Management Accounting MCQs

Here is the list of multiple-choice questions for the management accounting course. The MCQs are collected and compiled from different online and offline sources.

What is management accounting?

• The process of preparing financial statements for external users
• The process of recording and summarizing financial transactions
• The process of providing financial and non-financial information to internal users
• The process of auditing financial statements

What is the main objective of management accounting?

• To provide information for external users
• To prepare financial statements
• To help managers make informed decisions
• To ensure compliance with tax laws

Which of the following is NOT a tool used in management accounting?

• Cost-volume-profit analysis
• Auditing
• Budgeting
• Ratio analysis

The function of management accounting that involves monitoring performance and taking corrective action is called:

• Planning
• Reporting
• Controlling
• Decision-making

_______________ is an example of the decision-making function of management accounting.

• Developing a budget
• Determining product pricing
• Analyzing financial statements
• Calculating cost of goods sold

Which of the following is a limitation of activity-based costing (ABC)?

• High implementation costs
• Inability to aid decision-making
• Difficulty in capturing all costs
• Limited scope

The limitation of cost-volume-profit analysis (CVP) that results from its assumption of constant unit costs is:

• Limited scope
• Inability to consider changes in unit costs
• Lack of accuracy
• Difficulty in capturing all costs

Management accounting is focused on:

• Compliance with accounting standards
• Forecasting future financial performance
• Historical financial data
• Providing information for internal decision-making

Which of the following is a method of measuring variable costs?

• Marginal costing
• Activity-based costing
• B. Absorption costing
• Standard costing

Management accounting provides information that is:

• Forward-looking
• Based on historical financial data
• Relevant to external stakeholders
• Audited for accuracy

Management accounting reports are prepared:

• Quarterly
• Monthly
• Annually
• As needed

The direct labor cost of a product is:

• The cost of the raw materials used to manufacture the product
• The cost of the finished product
• The cost of the labor used to manufacture the product
• The cost of the overhead used to manufacture the product

Management accounting is governed by:

• International Financial Reporting Standards (IFRS)
• Both GAAP and IFRS
• Management’s discretion
• Generally Accepted Accounting Principles (GAAP)

Management accounting is used to prepare:

• Performance reports
• None of the above
• Budgets
• Financial statements

What is the primary purpose of cost accounting?

• To measure the profitability of different product lines
• To determine the cost of goods sold
• To allocate indirect costs to products or services
• All of the above

The purpose of cost accounting is to:

• Improve efficiency
• Reduce costs
• Increase profits
• All of the above

Cost accounting is primarily concerned with:

• The management of cash flows
• The accumulation and analysis of costs
• The preparation of financial statements
• None of the above

What is the relationship between marginal cost and average cost?

• Marginal cost can be greater than or less than average cost, depending on the level of output
• Marginal cost is always greater than average cost
• Marginal cost is always less than average cost
• None of the above

The direct materials cost of a product is:

• The cost of the overhead used to manufacture the product
• The cost of the raw materials used to manufacture the product
• The cost of the labor used to manufacture the product
• The cost of the finished product

Which of the following methods involves dividing total costs by the number of units produced to determine the cost per unit?

• Marginal costing
• Activity-based costing
• Absorption costing
• Process costing

What is the marginal cost?

• The cost of producing the first unit of output
• The total cost of producing a certain quantity of output
• The cost of producing an additional unit of output
• None of the above

The direct labor cost of a product is:

• The cost of the overhead used to manufacture the product
• The cost of the finished product
• The cost of the raw materials used to manufacture the product
• The cost of the labor used to manufacture the product

The cost of raw materials that are used to manufacture a product is an example of:

• Manufacturing overhead cost
• Indirect materials cost
• Direct materials cost
• Direct labor cost

Which of the following elements of cost is also known as “factory overhead”?

• Direct materials
• Selling expenses
• Direct labor
• Manufacturing overhead

Wages paid to workers who are involved in the production process are an example of:

• Manufacturing overhead cost
• Indirect labor cost
• Direct materials cost
• Direct labor cost

Depreciation on production equipment is an example of a:

• Variable cost
• Indirect cost
• Fixed cost
• Direct cost

Which of the following elements of cost includes the cost of indirect materials and indirect labor?

• Manufacturing overhead
• Administrative expenses
• Direct materials
• Direct labor

What is the Break-Even Point (BEP)?

• The point where total revenue equals total cost
• The point where variable costs equal fixed costs
• The point where total revenue is greater than total cost
• The point where total revenue is less than total cost

Which of the following is NOT a type of cost?

• Fixed cost
• Administrative cost
• Variable cost
• Period cost

Which of the following costs vary in total, in direct proportion to changes in the level of production?

