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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.

Decentralization refers to the delegation of decision-making authority to

D. subordinates.

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

more decisions made by relatively few individuals

Which of the following statements is false?

A. The U.S. military is a good example of an organization that is highly decentralized.

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

C. knowledge of local conditions

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

A. only for costs.

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

D. for investments in assets.

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

B. only for revenues.

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

C. for costs and revenues.

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

C. profit center.

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

B. revenue center.

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

A. cost center.

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

C. discretionary cost center

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

A. standard cost center

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?

C. investment center

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.

The controllability concept states that managers should be held responsible for

A. all items over which they have decision-making authority.

Relative performance evaluations (RPE) are not designed to

D. restate departmental goals so meaningful comparisons can be made.

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

A. Administrative salaries

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

A. Administrative salaries

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.

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

A. separated into their fixed and variable components.

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.

D. Neither A nor B is false.

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

C. overemphasis on long-term results.

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

B. report on the adequacy of the company's internal controls over financial reporting.

Which of the following is not an internal control?

D. using absolute performance standards.

Internal controls include all of the following except:

A. using contingent compensation plans.

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?

D. $25.00

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?

B. $10.00

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?

C. $1,980,000

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

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?

D. $170,000

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

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?

B. $92,500

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?

C. $155,000

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

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?

D. $175,000

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

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?

C. $600,000

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?

C. $4.00

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?

B. $600,000

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?

D. $565,000

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

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?

B. $1,093,333

If DCC uses a dual rate for allocating its costs based on usage, how much cost will be allocated to the Software Development Department?

C. $112,000

If DCC uses a dual rate for allocating its costs based on usage, how much cost will be allocated to the Training Department?

B. $210,000

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

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?

C. $159,000

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

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?

C. $217,500

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?

D. $203,100

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?

B. $98,800

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

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

B. only those costs that the manager can influence in the current period.

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)

D. depreciation on the manufacturing facility

Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n) (CMA adapted)

A. profit center.

When comparing performance report information for top management with that of lower-level management, (CMA adapted)

D. lower-level management reports are likely to contain more quantitative data and less financial data.

The least complex segment or area of responsibility for which costs are allocated is a(n) (CMA adapted)

D. cost center.

Which one of the following will not occur in an organization that gives managers throughout the organization maximum freedom to make decisions? (CMA adapted)

D. delays in securing approval for the introduction of new products

Which one of the following firms is likely to experience dysfunctional motivation on the part of its managers due to its allocation methods? (CMA adapted)

B. Manhattan Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building. It also uses ROI to evaluate the divisional performance.

Which of the following statements is (are) true regarding the master budget?
(A) A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan.
(B) A master budget consists of only a budgeted (a) income statement, (b) balance sheet, and (c) stockholder's equity statement.

D. Neither A nor B is true.

Long-range planning as a management function is more important

A. at top management levels.

Which of the following terms is not an alternative for master budget?

C. profit plan

A master budget

C. presents the plan for only one level of activity and does not adjust to changes in the level of activity.

A continuous (rolling) budget

D. drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed.

Budgetary slack can best be defined as

B. underestimation of budgeted revenues.

Which of the following statements is (are) true regarding the benefits associated with participative budgeting?
(A) Goal congruence by divisions means top management need not be concerned with overall profitability.
(B) Budget assumptions and estimates are prepared by those closest to the budgeted activity.

B. Only B is true.

In general, the first budget prepared is the

C. sales budget.

In developing a master budget for a manufacturing company, which one of the following items should be done first?

A. development of a sales budget.

The forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole is called

C. Delphi technique.

The statistical method of forecasting that relies heavily on regression models is called

A. econometric models.

The starting point in preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is

B. an estimate of productive capacity.

The number of units required for production is equal to

B. budgeted sales plus units in the ending inventory minus the units in the beginning inventory.

The amount of materials to be purchased during the budget period is equal to budgeted

B. total production needs plus units in the ending materials inventory minus the units in the beginning materials inventory.

Which of the following budgets does not require the production budget?

D. Marketing and administrative expenses.

The manufacturing overhead budget requires that costs be separated into their fixed and variable components. Another budget that has this requirement is the

D. marketing and administrative expenses.

Which of the following statements does not reflect a difficulty in preparing the marketing and administrative budget?

D. Marketing and administrative expenses normally have a one year time horizon.

Which one of the following budgets would be the last one prepared in the master budget preparation process?

E. Cash budget.

Cash disbursements would not include payments for

C. accounts receivable.

Which of the following types of accounts would not be included on a budgeted balance sheet?

E. revenues

Which of the following budgets is not required in a wholesale organization?

C. production

Which of the following budgets is not required in a service organization?

