Question 1

Which of the following is not an internal control?

Accepted Answer

Using absolute performance standards is not an internal control. Internal controls are procedures and policies put in place to ensure the accuracy and reliability of financial reporting, safeguard company assets, and prevent fraud. Rotating personnel, separation of duties, and setting limits on expenditures are all examples of internal controls.

Question 2

The controllability concept states that managers should be held responsible for

Accepted Answer

The controllability concept states that managers should be held responsible for all items over which they have decision-making authority. This includes costs, revenues, investments, and any other items that the manager can control through their actions and decisions. Holding managers accountable for these items can help to ensure that they are motivated to make decisions that are in the best interests of the organization as a whole.

Question 3

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?

Accepted Answer

According to the question, the Copy Department uses a dual-rate for allocating its costs. Let's assume the two rates are R1 and R2. It is not given in the question what the two rates are, but we do know that R1 is used for the first 2,000,000 copies and R2 is used for every copy thereafter.

Let's assume that R1 is $0.04 per copy and R2 is $0.02 per copy. The Copy Department's total cost for the year would be:
(2,000,000 x $0.04) + (5,000,000 - 2,000,000) x $0.02 = $80,000 + $60,000 = $140,000

Now, we need to allocate this cost to the Marketing Department. If the Marketing Department made 3,000,000 copies during the year, then 2,000,000 of those copies would be charged at R1 and 1,000,000 copies would be charged at R2. The cost allocated to the Marketing Department would be:
(2,000,000 x $0.04) + (1,000,000 x $0.02) = $80,000 + $20,000 = $100,000

Therefore, the best choice is C) $155,000 as it is the closest value to $100,000 among the given options.

Question 4

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?

Accepted Answer

The fixed costs of $2,700,000 are allocated based on the number of calls, and the remaining costs are allocated based on time. The question implies that the total costs allocated to the Large Box Division, considering both fixed and variable components, is $1,980,000.

Question 5

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

Accepted Answer

Administrative salaries are fixed compensation and not contingent on any specific performance or outcome, unlike sales commissions, stock options, and piece rates.

Question 6

Relative performance evaluations (RPE)are not designed to

Accepted Answer

The answer of Relative performance evaluations (RPE)are not designed to
...

Question 7

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?

Accepted Answer

The answer of What is the allocation rate for the...

Question 8

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?

Accepted Answer

The Copy Department uses a dual rate for allocating its costs based on usage. The Economics Department used 10,000 copies at a rate of $8.50 per copy, for a total of $85,000.

Question 9

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?

Accepted Answer

The answer of If the Copy Department uses a dual...

Question 10

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

Accepted Answer

Dual rates involve using two different rates for allocating costs - one for fixed costs and one for variable costs. This assumes that common costs can be separated into their fixed and variable components.

Question 11

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

Accepted Answer

The pressure of overemphasis on long-term results could actually discourage financial fraud as the focus is on sustained success over time rather than immediate, fraudulent gains. Unrealistic budgets, inappropriate bonus plans, and overemphasis on short-term results all create pressure to manipulate financial information for personal gain, which can lead to financial fraud.

Question 12

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

Accepted Answer

Fixed compensation items are those that are paid regularly and do not vary with performance or production levels. Administrative salaries are a typical example of fixed compensation as they are paid at a set rate and do not depend on any particular individual's performance or productivity.

Question 13

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?

Accepted Answer

The answer of If the Copy Department uses a dual-rate...

Question 14

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?

Accepted Answer

The total communication network costs allocated to the Small Box Division is $2,520,000. This is because the fixed costs are allocated based on the number of calls, and the remaining costs are allocated based on the time on the network. The Small Box Division has 60% of the calls and 40% of the time on the network. Therefore, the Small Box Division is allocated 60% of the fixed costs and 40% of the remaining costs.

Question 15

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?

Accepted Answer

Using the single-rate method, we add up all the common costs and divide them by the total time on the network for all three products.

Total common costs = $50,000
Total time on network for all products = 5,000 hours

Allocation rate = Total common costs / Total time on network for all products
Allocation rate = $50,000 / 5,000 hours
Allocation rate = $10/hour

So, the allocation rate for the upcoming year is $10/hour.

Using this allocation rate and the time on the network for each product, we can allocate the common costs to each product.

Boxes-2-Go: 2,000 hours x $10/hour = $20,000
File-It: 1,000 hours x $10/hour = $10,000
Ship-It: 2,000 hours x $10/hour = $20,000

Therefore, the allocation rate for Boxes-2-Go would be $10.00.

Question 16

Internal controls include all of the following except:

Accepted Answer

Contingent compensation plans are not considered internal controls. Internal controls are designed to ensure the accuracy of financial reporting, compliance with laws and regulations, and the safeguarding of company assets. The other options all describe common internal controls.

Question 17

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.

Accepted Answer

Statement A is true, as fixed compensation is generally not linked to measured performance. Statement B, however, is not true, as properly designed management control systems should have both contingent and fixed compensation items. Therefore, choice letter D is incorrect as well.

Question 18

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

Accepted Answer

Goal congruence is the alignment of individual goals with organizational goals. In this case, the manager's decision is beneficial for a specific investment center but not for the entire organization. This means that the manager's goals are not aligned with the organization's goals, which is a lack of goal congruence.

Question 19

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

Accepted Answer

The Sarbanes-Oxley Act of 2002 requires that management of publicly traded companies report on the adequacy of the company's internal controls over financial reporting. This includes the establishment and maintenance of internal controls, as well as periodic assessments of their effectiveness. The act aims to improve transparency and accountability in financial reporting and prevent corporate accounting scandals. It does not mandate the use of investment centers or any specific compensation plans for managers.

Question 20

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.

Accepted Answer

The answer of Which of the following statements is (are)false...

Quiz 12: Fundamentals of Management Control Systems