• Fixed cost
• Step cost
• Variable cost
• Mixed cost

What is the formula for calculating the Break-Even Point in units?

• BEP (units) = Total fixed costs / Contribution margin per unit
• BEP (units) = Total cost / Contribution margin per unit
• BEP (units) = Total variable costs / Contribution margin per unit
• BEP (units) = Total revenue / Contribution margin per unit

Which of the following methods of cost variability assumes that the relationship between costs and activity levels is linear?

• High-low method
• None of the above
• Scattergraph method
• Regression analysis

Which of the following is an assumption of Break-Even Analysis?

• The selling price per unit is constant
• The total cost is constant
• The variable cost per unit is constant
• The fixed cost is variable

What is the Margin of Safety?

• The amount by which actual sales exceed the Break-Even Point
• The amount of fixed costs covered by the Break-Even Point
• The amount by which actual sales fall short of the Break-Even Point
• The amount of profit earned after reaching the Break-Even Point

The break-even point can be graphed on a:

• Scatter plot
• Pie chart
• Bar chart
• Line graph

Which of the following is an advantage of using a pie chart?

• It is easy to compare different values
• It can show changes over time
• It can show the percentage breakdown of different categories
• None of the above

What is a scatter plot used for in managerial costing?

• Displaying the relationship between two variables
• Showing changes over time
• Comparing different values
• None of the above

Which of the following is an example of an opportunity cost?

• The cost of raw materials
• The revenue foregone by choosing one alternative over another
• The cost of labor
• The cost of machinery

What is a histogram used for in managerial costing?

• Showing changes over time
• Comparing different values
• Displaying the frequency distribution of a variable
• None of the above

Which of the following is an example of a fixed cost?

• Direct labor
• Raw materials
• Utilities
• Rent

The primary use of break-even analysis for managers is __________.

• To determine the amount of profit a company can make
• To determine the market share of a company 
• To determine the level of sales required to cover costs
• None of the above

WHAT IS MANAGEMENT ACCOUNTING?

Which of the following is true about marginal cost?

• It includes only variable costs
• It includes only fixed costs
• It includes both variable and fixed costs
• None of the above

What is incremental analysis?

• Analysis of total costs and revenues
• Analysis of only variable costs and revenues
• Analysis of the changes in costs and revenues resulting from a specific decision
• None of the above

Which of the following is an example of an incremental cost?

• Fixed overhead
• Raw materials
• Direct labor
• None of the above

What is activity-based accounting?

• A system for tracking the cost of producing a product
• A system for identifying and assigning costs to specific activities
• A system for tracking the financial performance of a business as a whole
• A system for determining the price of a product

____________, is an example of a sunk cost.

• The cost of raw materials
• The cost of labor
• The cost of machinery
• The cost of research and development

Which of the following is an example of a variable cost?

• Rent
• Salaries
• Raw materials
• Property taxes

Which of the following is an example of an activity cost pool?

• Rent for a factory building
• Salaries for managers
• Depreciation on production equipment
• Quality control inspections

What is activity-based accounting?

• A system for tracking the total cost of producing a product
• A system for tracking the cost of individual activities in the production process
• A system for tracking the cost of goods sold
• A system for tracking the cost of materials used in production

Zero-based budgeting requires __________.

• That all budgets start from zero
• That budgets are only prepared once a year
• That budgets are based on historical data
• That budgets are prepared for a specific time period

What is an activity cost pool?

• The total cost of producing a product
• The cost of materials used in production
• The cost of individual activities in the production process
• The cost of goods sold

What is an activity driver?

• The cost of individual activities in the production process
• The basis for assigning overhead costs to products or services
• The total cost of producing a product
• None of the above

Which of the following is an example of an indirect cost in ABC?

• Direct labor
• Direct materials
• Factory rent
• Utilities

The primary purpose of budgeting in managerial accounting is __________.

• To track historical financial performance
• To predict future financial performance
• To calculate taxes owed
• To evaluate employee performance

What is a budget?

• A plan for how to spend money
• A summary of past financial transactions
• A list of expenses
• A forecast of future financial performance

Budget variances occur when:

• Actual results differ from budgeted results
• Actual results match budgeted results
• Budgeted results are more accurate than actual results
• Actual results are more accurate than budgeted results

What is a variance in budgeting?

• The difference between actual results and budgeted results
• The difference between fixed costs and variable costs
• The difference between direct costs and indirect costs
• The difference between revenue and expenses

What is a master budget in budgeting?

• A budget that includes only direct costs
• A budget that includes only indirect costs
• A budget that includes all expenses and revenues for a given period
• A budget that is only used for tax purposes

Which of the following is not a type of budget?

