Management Control Systems
Final Test Solutions
Course Introduction
Management Control Systems explores the frameworks, processes, and tools organizations use to guide employee behavior, align actions with strategic objectives, and ensure the efficient achievement of goals. The course covers the design and implementation of control mechanisms such as budgeting systems, performance measurement, incentives, and feedback loops, analyzing how these contribute to effective decision-making and organizational performance. Through real-world cases, students learn to identify control challenges in various organizational contexts and develop strategies for balancing flexibility with accountability in dynamic business environments.
Recommended Textbook
Cost Accounting A Managerial Emphasis 6th Canadian Edition by Charles T. Horngren
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Chapter 1: The Accountants Vital Role in Decision Making
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Sample Questions
Q1) The cost-benefit approach should be used to make resource allocation decisions.
A)True
B)False
Answer: True
Q2) Professional ethics for a Certified Management Accountant in Canada were established by
A) the CICA.
B) the FASB.
C) the CIMA.
D) the CGAC.
E) the SMAC.
Answer: E
Q3) Information used to project budgeted amounts does not require non-financial information.
A)True
B)False
Answer: False
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Changes in particular cost drivers automatically result in decreases in overall costs.
A)True
B)False
Answer: False
Q2) The relevant range is important because
A) it specifies which costs should be used for a given decision.
B) it provides a basis for determining a range of acceptable cost alternatives.
C) it is required to determine inventoriable costs under Canadian GAAP.
D) it specifies the limits beyond which the relationship of cost to cost drivers may not be valid.
E) it determines the time horizon.
Answer: D
Q3) Prime costs consist of direct and indirect manufacturing labour.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) What is the break-even point in units, assuming a product's selling price is $100, fixed costs are $8,000, unit variable costs are $20, and operating income is $32,000?
A) 100 units
B) 300 units
C) 400 units
D) 500 units
E) 600 units
Answer: A
Q2) Information Inc., sells accounting software. Each unit's cost may be separated as follows: selling price of $100 and variable costs of $30. Fixed costs are $10,000. What is Information Inc.'s operating income assuming 1,000 units are sold?
A) $100,000
B) $90,000
C) $60,000
D) $40,000
E) $20,000
Answer: C
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Chapter 4: Job Costing
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Sample Questions
Q1) What is the total manufacturing cost of Job 892 using normal costing?
A) $9,900
B) $12,300
C) $12,080
D) $12,255
E) $12,075
Q2) In the service sector,
A) direct labour costs are always easy to trace to jobs.
B) a budgeted direct labour cost rate may be used to apply direct labour to jobs.
C) normal costing may not be used.
D) overhead is always applied using an actual cost allocation rate.
E) cost of goods sold includes beginning service inventory.
Q3) Which of the following would most likely be a direct cost in a manufacturing company?
A) supervision and engineering
B) utilities
C) repairs
D) utilities and repairs
E) raw materials
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) A critical distinction in activity-based costing is the difference between an activity and an event.
A)True
B)False
Q2) Outsourcing the accounting function is an example of what facet of activity-based management?
A) increase effective coordination among business function activities
B) reduce costs of non-value-added activities
C) improve selection of process activities to enhance profit
D) match the company's use of resources to customer demand
E) achieve planned growth
Q3) Explain how traditional cost systems, using a single unit-level cost rate, may distort product costs.
Q4) Traditional cost systems can be used to
A) reveal activities that can be eliminated.
B) help control nonfinancial items such as number of setup hours.
C) help identify new designs to reduce costs.
D) can be used to enhance budgeting.
E) accurately assign direct costs.
Q5) How are cost drivers selected in activity-based costing systems?
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) On the 2012 budgeted income statement, what amount will be reported for gross margin?
A) $122,000
B) $90,000
C) $48,000
D) $30,000
E) $120,000
Q2) Few costs are clearly under the sole influence of one manager.
A)True
B)False
Q3) A rolling budget encourages management to be thinking about the next 12 months.
A)True
B)False
Q4) Direct material purchases equal
A) usage plus production needs.
B) production needs plus target ending inventories.
C) beginning inventories plus production needs.
D) usage plus target ending inventories less beginning inventories.
E) the number of units to be produced times the amount of direct material in each unit.
