Free WGU Accounting for Decision Makers Accounting-for-Decision-Makers Exam Questions

The correct answers are A and B. Cost-volume-profit (CVP) analysis is a forward-looking planning tool used to study how changes in costs, sales volume, and selling price affect contribution margin, break-even point, and target profit. OpenStax describes CVP analysis as one of the most useful tools in managerial accounting for analyzing how changing business situations affect profit.

Option A is correct because CVP helps management estimate how a future change in variable costs or fixed costs would influence profit. Option B is also correct because CVP can determine how many units must be sold to achieve a desired target income or profit level. In contrast, Options C and D focus on past transactions and past tax costs, which are not the primary purpose of CVP analysis. CVP is mainly a planning and decision-making method rather than a historical reporting tool. It helps managers ask ''what happens if'' questions about future operations, such as what sales volume is needed to earn a target profit or how a change in cost structure would affect margins. Therefore, the correct choices are A and B.

Accounting systems record business events that have already occurred, not events that may happen in the future and not the personal activities of owners. This is why Option B is correct. In financial accounting, recorded information must be based on identifiable, measurable, and supportable transactions or events, such as sales made, expenses incurred, assets purchased, liabilities created, or cash received and paid. Accounting information is primarily historical in nature, which improves reliability and allows users to evaluate what actually happened in the business.

Option A is incorrect because future business events are forecasts or estimates, not recorded transactions unless a present accounting event already exists, such as an accrued expense. Options C and D are also incorrect because personal events of the owners are not part of the business accounting records unless they directly affect the business entity, for example, owner investment or owner withdrawals. Under the business entity concept, the business is accounted for separately from its owners. Therefore, only completed business transactions and relevant economic events belonging to the business are recorded in the accounting system.

The correct answer is D. Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002 (SOX) was enacted in response to major corporate frauds, including those involving Enron and WorldCom. The U.S. Securities and Exchange Commission has described the law as a response to these financial frauds and the failures of corporate gatekeepers, with the goal of restoring investor confidence and strengthening accountability in financial reporting and auditing.

Option A is incorrect because ''Corporate Accountability Act'' is not the recognized statute that addressed those scandals. Option B is incorrect because the Securities Exchange Act of 1934 is an earlier law governing securities markets, not the specific reform enacted after Enron and WorldCom. Option C is also incorrect because ''Auditing Accountability Act'' is not the proper title of the law passed for this purpose. SOX introduced important reforms such as stronger internal control requirements, auditor independence rules, executive certification of financial reports, and the creation of the PCAOB. These changes were designed to improve the reliability of financial statements and protect investors. Therefore, the only accurate answer is Sarbanes-Oxley Act.

The correct answer is A. $0.313. A predetermined overhead rate is calculated at the beginning of the period using estimated overhead costs and the estimated amount of the allocation base. OpenStax states that the rate is found by dividing estimated manufacturing overhead by the estimated activity base.

The formula is:

Predetermined overhead rate = Estimated total overhead / Estimated allocation base

Using the numbers in the question:

$1

,250,000 / 4,000,000 shoes = $0.3125 per shoe

Rounded to three decimal places, that equals $0.313 per shoe.

The actual overhead and actual number of shoes produced are not used to compute the predetermined rate. Those figures are used later when applying overhead or analyzing overapplied and underapplied overhead. That is why choices based on actual data are incorrect.

Option B, $0.329, comes from dividing actual overhead by actual production, but that is an actual rate, not the predetermined one asked for here. Since predetermined overhead always relies on estimates made in advance, the correct answer is $0.313, which makes Option A correct.

The correct answer is D. $17,700. To find the ending cash balance, start with the beginning cash balance and then add all cash inflows and subtract all cash outflows.

Beginning cash = $1,200

Inflows:

Cash from sales = $16,000

Cash received from non-trading securities = $5,000

Cash received from loans = $8,000

Total inflows = $29,000

Outflows:

Wages and salaries paid = $4,500

Cash paid for plant assets = $6,000

Cash paid in repayment of loans = $2,000

Total outflows = $12,500

Now calculate ending cash:

Ending cash = $1,200 + $29,000 - $12,500 = $17,700

This is the amount of cash remaining after considering all listed cash transactions. The classification of the cash flows is not necessary to solve the question, but they include operating, investing, and financing effects. What matters mathematically is that every cash receipt increases total cash and every cash payment decreases it. Since the net increase in cash is $16,500, adding that to the beginning cash of $1,200 gives $17,700. Therefore, Option D is correct.

