Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Relevance Lost Main Page | Relevance
Lost Discussion Questions | Graduate MA Course
1. According to Johnson and Kaplan, management accounting developed because of an increased need
a. to evaluate independent artisans or subcontractors.
b. for
generating and allocating fixed capital to inventory.
c. for external
reporting to stockholders and creditors.
d. to evaluate internalized
processes.
e. none of these.
2. The matching concept was developed because of the need
a. for audited financial statements.
b. to satisfy federal
regulation requirements.
c. to satisfy federal tax laws.
d. a and c.
e. all of the
above.
3. According to Johnson and Kaplan, the economic model of the firm contributed to the lost of relevance for management accounting because it emphasizes
a. the matching concept.
b. the single activity firm.
c.
profit maximization.
d. return on investment
e. supply and demand.
4. Decomposing, or separating ROI into two parts provides the
a. return on investment ratio and residual income ratio.
b. net income to investment ratio and sales dollars to costs ratio.
c. sales to net income ratio and investment to net income ratio.
d. sales to investment ratio and net income to sales ratio.
e. none of these.
5. DuPont used Return on Investment mainly to
a. evaluate the performance of division managers.
b. evaluate
the performance of cost centers.
c. evaluate alternative uses of capital.
d. motivate
managers at all levels.
e. none of these.
6. Which investment basis (or bases) for the ROI calculation tend(s) to cause managers to dispose of assets too soon?
a. gross book value.
b. net book value.
c. replacement
costs.
d. a and b.
e. none of these.
7. Which investment basis (or bases) for the ROI calculation tend(s) to cause managers to keep assets too long?
a. gross book value.
b. net book value.
c. replacement
costs.
d. a and b.
e. none of these.
8. Residual income is
a. income based on compound or annuity depreciation.
b. income
after subtracting interest on long term debt.
c. income after subtracting depreciation.
d. income after
adjusting assets to current value.
e. income after subtracting a minimum desired amount of income.
9. Which measurement(s) below would tend to favor large divisions over small divisions if the divisions were ranked?
a. Return on investment.
b. Residual income.
c. Net income.
d.
a and b.
e. b and c.
10. The main argument for the use of residual income (RI) as a measure of performance for investment centers, as opposed to the ROI, is that
a. RI will not cause managers to reject investment
alternatives that generate a return greater than the cost of capital, but lower than the divisions average ROI.
b. RI is a more equitable way to compare different size divisions and different aged divisions.
c. since RI is an absolute amount, rather than a percentage, the problems associated with choosing a denominator (gross book value or net book value etc.) are
eliminated.
d. RI is simply easier to calculate than ROI.
e. None of these.
11. In Chapter 1 of Relevance Lost, Johnson and Kaplan indicate that the information produced by traditional management accounting is too late for decisions concerning
a. product pricing.
b. cost control.
c. process control.
d. make versus buy.
e. new investments.
12. In Chapter 10 of Relevance Lost, Kaplan and Johnson discuss the need for three cost systems: product costing, financial reporting and process control. According to Kaplan and Johnson, which of the following combinations is needed for the product costing requirement?
a. annual or life cycle costs, long run variable costs,
and disaggregated overhead cost allocations.
b. annual or life cycle costs, separate fixed and variable
costs, and disaggregated overhead cost allocations.
c. monthly or quarterly costs, separate fixed and variable
costs, and aggregated overhead cost allocations.
d. monthly or quarterly costs, aggregated fixed and variable
costs, and aggregated overhead allocations.
e. Hourly or daily costs, separate fixed and variable costs, and minimum overhead allocations.
13. In reference to the cost systems mentioned in the question above, which combination is more appropriate for process control?
a. annual or life cycle costs, long run variable costs, disaggregated overhead cost allocations.
b. annual or life cycle costs, separate fixed and variable
costs, disaggregated overhead cost allocations.
c. monthly or quarterly costs, separate fixed and variable
costs, aggregated overhead cost allocations.
d. monthly or quarterly costs, aggregated fixed and variable
costs, aggregated overhead allocations.
e. Hourly or daily costs, separate fixed and variable
costs, minimum overhead allocations.
14. According to Johnson and Kaplan, which of the following deficiencies of traditional cost systems does (do) not relate to using product costs for strategic decisions such as pricing, outsourcing etc.?
a. too late.
b. too aggregated.
c. too narrow.
d. a and
b.
e. a and c.
15. Which of the following describes what Johnson and Kaplan refer to as the fundamental flaw in the financial accounting model?
a. Accounting cost allocations create product cost distortions.
b. Accounting performance reports are provided too late.
c. Accounting performance reports are too aggregated.
d. Accounting performance reports are not useful for process control.
e. Accounting performance reports may be improved by sacrificing the firm's long term health.