Question 1

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

Accepted Answer

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

Question 2

Figure 16-1
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: $\begin{array}{lr}
\text { Unit sales for } 2011 & 26,000 \
\text { Unit production for } 2011 & 26,000\
\
\text { Budgeted fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 800 \
\text { Depreciation } & 2,000 \ 
\text { Rent } & 100\\
\text { Budgeted variable costs per unit: }\
\text { Direct materials } & £ 0.15 \
\text { Direct labour } & 0.20 \
\text { Supplies } & 0.02 \
\text { Indirect labour } & 0.05 \
\text { Power } & 0.02
\end{array}$ The following actually occurred: $\begin{array}{ll}
\text { Actual unit sales for } 2011 & 24,000 \
\text { Actual unit production for } 2011 & 28,000\\
\text { Actual fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 850 \
\text { Depreciation } & 2,000 \
\text { Rent } & 100\\
\text { Actual variable costs: }\
\text { Direct materials } & £ 3,500 \
\text { Direct labour } & 4,900 \
\text { Supplies } & 530 \
\text { Indirect labour } & 1,250 \
\text { Power } & 470
\end{array}$
-Refer to Figure 16-1. The static budget variance for supplies is

Accepted Answer

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

Question 3

Figure 16-1
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: $\begin{array}{lr}
\text { Unit sales for } 2011 & 26,000 \
\text { Unit production for } 2011 & 26,000\
\
\text { Budgeted fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 800 \
\text { Depreciation } & 2,000 \ 
\text { Rent } & 100\\
\text { Budgeted variable costs per unit: }\
\text { Direct materials } & £ 0.15 \
\text { Direct labour } & 0.20 \
\text { Supplies } & 0.02 \
\text { Indirect labour } & 0.05 \
\text { Power } & 0.02
\end{array}$ The following actually occurred: $\begin{array}{ll}
\text { Actual unit sales for } 2011 & 24,000 \
\text { Actual unit production for } 2011 & 28,000\\
\text { Actual fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 850 \
\text { Depreciation } & 2,000 \
\text { Rent } & 100\\
\text { Actual variable costs: }\
\text { Direct materials } & £ 3,500 \
\text { Direct labour } & 4,900 \
\text { Supplies } & 530 \
\text { Indirect labour } & 1,250 \
\text { Power } & 470
\end{array}$
-Refer to Figure 16-1. The static budget variance for total fixed overhead is

Accepted Answer

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

Question 4

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

Accepted Answer

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

Question 5

An example of a negative incentive is

Accepted Answer

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

Question 6

Figure 16-1
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: $\begin{array}{lr}
\text { Unit sales for } 2011 & 26,000 \
\text { Unit production for } 2011 & 26,000\
\
\text { Budgeted fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 800 \
\text { Depreciation } & 2,000 \ 
\text { Rent } & 100\\
\text { Budgeted variable costs per unit: }\
\text { Direct materials } & £ 0.15 \
\text { Direct labour } & 0.20 \
\text { Supplies } & 0.02 \
\text { Indirect labour } & 0.05 \
\text { Power } & 0.02
\end{array}$ The following actually occurred: $\begin{array}{ll}
\text { Actual unit sales for } 2011 & 24,000 \
\text { Actual unit production for } 2011 & 28,000\\
\text { Actual fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 850 \
\text { Depreciation } & 2,000 \
\text { Rent } & 100\\
\text { Actual variable costs: }\
\text { Direct materials } & £ 3,500 \
\text { Direct labour } & 4,900 \
\text { Supplies } & 530 \
\text { Indirect labour } & 1,250 \
\text { Power } & 470
\end{array}$
-Refer to Figure 16-1. The static budget variance for direct materials is

Accepted Answer

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

Question 7

Figure 16-1
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: $\begin{array}{lr}
\text { Unit sales for } 2011 & 26,000 \
\text { Unit production for } 2011 & 26,000\
\
\text { Budgeted fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 800 \
\text { Depreciation } & 2,000 \ 
\text { Rent } & 100\\
\text { Budgeted variable costs per unit: }\
\text { Direct materials } & £ 0.15 \
\text { Direct labour } & 0.20 \
\text { Supplies } & 0.02 \
\text { Indirect labour } & 0.05 \
\text { Power } & 0.02
\end{array}$ The following actually occurred: $\begin{array}{ll}
\text { Actual unit sales for } 2011 & 24,000 \
\text { Actual unit production for } 2011 & 28,000\\
\text { Actual fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 850 \
\text { Depreciation } & 2,000 \
\text { Rent } & 100\\
\text { Actual variable costs: }\
\text { Direct materials } & £ 3,500 \
\text { Direct labour } & 4,900 \
\text { Supplies } & 530 \
\text { Indirect labour } & 1,250 \
\text { Power } & 470
\end{array}$
-Refer to Figure 16-1. The static budget variance for rent is

