Deck 12: Fundamentals of Management Control Systems

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Properly designed management control systems have both fixed compensation and contingent compensation.

Answer 3

True

Question 4

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

Question 5

It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior.

Question 6

Properly designed management control systems will eliminate fraudulent behavior by maximizing goal congruence within the organization.

Question 7

One advantage of centralization is better use of top management's time on strategic decisions.

Question 8

Properly designed management control systems can totally eliminate the inherent conflict between individual behavior and organizational goals.

Question 9

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.

Question 10

Delegated decision authority is the specification of what decisions a subordinate can make in the organization.

Question 11

One advantage of decentralization is faster response time to changes in the organization's environment by local managers.

Question 12

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.

Question 13

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

Question 14

Properly developed and implemented management control systems influence subordinates to act in the organization's best interest.

Question 15

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.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

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 23

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 24

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

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

Question 25

Controllable revenue is included in a performance report of a

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

Question 26

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 27

Controllable revenue is included in a performance report of a

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

Question 28

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 29

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.

Question 30

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 31

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 32

Decentralization refers to the delegation of decision-making authority to

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

Question 33

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

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

Question 34

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 35

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 36

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 37

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 38

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 39

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 40

Controllable revenue is included in a performance report of a

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

Question 41

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 42

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 43

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 44

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 45

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 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

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 48

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 49

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 50

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 51

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 52

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 53

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 54

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 55

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 56

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 57

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 58

A manager makes a decision that is beneficial for a specific investment center but not 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 59

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 60

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 61

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
E)supervisory salaries

Question 62

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 63

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

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 65

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 66

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 67

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 68

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.
E)incremental and fixed costs.

Question 69

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 70

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 71

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 72

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 73

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 74

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

Question 75

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 76

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

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

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 79

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 80

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