Deck 18: Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard

Question 1

As a strategic issue,"budget slack" could represent a:

A)Very minor issue in most firms.
B)Self-correcting problem over several operating periods.
C)Problem only in a decentralized management environment.
D)Lower overall level of expected performance than is achievable.
E)Significant increase in the relative risk aversion of managers.

Answer 1

D

Question 2

The objectives of management control of the manager include:

A)Cost,quality,and functionality.
B)Management by objectives.
C)Management by exception.
D)Motivation,incentive and fairness.
E)Identification,response and performance.

Answer 2

D

Question 3

The process by which managers at all levels in the firm gain information about the performance of tasks within the firm and judge that performance against pre-established criteria is:

A)Performance measurement.
B)Employee inspection.
C)Goal congruence.
D)Managerial evaluation.
E)Management control.

Answer 3

A

Question 4

Among the benefits of centralized management in a firm is (are):

A)Effective goal congruence.
B)Utilization of top management expertise.
C)Effective participation by all levels of management.
D)A higher level of motivation for divisional managers.

Question 5

The need for coordination between the production and the selling function will impact the choice of:

A)Profit,cost or revenue center.
B)Manager for the firm.
C)Formal or informal control systems.
D)Profitability goal for the firm.
E)Control measures to prevent fraud.

Question 6

The principal-agent economic model applied to employment contracts deals primarily with the two management performance aspects of:

A)Rights and duties.
B)Uncertainty and lack of observability.
C)Performance and reward.
D)Controllability and responsibility.
E)Risk and motivation.

Question 7

"Outsourcing" a cost center is often done to:

A)Reduce cost and obtain strategic focus.
B)Increase control over a strategic resource.
C)Reduce the firm's contractual relationships.
D)Shift costs within remaining cost centers.

Question 8

Operational control has a management-by-exception approach in contrast to management control,which is more consistent with:

A)The management-by-incentives approach.
B)The management-by-objectives approach.
C)The "hands off" approach.
D)A non-quantitative set of measures.
E)A non-qualitative set of measures.

Question 9

By not distinguishing between direct and indirect costs in their performance reporting,many companies:

A)Generate more useful control potential for managers.
B)Can cause poor decision-making.
C)Focus on long-term results.
D)Focus on short-term results.
E)Clearly distinguish between controllable and non-controllable costs.

Question 10

A strategic business unit (SBU)consists of a well-defined set of controllable operating activities
Over/about which the SBU manager is:

A)Knowledgeable.
B)Responsible for strategy.
C)Responsible for strategy and execution.
D)Responsible for strategy,execution,and performance.

Question 11

In properly developing formal systems at the team level that will have the desired impact on employees' performance,the management accountant should recognize any existing informal systems and:

A)Make plans to eliminate these informal systems.
B)Simply formalize them into the system being developed.
C)Try to eliminate them prior to system development.
D)Not let these "culture" aspects affect system development.
E)Try to capture valued "culture" aspects in the formal system.

Question 12

Performance evaluation in most firms is applied at:

A)Many different levels from top management down to individual production and sales employees.
B)All levels of production,but only top levels of sales.
C)Top and mid-management levels only.
D)Lower and mid-management levels only.
E)The mid-management level only.

Question 13

The "risk-averse" manager will be improperly biased to:

A)Seek out decisions with uncertain outcomes.
B)Make risky decisions.
C)Avoid decisions with uncertain outcomes.
D)Maximize his or her own risk and minimize the company's risk.
E)Use resources beyond his/her control.

Question 14

From a strategic standpoint,profit centers tend to:

A)Free the center manager from concerns about markets.
B)Place more cost emphasis on rush orders.
C)Provide incentive for coordination among managers of different units.
D)Focus managers on cost control rather than revenue generation.
E)All of the above answers are correct.

Question 15

The main concept of the balanced scorecard is that,to evaluate the SBU's progress to strategic success,a business must use all of the following except:

A)Both financial and non-financial measures.
B)Value chain analysis.
C)Attend to customer satisfaction needs.
D)Multiple measures for a comprehensive evaluation.

Question 16

The contribution by profit center (CPU)expands the contribution margin income statement by distinguishing:

A)Variable and fixed costs.
B)Short-term and long-term fixed costs.
C)Controllable and non-controllable fixed costs.
D)Noncontrollable and untraceable fixed costs.
E)Net income and contribution margin.