Accepted Answer

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

Question 8

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

Accepted Answer

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

Question 9

Figure 16-1
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: $\begin{array}{lr}
\text { Unit sales for } 2011 & 26,000 \
\text { Unit production for } 2011 & 26,000\
\
\text { Budgeted fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 800 \
\text { Depreciation } & 2,000 \ 
\text { Rent } & 100\\
\text { Budgeted variable costs per unit: }\
\text { Direct materials } & £ 0.15 \
\text { Direct labour } & 0.20 \
\text { Supplies } & 0.02 \
\text { Indirect labour } & 0.05 \
\text { Power } & 0.02
\end{array}$ The following actually occurred: $\begin{array}{ll}
\text { Actual unit sales for } 2011 & 24,000 \
\text { Actual unit production for } 2011 & 28,000\\
\text { Actual fixed overhead for } 2011 \text { : }\
\text { Supervision } & £ 850 \
\text { Depreciation } & 2,000 \
\text { Rent } & 100\\
\text { Actual variable costs: }\
\text { Direct materials } & £ 3,500 \
\text { Direct labour } & 4,900 \
\text { Supplies } & 530 \
\text { Indirect labour } & 1,250 \
\text { Power } & 470
\end{array}$
-Refer to Figure 16-1. The flexible budget for direct materials cost in 2011 is

Accepted Answer

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

Question 10

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?

Accepted Answer

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

Question 11

Figure 16-3
Harald, SA., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: $\begin{array}{ll}
\text { Activity } & \text { Cost Formula } \
\text { Maintenance } & £ 11,000+£ 0.11 \text { per machine hour } \
\text { Machining } & £ 25,000+£ 0.50 \text { per machine hour } \
\text { Setups } & £ 50 \text { per batch } \
\text { Purchasing } & £ 200+£ 45 \text { per purchase order }
\end{array}$ Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders $\begin{array}{lr}
\text { Maintenance } & £ 11,500 \
\text { Machining } & 28,300 \
\text { Setups } & 550 \
\text { Purchasing } & 1,000
\end{array}$
-Refer to Figure 16-3. What is the budget variance for setups in an activity-based performance report?

Accepted Answer

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

Question 12

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

Accepted Answer

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 13

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?

Accepted Answer

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

Question 14

Figure 16-2
Glenn, SA., has done a cost analysis for its production of T-shirts. The following activities and cost drivers have been developed: $\begin{array}{ll}
\text { Activity } & \text { Cost Formula } \
\text { Maintenance } & £ 11,000+£ 2 \text { per machine hour } \
\text { Machining } & £ 55,000+£ 3 \text { per machine hour } \
\text { Inspection } & £ 70,000+£ 500 \text { per batch } \
\text { Setups } & £ 2,000 \text { per batch } \
\text { Purchasing } & £ 80,000+£ 150 \text { per purchase order }
\end{array}$ Following are the actual costs of producing 75,000 T-shirts: 5,000 machine hours; 10 batches; 20 purchase orders $\begin{array}{lr}
\text { Maintenance } & £ 20,000 \
\text { Machining } & 73,000 \
\text { Inspection } & 73,000 \
\text { Setups } & 18,000 \
\text { Purchasing } & 82,000
\end{array}$
-Refer to Figure 16-2. What is the budget variance for purchasing in an activity-based performance report?

Accepted Answer

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

Question 15

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?

Accepted Answer

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

Question 16

Goal congruence means

Accepted Answer

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 17

Figure 16-5
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: $\begin{array}{lccc}
&\text { Static Budget } &\text { Actual Costs }\
& (10,000 \mathrm{DLH})& (11,000 \mathrm{DLH}) & \text {Variance}\
 \text { Variable costs } & £ 21,000 & £ 22,000 & £ 1,000 \mathrm{U} \
 \text { Fixed costs } & 7,800 & 7,700 & 100 \mathrm{~F} \
 \text { Total } & £ 28,800 & £ 29,700 & £  900\mathrm{U} \ 
\end{array}$  
-Refer to Figure 16-5. What is the flexible budget for March?

Accepted Answer

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

Question 18

Figure 16-4
Villafane, SA., has done a cost analysis for its production of decals. The following activities and cost drivers have been developed: $\begin{array}{ll}
\text { Activity } & \text { Cost Formula } \
\text { Design } & £ 5,000+£ 0.05 \text { per machine hour } \
\text { Machining } & £ 25,000+£ 0.01 \text { per machine hour } \
\text { Setups } & £ 35 \text { per batch } \
\text { Purchasing } & £ 50+£ 15 \text { per purchase order }
\end{array}$ Following are the actual costs of producing 35,000 decals: 1,000 machine hours; 5 batches; 30 purchase orders $\begin{array}{lr}
\text { Design } & £ 5,080 \
\text { Machining } & ? \
\text { Setups } & ? \
\text { Purchasing } & £ 600
\end{array}$ The following variances were given in the activity performance report: $\begin{array}{lr}
\text { Design } & ? \
\text { Machining } & £ 40 \mathrm{~F} \
\text { Setups } & £ 15 \mathrm{~F} \
\text { Purchasing } & ?
\end{array}$
-Refer to Figure 16-4. What is the activity variance for design?

Accepted Answer

A)  £40 F
B)  £30 U
C)  £15 F
D)  £100 U

Question 19

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

Accepted Answer

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 20

Participative budgeting offers which of the following advantages?

Accepted Answer

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.

Exam 16: Management Control Systems