The correct answer is B. Easy to reconcile between net income and cash flows. Under the indirect method, the operating section of the statement of cash flows begins with net income and then adjusts for noncash items, gains and losses, and changes in working capital to arrive at net cash provided by operating activities. This makes it especially useful for showing the relationship between accrual-based profit and actual operating cash flow. FASB guidance explains that the indirect method presents this reconciliation within the cash flow reporting process, and OpenStax likewise describes the indirect method as beginning with net income and reconciling it to cash flows.

Option A is incorrect because the direct method is often easier for beginners to read since it lists cash receipts and cash payments more directly. Option C is incorrect because the indirect method does not specifically prevent errors or reveal ''indirect costs.'' Option D is incorrect because the purpose of the method is not to compare direct and indirect costs. Its main practical advantage is the clear reconciliation from net income to operating cash flow, so Option B is correct.

The correct answer is C. Under activity-based costing (ABC), overhead is reassigned based on the activities that actually drive cost consumption. ABC often reveals that one product was previously undercosted while another was overcosted under traditional volume-based allocation. OpenStax explains that ABC can shift overhead between products and provide more accurate product-cost information for pricing and decision-making.

For Product A, the new overhead rises from $3 to $8, increasing total unit cost from $6 ($2 + $1 + $3) to $11 ($2 + $1 + $8). Since the current selling price is only $8, Product A is now shown as underpriced, so its selling price would likely need to increase. For Product B, overhead falls from $4 to $2, reducing total unit cost from $9 to $7. With a current selling price of $12, Product B appears more profitable than previously believed, so management could choose to decrease its price if needed for competitive reasons. Therefore, the most logical result is Product A price up, Product B price down, which is Option C.

The correct answer is B. Cash payments for administration expenses. Under U.S. GAAP, operating activities include cash effects of transactions that enter into the determination of net income, such as cash paid to employees, suppliers, and for other routine operating expenses. FASB's statement on cash flows requires cash receipts and payments to be classified as operating, investing, or financing and defines operating activities as the residual category for the entity's normal revenue-producing activities. OpenStax also describes operating activities as the day-to-day cash flows of the business.

Option A is incorrect because selling a business segment is generally an investing activity, not an operating one. Option C is incorrect because purchasing plant assets is also an investing cash outflow. Option D is incorrect because cash received from selling plant assets is an investing cash inflow. Administrative expenses are part of normal operations, so cash paid for them belongs in operating activities. Therefore, among the options provided, Cash payments for administration expenses is the only item properly classified as an operating activity under U.S. GAAP.

The correct answer is A. Providing supplementary information as needed. Notes to financial statements are designed to give users additional information that supports, explains, and expands on the amounts shown in the main financial statements. They may include descriptions of accounting policies, contingencies, commitments, segment information, assumptions, and other disclosures necessary for fair presentation. FASB-related disclosure materials and accounting references describe notes as providing supporting or supplementary information for items presented in the statements.

Option C is partly true in a narrower sense because the notes often include a summary of significant accounting policies, but that is only one component of their broader purpose. Option B is incorrect because totals are summarized in the statements themselves, not mainly in the notes. Option D is also incorrect because the notes are not limited to financial statistics; they provide qualitative and quantitative disclosures that help users interpret the statements properly. Therefore, the best overall answer is that notes serve the purpose of providing supplementary information as needed to make the financial statements more complete, understandable, and decision-useful.

The correct answer is B. Section 201 of the Sarbanes-Oxley Act and related SEC rules prohibit registered public accounting firms from providing certain nonaudit services to their audit clients because those services could impair auditor independence. The SEC's rulemaking specifically identifies prohibited services, including internal audit outsourcing, among other restricted nonaudit services.

Option A is incorrect because SOX requires lead audit partner rotation, not mandatory rotation of the entire audit firm after five years. Option C is incorrect because SOX does not impose a blanket ban on advertising by audit firms. Option D is also incorrect because while the audit committee, not management alone, plays a central role in hiring and overseeing the external auditor, the statement as written is not the key audit-firm requirement highlighted by SOX in this context. The most specific and widely tested SOX requirement here is the prohibition on certain nonaudit services to audit clients. This rule protects objectivity by preventing the auditor from effectively reviewing its own consulting or internal audit work. Therefore, Option B is correct.