Deck 10: Management Control Systems

Question 1

_____ are awards made when performance is maintained or exceeds a specific measure.

A) Bonuses
B) Stock options
C) Profit sharing
D) Gain sharing

Answer 1

A

Question 2

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The static budget variance for supervision is

A) £50 U.
B) £50 F.
C) 100 U.
D) 100 F.

Answer 2

A

Question 3

A budget that is developed around one particular level of activity is

A) a static budget.
B) a continuous budget.
C) an incremental budget.
D) none of these.

Answer 3

A

Question 4

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The total flexible budgeted costs for 2004 are

A) £10,560.
B) £13,460.
C) £13,510.
D) £11,340.

Question 5

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The flexible budget variance for supervision for 2004 is

A) £67 F.
B) £67 U.
C) £50 F.
D) none of these.

Question 6

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The flexible budget variance for total cost for 2004 is

A) £90 U.
B) £140 U.
C) £230 U.
D) £50 U.

Question 7

A budget developed for a single level of activity is called a(n)

A) continuous budget.
B) incremental budget.
C) static budget.
D) flexible budget.

Question 8

Which of the following is not an essential element of responsibility accounting?

A) assigning responsibility
B) establishing performance measures
C) evaluating performance
D) ridiculing poor performers

Question 9

Which of the following is not an objective of responsibility accounting?

A) to redesign processes to be more effective
B) to align individual and organizational goals
C) to influence behaviour
D) to increase profitability

Question 10

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The flexible budget for direct materials cost in 2004 is

A) £3,500.
B) £3,600.
C) £3,900.
D) £4,000.

Question 11

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The flexible budget for rent in 2004 is

A) £100.
B) £200.
C) £2,900.
D) £2,950.

Question 12

If the static budget variance for materials is £200 F and the budgeted cost for materials is £52,000, then the actual cost of materials is

A) £52,000.
B) £52,200.
C) £51,200.
D) £51,800.

Question 13

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The static budget variance for total fixed overhead is

A) £50 U.
B) £50 F.
C) £-0-.
D) £100 U.

Question 14

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The flexible budget variance for indirect labour for 2004 is

A) £1,250 F.
B) £50 F.
C) £50 U.
D) £1,200 U.

Question 15

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The static budget for total variable costs is

A) £90 U.
B) £180 U.
C) £790 F.
D) £880 F.

Question 16

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The static budget variance for rent is

A) £100 F.
B) £100 U.
C) £-0-.
D) £50 U.

Question 17

When budgets are used for control,

A) budgeted amounts from different years are compared.
B) actual amounts from different years are compared.
C) budgeted amounts are compared to actual amounts.
D) None of these is correct.

Question 18

_____ refers to a global incentive that encourages employees to contribute to the overall financial well-being.

A) Bonuses
B) Demotion
C) Profit sharing
D) Gain sharing

Question 19

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The static budget variance for direct materials is

A) £100 F.
B) £100 U.
C) £400 F.
D) £400 U.

Question 20

Armati, SA., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, SA., had the following budgeted data:
The following actually occurred:
The static budget variance for supplies is

A) £10 U.
B) £10 F.
C) £50 U.
D) £50 F.

Question 21

Harald, SA., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for purchasing in an activity-based performance report?

A) £50 F
B) £50 U
C) £100 U
D) none of the above

Question 22

Glenn, SA., has done a cost analysis for its production of T-shirts. The following activities and cost drivers have been developed: Following are the actual costs of producing 75,000 T-shirts: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for setups in an activity-based performance report?

A) £1,000 F
B) £2,000 F
C) £3,000 F
D) none of the above

Question 23

Villafane, SA., has done a cost analysis for its production of decals. The following activities and cost drivers have been developed: Following are the actual costs of producing 35,000 decals: 1,000 machine hours; 5 batches; 30 purchase orders
The following variances were given in the activity performance report:
What is the activity variance for purchasing?

A) £500 U
B) £100 U
C) £50 U
D) none of the above

Question 24

The budget most appropriate for control purposes is the

A) static budget.
B) flexible budget.
C) continuous budget.
D) incremental budget.

Question 25

Glenn, SA., has done a cost analysis for its production of T-shirts. The following activities and cost drivers have been developed: Following are the actual costs of producing 75,000 T-shirts: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for purchasing in an activity-based performance report?

A) £1,000 U
B) £2,000 U
C) £3,000 U
D) none of the above

Question 26

Harald, SA., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for total costs in an activity-based performance report?

