Deck 12: Fundamentals of Management Control Systems

Question 1

It is important to not consider an organization's compensation and reward system when designing its performance evaluation system.It is important to consider the system.

Answer 1

False

Question 2

Properly developed and implemented management control systems influence subordinates to act in the organization's best interest.A properly designed system will promote goal congruence.

Answer 2

True

Question 3

It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior.Systems do not guarantee ethical behavior.

Answer 3

True

Question 4

In general,profit centers are found at higher levels in an organization than investment centers.Investment centers are found at higher levels.

Question 5

Rational managers will always make decisions that are in the best interest of the organization employing them.Rational managers will often make decisions that are in their best personal interest.

Question 6

In general,organizations are more centralized in the early stages of their existence and more decentralized as they grow.Decentralization normally is the result of growth.

Question 7

One advantage of centralization is better use of top management's time on strategic decisions.In a centralized system,top management is required to make many operating decisions,so there is less time for strategic decision making.

Question 8

Managers in a cost center are held responsible for both the costs and volumes of inputs used to produce a product or provide a service.The manager does not have control over the price of the output,or authority over it.

Question 9

The primary reason to use a dual rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control.The allocation reflects the cost behavior.

Question 10

One advantage of decentralization is faster response time to changes in the organization's environment by local managers.Local managers have the authority to make decisions,so the response time is faster.

Question 11

Decentralization is the delegation of the authority to make decisions in the organization's name to subordinates.This is the definition of decentralization.

Question 12

In general,there is a direct relationship between the quality of the information provided to managers and the quality of decisions made using that information.Normally,the better the information,the higher the quality of the decision.

Question 13

Delegated decision authority is the specification of what decisions a subordinate can make in the organization.Authority defines what a person can and cannot do.

Question 14

Properly designed management control systems have both fixed compensation and contingent compensation.If contingent is too small there is not enough incentive,if the proportion of contingent is too high there is too much risk.

Question 15

Properly designed management control systems can totally eliminate the inherent conflict between individual behavior and organizational goals.Conflict cannot be totally eliminated.

Question 16

Cost allocations based on dual rates assume that a common cost can be separated into a fixed and variable component.The dual refers to fixed and variable.

Question 17

Properly designed management control systems will eliminate fraudulent behavior by maximizing goal congruence within the organization.Fraud cannot be eliminated by control systems,it can only be reduced.

Question 18

The design and use of management control systems affects how an individual makes and implements decisions.Control systems influence behavior.

Question 19

There is no single accounting measure that can fully measure the performance of a profit or investment center.There is no one single perfect measure.

Question 20

Fixed compensation is generally not linked to measured performance;i.e. ,it is independent of measured performance.Contingent compensation is linked with performance.

Question 21

Assets invested in a responsibility center are included in a performance report of a:

A)Option a
B)Option b
C)Option c
D)Option d

Question 22

When managers are held responsible for costs and the input-output relationship is well specified,a(n)___________ is established.

A)standard cost center
B)revenue center
C)discretionary cost center
D)asset center

Question 23

Controllable revenue is included in a performance report of a:

A)Option a
B)Option b
C)Option c
D)Option d

Question 24

An operating unit of an organization is called a profit center if it is responsible:

A)only for costs.
B)only for revenues.
C)for costs and revenues.
D)for investments in assets.

Question 25

When managers are held responsible for costs but the input-output relationship is not well specified,a(n)___________ is established.

A)standard cost center
B)revenue center
C)discretionary cost center
D)asset center

Question 26

Which of the following is not a characteristic of a decentralized organization?

A)Better use of local knowledge.
B)Better use of top management's time.
C)Reduced response time to environmental changes.
D)More decisions made by relatively few individuals.

Question 27

Controllable revenue is included in a performance report of a:

A)Option a
B)Option b
C)Option c
D)Option d

Question 28

An operating unit of an organization is called an investment center if it is responsible:

A)only for costs.
B)only for revenues.
C)for costs and revenues.
D)for investments in assets.