Question 17

Cost allocation of service department costs to production departments make the evaluation and control processes in the production departments:

A)Simpler.
B)More complex.
C)Forthright and fair.
D)Less efficient.
E)Counter productive.

Question 18

The benefits of decentralized management in a firm include all the following except:

A)Ability of SBU managers to use their local knowledge effectively.
B)Ability of SBU managers to make more timely decisions.
C)Motivation provided by the freedom and responsibility of a decentralized environment.
D)Improved coordination among divisional managers.

Question 19

Risk aversion is by:

A)Lack of a strategic emphasis in decision making.
B)Use of non-strategic performance measurement systems.
C)Presence of uncertainty in a manager's environment.
D)A manager's inability to deal with stress.

Question 20

The common factor among control systems in hiring practices,promotion policies,and strategic performance measurement is:

A)Management sets expectations for desired employee performance.
B)Employee-determined expectations for desired employee performance.
C)Coordination of activities.
D)Communication of results.

Question 21

Production or support SBUs within the firm that have the goal of providing the best quality product or service at the lowest cost are:

A)Revenue centers.
B)Contribution centers.
C)Profit centers.
D)Cost centers.
E)Investment centers.

Question 22

SBUs that include the assets they employ as well as profits in the performance evaluation are:

A)Revenue centers.
B)Contribution centers.
C)Profit centers.
D)Cost centers.
E)Investment centers.

Question 23

SBUs that generate revenues and incur the major portion of the cost for producing those revenues are:

A)Revenue centers.
B)Contribution centers.
C)Profit centers.
D)Cost centers.
E)Investment centers.

Question 24

The least common type of SBU in a retail firm is the:

A)Profit center.
B)Cost center.
C)Revenue center.
D)Investment center.

Question 25

The balanced scorecard measures the SBU's performance in all of the following areas except:

A)Learning and growth.
B)Managerial performance.
C)Customer satisfaction.
D)Internal business processes.
E)Accounting and tax compliance.

Question 26

Expenditures of revenue centers usually include:

A)Order-purchasing costs.
B)Order-getting costs.
C)Order-producing costs.
D)Order-scheduling costs.
E)Order-delivering costs.

Question 27

The replacing of controllable costs with non-controllable costs by a department is:

A)Budget slack.
B)Cost shifting.
C)Outsourcing.
D)Discretionary-cost method.
E)Engineered-cost approach.

Question 28

For production and support departments,a method of implementing cost centers that is input-oriented is the:

A)Budget slack.
B)Cost shifting approach.
C)Outsourcing approach.
D)Discretionary-cost method.
E)Engineered-cost approach.

Question 29

The evaluation of operating level employees by mid-level managers is:

A)Performance evaluation.
B)Operational control.
C)Goal congruence.
D)Principal-agent model.
E)Management control.

Question 30

Which one of the following is a drawback of decentralization?

A)Uses local knowledge only.
B)May hinder coordination among independent SBUs.
C)Provides better management control.
D)Provides goal congruence.
E)Offers an efficient method of performance evaluation.

Question 31

Bilbo owned two adjoining restaurants,the Pork Palace and the Chicken Hut.Each restaurant was treated as a profit center for performance evaluation purposes.Although the restaurants had separate kitchens,they shared a central baking facility.The principal costs of the baking area included materials,supplies,labor,and depreciation and maintenance on the equipment.Bilbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs.In April,the costs were $40,000,of which $16,000 were fixed.The Pork Palace served 4,400 tables,while the Chicken Hut served 3,600 tables.
The amount of joint cost that should have been allocated to the Pork Palace in April is calculated to be:

A)$8,000.
B)$10,800.
C)$13,200.
D)$18,800.
E)$21,200.

Question 32

Bilbo owned two adjoining restaurants,the Pork Palace and the Chicken Hut.Each restaurant was treated as a profit center for performance evaluation purposes.Although the restaurants had separate kitchens,they shared a central baking facility.The principal costs of the baking area included materials,supplies,labor,and depreciation and maintenance on the equipment.Bilbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs.In April,the costs were $40,000,of which $16,000 were fixed.The Pork Palace served 4,400 tables,while the Chicken Hut served 3,600 tables.
The amount of the joint cost that should have been allocated to the Chicken Hut in April is calculated to be:

A)$8,000.
B)$10,800.
C)$13,200.
D)$18,800.
E)$21,200.

Question 33

For production and support departments,a method of implementing cost centers that is output-oriented is the:

A)Budget slack method.
B)Cost shifting approach.
C)Outsourcing approach.
D)Discretionary-cost method.
E)Engineered-cost approach.

