iii

CONTENTS

Contents

Preface v
Chapter 16(1) Managerial Accounting Concepts and Principles 1
Chapter 17(2) Job Order Cost Systems 23
Chapter 18(3) Process Cost Systems 64
Chapter 19(4) Cost Behavior and Cost-Volume-Profit Analysis 116
Chapter 20(5) Variable Costing for Management Analysis 159
Chapter 21(6) Budgeting 200
Chapter 22(7) Performance Evaluation Using Variances From Standard Costs 241
Chapter 23(8) Performance Evaluation for Decentralized Operations 285
Chapter 24(9) Differential Analysis and Product Pricing 328
Chapter 25(10) Capital Investment Analysis 370
Chapter 26(11) Cost Allocation and Activity-Based Costing 412
Chapter 27(12) Cost Management for Just-in-Time Environments 453
*Chapter 13 Statement of Cash Flows 480
**Chapter 14 Financial Statement Analysis 529

* This is Chapter 13 in Managerial Accounting, 9e, and Chapter 14 in Financial & Managerial
Accounting, 9e.
**This is Chapter 14 in Managerial Accounting, 9e, and Chapter 15 in Financial & Managerial
Accounting, 9e.


Note: Achievement Tests, which appeared at the end of the previous edition Test Bank, have
been moved to the Instructors Resource CD and on the Product Support Web site
(http://www.thomsonedu.com/accounting/warren).

v
PREFACE

The Test Bank to accompany Warren/Reeves Financial & Managerial Accounting, 9
th
Edition, Chapters
16-27 or Managerial Accounting, 9
th
Edition, Chapters 1-14, has been thoroughly updated to reflect
changes to the text and to provide the best testing resource for use in your classroom.

The bank was carefully revised by Lee Cannell and Debra Luna, El Paso Community College. To ensure
accuracy, it was also verified in parts by John Roberts, Saint Johns River Community College; Abdul
Qastin, Lakeland College; and Alice Sineath, Forsyth Technical Community College.

Please note that the chapter numbers for Financial & Managerial Accounting, 9e and Managerial
Accounting, 9e are different even though the content of the chapters is essentially the same. In this
manual, the chapter numbers for Financial & Managerial Accounting, 9e are indicated first, with the
chapter numbers for Managerial Accounting, 9e listed second in parenthesis. For example, the chapter
titled "Managerial Accounting Concepts and Principles" is Chapter 16 in Financial & Managerial
Accounting, 9e and Chapter 1 in Managerial Accounting, 9e. Any reference to this chapter is indicated as
16(1).

Also, please note that Chapter 13, "Statement of Cash Flows," and Chapter 14, "Financial Statement
Analysis," are included at the end of this manual. These are versions of Chapters 14 and 15 in Financial
& Managerial Accounting, 9e and appear in the Corporate Financial Accounting, 9e / Financial &
Managerial Accounting, 9e, Chapters 1-15 Instructor's Manual. They are repeated here for professors
using only the Managerial Accounting, 9e text.


QUESTION TYPES

This bank now contains more than 1,800 questions, including True/False, Matching, Multiple Choice,
Exercise/Other, and Problem. These questions were written to cover all text objectives. One-third of the
questions, or more than 600 questions, are brand new to this edition. This number includes:

- Approximately 300 new Multiple Choice questions.
- Brand new Matching questions added to select chapters to quiz on terminology and classification
of accounts
- Short Exercises that provide a less time-consuming alternative to the longer Problems
- Exercises that mirror the texts new Example Exercises (each is marked to show which Example
Exercise it mimics)

QUESTION TAGS

In addition to providing a variety of questions related to each chapter objective, this test bank also
employs a series of tags that can help design effective, balanced tests by the measure of course outcomes.
All of these tags are included with the question in the test bank. The chapter objective and difficulty level
are also included in a question grid at the beginning of each chapter for easy reference.

Chapter Objectives and Difficulty

As mentioned, each question is tied to one or more objective using the Learning Objective field in
Examview (OBJ: in the printed bank). In addition, each question has been assigned a difficulty level
vi Preface

Easy, Moderate, or Difficult. These appear in the Difficulty field in Examview (DIF: in the printed
bank).

