Question 1

Properly designed management control systems will eliminate fraudulent behavior by maximizing goal congruence within the organization.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following elements is not part of a management control system?

Accepted Answer

A)   Delegated decision authority.
B)   Performance evaluation system.
C)   Knowledge of local conditions.
D)   Compensation and reward system. C

Question 3

Affordable Credit Checks produces two styles of credit reports: personal and corporate.The difference between the two is the amount of background information and data collection required.The corporate report uses more skilled personnel because additional checking and data are required.The relevant figures for the year just completed follow: Total support service costs to be allocated are $3,200,000.$$\begin{array} { | l | r | r | } 
\hline \text { Allocation base } & \text { Indlvidual } & \text { Corporate } \
\hline \text { Data purchased } & \$ 40,000 & \$ 80,000 \
\hline \text { Research hours } & 24,000 & 30,000 \
\hline \text { Interview hours } & 1,000 & 10,000 \
\hline \text { Number of reports } & 16,000 & 3,000 \
\hline
\end{array}$$ Required:
(a)Which method would be preferred by each manager? Which method would be least preferred?
(b)Provide arguments that each manager would make for his/her preferred method.How would each manager argue against his/her least preferred method?

Accepted Answer

(a)This case points out the arbitrary nature of cost allocation and underscores the fact that no method will please all of the recipients of allocated costs.In this case the manager of the individual department would most favor interview hours,where his/her total percentage of the allocation is only 9%.This manager would least favor number of reports,where the department would receive a total of 84% of the allocation.The manager of the corporate department would most favor number of reports,with a 16% total allocation and least favor interview hours,where over 90% of the cost would be allocated to the corporate department.
(b)Arguments for:
Number of reports: The corporate manager would argue that the final output represents the cost effort of each department.Since corporate provided far fewer total reports,that department would receive a relatively small allocation.
Interview hours: The individual manager would argue that interview hours are the most valuable source of information and that they reflect an appropriate use of his/her department resources.
Arguments Against:
Number of reports: The individual manager would argue that just because there are more individual customers generating the reports,the number of reports does not reflect the work done and cost incurred by each department.The number of reports reflects great productivity and the department should not be penalized for being productive.
Interview hours: The corporate manager would argue that while his/her department does more interviewing,that is not a fair reflection of the resources consumed,since the number of interviews is relatively small,but the hours put into them are extensive.The manager would argue that other methods of gathering information more appropriately reflect the resource use of the Department.

Question 4

The executive vice president of Wyse Pen Company wants to establish an accounting-based performance measurement system for the company's new plant.The company has an accounting information system sufficient to support a fairly sophisticated performance measurement system.The new plant is going to be considered an investment center since its products will be markedly different from others the company currently sells.The new plant will have no internal dealings with other plants within the company.Required:
What are some of the key steps that should be undertaken in the establishment of an accounting-based performance measurement system?

Accepted Answer

The answer of The executive vice president of Wyse Pen...

Question 5

In general,profit centers are found at higher levels in an organization than investment centers.

Accepted Answer

A) True 
 B)False

Question 6

Controllable revenue is included in a performance report of a: $$\begin{array} { | l | c | c | } 
\hline & \text { Proft Center } & \text { Investment Center } \
\hline \text { A. } & \text { Yes } & \text { No } \
\hline \text { B. } & \text { Yes } & \text { Yes } \
\hline \text { C. } & \text { No } & \text { No } \
\hline \text { D. } & \text { No } & \text { Yes } \
\hline
\end{array}$$

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option D

Question 7

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 8

Which of the following statements is false?

Accepted Answer

A)   The U.S.military is a good example of an organization that is highly decentralized.
B)   The degree of decentralization depends on how many decisions principals delegate to agents.
C)   Management control systems are used to measure the performance of an agent's decisions.
D)   Most organizations have some operating units that are centralized and some that are decentralizeD.The U.S.military is a centralized organization.

Question 9

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 managers' 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 10

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

Accepted Answer

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

Question 11

Describe two disadvantages of decentralization.

Accepted Answer

The answer of Describe two disadvantages of decentralization....

Question 12

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: 
$$\begin{array} { | l | r | r | } 
\hline & \text { Connections } & \begin{array} { r } 
\text { Time on } \
\text { Network (hous) }
\end{array} \
\hline \text { Commercial } & 60,000 & 120,000 \
\hline \text { Retail } & 80,000 & 150,000 \
\hline \text { Consumer } & 100,000 & 330,000 \
\hline
\end{array}$$What is the allocation rate for the upcoming year,assuming Mesa Telcom uses the single-rate method and allocates common costs based on the number of connections?

Accepted Answer

A)   $10.00.
B)   $15.00.
C)   $20.00.
D)   $40.00.

Question 13

It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior.

Accepted Answer

A) True 
 B)False

Question 14

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: 
$$\begin{array} { | l | r | r | } 
\hline & \text { Calls } & \begin{array} { r } 
\text { Time on } \
\text { Network (hous) }
\end{array} \
\hline \text { Large } & 100,000 & 120,000 \
\hline \text { Small } & 80,000 & 330,000 \
\hline
\end{array}$$What is the allocation rate for the upcoming year,assuming Barrington Box uses the single-rate method and allocates common costs based on the number of calls?

Accepted Answer

A)   $10.00.
B)   $15.00.
C)   $20.00.
D)   $25.00.

Question 15

Controllable revenue is included in a performance report of a: $$\begin{array} { | l | c | c | } 
\hline & \text { Revenue Center } & \text { Cost Center } \
\hline \text { A. } & \text { Yes } & \text { No } \
\hline \text { B. } & \text { Yes } & \text { Yes } \
\hline \text { C. } & \text { No } & \text { No } \
\hline \text { D. } & \text { No } & \text { Yes } \
\hline
\end{array}$$

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option D

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

An operating unit of an organization is called an investment 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 18

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: 
$$\begin{array} { | l | r | r | } 
\hline & \text { Connections } & \begin{array} { r } 
\text { Time on } \
\text { Network (hous) }
\end{array} \
\hline \text { Commercial } & 60,000 & 120,000 \
\hline \text { Retail } & 80,000 & 150,000 \
\hline \text { Consumer } & 100,000 & 330,000 \
\hline
\end{array}$$What is the allocation rate for the upcoming year,assuming Mesa Telcom uses the single-rate method and allocates common costs based on the time on the network?

Accepted Answer

A)   $20.00.
B)   $16.00.
C)   $4.00.
D)   $2.86.

Question 19

What does dysfunctional decision making refer to?

Accepted Answer

A)   Administrative duplication.
B)   Local managers making decisions in their interests,which can differ from those of the organization.
C)   Delegated decision authority.
D)   Poor decisions based on incomplete information.

Question 20

Describe the three main elements of a management control system.

Accepted Answer

The answer of Describe the three main elements of a...

Exam 12: Fundamentals of Management Control Systems

Properly designed management control systems will eliminate fraudulent behavior by maximizing goal congruence within the organization.

Which of the following elements is not part of a management control system?

In general,profit centers are found at higher levels in an organization than investment centers.

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.

Which of the following statements is false?

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

Describe two disadvantages of decentralization.

It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior.

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

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

What does dysfunctional decision making refer to?

Describe the three main elements of a management control system.