Chapter 1
How Management Accounting Information
Supports Decision Making
Learning Objectives―Coverage by question type
LO1 – Understand the major differences between financial and management accounting.
True / False Multiple Choice Exercises, Problems & Short Answer
1-8 1-23 1, 2
LO2 – Appreciate the historical evolution of management accounting to its present set of
practices.
True / False Multiple Choice Exercises, Problems & Short Answer
9, 10 24 3
LO3 – Explain why management accounting uses nonfinancial as well as financial measures.
True / False Multiple Choice Exercises, Problems & Short Answer
11 25-29 4-6
LO4 – Explain the role for the balanced scorecard in measuring a company’s intangible assets
and capabilities.
True / False Multiple Choice Exercises, Problems & Short Answer
12-16 30-38 7, 8
LO5 – Be sensitive to the behavioral consequences that result from the introduction of new
measurement and management systems.
True / False Multiple Choice Exercises, Problems & Short Answer
17-19 39-44 9
,Chapter 1: How Management Accounting Information Supports
Decision Making
True / False
LO1
Terms: Management accounting
Difficulty: 1
1. Management accounting is subject to the rules formulated by standard setters such as
the Financial Accounting Standards Board (FASB).
Answer: FALSE
Explanation: Financial accounting is subject to the rules of the FASB.
LO1
Terms: Management accounting
Difficulty: 1
2. Management accounting information is primarily oriented to external stakeholders, such
as investors, creditors, regulators, and tax authorities.
Answer: FALSE
Explanation: Management accounting information is primarily oriented to management.
LO1
Terms: International Accounting Standards Board
Difficulty: 1
3. The International Accounting Standards Board sets the guidelines used for management
accounting.
Answer: FALSE
Explanation: Financial accounting must be consistent with the rules of the IASB.
LO1
Terms: Management Accounting
Difficulty: 1
4. A good management accounting system can become a source of competitive advantage
for a company.
Answer: TRUE
,LO1
Terms: Management Accounting
Difficulty: 1
5. Management accounting information is sometimes predictive and forward looking.
Answer: TRUE
LO1
Terms: Management Accounting
Difficulty: 2
6. Management accounting has no prescribed rules about its content, how the content is to be
developed, and how the content is to be presented.
Answer: TRUE
LO1
Terms: Management Accounting
Difficulty: 1
7. Management accounting measures can provide advance warnings of problems.
Answer: TRUE
LO1
Terms: Nonfinancial information
Difficulty: 1
8. Information about customer satisfaction is an example of financial information.
Answer: FALSE
Explanation: Information about customer satisfaction is an example of nonfinancial
information.
LO2
Terms: Evolution of management accounting
Difficulty: 2
9. During the history of management accounting, innovations were developed to address
the decision-making needs of managers.
Answer: TRUE
, LO2
Terms: Evolution of management accounting
Difficulty: 2
10. Management accounting innovations are usually developed by academics.
Answer: FALSE
Explanation: Management accounting innovations are usually developed by
management accountants in the field.
LO3
Terms: Financial information
Difficulty: 1
11. Operating profit is an example of nonfinancial information.
Answer: FALSE
Explanation: Operating profit is an example of financial information.
LO4
Terms: Database and information systems
Difficulty: 1
12. Database and information systems are physical assets that create distinctive value for
companies.
Answer: FALSE
Explanation: Database and information systems are intangible assets.
LO4
Terms: Balanced scorecard
Difficulty: 1
13. The balanced scorecard measures organizational performance across five different but
linked perspectives.
Answer: FALSE
Explanation: The balanced scorecard measures organizational performance across four
different but linked perspectives that are derived from the organization's mission, vision,
and strategy.
LO4
Terms: Learning and growth perspective
Difficulty: 1
14. The learning and growth perspective addresses what employee capabilities, information
systems, and organizational capabilities we need to continually improve.
Answer: TRUE
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