Question 29

Decentralized organizations can delegate authority and still maintain control and monitor managers' performance by designing appropriate management control systems.Which of the following responsibility centers would be evaluated similar to an independent business?

A)Profit center.
B)Revenue center.
C)Investment center.
D)Discretionary cost center.

Question 30

Which of the following elements is not part of a management control system?

A)Delegated decision authority.
B)Performance evaluation system.
C)Knowledge of local conditions.
D)Compensation and reward system.

Question 31

An operating unit of an organization is called a revenue center if it is responsible:

A)only for costs.
B)only for revenues.
C)for costs and revenues.
D)for investments in assets.

Question 32

Assets invested in a responsibility center are included in a performance report of a:

A)Option a
B)Option b
C)Option c
D)Option d

Question 33

An operating unit of an organization is called a cost center if it is responsible:

A)only for costs.
B)only for revenues.
C)for costs and revenues.
D)for investments in assets.

Question 34

Which of the following statements is false?

A)The U.S.military is a good example of an organization that is highly decentralized.
B)The degree of decentralization depends on how many decisions principals delegate to agents.
C)Management control systems are used to measure the performance of an agent's decisions.
D)Most organizations have some operating units that are centralized and some that are decentralizeD.The U.S.military is a centralized organization.

Question 35

An operating unit that is responsible for revenues only is commonly referred to as a(n):

A)expense center.
B)revenue center.
C)profit center.
D)asset center.

Question 36

An operating unit that is responsible for only costs is commonly referred to as a(n):

A)cost center.
B)revenue center.
C)profit center.
D)asset center.

Question 37

An operating unit that is responsible for revenues and costs is commonly referred to as a(n):

A)expense center.
B)revenue center.
C)profit center.
D)asset center.

Question 38

Decentralizationrefers to the delegation of decision-making authority to:

A)top management.
B)superiors.
C)board of directors.
D)subordinates.

Question 39

Which of the following statements is (are)true regarding managerial decisions? (A)The design and use of management control systems affects how an individual makes and implements decisions.(B)Rational managers will always make decisions that are in the best interest of the organization employing them.

A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 40

Controllable revenue is included in a performance report of a:

A)Option a
B)Option b
C)Option c
D)Option d

Question 41

Which of the following statements is (are)true regarding compensation? (A)Fixed compensation is generally not linked to measured performance;i.e. ,it is independent of measured performance.(B)Properly designed management control systems have contingent compensation items but not fixed compensation items.

A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 42

Which of the following items would not be classified as a contingent compensation item?

A)Administrative salaries.
B)Sales commissions.
C)Stock options.
D)Piece rates.

Question 43

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year. If the Copy Department uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Marketing Department?

A)$85,000.
B)$90,000.
C)$150,000.
D)$170,000.

Question 44

Boxes-2-Go has two divisions,large and small,that share the common costs of the company's communications network.The annual common costs are $4,500,000.You have been provided with the following information for the upcoming year: What is the allocation rate for the upcoming year,assuming Boxes-2-Go uses the single-rate method and allocates common costs based on the number of calls?

A)$10.00.
B)$15.00.
C)$20.00.
D)$25.00.

Question 45

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year. If the Copy Department uses a dual-rate for allocating its costs,how much cost will be allocated to the Economics Department,assuming the Economics Department actually made 2,100,000 copies during the year?

A)$85,000.
B)$92,500.
C)$132,500.
D)$112,500.

Question 46

Relative performance evaluations (RPE)are not designed to:

A)compare managers to other comparable managers.
B)compare divisions with other comparable divisions.
C)remove the effect of environmental factors that are beyond a manager's control.
D)restate departmental goals so meaningful comparisons can be made.

Question 47

The Sarbanes-Oxley Act of 2002 requires that management of publicly traded companies:

A)use investment centers to evaluate top managers.
B)report on the adequacy of the company's internal controls over financial reporting.
C)compensate managers with fixed compensation plans only.
D)eliminate stock options for managerial compensation.