D. cost of goods sold

Sensitivity analysis can best be used in the budgeting process to

C. answer "what-if" questions regarding key projections.

The Sledge Hammer Company manufactures a line of high quality tools. The company sold 1,000,000 hammers at a price of $4 per unit last year. The company estimates that this volume represents a 20% share of the current hammers market. The market is expected to increase by 5%. Marketing specialists have determined that, as a result of a new advertising campaign and packaging, the company will increase its share of this larger market to 24%. Due to changes in prices, the new price for the hammer will be $4.30 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates. What are the estimated sales revenues in the coming year?

C. $5,418,000.

TRS is a large securities dealer. Last year, the company made 120,000 trades with an average commission of $120. Because of the general economic climate, TRS expects trade volume to decline by 20%. Fortunately, the average commission per trade is likely to increase by 10% because trades are expected to be large in the coming year. What are the estimated commission's revenues for TRS in the coming year?

B. $12,672,000

TLC Credit, Inc. has $35.0 million in consumer loans with an average interest rate of 12.0%. The bank also has $30.0 million in home equity loans with an average interest rate of 8.0%. Finally, the bank owns $5.0 million in corporate securities with an average interest rate of 6%. Next year, consumer loans will increase to $40.0 million because of a rate decrease to 10.0%, while home equity loans will increase to $32.0 million at an average interest rate of 6.5%. Unfortunately, the investment in corporate securities will decrease by 20% and the average interest rate will be only 9.0%. What is TLC's estimated change in revenues next year?

A. $460,000 decrease

What are estimated net sales for 2010, assuming the sales return/gross sales relationship remains constant?

A. $646,893

What is the estimated cost of goods sold for 2010 assuming the number of units sold does not change?

D. $357,000

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the third quarter is (in units)

A. 17,500 units.

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the second quarter is (in units)

C. 15,000 units.

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials. Budgeted purchases of raw materials in the third quarter would be (in lbs.)

A. 63,200 lbs.

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials. Budgeted purchases of raw materials in the second quarter would be (in lbs.)

C. 49,600 lbs.

Kaufman Industries has just completed its sales forecasts and its marketing department estimates that the company will sell 36,000 units during the upcoming year. In the past, management has maintained inventories of finished goods at approximately three months' sales. However, the estimated inventory at the start of the year of the budget period is only 6,000 units. Sales occur evenly throughout the year. What is the estimated production level (units) for the first month of the upcoming budget year?

C. 6,000

What is the production budget (in units) for 2008?

B. 65,000

What are the materials requirements (in feet) for 2008?

B. 336,250

One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. At the beginning of Month 1, there was 3,200 lbs. of materials on hand. Purchases of raw materials for Month 1 would be (in pounds)

C. 17,200.

What is the cash balance at year end?

C. $210,000

What is the amount of cash to be collected in the month of July?

B. $38,022

What is the amount of cash to be collected in the month of August?

A. $40,106

Assume the Task Company charges 1 1/2% on any balance that is not collected in the month following the month of sale. This charge will also change the collection percentages to 15% cash sales, 80% of the balance collected in the month following the sale, 16% the second month, 3% the third month. This stricter credit policy will reduce the estimated sales budgets by 7% each month. What is the amount of cash to be collected in July?

D. $36,242

Total cash receipts in Month 4 will be

D. $36,230.

Total cash receipts in Month 3 will be

B. $53,290.

The Richburn Manufacturing Company increased its merchandise inventory by $17,000 over the year. The company also granted its customers more liberal credit terms which increased the accounts receivable by $37,500. Sales were $975,000 and the accounts payable decreased by $27,500. The gross profit on sales is 45%. Selling and administrative expenses were $145,000; this included depreciation expense of $4,000. What were the cash disbursements for the year?

A. $721,750.

What are the estimated cash disbursements for inventories in June?

C. $335,250.

What are the estimated cash receipts from accounts receivable collections in June?

D. $239,250.

What are the estimated collections in July?

B. $131,250.

What are the budgeted merchandise purchases (in dollars) for May?

A. $338,250

What are the budgeted merchandise purchases (in dollars) for June?

C. $364,500

What are the budgeted cash disbursements during the month of June?

B. $419,400

What are the budgeted cash collections during the month of May?

A. $445,894

What are the budgeted number of inventory units that need to be purchased in July?

C. 12,250

The major objectives of any budget system are to (CIA adapted)

C. foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments.

From the perspective of corporate management, the use of budgetary slack (CMA adapted)

D. increases the likelihood of inefficient resource allocation.

The master budget process usually begins with the (CMA adapted)

D. sales budget.

What are total budgeted production costs for the year? (CIA adapted)

B. $2,180,000

Selana Company's total costs of operating five sales offices last year were $500,000, of which $70,000 represented fixed costs. Selana has determined that total costs are significantly influenced by the number of sales offices operated. Last year's costs and number of sales offices can be used as the basis for predicting annual costs. What would be the budgeted cost for the coming year if Selana were to operate seven sales offices? (CPA adapted)

B. $672,000

Normal cash collection experience has been that 50% of sales is collected during the month of sale and 45% in the month following sale. The remaining 5% of sales are never collected). Brown's budgeted cash collections for the third calendar quarter are (CMA adapted)

