Question 1

Mesa Telcom 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:
$$\begin{array} { | l | r | r | } 
\hline & \text { Connections } &  { \text { Time on Network (hours) } } \
\hline \text { Commercial } & 60,000 & 120,000 \
\hline \text { Retail } & 80,000 & 150,000 \
\hline \text { Consumer } & 100,000 & 330,000 \
\hline
\end{array}$$
-
Mesa 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?

Accepted Answer

A)  $480,000. 
B)  $514,286. 
C)  $600,000. 
D)  $1,200,000.

Question 2

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

Accepted Answer

A)  expense center. 
B)  revenue center. 
C)  profit center. 
D)  asset center.

Question 3

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

Accepted Answer

A)  Administrative salaries. 
B)  Sales commissions. 
C)  Stock options. 
D)  Piece rates.

Question 4

Which of the following is not a benefit of decentralization?

Accepted Answer

A)  Allowing managers some autonomy in decision-making provides managerial training for future higher-level managers. 
B)  In a decentralized organization some tasks or services may be duplicated unnecessarily. 
C)  Managers with some decision-making authority usually exhibit greater motivation than those who merely execute the decisions of others. 
D)  Managers of the organization's subunits are specialists, thereby enabling them to manage their departments most effectively.

Question 5

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:
 $$\begin{array} { | l | r | c | } 
\hline & \text { Cannections } & \text { Time on Netwark (haurs) } \
\hline \text { Commercial } & 60,000 & 120,000 \
\hline \text { Retail } & 80,000 & 150,000 \
\hline \text { Consumer } & 100,000 & 330,000 \
\hline
\end{array}$$ 
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.

Accepted Answer

The answer of Jamison Industries has three divisions, commercial, retail,...

Question 6

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

Accepted Answer

The answer of Explain the difference between fixed compensation and...

Question 7

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

Accepted Answer

A)  top management reports are more detailed. 
B)  lower-level management reports are typically for longer time periods. 
C)  top management reports show control over fewer costs. 
D)  lower-level management reports are likely to contain more quantitative data and less financial data.

Question 8

The Copy Department in the College of Business at State University provides photocopying services for both the Marketing and Economics Departments. The following budget has been prepared for the year.
$$\begin{array} { l c } 
\text { Available capacity } & 6,000,000 \text { pages } \
\text { Budgeted usage: } & \
\text { Marketing } & 3,600,000 \text { pages } \
\text { Economics } & 1,800,00 \text { pages } \
\text { Cost equation } & \$ 120,000 + \$ 0.025 \text { per page }
\end{array}$$
-
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?

Accepted Answer

A)  $77,500. 
B)  $92,500. 
C)  $132,500. 
D)  $112,500.

Question 9

Langsam, Inc. has used a decentralized form of organizational structure for the past five years. The controller, Ms. Terrance, has noticed that some of the divisions are still using fixed assets that are fully depreciated and that there has been little acquisition activity in these divisions. Coupled with this are very high ROIs, especially when compared to the other divisions that seem to have a regular program of disposition and replacement of fixed assets.
She takes her concerns and observations to the Financial Vice President who says he will review her findings and look into the problem.
Required:
What are the potential negative effects of decentralization?

Accepted Answer

The answer of Langsam, Inc. has used a decentralized form...

Question 10

Which of the following is not a cost of decentralization?

Accepted Answer

A)  Managers in a decentralized organization might have a narrow focus on their own unit's performance rather than the attainment of their organization's overall goals. 
B)  Managers in a decentralized organization might make the same types of decisions that are being made at headquarters resulting in administrative duplication. 
C)  Delegating decision making to the lowest level possible enables an organization to respond in a timely way to opportunities and problems. 
D)  Delegating decision making to the lowest level possible may lead to poor decisions based on incomplete information.

Question 11

Decentralization is the delegation of decision-making authority to subordinates in the organization's name. A key part of this is the principal-agent relationship. Explain what this relationship is and give examples.

