cost accounting

Which of the following

statements is true regarding
managerial decisions?
A) the design and use of
management control systems
affects how an individual makes
and implements decisions
B) rational managers will always
make decisions that are in the
best interest of the organization
employing them
A. Only A is true

Decentralization refers to the

delegation of decision making
authority to
subordinates

Which of the following is NOT a

characteristic of a decentralized
organization?
D. More decisions made by relatively few
individuals

Which of the following

statements is FALSE?
A. The U.S. military is a good example of an
organization that is highly decentralized

Which of the following elements

is NOT part of a management
control system?
C. Knowledge of local conditions

An operating unit of an
organization is called a cost
center if it is responsible
A. Only for costs

An operating unit of an
organization is called an
investment center if it is
responsible
D. For investments in assets

An operating unit of an
organization is called a revenue
center if it is responsible
B. Only for revenues

An operating unit of an
organization is called a profit
center if it is responsible
C. for costs and revenues

An operating unit that is

responsible for revenues and
costs is commonly referred to as
a
C. Profit center

An operating unit that is

responsible for revenues only is
commonly referred to as a
B. Revenue center

An operating unit that is

responsible for only costs is
commonly referred to as a
A. Cost center

When managers are held

responsible for costs but the
input-output relationship is not

well specified, a ________ is

established
C. Discretionary cost center

When managers are held

responsible for costs and the
input-output relationship is well
specified, a _______ is established
A. Standard cost center

Decentralized organizations can

delegate authority and still
maintain control and monitor
managers' performance by
designing appropriate
management control systems.
Which of the following
responsibility centers would be
evaluated similar to an
independent business?
C. Investment center

Controllable revenue is included

in a performance report of a
Profit center: YES, Investment Center: YES

Controllable revenue is included

in a performance report of a
revenue center, cost center
Revenue center: YES, Cost Center: NO
cost centers do not have authority over
revenues

Controllable revenue is included

in a performance report of a Cost
center, Profit center
D. Cost center: NO, Profit Center: YES

Assets invested in a
responsibility center are included
in a performance report of Profit
Center, Investment Center
D. Profit Center: NO, Investment center: YES
only investment centers have asset authority

Assets invested in a
responsibility center are included
in a performance report of Profit
Center, Cost Center
C. Profit Center: NO, Cost Center: NO

A manager makes a decision that

is beneficial for a specific
investment center but not for the
entire organization. From the
organization's perspective, this
decision results in
A. Goal congruance

The controllability concept states

that managers should be held
responsible for
A. All items over which they have decisionmaking authority

Relative performance evaluations

are NOT designed to
D. Restate departmental goals so meaningful
comparisons can be made

Which of the following items

would be classified as a fixed
compensation item?
A. Administrative salaries

Which of the following items

would NOT be classified as a
contingent compensation item?
A. Administrative salaries

Which of the following

statements is true regarding
compensation?
A) fixed compensation is
generally not linked to measured
performance, it is independent of
measured performance
B) properly designed
management control systems
have contingent compensation
items but not fixed compensation
items
A. Only A is true

The use of dual rates in a cost

allocation system assumes that
common costs can be
A. Separated into their fixed and variable
components

Which of the following

statements is FALSE regarding
the effective use of management
control systems?
A) in general, single rate cost
allocations should not be used in
management control systems
because clear control over the
cost being allocated cannot be
determined
B) the primary reason to use a
dual rate allocation system is to
focus on manager's performance
evaluation on factors under the
manager's direct control
D. Neither A nor B is false

Examples of pressures that can

lead to financial fraud do NOT
include
C. Overemphasis on long-term results

The Sarbanes- Oxley Act of 2002

requires that management of
publicly traded companies
B. Report on the adequacy of the company's
internal controls over financial reporting

Which of the following is not an

internal control
D. Using absolute performance standards

Internal controls include all of

the following EXCEPT
A. Using contingent compensation plans

BOXES 2 GO: What is the

allocation rate for the upcoming
year assuming Boxes 2 Go uses
the SINGLE- RATE method and
allocates common costs based on
number of CALLS
D. $25.00

BOXES 2 GO: What is the

allocation rate for the upcoming
year assuming Boxes 2 Go uses
the SINGLE RATE method and

allocates common costs based on

the TIME on the network?
$10.00

BOXES 2 GO: The cost accountant

determined $2,700,000 of the
communication network's costs
were fixed and should be
allocated based on the number of
calls. the remaining costs should
be allocated based on the time
on the network. what is the total
communication network costs
allocated to the large box
division assuming the company
uses dual-rates to allocate
common costs?
C. $1,980,000

BOXES 2 GO: The cost accountant

determined $2,700,000 of the
communication network's costs
were fixed and should be
allocated based on the number of

calls. the remaining costs should

be allocated based on the time
on the network.What is the total
communication network costs
allocated to the Small Box
Division assuming the company
uses dual-rates to allocate
common costs?
A. $2,520,000

THE COPY DEPT: If the copy

department uses a DUAL RATE
for allocating its costs based on
usage, how much cost will be
allocated to the marketing
department?
$170,000

THE COPY DEPT: If the copy

department uses a DUAL RATE
for allocating its costs based on
usage, how much cost will be
allocated to the Economics
department?

