Deck 9: Budgeting and Responsibility Accounting

Question 1

Which of the following is not a generic example of a responsibility centre?

A) A cost centre.
B) A profit centre.
C) An asset centre.
D) A revenue centre.
E) An investment centre.

Answer 1

C

Question 2

The head of a profit centre is held accountable for which of the following?

A) Cost.
B) Cost and revenue.
C) Revenue.
D) Cost, revenue and assets.
E) Return on investment.

Answer 2

B

Question 3

Which of the following statements is untrue?

A) An engineered cost centre is a centre where an output can be quantitatively measured and there is a reasonably good understanding of the centre's input / output relationship.
B) The training group in a hotel represents a discretionary cost centre as there is no readily measurable output.
C) To motivate kitchen staff to act in a way that is consistent with increasing revenue, the kitchen could be made into a profit centre.
D) Control can be seen to be relatively incomplete in a discretionary cost centre.
E) Of the four generic types of responsibility centre, profit centres encompass the greatest span of accountability.

Answer 3

E

Question 4

Which of the following is not a role of the budget?

A) Expenditure authorisation.
B) Attention directing.
C) Job sequencing.
D) Motivation.
E) Performance evaluation.

Question 5

The Majestic Restaurant has provided you with the following data for its last financial year:
$\bullet$ Contribution margin: $400,000
$\bullet$ Fixed costs: $80,000
$\bullet$ Assets $900,000
Majestic's head office requires a 10% rate of return on assets. What was Majestic Restaurant's residual income in the last financial year?

A) $320,000.
B) $230,000.
C) $90,000.
D) $392,000.
E) $312,000.

Question 6

The Honolulu HighSurf Hotel has a foyer shop that sells jars of pineapple marmalade. The shop manager likes to keep 20% of the following month's projected sales of marmalade in stock. Projected sales of marmalade in the next two months are:
$$\begin{array} { | l | c | c | } \hline & \text { July } & \text { August } \\\hline \text { Marmalade jars to be sold } & 300 & 420 \\\hline\end{array}$$ The shop has projected it will be holding 50 jars of marmalade in stock on 1^st July.
Required:
If the jars of marmalade cost $3 each, what is the cost of marmalade purchases to be made in July?

A) $1,002.
B) $1,152.
C) $972.
D) $900.
E) $750.

Question 7

Which of the following is not an organisational benefit deriving from promoting manager participation in budget setting?

A) It can result in a more informed budgetary process.
B) It can result in managers feeling greater commitment to achieving the targets set.
C) It can result in managers engineering budget slack.
D) It can facilitate manager learning.
E) All of the above are benefits arising from manager participation in budget setting.

Question 8

At the Fawlty Towers Hotel, it takes the Housekeeping Manager 2 hours to supervise 4 Room Maids' cleaning of 20 rooms. The Housekeeping manager is paid $25 per hour and the Room Maids are paid $16 per hour. What will be the total labour cost to clean all of the hotel's 32 rooms?
A ) $178.00
B) $200.00
C) $284.80
D) $342.40
E) $262.60

Question 9

In a kitchen that produces and sells meat pies, what is the right sequence in which to prepare the following three budgets: 1) budgeted meat pie ingredient purchases; 2) budgeted meat pie production; and 3) budgeted meat pie sales?
A )1) budgeted meat pie ingredient purchases; 2) budgeted meat pie production; and 3) budgeted meat pie sales.
B) 1) budgeted meat pie sales; 2) budgeted meat pie production; and 3) budgeted meat pie ingredient purchases.
C) 1) budgeted meat pie ingredient purchases; 2) budgeted meat pie sales; and 3) budgeted meat pie production.
D) 1) budgeted meat pie sales; 2) budgeted meat pie ingredient purchases; and 3) budgeted meat pie production.
E) 1) budgeted meat pie ingredient production; 2) budgeted meat pie sales; and 3) budgeted meat pie ingredient purchases.