Accepted Answer

The answer of Decentralization is the delegation of decision-making authority...

Question 12

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

Accepted Answer

A)  only for costs. 
B)  only for revenues. 
C)  for costs and revenues. 
D)  for investments in assets.

Question 13

Mesa Telcom 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:
$$\begin{array} { | l | r | r | } 
\hline & \text { Connections } &{ \text { Time on Network (hours) } } \
\hline \text { Commercial } & 60,000 & 120,000 \
\hline \text { Retail } & 80,000 & 150,000 \
\hline \text { Consumer } & 100,000 & 330,000 \
\hline
\end{array}$$
-
Mesa 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?

Accepted Answer

A)  $429,000. 
B)  $600,000. 
C)  $657,800. 
D)  $3,000,000.

Question 14

Rational managers will always make decisions that are in the best interest of the organization employing them.

Accepted Answer

A) True 
 B)False

Question 15

What is the primary managerial responsibility in an organization?

Accepted Answer

A)  Development of employees. 
B)  Development of profits. 
C)  Decision making. 
D)  Development of performance measurements.

Question 16

The Document Creation Center (DCC) for Atlas Corp. provides document services for three departments in the St. Louis office. The following budget has been prepared for the month.
 $$\begin{array} { l c r } 
& \text { Pages } & \text { Documents }\
\text { Budgeted usage: }  \
\text { Software Developrnent } &  320,000 & 2,500  \
\text { Training } & 600,000 & 4,500\
\text { Marnagernent } &480,000 & 5,500  \
\text { Costs: } & \
\text { Fixed } &\$ 63,000 & \
\text { Variable } & \$ 35,000  & \
\end{array}$$ 
Required:
If DCC uses a dual-rate for allocating its costs, allocating fixed costs based on number of documents and variable costs based on number of pages, how much cost will be allocated to the three user departments? (Use three decimal places in your calculations.)

Accepted Answer

The answer of The Document Creation Center (DCC) for Atlas...

Question 17

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)

Accepted Answer

A)  To allocate depreciation of forklifts used by workers at its central warehouse, Amir Electronics uses predetermined amounts calculated on the basis of the long-term average use of the services provided by the warehouse to the various segments. 
B)  Seattle 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. 
C)  Rose Industrial does not allow its service departments to pass on their cost overruns to production departments. 
D)  Xi Enterprises' management information system (MIS) is operated out of headquarters and serves its various divisions. Xi's allocation of MIS-related costs to its divisions is limited to costs the divisions will incur if they were to outsource their MIS needs.

Question 18

The concepts of cost allocation that are used in manufacturing can also apply in:

Accepted Answer

A)  service and not-for-profit industries. 
B)  service industries only. 
C)  not-for-profit industries only. 
D)  limited instances outside of manufacturing.

Question 19

Which of the following would be considered a principal in the principal-agent relationship?

Accepted Answer

A)  A stockbroker in an investment arrangement. 
B)  A real estate agent for someone buying a house. 
C)  A customer leasing a car. 
D)  An employer hiring an employee.

Question 20

The legal department for Basil Corp. provides legal services for four departments in the Manhattan office. The following budget has been prepared for the month.
 $$\begin{array} { l r c } 
 { \text { Budgeted usage: } } & \text { Contracts } & \text { Pages Reviewed } \
\text { Purchasing } & 160 & 3,200 \
\text { Marketing } & 200 & 7,200 \
\text { Training } & 300 & 9,000 \
\text { Management } & 240 & 2,400 \
\text { Costs: } & & \
\text { Fixed } & \$ 267,000 & \
\text { Variable } & \$ 105,000 &
\end{array}$$ 
Required:
If Basil uses a dual-rate for allocating its costs, allocating fixed costs based on number of contracts and variable costs based on number of pages reviewed, how much cost will be allocated to the four user departments? (Round fixed cost percentages to three decimal places and variable rate to four decimal places.)

Accepted Answer

The answer of The legal department for Basil Corp. provides...

Exam 12: Fundamentals of Management Control Systems

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