Question 34

Controllable margin is determined by subtracting short-term controllable fixed costs from the:

A)Long-term controllable fixed cost.
B)Contribution margin.
C)Variable costs.
D)Fixed costs.
E)Variable costs and fixed costs.

Question 35

Order-filling costs:

A)Include samples.
B)Cannot often be effectively managed as an engineered-cost center.
C)Usually have a relatively clear relationship to sales volume.
D)Include commissions.

Question 36

A model that has been used to better understand the key elements that contracts must have in order to achieve the desired objectives is the:

A)Performance evaluation.
B)Operational control.
C)Goal congruence.
D)Principal-agent model.
E)Management control.

Question 37

The evaluation by upper-level managers of the performance of mid-level managers is:

A)Performance evaluation.
B)Operational control.
C)Goal congruence.
D)Principal-agent model.
E)Management control.

Question 38

An employment contract is an agreement between the manager and top management designed to provide incentives for the manager to act:

A)Independently to achieve top management's objectives.
B)Consistently with that of other managers.
C)Independently to achieve the manager's objectives.
D)Independently to achieve the customer's objectives.

Question 39

The manager acting independently in such a way as to simultaneously achieve top management's objectives is:

A)Performance evaluation.
B)Operational control.
C)Goal congruence.
D)Principal-agent model.
E)Management control.

Question 40

In a non-profit organization,you are more likely to see:

A)Cost centers.
B)Revenue centers.
C)Profit centers.
D)Investment centers.

Question 41

Tokless Inc.planned and manufactured 400,000 units of its single product in 2010,its first year of operations.Variable manufacturing costs were $50 per unit of production.Planned and fixed manufacturing costs were $800,000.Marketing and administrative costs (all fixed)were $600,000 in 2010.Tokless Inc.sold 195,000 units of product in 2010 at $65 per unit.Full costing operating income for 2010 is calculated to be:

A)$1,525,000.
B)$1,850,000.
C)$1,935,000.
D)$2,260,000.
E)$2,750,000.

Question 42

Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:
Using revenue as an allocation base,the amount of costs allocated to the Lower School is calculated to be:

A)$240,000.
B)$320,000.
C)$400,000.
D)$480,000.
E)$600,000.

Question 43

Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:
Using revenue as an allocation base,the amount of costs allocated to the Kentucky research facility is calculated to be:

A)$24,000,000.
B)$18,000,000.
C)$9,000,000.
D)$14,000,000.
E)$26,000,000.

Question 44

Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:
Using revenue as an allocation base,the amount of costs allocated to the Upper School is calculated to be:

A)$240,000.
B)$360,000.
C)$400,000.
D)$480,000.
E)$600,000.

Question 45

Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:
Using revenue as an allocation base,the amount of costs allocated to the Middle School is calculated to be:

A)$240,000.
B)$320,000.
C)$400,000.
D)$480,000.
E)$600,000.

Question 46

WriterOne Inc.manufactures ball point pens that sell at wholesale for $0.80 per unit.Budgeted production in both 2009 and 2010 was 8,000 units.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:
Variable costing operating income for 2010 is calculated to be:

A)$149.
B)$430.
C)$655.
D)$1,030.
E)$1,180.

Question 47

WriterOne Inc.manufactures ball point pens that sell at wholesale for $0.80 per unit.Budgeted production in both 2009 and 2010 was 8,000 units.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:
Full costing operating income for 2009 is calculated to be:

A)$149.
B)$430.
C)$655.
D)$1,030.
E)$1,180.

Question 48

The six steps Ittner and Larcker propose for maximizing the value of nonfinancial measures when using a balanced scorecard include all the following except:

A)Continually refine the model.
B)Assess outcomes.
C)Gather data.
D)Base actions on the data.
E)Base actions on the findings.

Question 49

WriterOne Inc.manufactures ball point pens that sell at wholesale for $0.80 per unit.Budgeted production in both 2009 and 2010 was 8,000 units.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:
Full costing operating income for 2010 is calculated to be:

A)$149.
B)$430.
C)$655.
D)$1,030.
E)$1,180.

Question 50

The balanced scorecard is particularly important in difficult economic times because:

A)Financial measures are even more important.
B)Nonfinancial measures are even more important.
C)Financial measures may be distorted.
D)Nonfinancial measures may be distorted.