A. $85,000

THE COPY DEPT: If the copy

department uses a dual-rate for
allocating its costs, how much
cost will be allocated to the
economics department, assuming
the economics department
actually made 2,100,000 copies
during the year?
B. $92,500

THE COPY DEPT: if the copy

department uses a dual-rate for
allocating its costs, how much
cost will be allocated to the
marketing department, assuming
the marketing department
actually made 3,000,000 copies
during the year?
C. $155,000

THE COPY DEPT: If the copy

department uses a dual rate for
allocating its costs, how much

cost will be allocated to the

economics department, assuming
the economics department
actually made 1,500,000 copies
during the year?
A. $77,500

THE COPT DEPT: If the copy

department uses a dual-rate for
allocating its costs, how much
cost will be allocated to the
marketing department, assuming
the marketing de
D.$175,000

FENWAY TELECOM: What is the

allocation rate for the upcoming
year assuming Fenway Telcom
uses the SINGLE RATE method
and allocates common costs
based on the number of
CONNECTIONS?
A. $10,000

FENWAY TELCOM: Fenway uses

the SINGLE RATE method and
allocates common costs based on
the number of CONNECTIONS.
What is the total computer
server network cost allocated to
the Commercial Division?
C. $600,000

FENWAY TELCOM: What is the

allocation rate for the upcoming
year assuming Fenway Telcom
uses the single rate method and
allocates common costs based on
the time on the network?
C. $4.00

FENWAY TELCOM: Fenway uses

the single rate method and
allocates common costs based on
the time on the network. What is
the total computer server
network cost allocated to the
Retail Division?

$600,000

FENWAY TELCOM: 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?
$565,000

FENWAY TELCOM: the cost

accountant determined
$1,700,000 of the server
network's costs were fixed and
should be allocated based on the
time on the network. What is

total server network costs

allocated to the Retail Division
assuming the company uses
dual-rates to allocate common
costs?
$741,667

FENWAY TELCOM: 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 total server
network costs allocated to the
Consumer division assuming the
company uses dual rates to
allocate common costs?
B. $1,093,333

DOC CREATION CENTER: If DCC

uses a dual rate for allocating its

costs based on usage, how much

cost will be allocated to the
software development
department?
$112,000

DCC: If DCC uses a dual rate for

allocating its costs based on
usage, how much cost will be
allocated to the training
department?
$210,000

DCC: If DCC uses a dual rate for

allocating its costs based on
usage, how much cost will be
allocated to the Management
Department?
A. $168,000

DCC: If DCC uses a dual-rate for

allocating its costs, how much
cost will be allocated to the
Management Department,
assuming the Management

Department actually made

2,100,000 copies during the
year?
C. $159,000

DCC: If DCC uses a dual rate for

allocating its costs, how much
cost will be allocated to the
Management Department,
assuming the Management
Department actually made
2,950,000 copies during the
year?
A. $184,500

DCC: If DCC uses a dual rate for

allocating its costs, how much
cost will be allocated to the
training department, assuming
the training department actually
made 3,250,000 copies during
the year?
C. $217,500

DCC: If DCC uses a dual rate for

allocating its costs, how much
cost will be allocated to the
training department, assuming
the training department actually
made 2,770,000 copies during
the year?
D. $203,100

DCC: 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?
B. $98,800

DCC: 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
1,780,000 copies during the
year?
A. $117,400

In responsibility accounting, a
center's performance is
measured by those costs which
are controllable. controllable
costs are best described as
including
B. only those costs that the manager can
influence in the current period

Rockford Manufacturing
corporation uses a responsibility
accounting system in its
operations. which of the
following items is LEAST likely to
appear in a performance report
for a manager of one of
Rockford's assembly lines?

D. Depreciation on the manufacturing facility

Responsibility accounting defines

an operating center that is
responsible for revenue and
costs as a
A. Profit center

When comparing performance

report information for top
management with that of lower
level management
D. Lower level management reports are
likely to contain more quantitative data and
less financial data

The least complex segment or

area of responsibility for which
costs are allocated is a
D. Cost Center

Which of the following will NOT

occur in an organization that
gives managers throughout the
organization maximum freedom
to make decisions?