A) £700 U
B) £700 F
C) £800 U
D) none of the above

Question 27

Harald, SA., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for maintenance in an activity-based performance report?

A) £50 F
B) £50 U
C) £550 U
D) £550 F

Question 28

The static budget variance for materials is £200 F and the budgeted cost for materials is £52,000. If the budgeted volume is 13,000 and the actual volume is 13,500, then the flexible budget variance is

A) £2,200 F.
B) £3,000 F.
C) £2,000 F.
D) £1,800 F.

Question 29

Harald, SA., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for setups in an activity-based performance report?

A) £50 F
B) £50 U
C) £800 U
D) none of the above

Question 30

If production was budgeted at 400 units and the actual production was 420 units, what would be the static budget variance for materials if the actual cost of materials was £4,150 and the budgeted cost per unit is £10?

A) £50 F
B) £200 U
C) £100 F
D) £150 U

Question 31

Glenn, SA., has done a cost analysis for its production of T-shirts. The following activities and cost drivers have been developed: Following are the actual costs of producing 75,000 T-shirts: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for total costs in an activity-based performance report?

A) £1,000 F
B) £2,000 F
C) £3,000 F
D) none of the above

Question 32

Villafane, SA., has done a cost analysis for its production of decals. The following activities and cost drivers have been developed: Following are the actual costs of producing 35,000 decals: 1,000 machine hours; 5 batches; 30 purchase orders
The following variances were given in the activity performance report:
What is the actual cost of setups?

A) £160
B) £190
C) £300
D) none of the above

Question 33

Harald, SA., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for machining in an activity-based performance report?

A) £50 F
B) £50 U
C) £800 U
D) none of the above

Question 34

Flexible budgets do NOT provide

A) expected costs for a range of activity.
B) budgeted costs for the actual level of activity.
C) budgeted costs for a predetermined level of activity.
D) expected costs for the actual performance level.

Question 35

Villafane, SA., has done a cost analysis for its production of decals. The following activities and cost drivers have been developed: Following are the actual costs of producing 35,000 decals: 1,000 machine hours; 5 batches; 30 purchase orders
The following variances were given in the activity performance report:
What is the activity variance for design?

A) £40 F
B) £30 U
C) £15 F
D) £100 U

Question 36

Glenn, SA., has done a cost analysis for its production of T-shirts. The following activities and cost drivers have been developed: Following are the actual costs of producing 75,000 T-shirts: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for maintenance in an activity-based performance report?

A) £1,000 U
B) £3,000 U
C) £3,000 F
D) none of the above

Question 37

If production was budgeted at 400 units and the actual production was 420 units, what would be the flexible budget variance for materials if the actual cost of materials was £4,150 and the budgeted cost per unit is £10?

A) £50 F
B) £200 U
C) £100 F
D) £150 U

Question 38

Glenn, SA., has done a cost analysis for its production of T-shirts. The following activities and cost drivers have been developed: Following are the actual costs of producing 75,000 T-shirts: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for inspection in an activity-based performance report?

A) £1,000 F
B) £2,000 F
C) £3,000 F
D) none of the above

Question 39

Glenn, SA., has done a cost analysis for its production of T-shirts. The following activities and cost drivers have been developed: Following are the actual costs of producing 75,000 T-shirts: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for machining in an activity-based performance report?

A) £1,000 U
B) £2,000 U
C) £3,000 U
D) none of the above

Question 40

Villafane, SA., has done a cost analysis for its production of decals. The following activities and cost drivers have been developed: Following are the actual costs of producing 35,000 decals: 1,000 machine hours; 5 batches; 30 purchase orders
The following variances were given in the activity performance report:
What is the actual cost of machining?

A) £24,970
B) £25,010
C) £25,050
D) none of the above

Question 41

Which of the following is NOT a key feature of an ideal budgetary system?

A) controllable costs
B) single measure for performance
C) incentives
D) frequent feedback

Question 42

_____ exists when managers deliberately underestimate revenues or overestimate costs to provide flexibility

A) Realistic standards
B) Monetary incentives
C) Budgetary slack
D) Management by exception

Question 43

Figure 1
Torino, SA., manufactures machine parts. Torino has developed a static budget for its plant at an activity level of 10,000 direct labour hours for the month of March. The actual level of activity was 11,000 hours. The following table summarizes the static budget and the actual costs for March:
Refer to Figure 1. Which of the following describes how well the plant manager performed for the month of March?

