Management Control Systems
Final Test Solutions
Course Introduction
Management Control Systems explores the frameworks, processes, and tools that organizations use to guide employee behavior and ensure strategic objectives are achieved. The course examines the design and implementation of management controls including budgeting, performance measurement, reward systems, and information systems and how they influence decision-making, motivation, and organizational effectiveness. Emphasis is placed on aligning management control systems with organizational goals, adapting controls to varying business environments, and addressing both financial and non-financial aspects of performance. Through case studies and real-world examples, students learn to analyze and develop effective control mechanisms that balance accountability, innovation, and ethical considerations within various organizational contexts.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 8th Canadian Edition by Srikant M.
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Page 2
Datar
Chapter 1: The Accountants Vital Role in Decision Making
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Sample Questions
Q1) Companies generally follow one of two basic strategies: 1)providing a quality product or service at low prices, or 2)offering a unique product or service often priced higher than competing products.
A)True
B)False Answer: True
Q2) The process of preparing a budget enhances coordination and communication throughout the company.
A)True
B)False Answer: True
Q3) Sustainability accounting focuses on reporting both financial and nonfinancial information on activities that impact society, the environment, and the financial (or, economic)aspects of an organization's performance to an organization's stakeholders.
A)True
B)False Answer: True
Q4) cost of computer time used by a salesperson Answer: Answers: B
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Chapter 2:
An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Gimble Manufacturing Inc.makes vibration control springs for heating, ventilating, and air conditioning (HVAC)equipment.Materials cost $52 per spring set, and the machinists are paid $44 per hour.A machinist can produce four sets of springs per hour.Fixed manufacturing costs for springs are $5,000 per period.Non-manufacturing spring set costs are fixed at $11,000 per period.Each spring set sells for $75 and Gimble sells on average 4,000 spring sets per period.Required:
a.Competition has entered the market and is selling spring sets for an introductory price of $66.Can Gimble Manufacturing Inc.meet this price and still make a profit?
b.How would your answer to requirement a.change if Gimble sells on average 8,000 spring sets per period.
c.What should Gimble Manufacturing Inc.'s management do in the short-run and for the long-term if it appears that $66 is going to be the new market price for the future.
Answer: 11ea82f3_8be2_9f3d_971a_774f4cfe1fff_TB3086_00 c.The spring sets have a unit contribution margin of $3 ($66 - $52 - $11)so meeting the price in the short-run will at least contribute to fixed costs.In the long-term the company will have to lower costs or differentiate its' product is such a way that it can command a higher price.
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) What is the dollar amount of sales required for Brian to earn an after-tax profit of $7,000 if fixed costs are $10,000?
A)$17,000
B)$50,000
C)$70,588
D)$85,000
E)$100,000
Answer: E
Q2) The Franscioso Company contribution margin ratio is
A)1.102:1.
B)1.425:1.
C)0.298:1.
D)0.637:1.
E)0.702:1.
Answer: E
Q3) In cost-volume-profit analysis (CVP)it is assumed that both the product mix and the volume sold are dynamic variables.
A)True
B)False
Answer: False
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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 actual costing?
A)$9,900
B)$12,300
C)$12,080
D)$12,255
E)$12,075
Q2) A company employs 25 full-time staff.The company spent $75,000 in advertising in the year (this amount is a period cost with a constant amount spent each year).Budgeted indirect manufacturing costs total $250,000 and the direct labour rate is $15 per hour.Budgeted labour hours were 500,000, and actual labour hours were 524,000.Actual indirect overhead was $274,600.What are the actual and normal indirect-cost rates respectively?
A)$0.52 and $0.50
B)$0.50 and $0.52
C)$0.55 and $0.48
D)$0.67 and $0.65
E)$0.65 and $0.67
Q3) cost of goods sold
Q4) direct materials purchased
Q5) indirect manufacturing labour
Page 6
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?
A)$0.05 per page
B)$0.035 per page
C)$0.35 per page
D)$0.025 per page
E)$0.045 per page
Q2) Companies use activity-based management to
A)allocate the cost of activities to cost objects.
