directing)
23. Preparing a schedule of fuel costs by months and government departments.(attention directing)
24. Computing and recording end-of-year adjustments for expired fire insurance on the factor warehouse.
(scorekeeping)

1) ________ is the field that produces information for managers within an organization.
A) Financial accounting
B) Management accounting
C) Financial auditing
D) External auditing
Answer: B
2) The primary users of management accounting information are ________.
A) bankers
B) governmental regulatory bodies
C) managers in organizations
D) managerial accountants
Answer: C
3) ________ is the field of accounting that develops information for external parties such as stockholders, suppliers, banks
and governmental regulatory bodies.
A) Auditing
B) Internal auditing
C) Management accounting
D) Financial accounting
Answer: D

4) What statement about management accounting is FALSE?

A) Management accounting is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and
communicating information.
B) Management accounting helps managers fulfill organizational objectives.
C) Management accounting is used by managerial accountants to make strategic and operational decisions.
D) Management accounting produces information for managers in an organization.
Answer: C
5) When comparing management accounting and financial accounting, which of the following statements is FALSE?
A) Management accounting has a future orientation whereas financial accounting has a past orientation.
B) Management accounting prepares detailed reports whereas financial accounting prepares summary reports.
C) Management accountants are constrained by the principles of reporting promulgated by the Institute of Management
Accountants whereas financial accountants are constrained by Generally Accepted Accounting Principles.
D) Behavioral considerations are of primary importance in management accounting, but not in financial accounting.
Answer: C
6) ________ information involves routine reports that compare actual results to predicted results.
A) Budgets
B) Attention directing
C) Scorekeeping
D) Problem solving
Answer: B
7) ________ information helps managers focus on operating problems, imperfections, inefficiencies and opportunities.
A) Scorekeeping
B) Attention directing
C) Problem solving
D) Performance
Answer: B

8) Problem solving information would NOT be used in this situation.

A) decision to make or buy parts for a manufactured product
B) decision to replace equipment
C) decision to add or drop a division
D) evaluating the operating performance of a segment in the current year
Answer: D
9) Which of the following activities would NOT be called scorekeeping?
A) estimating the cost of moving the corporate headquarters to another city
B) preparing a schedule of depreciation expense for trucks for the current year
C) preparing a schedule of sales for the current year
D) preparing a schedule of plant assets at the end of the current year
Answer: A
10) Investigating the reasons for the variances on a department's performance report is an example of ________.
A) scorekeeping
B) attention directing
C) problem solving
D) auditing
Answer: B
11) ________ is the classification, accumulation, and reporting of data that help users understand and evaluate organizational
performance.
A) Scorekeeping
B) Attention directing
C) Problem solving
D) Cost accounting
Answer: A
12) Generally Accepted Accounting Principles are most closely connected to ________.
A) management accounting
B) financial accounting
C) internal auditing
D) management accounting
Answer: B
13) What type of information is used in making nonroutine decisions, such as the decision to replace a traditional assembly
line with fully automated robots?
A) scorekeeping information
B) attention directing information
C) problem solving information
D) auditing information
Answer: C
14) Which of the following is NOT a government regulation that influences accounting systems?
A) Sarbanes-Oxley Act
B) Foreign Corrupt Practices Act
C) tax rules promulgated by the Internal Revenue Service
D) International Financial Reporting Standards
Answer: D
15) A(n) ________ is a review to determine whether the policies and procedures specified by top management have been
implemented.
A) management audit
B) internal audit
C) internal control
D) internal accounting control
Answer: A
17) Scorekeeping allows managers to evaluate organizational performance.
Answer: TRUE
18) Generally Accepted Accounting Principles play an important role in management accounting.
Answer: FALSE
19) Behavioral considerations are of primary importance in financial accounting.
Answer: FALSE
20) Financial accounting reports are usually prepared for a period of one year or less.
Answer: TRUE
21) Most scorecard and attention-directing information is produced on a nonroutine basis.
Answer: FALSE
22) Reports prepared by managerial accountants have a past orientation.
Answer: FALSE
23) A manager using information to decide whether to add or drop a product is an example of problem solving.
Answer: TRUE
24) The same information may serve the attention-directing function and the problem-solving function.
Answer: TRUE
15) A(n) ________ is a review to determine whether the policies and procedures specified by top management have been
implemented.
A) management audit
B) internal audit
C) internal control
D) internal accounting control
Answer: A
17) Scorekeeping allows managers to evaluate organizational performance.
Answer: TRUE
18) Generally Accepted Accounting Principles play an important role in management accounting.
Answer: FALSE
19) Behavioral considerations are of primary importance in financial accounting.
Answer: FALSE
20) Financial accounting reports are usually prepared for a period of one year or less.
Answer: TRUE
21) Most scorecard and attention-directing information is produced on a nonroutine basis.
Answer: FALSE
22) Reports prepared by managerial accountants have a past orientation.
Answer: FALSE
23) A manager using information to decide whether to add or drop a product is an example of problem solving.
Answer: TRUE
24) The same information may serve the attention-directing function and the problem-solving function.
Answer: TRUE