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) The materials yield variance will be unfavourable when
A) the flexible-budget contribution margin is greater than the actual contribution margin.
B) the actual direct materials input mix is less expensive than the budgeted direct materials input mix.
C) the input-efficiency variance is favourable.
D) the actual quantity of total inputs used is greater than the flexible budget for total inputs.
E) actual unit sales are less than budgeted unit sales.
Q2) The terms, usage variances and efficiency variances mean the same thing.
A)True
B)False
Q3) If variance analysis is used for performance evaluation, managers are encouraged to meet targets using creativity and resourcefulness.
A)True
B)False
Q4) Explain how variance analysis is used in conjunction with activity-based costing.
Q5) Describe the purpose of variance analysis.
Page 9
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) If Pope Inc. uses standard costing, the overhead allocated to work in process is recorded as a
A) debit to Manufacturing Overhead Allocated and a credit to Work-in-Process.
B) debit to Work-in-Process and credit to Manufacturing Overhead Control.
C) debit to Manufacturing Overhead Allocated and a credit to Manufacturing Overhead Control.
D) debit to Manufacturing Overhead Control and a credit to Manufacturing Overhead Allocated.
E) debit to Work-in-Process and a credits to Manufacturing Overhead Allocated.
Q2) Variance analysis of variable nonmanufacturing as well as variable manufacturing costs is used for pricing decisions and for decisions about which products to emphasize. A)True
B)False
Q3) The variable overhead efficiency variance can be interpreted the same way as the efficiency variance for direct-cost items.
A)True
B)False
Q4) How can a standard costing system be useful in negotiating new sales?
Page 10
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) What is the inventoriable cost per unit using absorption costing?
A) $32
B) $35
C) $40
D) $60
E) $75
Q2) When the distinction between variable and fixed costs is one of the important elements in the preparation of the income statement, the method used should be the
A) capitalization method.
B) contribution margin method.
C) gross margin method.
D) inventorial method.
E) absorption method.
Q3) Variable costing does not include variable indirect manufacturing costs as inventorial costs.
A)True
B)False
Q4) Explain how using master-budget capacity utilization for setting prices can lead to a downward demand spiral.
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Chapter 10: Quantitative Analyses of Cost Functions
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Sample Questions
Q1) The selection of the best measure of benefit will depend upon the corresponding change in the cost pool.
A)True
B)False
Q2) A linear cost function is a function in which the graph of total costs versus a single cost driver forms a straight line, within the relevant range.
A)True
B)False
Q3) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.
a. Direct materials cost is $.75 per pound.
b. Direct labour cost is $16.75 per hour.
c. Auto rental has a fixed fee of $75.00 per day plus $.50 per mile driven.
d. Machine operating costs include $350 of maintenance per month, and $5.00 of coolant usage costs for each day the machinery is in operation.
Q4) What was the variable cost per unit sold for 2012?
Q5) Discuss the potential use of nonlinear curves in cost functions and cost analysis. Give some examples.
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Page 12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) If Konrade's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total
A) $80,000.
B) $98,000.
C) $50,000.
D) $100,000.
E) $82,000.
Q2) Business function costs consist of all variable costs associated with a particular business function in the value chain.
A)True
B)False
Q3) What production level is required for Day Star to be indifferent between making or buying the part if $260,000 of fixed costs can be eliminated by buying?
A) 32,500 units
B) 26,500 units
C) 12,500 units
D) 1,000 units
E) 0 units
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) For long-run pricing decisions, using stable prices has the advantage of
A) helping build buyer-seller relationships.
B) reducing the need to change cost structures frequently.
C) reducing competition.
D) minimizing the need to monitor competitors prices frequently.
E) increasing margins.
Q2) If Mr. Gladstone wanted a long-term commitment for supplying this product, what price would most likely be quoted to him?
A) $1,000
B) $1,200
C) $1,290
D) $1,400
E) $1,075
Q3) Which of the following is TRUE concerning Life cycle budgeting?
A) It obscures revenues in minor business functions.
B) It highlights only costs for the life cycle.
C) It has a calendar year focus.
D) It assumes that selling price is the same over the life cycle of the product.
E) It helps in setting prices to cover costs in all business functions.