Course Outcomes

In addition to chapter objective and difficulty, this test bank is tagged to outcomes created by two bodies
that provide curriculum guidance for this course: The Association to Advance Collegiate Schools of
Business (AACSB) and Institute of Management Accounts, Inc. (IMA). These are included in the
National Standard field in Examview.

NOTE: These tags were developed by the publisher and applied based on the publishers interpretation
of AACSB International accreditation standards and IMA Content Specification Outlines for the Certified
Management Accountant. The list of tags follows with references to the sources that inspired them with
comments about their application.

AACSB: Derived from the AACSB website The Assurance of Learning Standards. 15. Management of Curricula
Tags Skills
AACSB Communication Communication abilities.
AACSB Ethics Ethical understanding and reasoning abilities.
AACSB Analytic Analytic skills.
AACSB Technology Use of information technology.
AACSB Diversity Multicultural and diversity understanding.
AACSB Reflective Thinking Reflective thinking skills.

IMA: Derived from the IMA website.
Copyright 2006 by Institute of Management Accountants, Inc.
Reprint permission granted by Institute of Management Accountants, Inc.
Tags Skills
IMA-Business
Economics
The candidate should be knowledgeable of micro economics and should be able to demonstrate
an understanding of the laws of supply and demand. The candidate should be able to define
and apply knowledge of various costs including fixed, variable, and marginal.
The candidate should be able to identify and understand pure competition, monopoly,
monopolistic competition, and oligopoly. The candidate will be able to explain resource
planning and the cost of resources.
The candidate should be knowledgeable of macro economics and should be able to
demonstrate an understanding of inflation, unemployment and economic growth. The
candidate should be define and calculate Gross Domestic Product (GDP). The candidate will
be knowledgeable of the business cycle and demonstrate an understanding of fiscal monetary
policies.
IMA-Global
Business
The candidate should be able to define terms associated with global trade, including net
exports and net imports. The candidate should be knowledgeable of foreign currency terms
and policies and be able to apply calculations relevant to foreign monetary exchanges.
The candidate should be aware of the functions of the World Bank and International Monetary
Fund and be able to identify legal and ethical issues in conducting business worldwide.
IMA-Internal
Controls
The candidate should be able to demonstrate an understanding of risk assessment and the
management of risk and be able to define inherent risk, control risk, and detection risk. The
candidate should be able to define and give examples of segregation of duties.
The candidate should be able to define the internal audit function and recognize that the
internal audit function provides information concerning activities reviewed to assist
management.
The candidate should be able to identify threats to information systems and be knowledgeable
of controls to limit the threats. The candidate should understand and be capable of
implementing a disaster recovery plan.
Preface vii