B)forecast customer demand.
C)develop systems for direct cost tracing and indirect cost allocation.
D)plan and organize the implementation of activity-based costing.
E)eliminate non-value added activities.
Q3) Do activity-based costing systems always provide more accurate product costs than conventional cost systems? Why or why not?
Q4) Describe each of the four cost hierarchies used to define levels for activities in activity-based costing.
Q5) Explain how a top-selling product may actually result in losses for the company.
Q6) Convince the organization to change
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) How many mattresses need to be produced in January 2019?
A)4,400 mattresses
B)5,000 mattresses
C)6,500 mattresses
D)7,100 mattresses
E)5,600 mattresses
Q2) What will be the Fair Score Company budgeted amount of cost of goods sold?
A)$8,160,000
B)$6,800,000
C)$6,460,000
D)$6,120,000
E)$5,975,000
Q3) A rolling budget is a budget or plan that
A)rolls several budgets together for forecasting purposes.
B)has one budget category roll into the next category.
C)rolls all budget categories together into a master budget.
D)is always available for a specified future period by replacing time periods as the lapse.
E)is not used to guide operations.
Q4) Describe the concept of kaizen budgeting.
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) What is the efficiency variance for direct materials?
A)$47,350 favourable
B)$36,000 unfavourable
C)$36,000 favourable
D)$37,500 unfavourable
E)$23,750 unfavourable
Q2) Which of the following is likely to be related to an unfavourable direct materials rate variance?
A)Standard costs were determined correctly.
B)the negotiating skills of the marketing manager
C)unexpected price decreases in direct materials
D)Actual direct material purchases were in larger quantities than normal, resulting in receiving volume discounts.
E)Materials were purchased based on a competitive bid.
Q3) What is the static-budget variance of operating income?
A)$258,000 unfavourable
B)$258,000 favourable
C)$222,000 favourable
D)$222,000 unfavourable
E)$3,000 unfavourable
Page 9
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) Cirilla's Weathervane Company manufactures weathervanes.The current year operating budget is based on the production of 10,000 weathervanes with 1.25 machine-hour allowed per weathervane.Variable manufacturing overhead is anticipated to be $300,000.Actual production was 11,000 weathervanes using 12,100 machine-hours.Actual variable costs were $23.75 per machine-hour.Required: Calculate the variable overhead rate and the efficiency variances.
Q2) What is the flexible-budget variance for variable manufacturing overhead?
A)$54,000 unfavourable
B)$19,600 unfavourable
C)$11,000 favourable
D)$11,000 unfavourable
E)$161,500 unfavourable
Q3) Managers should use unitized fixed manufacturing overhead costs for planning and control.
A)True
B)False
Q4) Explain why there is no efficiency variance for fixed manufacturing overhead costs.
Q5) Explain why sales-volume variance could be helpful to managers.
Q6) How can a standard costing system be useful in negotiating new sales?
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) What is the theoretical capacity for the month of September?
A)1,488,000 shoes
B)1,440,000 shoes
C)1,036,800 shoes
D)1,296,000 shoes
E)1,152,000 shoes
Q2) The budgeted fixed manufacturing cost rate is the lowest for
A)practical capacity.
B)supply capacity.
C)master-budget capacity utilization.
D)normal capacity utilization.
E)theoretical capacity.
Q3) What is the per unit manufacturing cost using absorption costing?
A)$23.00
B)$18.00
C)$27.00
D)$12.00
E)$10.00
Q4) Explain three methods under absorption costing that managers can use to improve operating income.
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Chapter 10: Analysis of Cost Behaviour
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Sample Questions
Q1) 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 manufacturing labour is $20 per hour.
b.Direct materials cost $8.00 per cubic metre.
c.Utilities have a minimum charge of $2,000 plus a charge of $0.05 per kilowatt hour.
d.Factory supplies average $10 per day plus $1.00 for each machine-hour per day.
e.Total manufacturing amortization includes $5,000 for straight-line plant amortization plus machinery amortization of $100 for each day operated.
Q2) Customer response time is the time between when a company first markets a new product, and when sales exceed supplies on hand (test inventory).