C. $414,000

What is the expected cash balance of the company at the end of the coming month? (CIA adapted)

B. $40,000

For the month of April, the total cash receipts from sales and collections on account would be (CIA adapted)

B. $3,781,600

The number of tables to be produced during August is

B. 2,340 tables.

Disregarding your response to the previous question, assume the required production for August and September is 1,600 and 1,800 units, respectively, and the July 31 raw materials (legs) inventory is 4,200 units. The number of table legs to be purchased in August is

A. 6,520 legs.

Assume that Lynndorf Corporation will produce 1,800 units in the month of September. How many employees will be required for the Assembly Department? (Fractional employees are acceptable since employees can be hired on a part-time basis. Assume a 40-hour week and a 4-week month.)

B. 3.75 employees.

Research has shown that having several levels of management participate in the budgetary process is beneficial to both the company and the employees. However, there are certain behavioral problems encountered in the process, one of which is the use of budgetary slack. Budgetary slack can best be described as (CMA adapted)

B. the planned overestimation of budgeted expenses.

Research has shown that having several levels of management participate in the budgetary process is beneficial to both the company and the employees. However, there are certain behavioral problems encountered in the process, one of which is the use of budgetary slack. The use of budgetary slack does not allow the preparer of the budgets to (CMA adapted)

D. use the budget to control subordinate performance.

Research has shown that having several levels of management participate in the budgetary process is beneficial to both the company and the employees. However, there are certain behavioral problems encountered in the process, one of which is the use of budgetary slack. From the perspective of corporate management, the use of budgetary slack (CMA adapted)

E. increases the likelihood of inefficient resource allocation.

Which of the following statements is (are) true?
(A) Divisional income statements do not include allocated common costs.
(B) The gross margin ratio is computed by dividing operating income by sales.

D. Neither A nor B is true.

After-tax income divided by sales is called the

B. profit margin ratio.

The measure (ratio) that reflects the performance of a manager regarding sales and cost of goods sold, but not other operating costs and income taxes, is called the

A. gross margin ratio.

If a division is evaluated using return on investment (ROI) without regard to how assets are financed, the denominator in the ROI calculation will be

C. total assets available.

Return on investment (ROI) can be decomposed into the asset turnover and the

B. profit margin ratio.

The asset turnover is a measure (ratio) of an investment center's ability to

B. generate sales.

Which of the following statements does not represent a limitation of using return on investment (ROI) for measuring and evaluating performance?

B. ROI cannot be used to compare divisions of different sizes.

How will increases in the following items affect return on investment (ROI)?

A. a

How will decreases in the following items affect return on investment (ROI)?

B. b

Which of the following statement(s) is/are true?
(A) If a division's return on investment (ROI) exceeds its cost of capital, then its residual income is positive.
(B) If a division's cost of capital equals its return on investment (ROI), then its residual income is zero.

C. both (A) and (B) are true

Residual income is similar to the _________ notion of profit as being the amount left over after all costs, including the cost of the capital employed in the division, are subtracted.

D. economist's

Which of the following statement(s) is/are false?
(A) Residual income can be used to compare divisions of different sizes.
(B) Residual income can be used to compare divisions that are profit centers.

C. both (A) and (B) are false

Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is that

B. Appropriate goal congruence behavior is more likely to occur when using residual income.

Which of the following should not be used for the cost of capital to compute residual income?

D. Return on investment (ROI).

A manager can always increase his/her return on investment (ROI) by

C. increasing the operating profit margin.

Which one of the following items would most likely not be incorporated into the calculation of a division's investment base when using the residual income approach for performance measurement and evaluation?

A. Land being held by the division as a potential site for a new plant and parking lot.

Which of the following items would not be an example of an economic value added (EVA) adjustment to eliminate accounting distortions?

D. Common stock

Which of the following items would not require an adjustment to capital employed when using economic value added (EVA)?

C. Preferred stock

Economic value added (EVA) is a concept that is closely related to residual income. EVA is computed by

A. subtracting the adjusted total cost of capital from the adjusted after-tax income.

Economic value added (EVA) assumes that which of the following GAAP expenses would not result in an adjustment to either the income or the capital employed?

B. Use of process costing rather than job costing

Which of the following statements regarding the use of historical costs and current costs to compute return on investment (ROI) is (are) true?
(A) Historical costs are based on the original costs to acquire a long-term asset, while current costs represent the costs to replace the long-term asset.
(B) For a specific multiple-period project, the return on investment (ROI) computed using current costs will generally be less than the ROI computed using historical costs.

C. both (A) and (B) are true

Level return on investments (ROI) over the life of a long-term project is more likely when ROI is computed using

D. current costs and gross book values.

Using ending balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets

A. early in the year and dispose of assets late in the year.

Using beginning balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets

A. early in the year and dispose of assets late in the year.

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