1) When evaluating short-term special order decisions, which of the following types of income statements should be used?
A) method used for external reporting
B) method that follows U.S. Generally Accepted Accounting Principles
C) absorption approach
D) contribution approach
Answer: D
2) In special order situations, unit costs are useful for predicting total ________. In special order situations, unit costs are not
useful for predicting total ________.
A) mixed costs; step costs
B) step costs; mixed costs
C) variable costs; fixed costs
D) fixed costs; variable costs
Answer: C
3) Franklin Company uses activity-based costing, and normally produces 1,000,000 units per month. At this level of
production, the costs per unit are as follows:

Direct materials used $14

Direct labor $6
Variable indirect production $1
Setup costs $3

For 1,000,000 units, 500 setups are required at a cost of $6,000 per setup. The company has received a special order for
100,000 units at $22 per unit. The company has excess capacity. The company estimates that 5 setups will be required for the
special order. What is the cost of the special order?
A) $2,100,000
B) $2,130,000
C) $2,400,000
D) $2, 430,000
Answer: B
4) Oak Creek Company uses activity-based costing, and normally produces 1,000,000 units per month. At this level of
production, the costs per unit are as follows:

Direct materials used $15

Direct labor $6
Variable indirect production $1
Setup costs $5

For 1,000,000 units, 500 setups are required at a cost of $10,000 per setup. The company has received a special order for
100,000 units at $22 per unit. The company has excess capacity. The company estimates that 5 setups will be required for the
special order. Variable selling costs of $1 per unit will also be incurred for the special order. What is the cost of the special
order?
A) $2,300,000
B) $2,350,000
C) $2,700,000
D) $2,800,000
Answer: B
5) Which of the following items is usually NOT important to special order decisions?
A) affect of special order on regular business
B) whether idle capacity is available
C) total fixed costs
D) increase in variable costs per unit due to special order
Answer: C
6) Missouri Company has a current production capacity level of 200,000 units per month. At this level of production, variable
costs are $0.60 per unit and fixed costs are $0.50 per unit. Current monthly sales are 173,000 units. Gates Company has
contacted Missouri Company about purchasing 20,000 units at $1.00 each. Current sales would not be affected by the special
order and no additional fixed costs would be incurred on the special order. If the order is accepted, what is Missouri
Company's change in profits?
A) $8,000 increase
B) $8,000 decrease
C) $10,000 increase
D) $10,000 decrease
Answer: A
7) Wisconsin Company has a current production capacity level of 200,000 units per month. At this level of production,
variable costs are $1.00 per unit and fixed costs are $0.50 per unit. Current monthly sales are 164,500 units. Gates Company
has contacted Wisconsin Company about purchasing 20,000 units at $2.00 each. Current sales would not be affected by the
special order and no additional fixed costs would be incurred on the special order. Variable costs would increase $0.10 per
unit with the special order. If the order is accepted, what is Wisconsin Company's increase in operating income?
A) $8,000
B) $18,000
C) $20,000
D) $24,000
Answer: B
8) Each month Fig Company produces 11,000 units of a product that sells for $18 per unit, and has variable costs of $12 per
unit. Total fixed costs for the month are $77,000. A special order is received for 5,000 units at a price of $14 per unit. Fig
Company has adequate capacity for the special order. If Fig Company accepts the special order, what is the profit to Fig
Company from the special order?
A) $0
B) $10,000
C) $22,000
D) $99,000
Answer: B
10) Minnesota Company has no beginning and ending inventories, and has the following data about its only product:

Fixed manufacturing costs $92,000

Fixed selling and administrative costs $69,000
Variable manufacturing costs $1,030,000
Variable selling and administrative costs $120,000
Selling price(per unit) $125

Units produced and sold 23,000

Assume there is excess capacity. The company has received a special order for 1,000 units at $60.00 per unit. If the special
order is accepted, what will be the effect on net income?
A) net income increases by $3,000
B) net income increases by $6,000
C) net income increases by $10,000
D) net income increases by $15,220
Answer: C
17.Dakota Company has been producing and selling 42,000 hats a year. There are no beginning and ending inventories. The
Dakota Corporation has the capacity to produce 52,000 hats. The following data is available:

Selling price per unit $30

Variable manufacturing costs per unit $13
Variable selling and administrative costs per unit $7

Total fixed manufacturing costs $126,000

Total fixed selling and administrative costs $84,000

If a special order is accepted for 10,000 hats at a price of $25 per unit, net income would ________.
A) increase by $20,000
B) increase by $50,000
C) increase by $90,000
D) decrease by $24,000
Answer: B
Arkansas Company has no beginning and ending inventories, and has obtained the following data for its only product:

Selling price per unit $65

Direct materials used $150,000
Direct labor $225,000
Variable factory overhead $140,000
Variable selling and administrative expenses $60,000
Fixed factory overhead $370,000
Fixed selling and administrative expenses $30,000

Units produced and sold 20,000

Assume there is excess capacity. There is a special order outstanding for 1,000 units at $40.00 per unit. If Arkansas Company
accepts the special order, net income would ________.
A) increase by $40,000
B) increase by $11,250
C) decrease by $28,750
D) decrease by $10,000
Answer: B
Kansas Company uses activity-based costing. The company produces and sells 20,000 units at $22 per unit. Kansas
Company's product cost is calculated as follows:

Variable costs $10 per unit

Fixed costs $2 per unit
Setup costs $3 per unit
Total costs $15 per unit

A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units. Kansas Company has received a
special order to sell 5,000 units at $12 per unit. Kansas Company has excess capacity available, but these 5,000 units would
require 60 setups. If Kansas Company accepts the special order, what is the increase or decrease in net income?
A) $0
B) decrease $5,000
C) decrease $15,000
D) increase $2,800
Answer: D
14) Nebraska Company uses activity-based costing. The company produces and sells 20,000 units at $20 per unit. Nebraska
Company's product cost is calculated as follows:

Variable costs $8 per unit

Fixed costs $2 per unit
Setup costs $3 per unit
Total costs $13 per unit

A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units. Nebraska Company has received a
special order to sell 5,000 units at $11 per unit. Nebraska Company has excess capacity available, but these 5,000 units would
require 60 setups. If Nebraska Company accepts the special order, what is Nebraska's increase in net income?
A) increase $5,000
B) increase $7,800
C) decrease $2,800
D) decrease $5,000
Answer: B
16) In a special order decision, which of the following costs are usually irrelevant to the decision?
A) variable manufacturing costs
B) fixed manufacturing costs
C) variable selling costs
D) variable indirect production costs
Answer: B
Surly Company makes small boats. The company produces and sells 5,500 boats per year at a selling price of $160 per boat.
Surly Company has excess capacity and is trying to get special orders. A new retailer wants to purchase 1,000 boats for $125
per boat. Surly Company is going to decline the special order because it costs $130 to make a single boat as seen below:

Direct materials $50 per unit

Direct manufacturing labor $55 per unit
Variable manufacturing overhead $10 per unit
Fixed manufacturing overhead $15 per unit
Total $130 per unit

Required:
A) Should Surly Company reject the special order from the new retailer? Why?
B) How much will Surly's net income increase with the special offer?
Answer:
A) No, because net income will increase with the special order.
B) The relevant cost of making a boat is:
Direct materials $50 per unit
Direct manufacturing labor $55 per unit
Variable manufacturing overhead $10 per unit
Total cost $115 per unit
So, the profit on each boat will be $10 per boat, which equals $125 - $115. $10 times 1,000 boats equals $10,000 increase in net
income with the special order.
Diff: 2
LO: 5-4
AACSB: Analytic skills
Learning Outcome: Distinguish between relevant and irrelevant costs
18) Texas Company produces and sells 22,000 units of a single product. Costs associated with this level of production are as
follows:

Direct materials $15 per unit

Direct manufacturing labor $45 per unit
Variable manufacturing overhead $25 per unit
Fixed manufacturing overhead $40 per unit
Variable selling costs $10 per unit

The product normally sells for $160 per unit. Texas Company has received a special order to sell 2,000 units at $120 per unit.
With the special order, variable selling costs will increase by $5 per unit to $15 per unit. Texas Company has excess
production capacity.

Required:
Compute the amount by which the operating income of Texas Company would change if the special order was accepted.
Answer: Additional sales (2,000 × $120) $240,000
Variable costs:
Direct materials (2,000 × $15) $30,000
Direct labor (2,000 × $45) $90,000
Variable selling (2,000 × $15) $30,000
Variable manuf. overhead (2,000 × $25) $50,000
Additional operating income $40,000