Exam 12: Fundamentals of Management Control Systems

Vargas,Inc.is just starting up.The management team has decided from the beginning that decentralization was the preferred organizational style and has made this clear in all interviews and discussions with potential employees.Mr.Ross,the CEO,is unsure about the best way to evaluate his division managers.He has heard the terms return on investment,residual income,economic value added,and flexible budgets but wants to know the pros and cons of each.Required: Briefly describe ROI,residual income,EVA,and other approaches to performance evaluation.Discuss,where appropriate,how to calculate the measure and problem areas in the development of some of the numbers.

Which of the following is not an internal control?

Smash Burgers is a fast-food restaurant that sells vegetarian burgers and hot dogs in a 1950s environment.The fixed operating costs of the company are $5,000 per month.The controlling shareholder,interested in product profitability and pricing,wants all costs allocated to either the burgers or the hot dogs.The following information is provided for the operations of the company: Burgers Hot Dogs Sales tor January 4,000 2,400 Sales tor February 6,400 2,400 Required: a.What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for January? For February? b.Hot dog sales for January and February remained constant.Did the amount of fixed operating costs allocated to hot dogs also remain constant for January and February? Explain why or why not.Comment on any other observations.

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

Explain the difference between fixed compensation and contingent compensation.Give an example of each.

The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department.The following budget has been prepared for the year. Available capacity 6,000,000 pages Budgeted us age: Marketing 3,600,000 pages Economics 1,800,000 pages Cost equation \ 120,000+\ 0.025 per page 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?

If a budgeted activity base is used as the base in cost allocation,each department's cost allocation will be predictable,and not influenced by the:

Which of the following correctly defines a principal-agent relationship?

A manager makes a decision that is beneficial for a specific investment center and for the entire organization.From the organization's perspective,this decision results in:

Barrington Box Enterprises has two divisions,large and small,that share the common costs of the company's communications network.The annual common costs are $4,500,000.You have been provided with the following information for the upcoming year: Calls Time on Network (hous) Large 100,000 120,000 Small 80,000 330,000 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 the total communication network costs allocated to the Large Box Division,assuming the company uses dual-rates to allocate common costs?

Describe the five basic types of decentralized units in responsibility accounting.

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

Jamison Industries has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: Connections Time on Network (hous) Commercial 60,000 120,000 Retail 80,000 150,000 Consumer 100,000 330,000 Required (use three decimal places in your calculations): a.What is the allocation rate for the upcoming year assuming Jamison uses the single-rate method and allocates common costs based on the number of connections? Calculate the allocated amount for each division.b.What is the allocation rate for the upcoming year assuming Jamison uses the single-rate method and allocates common costs based on the time on network? Calculate the allocated amount for each division.

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.

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

Banglor 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 Banglor's assembly lines? (CMA adapted)

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

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

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

Warehouse Services is a service department in the Vancouver Company,providing storage service to three operating departments.The company charges the costs of this department to operating departments on the basis of cubic feet occupied.Last year,Warehouse Services budgeted variable storage cost of $0.15 per cubic foot occupied.The budgeted total fixed cost was $120,000,and was determined by the long-term storage needs of the operating departments.Actual storage space occupied during the year,along with long-term storage needs of operating departments,is given below: Actual variable storage costs amounted to $0.16 per cubic foot occupied.Actual fixed storage costs were $123,000.Required: a.Compute the amount of variable storage cost that should be charged to each operating department at the end of the year for performance evaluation purposes.b.Compute the amount of fixed storage cost that should be charged to each operating department at the end of the year for performance evaluation purposes.