Question 10

Which of the following statements is not true?
A Budgetary participation refers to the degree to which managers are involved in setting the budgetary targets for which they will be held accountable for.
B) Budgets can always serve as a strong basis for appraising performance.
C) Management rewards that result from achieving budgetary targets include salary increments, promotion, and enhanced peer and self esteem.
D) Failure to achieve a budgeted sales level can compromise planning and result in wasted resources.
E) Psychological researchers suggest that higher motivation results when targets are just beyond reach, but not so hard that the manager views them as unreasonable.

Question 11

Which of the following statements is true?

A) An engineered cost centre is a centre where an output can be quantitatively measured and there is a reasonably good understanding of the input / output relationship.
B) A laundry in a hotel represents a discretionary cost centre as there is no readily measurable output.
C) In a profit centre, staff are held accountable for maximising return on investment.
D) The most widely used measure in investment centres is residual income.
E) Of the four generic types of responsibility centre, profit centres encompass the greatest span of accountability.

Question 12

Budgetary slack refers to:

A) The budget target in a discretionary cost centre.
B) Giving middle managers the opportunity to participate in setting budgetary targets.
C) A budget that is hard for managers to achieve.
D) A budget that is easy for managers to achieve.
E) None of the above.

Question 13

Residual income is calculated as:

A) Investment centre % profit margin - Investment centre's % required rate of return.
B) Investment centre profit - (Investment centre's assets X Investment centre's required rate of return).
C) Investment centre profit - Interest paid on debt that finances investment centre assets.
D) Investment centre profit - Investment centre share of dividend to be paid to equity holders.
E) None of the above.

Question 14

The human resources department in most organisations can be viewed as:

A) An administrative discretionary cost centre.
B) A marketing discretionary cost centre.
C) An engineered discretionary cost centre.
D) A standards based discretionary cost centre.
E) None of the above.

Question 15

Which of the following statements is true?

A) Raising budget targets is an effective way to ensure higher manager performance.
B) An accurate forecast budget will frequently be different to a maximum motivation budget.
C) Budgets represent important control mechanisms as they can always be used as a strong basis for appraising manager performance.
D) Greater budget participation is positively related to greater manager disenchantment.
E) Political issues in budgeting should all be eradicated by senior management.

Question 16

A hotel has a foyer shop that sells tourist clothing and souvenirs. The shop manager likes to keep 80% of the following month's projected T-shirt sales in stock. Projected T-shirt sales in the next two months are:
$$\begin{array} { | l | c | c | } \hline & \text { July } & \text { August } \\\hline \text { Projected number of T-shirts to be sold } & 480 & 560 \\\hline\end{array}$$
The shop has projected it will be holding 384 T-shirts in stock on 1^st July.
Required:
If the T-shirts cost $2.50 each, what is the cost of T-shirt purchases to be made in July?

A) $1,200.
B) $1,400.
C) $240.
D) $544.
E) $1,360.

Question 17

The Honeymoon Hotel has a foyer shop that sells souvenir T-shirts. The shop manager likes to hold 40% of the following month's projected T-shirt sales in stock. Projected T-shirt sales in the next two months are:
$$\begin{array} { | l | c | c | } \hline & \text { August } & \text { September } \\\hline \text { T-shirt sales } & 500 & 400 \\\hline\end{array}$$
The shop has projected it will be holding 200 T-shirts in stock on 1^st August.
Required:
If the T-shirts cost $5 each, what is the cost of T-shirt purchases to be made in August?

A) $2,000
B) $2,100
C) $2,300
D) $2,500
E) None of the above

Question 18

The Hearty Feast restaurant has a strong reputation for its meat pies. The head chef likes to hold 5% of the following month's projected pie sales in stock. The meat pie chef is paid $15 per hour to produce a batch of 10 meat pies. Projected meat pie sales in the next two months are:
$$\begin{array} { | l | c | c | } \hline & \text { August } & \text { September } \\\hline \text { Meat pie sales } & 1,000 & 1,200 \\\hline\end{array}$$ The head chef has projected the restaurant will be holding a balance of 50 meat pies on 1^st August.
Required:
What is the budgeted cost of labour for the meat pie chef in August?