• Master budget
• Flexible budget
• Static budget
• Historical budget

The purpose of a cash budget in budgeting is _________.

• To track historical financial performance
• To predict future financial performance
• To calculate taxes owed
• To evaluate employee performance

What is a flexible budget?

• A budget that is created for a specific department within a business
• A budget that includes only the revenue and expenses of a business
• A budget that is adjusted to reflect actual production levels or sales volumes
• A budget that is created for a specific project within a business

A flexible budget is usually prepared for ____________ .

• A single level of activity
• A range of activity levels
• A fixed level of activity
• A specific time period

A flexible budget can be used to:

• Evaluate performance at different levels of activity
• Determine the optimal level of activity
• Eliminate the need for variance analysis
• None of the above

What is standard costing?

• A costing method that involves assigning a standard cost to each unit of production.
• A costing method that involves assigning actual cost to each unit of production.
• A costing method that involves assigning a predetermined cost to each unit of production.
• A costing method that involves assigning the highest possible cost to each unit of production.

Which of the following is true about standard costs?

• They are always based on historical costs.
• They are always based on future costs.
• They are always based on current costs.
• They can be based on historical, current or future costs.

Which of the following is a benefit of standard costing?

• It helps to reduce costs by identifying areas where costs can be reduced.
• It provides an accurate picture of actual costs.
• It helps to identify areas where production can be increased.
• It does not provide any benefits.

What is a variance in standard costing?

• The difference between actual and standard cost.
• The difference between current and standard cost.
• The difference between historical and standard cost.
• The difference between future and standard cost.

Which of the following is not a cost associated with standard costing?

• Preparation cost
• Training cost
• Maintenance cost
• Marketing cost

_________ is not a type of responsibility center.

• Cost center
• Profit center
• Revenue center
• Capital center

Which of the following is a characteristic of a cost center?

• It is responsible for generating revenue.
• It is responsible for managing costs.
• It is responsible for managing profits.
• It is responsible for managing capital.

What is a responsibility center?

• A unit of an organization that is responsible for a specific task or activity.
• A department within an organization that is responsible for managing the finances.
• A team of employees that is responsible for developing new products.
• A division of an organization that is responsible for the overall strategy.

Which of the following is a characteristic of a profit center?

• It is responsible for generating revenue.
• It is responsible for managing costs.
• It is responsible for managing profits.
• It is responsible for managing capital.

Which of the following is a characteristic of a revenue center?

• It is responsible for generating revenue.
• It is responsible for managing costs.
• It is responsible for managing profits.
• It is responsible for managing capital.

What are the types of responsibility centers?

• Cost centers, revenue centers, profit centers, and investment centers.
• Sales centers, marketing centers, manufacturing centers, and research centers.
• Financial centers, operational centers, administrative centers, and strategic centers.
• Customer centers, supplier centers, employee centers, and shareholder centers.

Which type of responsibility center has the most autonomy?

• Cost center
• Profit center
• Revenue center
• Investment center

Which type of responsibility center is evaluated based on revenue variances?

• Cost center
• Profit center
• Revenue center
• Investment center

What is a cost center?

• A responsibility center that is responsible for generating revenue.
• A responsibility center that is responsible for controlling costs.
• A responsibility center that is responsible for generating profits.
• A responsibility center that is responsible for making investments.

The key performance indicator (KPI) for a cost center is a ________________

• Revenue.
• Profit margin.
• Cost efficiency.
• Return on investment.

What is Transfer Pricing?

• A pricing technique to determine the selling price of a product
• A pricing technique to determine the cost of a product
• A pricing technique to determine the cost of a service
• A pricing technique to determine the cost of production

What is the purpose of transfer pricing?

• To minimize the tax liabilities of a company
• To maximize the profits of a company
• To facilitate the transfer of goods and services within a company
• To provide a fair price for goods and services within a company

The key performance indicator (KPI) for a profit center is a__________________.

• Revenue.
• Profit margin.
• Cost efficiency.
• Return on investment.

What is market-based transfer pricing?

• The transfer price is based on the actual cost of production
• The transfer price is based on the market price of the product or service
• The transfer price is determined through negotiations between the buying and selling divisions
• The transfer price is based on a predetermined cost-plus markup

What is cost-based transfer pricing?

• The transfer price is based on the market price of the product or service
• The transfer price is based on the actual cost of production
• The transfer price is determined through negotiations between the buying and selling divisions
• The transfer price is based on a predetermined cost-plus markup

Cost accounting is used to:

• Determine the profitability of a company
• Measure and control costs
• Help with tax planning
• All of the above

What is a transfer pricing policy?

• A set of guidelines that outlines how transfer pricing should be done within a company
• A set of guidelines that outlines how a company should determine its selling price
• A set of guidelines that outlines how a company should determine its cost of production
• A set of guidelines that outlines how a company should pay its employees

What is the primary purpose of a budgetary control system?