Question 48

Boxes-2-Go has two divisions,large and small,that share the common costs of the company's communications network.The annual common costs are $4,500,000.You have been provided with the following information for the upcoming year: The cost accountant determined $2,700,000 of the communication network's costs were fixed and should be allocated based on the number of calls.The remaining costs should be allocated based on the time on the network.What is total communication network costs allocated to the Small Box Division,assuming the company uses dual-rates to allocate common costs?

A)$2,520,000.
B)$1,800,000.
C)$1,320,000.
D)$1,200,000.

Question 49

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year. If the Copy Department uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Economics Department?

A)$85,000.
B)$90,000.
C)$105,000.
D)$120,000.

Question 50

Examples of pressures that can lead to financial fraud do not include:

A)unrealistic budgets.
B)inappropriate bonus plans.
C)overemphasis on long-term results.
D)overemphasis on short-term results.

Question 51

Which of the following items would be classified as a fixed compensation item?

A)Administrative salaries.
B)Sales commissions.
C)Stock options.
D)Piece rates.

Question 52

Boxes-2-Go has two divisions,large and small,that share the common costs of the company's communications network.The annual common costs are $4,500,000.You have been provided with the following information for the upcoming year: What is the allocation rate for the upcoming,year assuming Boxes-2-Go uses the single-rate method and allocates common costs based on the time on the network?

A)$10.98
B)$10.00.
C)$8.00.
D)$7.14.

Question 53

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year. If the Copy Department uses a dual-rate for allocating its costs,how much cost will be allocated to the Marketing Department,assuming the Marketing Department actually made 3,000,000 copies during the year?

A)$135,000.
B)$150,000.
C)$155,000.
D)$170,000.

Question 54

Which of the following statements is (are)false regarding the effective use of management control systems? (A)In general,single rate cost allocations should not be used in management control systems because clear control over the cost being allocated cannot be determined.(B)The primary reason to use a dual rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control.

A)Only A is false.
B)Only B is false.
C)Both A and B are false.
D)Neither A nor B is false.

Question 55

The use of dual rates in a cost allocation system assumes that common costs can be:

A)separated into their fixed and variable components.
B)traced directly to a specific division or manager.
C)allocated based on a physical quantities measure.
D)assigned to an investment responsibility center.

Question 56

A manager makes a decision that is beneficial for a specific investment center and for the entire organization.From the organization's perspective,this decision results in:

A)goal congruence.
B)decentralization.
C)contingent compensation.
D)fixed compensation.

Question 57

Which of the following is not an internal control?

A)Rotating personnel among tasks.
B)Separation of duties.
C)Setting limits on the amount of expenditures.
D)Using absolute performance standards.

Question 58

Internal controls include all of the following except:

A)using contingent compensation plans.
B)requiring management authorization for the use of a company's assets.
C)reconciling various sets of books.
D)requiring employees to take vacations.

Question 59

Boxes-2-Go has two divisions,large and small,that share the common costs of the company's communications network.The annual common costs are $4,500,000.You have been provided with the following information for the upcoming year: The cost accountant determined $2,700,000 of the communication network's costs were fixed and should be allocated based on the number of calls.The remaining costs should be allocated based on the time on the network.What is the total communication network costs allocated to the Large Box Division,assuming the company uses dual-rates to allocate common costs?

A)$2,700,000.
B)$2,520,000.
C)$1,980,000.
D)$1,500,000.

Question 60

The controllability concept states that managers should be held responsible for:

A)all items over which they have decision-making authority.
B)costs and revenues,but not investments in assets used in their division.
C)only items that are allocated to their divisions on a per-unit basis.
D)fixed compensation items,but not contingent compensation items.

Question 61

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Training Department,assuming the Training Department actually made 3,250,000 copies during the year?

A)$227,500.
B)$211,250.
C)$217,500.
D)$223,017.

Question 62

Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: Fenway Telcom uses the single rate method and allocates common costs based on the number of connections.What is the total computer server network cost allocated to the Commercial Division?

A)$480,000.
B)$514,286.
C)$600,000.
D)$1,200,000.