Q4) What is the primary reason a firm would adopt target costing?
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Q1) The productivity component measures the reduction in costs attributable to a reduction in the quantity of inputs used in year 2 relative to the quantity of inputs that would have been used in year 1 to produce the year 2 output.
A)True
B)False
Q2) Which of the following is a measure of the internal business perspective?
A) return on investment
B) market share in the high-end appliance market
C) timely delivery
D) production cycle time
E) number of employees trained in quality management
Q3) An organization that is using the product differentiation approach would
A) focus on tight cost control.
B) carefully cultivate its brands.
C) provide products that are similar to competitors.
D) offer products at a lower cost than competitors.
E) focus on low prices
Q4) What are the four key perspectives in the balanced scorecard?
Q5) Required:
What is the amount of the productivity component?
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) Which of the following is a valid conclusion, in comparing the three allocation methods?
A) The reciprocal method is conceptually inferior.
B) The direct method is viewed as too complex by most organizations.
C) The step-down method is viewed as too complex by most organizations.
D) Many managers find the step-down method too simple.
E) Many managers find the reciprocal method difficult to understand.
Q2) Which of the following could be described as a department that adds value to a product or service, which is observable by a customer?
A) a personnel department
B) an assigned department
C) a support department
D) a service department
E) an operating department
Q3) The reciprocal method of support department cost allocation is the most precise method and therefore is used most often.
A)True
B)False
Q4) Should a company allocate its corporate costs to divisions?
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) Advantages of the sales value at split off method include all of the following EXCEPT
A) it does not presuppose an exact number of subsequent steps for further processing.
B) it uses a meaningful denominator.
C) there is no anticipation of subsequent management decisions.
D) it is simple.
E) the allocation of joint costs could lead managers to make poor decisions.
Q2) What are the approximate joint costs assigned to the paper ending inventory if joint costs are allocated using the sales value at split off method?
A) $14.29
B) $50.00
C) $428.55
D) $435.00
E) $750.00
Q3) There are no logical reasons for allocating joint costs.
A)True
B)False
Q4) What are a joint cost and a splitoff point?
Q5) What are separable costs?
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) Analyzing whether to add or drop a customer is an application of relevant costing analysis.
A)True
B)False
Q2) Using the stand-alone method with selling price as the weight for revenue allocation, what amount of revenue will be allocated to Math Fun in the package that contains all three products?
A) $48.25
B) $60.00
C) $45.60
D) $50.67
E) $33.60
Q3) Revenue shedding refers to the strategy of providing price discounts on a long-term basis to specific customers.
A)True
B)False
Q4) Describe and discuss the two methods of allocating the revenues of a bundled package to the individual products in that package. Describe any special problems associated with the method.
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Chapter 17: Process Costing
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Sample Questions
Q1) Excalibur Ltd. began operations on October 1 of the current year. Its production requires that direct materials are added at the beginning of the process and conversion costs are incurred uniformly. Direct materials costs for October were $380,000 and conversion costs were $1,750,000. There were 80,000 units started during the month. The ending inventory was 25,000 units which were 60% complete. The cost per equivalent unit for direct materials was:
A) $4.75
B) $15.20
C) $5.85
D) $5.43
E) $7.92
Q2) Production costs are divided into three classifications: administrative costs, direct materials, and conversion costs in process costing.
A)True
B)False
Q3) Transferred in costs are costs which have been incurred in a preceding department. A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) The goal of separately identifying abnormal spoilage is to A) properly cost units in the system.
B) assist in performance measurement.
C) ensure that such units do not reach finished goods inventory.
D) reduce abnormal spoilage to an acceptable level.
E) reduce abnormal spoilage to nil.
Q2) A company whose goal is zero defects would usually treat all spoilage as abnormal.
A)True
B)False
Q3) Abnormal spoilage totalled
A) 1,600 units.
B) 2,000 units.
C) 1,680 units.
D) 1,920 units.
E) 1,700 units.
Q4) There is no cost attached to scrap.
A)True
B)False
Q5) What are the objectives in accounting for spoilage?
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Sample Questions
Q1) Lost contribution margin can result from either internal or external failure.