A) The manager performed a good job in controlling costs.
B) The manager performed a poor job in controlling costs.
C) The manager exceeded his goals.
D) both a and c

Question 44

Which of the following is NOT a potential disadvantage of participative budgeting?

A) pseudoparticipation
B) performance feedback
C) unrealistic standards
D) budgetary slack

Question 45

Figure 1
Torino, SA., manufactures machine parts. Torino has developed a static budget for its plant at an activity level of 10,000 direct labour hours for the month of March. The actual level of activity was 11,000 hours. The following table summarizes the static budget and the actual costs for March:
Refer to Figure 1. What is the flexible budget variance for March?

A) £-0-
B) £1,200 F
C) £900 U
D) £1,100 F

Question 46

Myopic behaviour occurs when

A) actions improve budgetary performance in the short-run but are harmful in the long run.
B) there is uncertainty.
C) there is focus on immediate costs.
D) actions improve budgetary performance in the distant time horizon.

Question 47

Which of the following is NOT a key feature of a budgetary system that promotes positive managerial performance?

A) frequent feedback on performance
B) a single measure of performance
C) monetary and nonmonetary incentives
D) participative budgeting

Question 48

The ideal budget system creates

A) extreme caution in managers.
B) drive and risk avoidance in managers.
C) drive and goal congruence in managers.
D) none of the above.

Question 49

When top management assumes total control of the budgeting process and seeks only superficial participation from lower-level managers, this practice is called

A) pseudoparticipation
B) false participation
C) participative budgeting
D) none of the above

Question 50

An example of a negative incentive is

A) promotion.
B) nonfinancial incentive.
C) feedback reports.
D) termination of employment.

Question 51

Goal congruence means

A) there is alignment of organizational and managerial goals.
B) the organization is aligned to the needs of the environment.
C) the organization is aligned to shareholder goals.
D) there is no divergence between organization and stockholder goals.

Question 52

Which of the following is NOT an advantage of participative budgeting?

A) encourages incrementalism
B) encourages communication
C) encourages responsibility
D) encourages creativity

Question 53

Which of the following is NOT a key feature of an ideal budgetary system?

A) participation
B) incentives
C) accountability for noncontrollable costs
D) feedback on performance

Question 54

Figure 1
Torino, SA., manufactures machine parts. Torino has developed a static budget for its plant at an activity level of 10,000 direct labour hours for the month of March. The actual level of activity was 11,000 hours. The following table summarizes the static budget and the actual costs for March:
Refer to Figure 1. What is the flexible budget for March?

A) £28,800
B) £29,800
C) £30,900
D) £31,680

Question 55

Which budget should be used to determine how efficiently managers controlled costs?

A) master budget
B) flexible budget
C) static budget
D) cash budget

Question 56

Which of the following must be addressed if budgets are to be used in performance evaluation?

A) determine how budgeted amounts should be compared with actual results
B) consider the impact of budgets on human behaviour
C) both a and b
D) neither a nor b

Question 57

When the reaction to a budget is negative, resulting in managerial behaviour that is negative for the organization, the resulting behaviour is known as

A) dysfunctional behaviour.
B) psychopathic behaviour.
C) congruent behaviour.
D) sociopathic behaviour.

Question 58

A flexible-based budgeting system

A) uses functional-based line items.
B) splits costs into variable and fixed components.
C) prepares budgets for a range of activity levels.
D) All of the above are correct.

Question 59

Controllable costs are those that a manager

A) has no authority over.
B) cannot avoid.
C) does not participate in authorizing.
D) can influence through decision making.

Question 60

Participative budgeting offers which of the following advantages?

A) It offers nonmonetary incentives to employees that may lead to higher levels of employee performance.
B) It involves individuals whose knowledge of local conditions may enhance the budgeting process.
C) It communicates a sense of employee responsibility.
D) All of the above are advantages of participative budgeting.

Question 61

What is the best description listed below of a discretionary cost centre?

A) a cost centre with defined relationships between effort and employee pay
B) a cost centre that allows employees to define the centre's goals using their own discretion
C) a cost centre that does not have clearly defined relationships between effort and accomplishments
D) a cost centre that designates ten percent of its budgeted costs toward building employee morale.

Question 62

One of the ways that functional-based accounting systems may inadvertently induce managers to act against the company's best interest is to

A) pass along defective parts to avoid an unfavorable materials usage variance
B) produce less units than demanded to avoid a labour efficiency variance
C) acquire materials in large quantities to avoid a favorable materials price variance
D) use more experienced workers to avoid a labour rate variance

Question 63

Before implementing a responsibility accounting system, all areas of authority and responsibility within an organization must be clearly defined. Explain how this accomplished and why it is important.