Question 51

Pane Inc.manufactures hair brushes that sell at wholesale for $2.60 per unit.Budgeted production in both 2009 and 2010 was 3,000 units.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:
Full costing operating income for 2009 is calculated to be:

A)$935.
B)$1,150.
C)$1,200.
D)$1,352.
E)$1,395.

Question 52

Pane Inc.manufactures hair brushes that sell at wholesale for $2.60 per unit.Budgeted production in both 2009 and 2010 was 3,000 units.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:
Variable costing operating income for 2009 is calculated to be:

A)$935.
B)$1,150.
C)$1,200.
D)$1,352.
E)$1,395.

Question 53

Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:
Using revenue as an allocation base,the amount of costs allocated to the Arizona research facility is calculated to be:

A)$25,000,000.
B)$31,000,000.
C)$44,000,000.
D)$19,000,000.
E)$36,000,000.

Question 54

The value stream income statement provides the following information not usually contained in the contribution income statement:

A)Contribution by CPC.
B)Contribution by profit center.
C)A separate accounting for the effect of inventory change on profit.
D)A separate accounting for the effect of productivity change on profit.

Question 55

The value stream income statement can be compared to:

A)Value chain analysis.
B)The contribution income statement.
C)A streamlined production process.
D)A streamlined accounting system.

Question 56

Tokless Inc.planned and manufactured 400,000 units of its single product in 2010,its first year of operations.Variable manufacturing costs were $50 per unit of production.Planned and fixed manufacturing costs were $800,000.Marketing and administrative costs (all fixed)were $600,000 in 2010.Tokless Inc.sold 195,000 units of product in 2010 at $65 per unit.Sales for 2010 are calculated to be:

A)$9,750,000.
B)$12,675,000.
C)$13,000,000.
D)$13,900,000.
E)$20,000,000.

Question 57

Pane Inc.manufactures hair brushes that sell at wholesale for $2.60 per unit.Budgeted production in both 2009 and 2010 was 3,000 units.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:
Variable costing operating income for 2010 is calculated to be:

A)$935.
B)$1,150.
C)$1,200.
D)$1,352.
E)$1,395.

Question 58

Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:
Using revenue as an allocation base,the amount of costs allocated to the Illinois research facility is calculated to be:

A)$17,000,000.
B)$33,000,000.
C)$14,000,000.
D)$28,000,000.
E)$21,000,000.

Question 59

WriterOne Inc.manufactures ball point pens that sell at wholesale for $0.80 per unit.Budgeted production in both 2009 and 2010 was 8,000 units.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:
Variable costing operating income for 2009 is calculated to be:

A)$149.
B)$430.
C)$655.
D)$1,030.
E)$1,180.

Question 60

Pane Inc.manufactures hair brushes that sell at wholesale for $2.60 per unit.Budgeted production in both 2009 and 2010 was 3,000 units.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:
Full costing operating income for 2010 is calculated to be:

A)$935.
B)$1,150.
C)$1,200.
D)$1,352.
E)$1,395.

Question 61

The balanced scorecard is widely used in performance evaluation and management control.In which regions around the world is it most and least,respectively,commonly used?

A)Europe,Asia
B)U.S and Canada,Africa
C)U.S.and Canada,South and Central America
D)South and Central America,Europe

Question 62

A company's operating income was $70,000 using variable costing for a given period.Beginning and ending inventories for that period were 45,000 units and 50,000 units,respectively.Ignoring income taxes,if the fixed overhead application rate was $8.00 per unit,what would operating income have been using full costing?

A)$30,000.
B)$140,000.
C)$110,000.
D)$100,000.
E)Cannot be determined from the information given.

Question 63

Profit center income statements are most meaningful to managers when they are prepared:

A)On a full cost basis.
B)On a cost behavior basis.
C)On a cash basis.
D)In a single-step format.
E)In a multiple-step format.

Question 64

During January,Lang,Inc.produced 10,000 units of product with costs as follows:
What is Lang's unit cost for January,calculated on the variable costing basis?

A)$6.20.
B)$7.20.
C)$7.50.
D)$8.50.
E)$9.50.

Question 65

Home Products Inc has failed to reach its planned activity level during its first two years of operation.The following table shows the relationship between units produced,sales,and normal activity for these years and the projected relationship for Year 3.All prices and costs have remained the same for the last two years and are expected to do so in Year 3.Income has been positive in both Year 1 and Year 2.
Because Home Products uses a full costing system,one would predict operating income for Year 3 to be:

A)Greater than operating income under variable costing.
B)Less than year 2.
C)The same as operating income under variable costing.
D)Less than the operating income under variable costing.
Reason for answer: inventory increased in year 3.

