Question 1

Collins Enterprises has four divisions, commercial, retail, research, 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:
a. What is the allocation rate for the upcoming year assuming Collins uses the single-rate method and allocates common costs based on the number of connections? (Do not round rate - carry out six decimal places.) Calculate the allocated amount for each division.
b. What is the allocation rate for the upcoming year assuming Collins uses the single-rate method and allocates common costs based on the time on network? (Do not round rate - carry out six decimal places.) Calculate the allocated amount for each division.
c. 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 each division? (Round immediate calculations to three decimal places.)

Accepted Answer

The answer of Collins Enterprises has four divisions, commercial, retail,...

Question 2

The Human Resources Department for Vargis Corp. provides personnel services for two departments in the Kansas City office. The following budget has been prepared for the month.
 $$\begin{array}{l}
\text { Budgeted: }\
\begin{array} { l c } 
\text { Production } & \text { 860 employees } \
\text { Management } & \text { 140employees } \
\text { Cost equation } & \$ 46,500 + \$ 20 \text { per employee }
\end{array}
\end{array}$$ 
Required:
If Vargis uses a dual-rate for allocating its costs based on employees, how much cost will be allocated to the two departments? (Use three decimal places in your calculations.)

Accepted Answer

The answer of The Human Resources Department for Vargis Corp....

Question 3

Which of the following departments would not be a cost center?

Accepted Answer

A)  County fire department. 
B)  University book store. 
C)  University power plant. 
D)  City building and grounds department.

Question 4

Kingston Industries has four divisions, commercial, retail, research, and consumer, that share the common costs of the company's computer server network. The annual common costs are $3,600,000. You have been provided with the following information for the upcoming year:
 $$\begin{array} { | l | r | c | } 
\hline & \text { Connections } & \text { Time on Network (hours) } \
\hline \text { Cormmercial } & 70,000 & 120,000 \
\hline \text { Retail } & 90,000 & 150,000 \
\hline \text { Research } & 20,000 & 100,000 \
\hline \text { Consumer } & 100,000 & 330,000 \
\hline
\end{array}$$
 
Required:
a. The cost accountant determined $2,300,000 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 each division? (Use three decimal places in your calculations.)

Accepted Answer

The answer of Kingston Industries has four divisions, commercial, retail,...

Question 5

The legal department for Trump Corporation provides legal services for four departments in the Manhattan office. The following budget has been prepared for the month.
 $$\begin{array}{l}
\text { Budgeted usage: }\
\begin{array} { l r } 
\text { Purchasing } & 160 \text { contracts } \
\text { Marketing } & 200 \text { contracts } \
\text { Training } & 300 \text { contracts } \
\text { Marnagernent } & 340 \text { contracts } \
\text { Cost equation } & \$ 167,500 + \$ 50 \text { oer contract }
\end{array}
\end{array}$$ 
Required:
If Trump uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the four user departments? (Use three decimal places in your calculations.)

Accepted Answer

The answer of The legal department for Trump Corporation provides...

Question 6

Koski Corporation's Maintenance Department provides services to the company's two operating divisions - the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined based on the number of cases produced by the operating departments during the peak period. Data appear below:
  
Required:
a. Prepare a report showing how much of the Maintenance Department's costs should be charged to each of the operating divisions at the end of the year.
b. How much of the actual Maintenance Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

Accepted Answer

The answer of Koski Corporation's Maintenance Department provides services to...

Question 7

Properly designed management control systems can totally eliminate the inherent conflict between individual behavior and organizational goals.

Accepted Answer

A) True 
 B)False

Question 8

Assets invested in a responsibility center are included in a performance report of a:
$\begin{array} { cc} 
&\text { Profit Center } &  \text { Investment Center } \\end{array}$

Accepted Answer

A) $\begin{array} { cc}  && \text { Yes } &&&&&& \text { No } \\end{array}$ 
B) $\begin{array} { cc} && \text { Yes } &&&&&& \text { Yes } \\end{array}$ 
C) $\begin{array} { cc}  && \text { No } &&&&&& \text { No } \\end{array}$ 
D) $\begin{array} { cc}  && \text { No } &&&&&& \text { Yes } \
\end{array}$ 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 9

Managers in a cost center are held responsible for both the costs and volumes of inputs used to produce a product or provide a service.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  $514,286. 
B)  $480,000. 
C)  $600,000. 
D)  $565,000.