Question 64

Riemay, SA., has done a cost analysis for its production of sports cards. The following activities and cost drivers have been developed:
Following are the actual costs of producing 35,000 cards:
60 labour hours; 500 machine hours; 5 batches; 30 purchase orders
The following variances were given in the activity performance report:
Required:
Find the missing values.
Prepare an activity-based performance report in good form

Question 65

Classics, SA., uses a flexible budget for overhead costs. The company expects to produce 20,000 units of the product it manufactures. Half of the units require 0.50 direct labour hours per unit. The remainder requires 0.75 direct labour hours per unit. The cost formulas for each of the four overhead items is as follows:
Required:

a.
Prepare an overhead budget for the expected activity level for the coming year.
b.
Prepare an overhead budget that reflects production that is 10 percent higher than expected.

Question 66

Which of the following departments is likely to be evaluated as a discretionary cost centre?

A) the machining department of an automotive division
B) the food products division of a large PLc
C) the personnel department of an automotive division
D) the Men's shoe department of a department store

Question 67

What is budgetary slack? Why does it occur? What is the primary indication that budgetary slack is occurring?

Question 68

Which cost centre listed below is evaluated with the aid of flexible budgets drawn up for the actual level of activity?

A) discretionary cost centres
B) standard cost centres
C) non-relational cost centres
D) flexible cost centres

Question 69

Which of the following facets of a responsibility accounting system is most likely to lead employees to distrust the entire budgeting and performance evaluation system?

A) tight standards
B) well-defined standards
C) budget participation
D) static qualifiers

Question 70

Mertz, SA., has done a cost analysis for its production of flags. The following activities and cost drivers have been developed:
Following are the actual costs of producing 75,000 flags:
1,000 machine hours; 15 batches; 10 purchase orders
Required:
Prepare an activity-based performance report.

Question 71

Klamaty, SA., is looking for feedback on performance. The company compares the budget for the year with the actual costs.
Klamaty, SA., had the following budgeted data:
Required:

a.
Prepare a performance report for all costs showing static budget variances.
b.
Prepare a performance report for all costs showing flexible budget variances.

Question 72

The functional-based responsibility accounting model is appropriate for

A) relatively stable environments
B) dynamic environments
C) both stable and dynamic environments
D) neither stable nor dynamic environments

Question 73

Figure 1
Torino, SA., manufactures machine parts. Torino has developed a static budget for its plant at an activity level of 10,000 direct labour hours for the month of March. The actual level of activity was 11,000 hours. The following table summarizes the static budget and the actual costs for March:
Refer to Figure 1. Which of the following describes the flexible budget variance for March?

A) The fixed overhead variance is £100 F.
B) The variable overhead variance is £1,000 U.
C) The variable overhead variance is £1,100 F.
D) both a and c

Question 74

Timothy, SA., uses a flexible budget for overhead costs. The company expects to produce 40,000 units of the product it manufactures. Each unit requires 0.40 direct labour hours. The cost formulas for each of the four overhead items (where X is measured in direct labour hours) is as follows:
Required:

a.
Prepare an overhead budget for the expected activity level for the coming year.
b.
Prepare an overhead budget that reflects production that is 25 percent lower than expected.

Question 75

Why should motivational considerations be a part of budget planning and utilization? List several ways to motivate employees with budgets.

Question 76

Which of the following departments would NOT be classified as a profit centre?

A) the accounting department of a large PLc
B) the automotive division of a large PLc
C) the hardware department of a department store
D) the men's shoe department of a department store

Question 77

A manager of a profit centre:

A) does not control revenues.
B) does not control expenses.
C) does not control investments.
D) only controls revenues.

Question 78

Glock, SA., is looking for feedback on performance. The company compares the budget for the year with the actual costs.
Glock had the following budgeted data:
Required:
Prepare a flexible budget for production costs for the following range of activity: 2,500 units; 4,000 units; 6,000 units.

Question 79

Make a distinction between the manager's basic responsibilities for the following types of responsibility centres:
a.
cost centre
b.
revenue centre
c.
profit centre
d.
investment centre

Question 80

What results could be expected by placing pressure on management to perform at certain levels?

A) Lower level managers could become frustrated if they believe upper management is placing a burden on them for costs out of their control.
B) Managers may resort to unethical practices to compensate for unfavorable results.
C) Efforts to deal with immediate controllable factors could become diluted.
D) All the responses could be correct.