IMA-
Quantitative
Methods
The candidate should be able to show an understanding of the regression equation and
identifying assumptions of simple regression analysis. The candidate should be able to
demonstrate an understanding of the objectives of linear programming and demonstrate the
mathematical formulation of a constraint.
IMA-FSA The candidate should be able to demonstrate an understanding of the development of U.S.
accounting standards and the distinct responsibilities of management and of auditors for the
financial statements.
The candidate should be able to identify related provisions of the Sarbanes-Oxley Act of 2002
and the related rulings of the Public Company Accounting Oversight Board (PCAOB).
The candidate should be able to calculate financial ratios and use the information to measure
the organization's financial performance.
IMA-Budget
Preparation
The candidate should understand budgeting concepts and should be familiar with budgeting
systems. The candidate should be able to use the knowledge of budgeting concepts and
budgeting systems to prepare operational, financial, and capital budgets and pro forma
financial statements.
IMA-Cost
Management
The candidate should know and be able to apply terminology related to cost principles. The
candidate should demonstrate an understanding of cost behavior cost drivers. The candidate
should be able to apply this knowledge to inventorialable costs, cost of goods sold and other
cost applications.
The candidate should be able to implement various cost accumulation systems, including job,
process, activity, lifecycle and other costing methods. The candidate should understand the
nature of overhead expenses; the nature of cost drivers and other relevant principles applicable
to overhead.
IMA-
Information
Management
The candidate should be able to identify the different types of business information processing
systems and recognize that information systems support the business functions of accounting,
finance, marketing, operations management, and human resources.
The candidate should be able to demonstrate an understanding of the technology of
information systems including networks, applicable software, electronic commerce and
enterprise-wide planning systems.
IMA-
Performance
Measurement
The candidate should be able to design procedures for measuring operational goals through a
variety of methods and be able to apply analysis of variances is using standard cost techniques.
The candidate should be able to recognize responsibility centers and reporting segments. The
candidate should understand and be able to apply transfer pricing to organizational segments.
The candidate should be able to apply the concepts and applications related to balanced
scorecard.
IMA-Reporting The candidate should be able to identify the objectives of external financial reporting; identify
and demonstrate an understanding of basic accounting assumptions and conventions; identify
financial statement elements for each of the financial statements and be knowledgeable of
special accounting topics.
The candidate should be able to identify the two major Acts establishing the SEC and its
powers; and demonstrate knowledge of the major provisions of each Act; identify and explain
the major provisions of the Sarbanes-Oxley Act of 2002; and be identify the functions and
responsibilities of the Public Company Accounting Oversight Board (PCAOB).
The candidate should be able to identify the basic components of the annual report;
demonstrate an awareness of the Audit Committees level of responsibility for the integrity of
the financial information presented in the annual reports; and identify and describe the other
sections in the annual report.
IMA-Strategic
Planning
The candidate must be knowledgeable of various manufacturing paradigms including just-in-
time manufacturing, MRP, theory of constraints, and capacity management. The candidate
must be able to assess business process performance.
The candidate will be familiar with value chain analysis; understand value added concepts;
process analysis; benchmarking; activity based management; and continuous improvement
concepts.
viii Preface

IMA-Strategic
Marketing
The candidate should be able to identify the interrelationships between strategy and marketing
and recognize the critical importance of customer value and customer satisfaction. The
candidate should be able to identify marketing information needs.
The candidate should be able to distinguish between products and services; classify products
and services; demonstrate an understanding of product line decisions and product mix
decisions; demonstrate an understanding of new product development strategy and product
life-cycle strategies.
The candidate should be able to identify internal and external factors affecting pricing
decisions; demonstrate an understanding of general pricing approaches; demonstrate an
understanding of product mix pricing strategies; and recognize that public policy can influence
pricing decisions.
IMA-Corporate
Finance
The candidate should be able to calculate rates of return ; demonstrate an understanding of the
different types of risk; and define hedging and demonstrate how hedging can be used to
manage financial risk.
The candidate should be able to define and identify the characteristics of various financial
instruments; value bonds, common stock, and preferred stock using discounted cash flow
methods; and recognize how income taxes impact financing decisions.
The candidate should be able to define the cost of capital and demonstrate an understanding of
its applications in capital structure decisions.
IMA-Decision
Analysis
The candidate should identify and demonstrate an understanding of the steps needed to reach a
decision. The candidate should be able to identify and apply concepts relevant to decision
analysis, including sunk costs and opportunity costs.
The candidate must be able to use cost/volume/profit analysis.
The candidate will be able to apply marginal analysis for making decisions related to special
orders and pricing; make versus buying decisions; sale or process further decisions; and to
determine if a segment should be added or dropped. Finally, the candidate will be able to
apply concepts and knowledge related to setting prices and target costing.
IMA-
Investment
Decisions
The candidate must be able to develop information to assist management in making investment
decisions. In order to do this in candidate must be knowledgeable of capital budgeting;
discounted cash flow analysis; payback and discounted payback; and ranking of investment
projects.
IMA-Business
Applications
The candidate will be familiar with the provisions of "Standards of Ethical Conduct for IMA
Members" in the evaluation and resolution of relevant ethical issues.

ACHIEVEMENT TESTS

The Achievement Tests that appeared in the printed previous edition of the Test Bank have been fully
updated for the new edition and can now be found on the Instructors Resource CD and on the Product
Support Web site (http://www.thomsonedu.com/accounting/warren).

TEST BANK OPTIONS

This test bank is available in ExamView Computerized Testing Software and Microsoft Word files.
The ExamView software and Word files are included on the Instructors Resource CD-ROM; the Word
files are also available on the Product Support Web site
(http://www.thomsonedu.com/accounting/warren).