Question

1. In comparing financial accounting with managerial accounting, managerial accounting

A.    Follows GAAP or IFRS reporting standards.

B.    Emphasizes timeliness and sub-unit reporting such as business units, divisions, departments.

C.    Reports to parties external to the company

D.    Emphasizes financial consequences of past activities

2. When production decreases

A.    Variable costs per unit decrease.

B.    Variable costs per unit increase.

C.    Total variable costs increase.

D.    Total variable costs decrease.

3. Which of the following is an indirect production cost for a company that produces ready-made prom dresses?

A. Cost of fabric

B. Cost of pearls and sequins

C. Salary of the dress designer

D. Wages of sewing workers

Answer 1

Answer 1. B. Emphasises timeliness and sub unit reporting such as business units, divisions & departments.

Reason: Financial accounting follows GAAP and IFRS , it reports to parties external to company and it emphasises financial consequences of past activities while managerial accounting is internal and it focuses on future relevance even it is not required to follow GAAP and it focuses on future relevance.

2. D. Total variable cost decreases

Reason: the total variable cost will decrease with decrease in production as the total variable cost changes with change in volume. So when production will decrease , its total variable cost of material and cost of labor shall also decrease. Variable cost per unit shall remain same within a relevant range when production level changes.

3. C. Salary of the dress designer

Reason: cost of fabric, pearls and sequins are direct material cost required for production of dress. and wages of sewing workers are also direct prodcution cost. Direct production cost are those which are specifically linked with a particular product or goods.

So Salary of the dress designer is not directly attributable to a particular product or dress here. so its an indirect cost. Salary of dress designer includes salary of all dresses he designes and it is fixed cost also.