• To allocate resources among various departments
• To control and monitor performance against predetermined objectives
• To track changes in market conditions
• To forecast future revenues

Which of the following is not a component of the budgetary control system?

• Budget execution
• Budget preparation
• Budget approval
• Budget revision

What is a rolling budget?

• A budget that is updated continuously throughout the year
• A budget that is adjusted for inflation each year
• A budget that is prepared annually and remains unchanged
• A budget that is based on historical data only

What is a budget manual?

• A report on budget variances
• A summary of financial performance metrics
• A guide for preparing a budget
• A tool for monitoring budget execution

Which of the following is NOT a type of lease?

• Financial Lease
• Operating Lease
• Capital Lease
• Equity Lease

The main advantage of leasing is that __________.

• It allows for greater control over the asset.
• It allows for greater flexibility in changing business needs.
• It provides greater tax benefits than purchasing.
• It requires less initial cash outlay than purchasing.

What is the difference between an operating lease and a capital lease?

• The lease term is longer in a capital lease.
• The lessee bears the risks and rewards of ownership in a capital lease.
• The lease payments are treated as interest expense in a capital lease.
• The lease transfers ownership to the lessee at the end of the term in a capital lease.

_____________ is not a principle of Total Quality Management.

• Customer focus
• Continuous improvement
• Employee involvement
• Maximize profits

The primary objective of Total Quality Management is to ____________.

• Maximize profits
• Minimize costs
• Improve product quality
• Increase production speed

Which of the following is not a tool used in Total Quality Management?

• Pareto chart
• Fishbone diagram
• SWOT analysis
• Control chart

The role of management in Total Quality Management is ___________ .

• To delegate responsibilities to employees
• To monitor employee performance
• To enforce rules and regulations
• To empower employees to improve processes

What is the aim of Total Quality Management?

• To eliminate all defects
• To reduce defects to an acceptable level
• To increase profits
• To decrease production time

Which of the following is a benefit of Total Quality Management?

• Increased employee turnover
• Lowered product quality
• Improved customer satisfaction
• Reduced customer loyalty

_____________ is not a key element of Total Quality Management.

• Continuous improvement
• Cost reduction
• Customer focus
• Employee involvement

Management accounting is primarily concerned with providing information to __________.

• External stakeholders
• Government regulators
• Internal decision-makers
• Customers

Which of the following is a common challenge in implementing Total Quality Management?

• Lack of employee involvement
• Too much focus on profits
• Overemphasis on product quality
• Resistance to change

Which of the following is an example of a Total Quality Management technique?

• Employee training
• Employee layoffs
• Employee discipline
• Employee monitoring

The ultimate goal of Total Quality Management is __________ .

• To increase profits
• To reduce costs
• To improve product quality
• To increase production speed

What is the primary focus of responsibility accounting?

• Maximizing profits
• Managing costs
• Holding managers accountable for their performance
• Increasing market share

__________ is not a responsibility center in responsibility accounting.

• Cost center
• Profit center
• Investment center
• Capital center

An example of a cost center is ___________________ 

• A sales department
• A manufacturing department
• A research and development department
• A marketing department

The main objective of a cost center is ___________.

• To generate profits
• To minimize costs
• To increase market share
• To maximize production

Which of the following is an example of an investment center?

• A sales department
• A research and development department
• A manufacturing department
• A human resources department

A key factor in Make or Buy Decision is ___________ .

• Availability of materials
• Cost of production
• Competitors’ pricing
• None of the above

Make or Buy Decision involves the comparison of:

• Total cost of buying with the cost of making
• Total revenue of buying with the cost of making
• Total revenue of buying with the revenue of making
• None of the above

Which of the following is an advantage of making a product in-house?

• Greater control over the production process
• Lower fixed costs
• Access to specialized expertise
• None of the above

What is a shutdown decision in management accounting?

• A decision to permanently stop production of a product or service
• A decision to temporarily halt production due to maintenance issues
• A decision to outsource production to a third-party supplier
• A decision to increase production capacity

Which of the following is not a characteristic of management accounting?

• Future-oriented
• Internal focus
• Historical perspective
• Decision-making oriented

What factors should be considered in a shutdown decision?

• Fixed costs and variable costs
• Direct costs and indirect costs
• Relevant costs and sunk costs
• Historical costs and projected costs

What are sunk costs in a shutdown decision?

• Costs that will be incurred in the future if the product or service is not shut down
• Costs that have already been incurred and cannot be recovered
• Costs that will not change whether the product or service is shut down or not
• Costs that are not directly related to the product or service being considered for shutdown