A)True
B)False
Q2) Palmateer Industries makes an electronic component in two departments, Machining and Assembly. The capacity per month is 30,000 units in the Machining Department and 20,000 in the Assembly Department. The only variable cost of the product is the direct material of $100 per unit. All direct material cost is incurred in the Machining Department. All other costs of operating the two departments are fixed costs. Palmateer can sell as many units of this electronic component as it produces at a selling price of $300 per unit.
Required:
Assuming any defective unites produced in either department must be scrapped:
a. Compute the loss that occurs if a defective unit is produced in the Machining Department.
b. Compute the loss that occurs if a defective unit is produced in the Assembly Department.
c. How do your answers in parts (a) and (b) relate to the theory of constraints? Explain.
Q3) Discuss the methods used to identify quality problems.
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Chapter 20: Inventory Cost Management Strategies
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Q1) The possibility of a conflict between the order quantity that an EOQ model recommends and the order quantity that the purchasing manager regards as optimal is increased with
A) inventory costs which are computed with the FIFO method.
B) lower priced inventory items.
C) the absence of opportunity costs not being recorded in conventional accounting systems.
D) the absence of quality costs not being recorded in conventional accounting systems.
E) lower priced costs of goods sold.
Q2) What are the total relevant costs, assuming the quantity ordered equals 500 units?
A) $3,500
B) $500
C) $4,000
D) $3,750
E) $3,350
Q3) A trigger point refers to the inventory level at which a reorder is generated.
A)True
B)False
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Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Sample Questions
Q1) Projects with shorter paybacks always generate more cash flows.
A)True
B)False
Q2) The rate of return is the ratio of net future cash flows to the investment outflow.
A)True
B)False
Q3) Accrual accounting measures income on a year-to-year basis.
A)True
B)False
Q4) Investment A requires a net investment of $600,000. The required rate of return is 10 percent for the three-year annuity. What are the annual cash inflows if the net present value equals 0?
A) $184,842
B) $241,269
C) $249,791
D) $271,316
E) $360,000
Q5) Briefly describe the processes in the Capital Budgeting Decision Process Model.
Page 23
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Chapter 22: Capital Budgeting: a Closer Look
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Q1) Clock Manufacturing Company purchased a new piece of equipment at a cost of $60,000 at the beginning of the year. For tax purposes the machine is a Class 8 asset (20% declining balance). The company has a 34 percent income tax rate. Assume that the company has no other Class 8 assets during the period.
Required:
a. Compute the amount of tax savings from CCA for the first three years.
b. Compute the amount of tax savings from CCA for the first three years using a required rate of return of 12 percent.
Q2) Companies may vary the required payback in order to reflect different levels of project risk.
A)True
B)False
Q3) Depreciation tax deductions result in tax savings that partially offset the cost of acquiring the capital asset.
A)True
B)False
Q4) Discounted cash flow analysis can be applied in a non-profit organization.
A)True
B)False
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Q1) Transfer prices among divisions within Canada are irrelevant. Do you agree with this statement? Explain.
Q2) The Surrey Division of Columbia Ltd. has approached the Burnaby Division and requested that it supply 25,000 units of the component at a transfer price of $150. Assuming Burnaby Division has no idle capacity, what is the minimum transfer price the Burnaby Division should agree to accept?
A) $165
B) $150
C) $152
D) $130
E) $118
Q3) Exertion towards a goal is
A) motivation.
B) effort.
C) goal congruence.
D) incentive.
E) loyalty.
Q4) What are some of the factors, other than income taxation, that companies should consider when setting international transfer prices?
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Chapter 24: Multinational Performance Measurement and Compensation
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Q1) Keeping all other factors constant, which of the following would not cause an increase in the return on investment?
A) actions that increase revenues
B) actions that increase liabilities
C) actions that decrease investments
D) actions that decrease expense
E) actions that increase sales
Q2) Boundary systems describe standards of behaviour and codes of conduct expected of all employees, especially actions that are off-limits.
A)True
B)False
Q3) Managers use ________ to create an ongoing dialog around the organization's key strategic issues to personally involve themselves in subordinates' decision-making activities.
A) diagnostic control systems
B) boundary systems
C) belief systems
D) interactive control systems
E) isolated systems
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