Question 63

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Software Development Department,assuming the Software Development Department actually made 1,160,000 copies during the year?

A)$75,400.
B)$98,800.
C)$81,200.
D)$84,312.

Question 64

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Management Department?

A)$168,000.
B)$156,000.
C)$178,286.
D)$147,000.

Question 65

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year. If the Copy Department uses a dual-rate for allocating its costs,how much cost will be allocated to the Marketing Department,assuming the Marketing Department actually made 3,800,000 copies during the year?

A)$135,000.
B)$150,000.
C)$155,000.
D)$175,000.

Question 66

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Management Department,assuming the Management Department actually made 2,950,000 copies during the year?

A)$184,500.
B)$191,750.
C)$211,783.
D)$206,500.

Question 67

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Software Development Department?

A)$98,000.
B)$104,000.
C)$112,000.
D)$118,857.

Question 68

Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections.The remaining costs should be allocated based on the time on the network.What is the total server network costs allocated to the Commercial Division,assuming the company uses dual-rates to allocate common costs?

A)$514,286.
B)$480,000.
C)$600,000.
D)$565,000.

Question 69

Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections.The remaining costs should be allocated based on the time on the network.What is total server network costs allocated to the Consumer Division,assuming the company uses dual-rates to allocate common costs?

A)$1,200,000.
B)$1,093,333.
C)$954,896.
D)$750,000.

Question 70

Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: Fenway Telcom uses the single rate method and allocates common costs based on the time on the network.What is the total computer server network cost allocated to the Retail Division?

A)$429,000.
B)$600,000.
C)$657,800.
D)$3,000,000.

Question 71

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year. If the Copy Department uses a dual-rate for allocating its costs,how much cost will be allocated to the Economics Department,assuming the Economics Department actually made 1,500,000 copies during the year?

A)$77,500.
B)$92,500.
C)$132,500.
D)$112,500.

Question 72

Rockford Manufacturing Corporation uses a responsibility accounting system in its operations.Which one of the following items is least likely to appear in a performance report for a manager of one of Rockford's assembly lines? (CMA adapted)

A)Direct labor.
B)Materials.
C)Repairs and maintenance.
D)Depreciation on the manufacturing facility.

Question 73

In responsibility accounting,a center's performance is measured by those costs which are controllable.Controllable costs are best described as including: (CMA adapted)

A)direct materials and direct labor only.
B)only those costs that the manager can influence in the current period.
C)only discretionary costs.
D)those costs about which the manager is knowledgeable and informeD.

Question 74

Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: What is the allocation rate for the upcoming year,assuming Fenway Telcom uses the single-rate method and allocates common costs based on the time on the network?

A)$20.00.
B)$16.00.
C)$4.00.
D)$2.86.

Question 75

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Management Department,assuming the Management Department actually made 2,100,000 copies during the year?

A)$147,000.
B)$136,500.
C)$159,000.
D)$150,761.

Question 76

Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections.The remaining costs should be allocated based on the time on the network.What is total server network costs allocated to the Retail Division,assuming the company uses dual-rates to allocate common costs?

A)$741,667.
B)$657,143.
C)$425,000.
D)$211,765.

Question 77

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Training Department,assuming the Training Department actually made 2,770,000 copies during the year?

A)$180,050.
B)$190,079.
C)$193,900.
D)$203,100.

Question 78

Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: What is the allocation rate for the upcoming year,assuming Fenway Telcom uses the single-rate method and allocates common costs based on the number of connections?

A)$10.00.
B)$15.00.
C)$20.00.
D)$40.00.

Question 79

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Training Department?

A)$183,750.
B)$210,000.
C)$195,000.
D)$222,857.

Question 80

The Document Creation Center (DCC)for Alegis Corp.provides photocopying and document services for three departments in the St.Paul office.The following budget has been prepared for the year. If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Software Development Department,assuming the Software Development Department actually made 1,780,000 copies during the year?

A)$117,400.
B)$115,700.
C)$124,600.
D)$129,376.