A)True
B)False
Q3) Discuss how a manufacturer of personal computers such as Dell Computer can benefit from the introduction of a quality improvement program.
Q4) Audits of the effectiveness of the quality system
Q5) Quality training
Q6) Downtime due to quality problems
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Page 12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) For Welch Manufacturing, what is the minimum acceptable price of this special order?
A)$110
B)$140
C)$170
D)$240
E)$255
Q2) A computer system installed last year is an example of a(n)
A)sunk cost.
B)relevant cost.
C)differential cost.
D)avoidable cost.
E)opportunity cost.
Q3) All staff members receive $1,000 per diem for travel
Q4) The total cost difference between two separate alternatives in a decision making process is the net relevant cost.
A)True
B)False
Q5) Explain why sunk costs are not considered relevant when choosing among alternatives.
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) Profit margins are often set to earn a reasonable return on investment for short-term pricing decisions, but not long-term pricing decisions.
A)True
B)False
Q2) Reuter Avionics currently sells radios for $1,800.It has costs of $1,400.A competitor is bringing a new radio to market that will sell for $1,600.Management believes it must lower the price to $1,600 to compete in the market for radios.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Reuter's sales are currently 1,000 radios per year.Required:
a.What is the target cost if target operating income is 25% of sales?
b.What is the change in operating income if marketing is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same income level, and marketing is correct?
Q3) 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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Sample Questions
Q1) ________ is the fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance such as cost, quality, service, speed, and customer satisfaction.
A)Strategy
B)Customer perspective
C)Learning and growth perspective
D)Reengineering
E)Product differentiation
Q2) Partial productivity equals quantity of output produced divided by quantity of individual input used.
A)True
B)False
Q3) Referring to Luke Company, which of the following is a measure of the internal business process 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
Page 15
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) List three benefits from the careful costing of combinations of quantities of products and services in bundled products.
Q2) To discourage excessive use of a support department, management might
A)not allocate any costs of the support departments.
B)allocate costs based on user department usage.
C)allocate a fixed amount to each department regardless of use.
D)expense fixed costs of support departments directly to the income statement.
E)create special accounting records for the support department.
Q3) Which of the following describes the complete reciprocated cost?
A)It only includes the actual incurred cost of the operations department.
B)It only includes the actual incurred cost of the support department.
C)It is always larger than actual cost of the support departments.
D)It is always less than actual cost.
E)It is equal to the actual cost of the support departments.
Q4) Without explicit written cost-plus contracts, producer costs can be passed on to the buyer.
A)True
B)False
Q5) To decide on an appropriate selling price for a special-order product
Q6) To evaluate a make or buy decision
Page 16
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Q1) Advantages of the sales value at splitoff 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) The net realizable value method can be used for products for which there may not be any market price available at splitoff.
A)True
B)False
Q3) Cost of processing lumber into different lengths and sizes at a sawmill.
Q4) A major deficiency of the sales value at splitoff method is that this method does not allow management to obtain individual product costs and gross margin information. A)True
B)False
Q5) Broth from cooking food
Q6) Cost of processing crude oil in a gasoline refinery.
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Page 17
Chapter 16: Revenue and Customer Profitability Analysis
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Q1) It is common to find that a small number of customers generate a high percentage of operating income.
A)True
B)False
Q2) Which of the following statements is TRUE?
A)Joint product allocation results in more accurate assignment of revenues to products than does revenue allocation.
B)Revenue allocation results in more accurate assignment of revenues to products than does revenue tracing.
C)Revenue tracing results in more accurate assignment of revenues to products than does revenue allocation.
D)Revenue allocation results in more accurate assignment of revenues to products than does joint product allocation.
E)Joint product allocation results in more accurate assignment of revenues to products than does revenue tracing.
Q3) An activity-based costing system may focus on customers rather than products. A)True
B)False
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Chapter 17: Process Costing
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Sample Questions
Q1) The primary difference between job costing and process costing is the extent of averaging used to compute unit costs of products or services.
A)True
B)False
Q2) What is the conversion cost per equivalent unit in Department A?