A) $1,480
B) $1,490
C) $1,500
D) $1,515
E) None of the above

Question 19

Which of the following statements is not true.

A) Responsibility accounting involves sub-dividing an organisation into units of accountability.
B) Budgeting involves allocating resources to an organisation's sub-units.
C) As budgeting is a technical exercise, it is misleading to talk of behavioural issues associated with budgeting.
D) Budgets generally play an important role in facilitating organisational control.
E) The budget comprises many schedules that feed into an overarching schedule that is widely referred to as the master budget.

Question 20

Which of the following statements is not true?

A) The head of a cost centre is held accountable for the expenditures incurred by her department.
B) The head of a revenue centre is held accountable for the revenues generated by her department.
C) The head of a profit centre is held accountable for the expenditures incurred and also the revenues generated by her department.
D) The head of an investment centre is held accountable for the profit generated by her department relative to the assets held in her department.
E) The most widely-used performance measure in investment centres is Residual Income.

Question 21

Which of the following statements is not true?

A) Accounting controls are more effective means of control in a discretionary cost centre than an engineered cost centre.
B) Goal incongruence is present when the goal of an organisation's department differs from the goal of the whole organisation.
C) It is sometimes difficult to hold a marketing manager tightly accountable for sales, as sales are affected by many factors beyond the marketing manager's control.
D) Profit is a less than perfect measure of performance for a range of reasons that include the fact that monetary measures do not exactly measure all aspects of input or output.
E) In some situations it can be a fairly arbitrary decision as to whether a centre is established as a cost centre or a profit centre.

Question 22

A kitchen uses half a kilogram of meat to make a meat pie. It has been estimated that 800 pies will be made in July and 900 pies will be made in August. The chef likes to hold the kitchen's meat inventory at 10% of the following month's needs. If the 30 June inventory of meat is 40 kilograms, how many kilograms of meat should be purchased during July?

A) 400 kgs
B) 405 kgs
C) 410 kgs
D) 425 kgs
E) 450 kgs

Question 23

In the last financial year a company made a profit of $80,000 on sales of $1,600,000. It has assets of $400,000 and a required rate of return 8%. It earns 3% on its business bank account. The company's residual income is:

A) 5%.
B) $48,000.
C) 8%.
D) $68,000.
E) None of the above.

Question 24

Suppose that a department manager deliberately underestimates next year's revenue for his department by $24,000. This is an example of:

A)Budgetary participation.
B) Discretionary budget exercise.
C) Exercising appropriate caution.
D) Budgetary self-actualisation.
E) Creating budgetary slack.

Question 25

Budgetary roles include all of the following except:

A) Authorising expenditure
B) Directing managers' attention
C) Reducing political behaviour
D) Promoting manager motivation
E) Providing a basis for performance evaluation

Question 26

The Tallebudgera Tea Rooms has a foyer shop that sells souvenir T-shirts. The shop manager likes to hold 20% of the following month's projected T-shirt sales in stock. Projected T-shirt sales in the next two months are:
$$\begin{array} { | l | c | c | } \hline & \text { August } & \text { September } \\\hline \text { T-shirt sales } & 600 & 500 \\\hline\end{array}$$
The shop has projected it will be holding 120 T-shirts in stock on 1^st August.
Required:
If the T-shirts cost $4 each, what is the cost of T-shirt purchases to be made in August?

A)$2,160
B) $2,240
C) $2,320
D) $2,440
E) None of the above

Question 27

Which of the following statements is incorrect?
Responsibility accounting involves:

A) Segmenting an organisation into units of accountability based on function, geographic location or product.
B) Managers being held accountable for the performance of their department.
C) Determining the aspects of accountability for each manager based on their scope of influence.
D) Decentralizing authority and control by delegating responsibility to each unit.
E) Centralizing an organisation's accountability based on function, geographic location or product.

Question 28

In the last financial year a company made a profit of $100,000 on sales of $1,250,000. It has assets of $800,000 and a required rate of return 9%. What was the company's residual income in the last financial year?

A) $72,000
B) $28,000
C) $125,500
D) $12,500
E) $100,000