Question 11

The manager of a business unit of a large corporation made some projections regarding sales and profits for the upcoming final quarter of the year. The manager's performance evaluation and compensation depended significantly on his ability to meet budget goals. The manager discovered that the final quarter would have to be a particularly good quarter in order to meet these goals. He decided to implement a sales program offering liberal payment terms in order to pull some sales that would normally occur next year into the current year. Customers accepting delivery in the fourth quarter would not have to pay the invoice for 140 days. Also, he sold some equipment that was not being used and realized a significant profit on the sale.
Required:
Are these actions ethical? Why or why not?

Accepted Answer

The answer of The manager of a business unit of...

Question 12

Cost allocation bases are factors that cost management analysts use to assign indirect costs to cost objects. Ideally, cost-allocation bases should reflect a cause-and-effect relationship between resource spending and use. Ideally, an Activity-Based-Costing (ABC) approach will provide a more accurate and useful accounting for an organization's resources. Recent studies have found that, in spite of increasing costs and diminishing resources, very few Higher Education Institutions use the tools and techniques of an ABC cost allocation system to assign costs to academic departments. While direct costs, such as faculty salaries, are traceable to individual academic departments or courses, many indirect costs, such as facility use, computer use, and student support services, are more difficult to assign. In a traditional approach, many higher education institutions assign such costs based on a single factor, such as the number of courses taught in the university. (Source: Activity-Based Costing for Higher Education Institutions, Management Accounting Quarterly, Winter, 2001)
Required:
(a) Explain why the use of a single-cost driver such as the number of courses may result in inaccurate management information as to the cost of running courses in individual academic departments.
(b) For each of the indirect costs listed below, identify an appropriate cost-driver that might be used to allocate costs to determine the cost of offering a single course in an academic department if an Activity-Based-Costing model were used.
∙ Computer use
∙ Facility use
∙ Student services
∙ Course design
∙ Lecturing/class meeting time
∙ Assignment grading

Accepted Answer

The answer of Cost allocation bases are factors that cost...

Question 13

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

Accepted Answer

A)  direct materials and direct labor only. 
B)  only those costs that the manager can influence in the current period. 
C)  only discretionary costs. 
D)  those costs about which the manager is knowledgeable and informed.

Question 14

The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year.
$\begin{array}{lr}
\text { Available capacity } & 8,000,000 \text { pages } \
\text { Budgeted usage: } & \
\text { Software Development } & 1,600,00 \text { pages } \
\text { Training } & 3,000,00 \text { pages } \
\text { Management } & 2,400,000 \text { pages } \
\text { Cost equation } & \$ 280,000+\$ 0.03 \text { per page }
\end{array}$

-
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?

Accepted Answer

A)  $75,400. 
B)  $98,800. 
C)  $81,200. 
D)  $84,312.

Question 15

An operating unit of an organization is called a profit 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 16

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

Accepted Answer

A)  profit center. 
B)  revenue center. 
C)  division. 
D)  operating unit.

Question 17

The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year.
$\begin{array}{lr}
\text { Available capacity } & 8,000,000 \text { pages } \
\text { Budgeted usage: } & \
\text { Software Development } & 1,600,00 \text { pages } \
\text { Training } & 3,000,00 \text { pages } \
\text { Management } & 2,400,000 \text { pages } \
\text { Cost equation } & \$ 280,000+\$ 0.03 \text { per page }
\end{array}$

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

Accepted Answer

A)  $98,000. 
B)  $104,000. 
C)  $112,000. 
D)  $118,857.

Question 18

The Document Creation Center (DCC) for Arlington Corp. provides photocopying and document services for three departments in the Minneapolis office. The following budget has been prepared for the year.
$\begin{array}{lr}
\text { Available capacity } & 8,000,000 \text { pages } \
\text { Budgeted usage: } & \
\text { Software Development } & 1,600,00 \text { pages } \
\text { Training } & 3,000,00 \text { pages } \
\text { Management } & 2,400,000 \text { pages } \
\text { Cost equation } & \$ 280,000+\$ 0.03 \text { per page }
\end{array}$
-
If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the Training Department?

Accepted Answer

A)  $183,750. 
B)  $210,000. 
C)  $195,000. 
D)  $222,857.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  standard cost center 
B)  revenue center 
C)  discretionary cost center 
D)  asset center

Exam 12: Fundamentals of Management Control Systems

Which of the following departments would not be a cost center?

Properly designed management control systems can totally eliminate the inherent conflict between individual behavior and organizational goals.

Managers in a cost center are held responsible for both the costs and volumes of inputs used to produce a product or provide a service.

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

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

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

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

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