D. Delays in securing approval for the

introduction of new products

Which one of the following firms

is likely to experience
dysfunctional motivation on the
part of its managers due to its
allocation methods?
B. Manhattan Electronics uses the sales
revenue of its various divisions to allocate
costs connected with the upkeep of its
headquarters building. it also uses ROI to
evaluate the divisional performance

Which of the following

statements is true regarding the
master budget?
A) a master budget consists of
organizational goals, strategic
long range profit plans, and
tactical short range profit plan
B) a master budget consists of
only a budgeted income
statement, balance sheet, and
stockholders equity statement

D. Neither A nor B is true

Long range planning as a

management function is more
important
A. at top management levels

Which of the following terms is

not an alternative for master
budget?
C. Profit plan

A master budget
C. presents the plan for only one level of
activity and does not adjust to changes in
the level of activity

A continuous rolling budget

D. Drops the current month or quarter and
adds a future month or quarter as the
current month or quarter is completed

Budgetary slack can best be

defined as
B. Underestimation of budgeted revenues

Which of the following

statements is true regarding the

benefits associated with

participative budgeting?
A) goal congruence by divisions
means top management need not
be concerned with overall
profitability
B) budget assumptions and
estimates are prepared by those
closest to the budgeted activity
B. Only B is true

In general, the first budget

prepared is the
C. Sales budget

In developing a master budget

for a manufacturing company,
which of the following items
should be done first?
A. Development of a sales budget

The forecasting method in which

individual forecasts of group
members are submitted

anonymously and evaluated by

the group as a whole is called
C. Delphi technique

The statistical method of

forecasting that relies heavily on
regression models is called
A. Econometric models

The starting point in preparing a

comprehensive budget for a
manufacturing company limited
by its ability to produce and not
by its ability to sell is
B. an estimate of productive capacity

The number of units required for

production is equal to
B. budgeted sales plus units in the ending
inventory minus the units in the beginning
inventory
Beg Inv + prod- Sales= end inv

The amount of materials to be

purchased during the budget
period is equal to budgeted
B. total production needs plus units in the
ending materials inventory minus the units
in the beginning materials inventory

Which of the following budgets

does not require the production
budget
D. Marketing and administrative expenses

The manufacturing overhead

budget requires that costs be
separated into their fixed and
variable components. Another
budget that has this requirement
is the
D. Marketing and administrative expenses

Which of the following

statements does NOT reflect a
difficulty in preparing the
marketing and administrative
budget

D. Marketing and administrative expenses

normally have a one year time horizon

Which of the following budgets

would be the last one prepared
in the master budget preparation
process
E. Cash budget

Cash disbursements would NOT

include payments for
C. accounts receivable

Which of the following types of

accounts would NOT be included
on a budgeted balance sheet?
E. Revenues

Which of the following budgets is

NOT required in a wholesale
organization
C. Production

Which of the following budgets is

NOT required in a service
organization?
D. Cost of goods sold

Sensitivity analysis can be best

used in the budgeted process to
C. answer "what-if" questions regarding key
projections

SLEDGE HAMMER COMPANY: Due

to changes in prices, the new
price for the hammer will be
$4.30 per unit. this new price is
expected to be in line with the
competition and have no effect
on the volume estimates. what
are the estimated sales revenues
in the coming year?
C. $5,418,000

TRS is a large securities dealer.

What are the estimated
commission's revenues for TRS in
the coming year?
B. $12,672,000

TLC credit, Inc: What is TLC's

estimated change in revenues
next year?

A. $460,000 decrease

HAWLE MANU COMP: What are

estimated net sales for 2010,
assuming the sales return/gross
sales relationship remains
constant?
A. $646,893

HAWLE MANU COMP: What is the

estimated cost of goods sold for
2010 assuming the number of
units sold does not change?
D. $357,000

HAWLE MANU COMP: The ending

inventory of finished goods for
each quarter should equal 25% of
the next quarters budgeted sales
in units. the finished goods
inventory at the start of the year
is 3,000 units. Scheduled
production for the third quarter
is
A. 17,500 units

THE WAVERLY COMPANY:

scheduled production for the
second quarter is
C. 15,000 units

The TOBLER COMPANY: Budgeted

purchases of raw materials in the
third quarter would be
A. 63,200 lbs

THE TOBLER COMPANY: Budgeted

purchases of raw materials in the
second quarter would be
C. 49,600 lbs

Kaufman industries: What is the

estimated production level for
the first month of the upcoming
budget year?
C. 6000

THE SUN COMPANY: What is the

production budget in units for
2008?
B. 65,000

THE SUN COMPANY: What are the

materials requirements in feet
for 2008?
B. 336,250

Purchases for month 1 would be

C. 17,200

DAVIS Corporation had the

following transactions in their
first year: What is the cash
balance at year end?
C. $210,000

TASK COMPANY: What is the

amount of cash to be collected in
the month of july?
B. $38,022

TASK COMPANY: What is the

amount of cash to be collected in
the month of August?
A. $40,106

TASK COMPANY: assume charges

1.5% on any balance that is not

collected in the following month.