A)$5,400
B)$3,425
C)$3,571
D)$3,699
E)3,857
Q3) What is the Carnival Furniture equivalent units for materials costs for May using the weighted average method?
A)180,000 cushions
B)160,000 cushions
C)140,000 cushions
D)118,000 cushions
E)123,000 cushions
Q4) Compare and contrast process costing and job order costing.
Q5) What is meant by the term "prime cost pool"?
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Which account is debited when scrap is reused as direct material?
A)work-in-process-control
B)materials control
C)manufacturing overhead control
D)scrap inventory
E)manufacturing overhead allocated
Q2) What is the number of normal spoiled units recognized at the 40% stage of completion?
A)1,950
B)1,800
C)1,650
D)1,500
E)1,740
Q3) The standard-costing method
A)adds a layer of complexity to the calculation of equivalent-unit costs in a process-costing environment.
B)makes calculating equivalent-unit costs unnecessary.
C)requires an analysis of the spoilage costs in beginning inventory.
D)requires an analysis of the spoilage costs in ending inventory.
E)requires a calculation of the cost allocation rate.
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Chapter 19: Inventory Cost Management Strategies
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Q1) A financial benefit of a just-in-time system is that inventory carrying costs are reduced.
A)True
B)False
Q2) Lean accounting is a costing method that supports creating value for customers by costing the value streams, as distinguished from individual products or departments,thereby eliminating waste in the accounting process.
A)True
B)False
Q3) Jambalaya Ltd.sells 120,000 units a year.Its carrying costs are $0.35 per unit and its ordering costs are $127 per order.Required:
a.Calculate the economic order quantity.
b.The supplier has offered a $0.05 discount per unit (on all units)if the order size is 20,000 units.Should Morrissette increase its order size?
Q4) Backflush costing is an example of sequential tracking.
A)True
B)False
Q5) What are the principles of lean accounting? Are there any limitations? Discuss.
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Chapter 20: Capital Budgeting: Methods of Investment Analysis
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Q1) What is the net present value for the investment Jupiter Ltd.is considering?
A)$25,897.22
B)$22,799.89
C)$30,599.06
D)$13,299.89
E)$21,099.06
Q2) Which of the following is NOT one of the methods that aid management in analyzing the expected results of capital budgeting decisions?
A)accrual accounting rate of return
B)net present value
C)future-value cash flow
D)payback method
E)internal rate of return
Q3) In the net present value (NPV)method, after-tax cash flows should be used instead of pre-tax cash flows when taxes are a consideration.
A)True
B)False
Q4) Describe the purpose, features and benefits of a post investment audit for a capital budgeting project.
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Chapter 21: Transfer Pricing and Multinational Management
Control
Systems
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Q1) The seller of product A has idle capacity and has no alternative use for the excess capacity.The seller can sell each unit at $10.Outlay cost is $2.What is the opportunity cost of selling internally?
A)$0
B)$8
C)$10
D)$12
E)$16
Q2) A Canadian company has subsidiaries in France, England, Canada, and in the USA.The company is somewhat vertically-integrated in that the Canadian subsidiary sells some of its output to the USA subsidiary.Which further processes the material.If the market is fully-competitive, which transfer price would likely be used, given Canada Revenue Agency's published policy on transfer pricing?
A)market-based price
B)full cost plus a markup
C)negotiated price
D)distress price
E)either market-based or full cost
Q3) Bargaining between selling and buying units
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Chapter 22: Multinational Performance Measurement and Compensation
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Q1) Return on investment highlights the benefits that managers can obtain by reducing their investments in current or fixed assets.
A)True
B)False
Q2) Most Canadian and U.S.companies use the Sarbanes-Oxley Act (SOX)as a framework for evaluating their internal control.
A)True
B)False
Q3) Which type of compensation is most prevalent when a satisfactory performance measure cannot be designed?
A)dividends
B)stock options
C)salary
D)bonus based on ROI
E)bonus based on ROI and/or RI
Q4) Economic value added is after-tax operating income minus (required rate of return times total assets).
A)True
B)False
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