Question 66

A unit of an organization is referred to as a profit center if it has:

A)Authority to make decisions affecting the major determinants of profit,including the power to choose its markets and sources of supply.
B)Authority to make decisions affecting the major determinants of profit,including the power to choose its markets and sources of supply and significant control over the amount of invested capital.
C)Authority to make decisions over the most significant costs of operations,including the power to choose the sources of supply.
D)Authority to provide specialized support to other units within the organization.
E)Responsibility for combining material,labor,and other factors of production into a final output.

Question 67

In the principal-agent model,the manager is modeled as having all of the following elements except:

A)Risk aversion
B)Outcomes of actions
C)Provides effort
D)Decision Making

Question 68

Other things being equal,income computed by the variable costing method will exceed that computed by the full costing method if:

A)Units produced exceed units sold.
B)Units sold exceed units produced.
C)Fixed manufacturing costs increase.
D)Variable manufacturing costs increase.

Question 69

In an income statement prepared using the variable costing method,which of the following terms should appear?

A)A
B)B
C)C
D)D

Question 70

During October,Rover Industries produced 35,000 units of product with costs as follows:
What is Rover's unit cost for October,calculated on the variable costing basis?

A)$3.25.
B)$3.75.
C)$4.00.
D)$4.50.
E)$5.00.

Question 71

Operating income reported under full costing will exceed operating income reported under variable costing for a given period if:

A)Production equals sales for that period.
B)Production exceeds sales for that period.
C)Sales exceed production for that period.
D)The variable overhead exceeds the fixed overhead.

Question 72

A significant problem in comparing profitability measures among companies is the:

A)Lack of general agreement over which profitability measure is best.
B)Differences in the size of the companies.
C)Differences in the accounting methods used by the companies.
D)Differences in the dividend policies of the companies.
E)Effect of interest rates on net income.

Question 73

Of most relevance in deciding how or which costs should be assigned to an SBU is the degree of:

A)Avoidability.
B)Causality.
C)Controllability.
D)Reliability.

Question 74

The most important objective of a strategic performance measurement system is:

A)Budgeting.
B)Motivation.
C)Authority.
D)Variances.
E)Pricing.

Question 75

A unit of an organization is referred to as an investment center if it has:

A)Authority to make decisions affecting the major determinants of profit,including the power to choose its markets and sources of supply.
B)Authority to make decisions affecting the major determinants of profit,including the power to choose its markets and sources of supply and significant control over the amount of invested capital.
C)Authority to make decisions over the most significant costs of operations,including the power to choose the sources of supply.
D)Authority to provide specialized support to other units within the organization.
E)Responsibility for developing markets for and selling the output of the organization.

Question 76

Tokless Inc.planned and manufactured 400,000 units of its single product in 2010,its first year of operations.Variable manufacturing costs were $50 per unit of production.Planned and fixed manufacturing costs were $800,000.Marketing and administrative costs (all fixed)were $600,000 in 2010.Tokless Inc.sold 195,000 units of product in 2010 at $65 per unit.Variable costing operating income for 2010 is calculated to be:

A)$1,525,000.
B)$1,850,000.
C)$1,935,000.
D)$2,260,000.
E)$2,750,000.

Question 77

A company's operating income recently increased by 30% while its inventory increased in a given year.Which of the following accounting methods would be most likely to produce the favorable income results?

A)Full costing.
B)Direct costing.
C)Variable costing.
D)Standard direct costing.

Question 78

What costs are treated as product costs under variable costing?

A)Only variable costs.
B)Only variable production costs.
C)All variable costs.
D)All variable and fixed manufacturing costs.

Question 79

A company had income of $50,000 using variable costing for a given period.Beginning and ending inventories for that period were 80,000 units and 90,000 units,respectively.If the fixed overhead application rate were $10.00 per unit,what would operating income have been using full costing?

A)$(50,000).
B)$170,000.
C)$150,000.
D)$0.
E)Cannot be determined from the information given.

Question 80

Inventory under the variable costing method includes:

A)Direct materials cost,direct labor cost,but no factory overhead cost.
B)Direct materials cost,direct labor cost,and variable factory overhead cost.
C)Prime cost but not conversion cost.
D)Prime cost and all conversion cost.