This changes collection
percentages to 15% cash sales,
80% of the balance collected in
the month following the sale,
16% the second month, 3% the
third month. What is the amount
of cash to be collected in July?
D. $36,242

PARDEE company: Total cash

receipts in Month 4 will be
D. $36,230

PARDEE COMPANY: Total cash

receipts in month 3 will be
B. $53,290

RIZZO CORP: How many units did

Rizzo purchase in 2009?
A. 224,500

RICHBURN MANU COMP: What

were the cash disbursements for
the year?
A. $721,750

THE JACK COMPANY: what are the

estimated cash disbursements
for inventories in june?
C. $335,250

THE SMART COMPANY: what are

the estimated cash receipts from
accounts receivable collections in
June?
D. $239,250

THE SPORT COMPANY: What are

the estimated collections in july?
B. $131,250

T JACKSON RETAIL: What are the

budgeted merchandise
purchases for May?
A. $338,250

T JACKSON RETAIL: What are the

budgeted merchandise
purchases in dollars for June?
C. $364,500

T JACKSON RETAIL: What are the

budgeted cash disbursements
during the month of June?
B. $419,400

T JACKSON RETAIL: What are the

budgeted cash collections during
the month of May?
A. $445,894

T JACKSON RETAIL: What are the

budgeted number of inventory
units that need to be purchased
in July?
C. 12,250

The major objectives of any

budget system are to
C. Foster the planning of operations, provide
a framework for performance evaluation, and
promote communication and coordination
among organization segments

From the perspective of

corporate management, the use
of budgetary slack

D. increases the likelihood of inefficient

resource allocation

the master budget process

usually begins with the
D. sales budget

A company has the following

annual budget data: What are
total budgeted production costs
for the year?
B. $2,180,000

Selana Company: What would be

the budgeted cost for the coming
year if Selana were to operate
seven sales offices?
B. $672,000

Brown Company: Brown's

budgeted cash collections for the
third calendar quarter are
C. $414,000

A company is preparing its cash

budget for the coming month. All

sales are on account. What is the

expected cash balance of the
company at the end of the
coming month?
B. $40,000

A company is fomulating its

plans for the coming year,
including prep of its cash budget.
For the month of April, the total
cash receipts from sales and
collections on account would be
B. $3,781,600

LYNNDORF CORP: The number of

tables to be produced during
August is
B. 2,340 tables

LYNNDORF CORP: The number of

table legs to be purchased in
August is
A. 6,520 legs

LYNNDORF CORP: How many

employees will be required for
the assembly department?
B. 3.75 employees

Research has shown that having

several levels of management
participate in the budgetary
process is beneficial to both the
company and the employees.
However, there are certain
behavioral problems encountered
in the process, one of which is
the use of budgetary slack.
budgetary slack can best be
described as
B. The planned overestimation of budgeted
expenses

Research has shown that having

several levels of management
particiapte in the budgetary
process is beneficial to both the
company and the employees.

however, there are certain

behavioral problems encountered
in the process, one of which is
the use of budgetary slack. the
use of budgetary slack does not
allow the preparer of the
budgets to
D. Use the budget to control subordinate
performance

Research has shown that having

several levels of management
participate in the budgetary
process is beneficial to both the
company and the employees.
however, there are certain
behavioral problems encountered
in the process, one of which is
the use of budgetary slack. From
the perspective of corporate
management, the use of
budgetary slack

E. Increases the likelihood of inefficient

resource allocation

Which of the following

statements is true?
A) divisional income statements
do not include allocated common
costs.
B) the gross margin ratio is
computed by dividing operating
income by sales.
D. Neither A nor B is true

After tax income divided by sales

is called the
B. Profit margin ratio

The measure that reflects the

performance of a manager
regarding sales and cost of
goods sold, but not other
operating costs and income taxes
is called the

A. gross margin ratio

gross margin= sales- cost of goods sold

If a division is evaluated using

ROI without regard to how assets
are financed, the denominator in
the ROI calculation will be
C. Total assets available

ROI can be decomposed into the

asset turnover and the
B. Profit margin ratio

The asset turnover is a measure

of an investment center's ability
to
B. Generate sales

Which of the following

statements does NOT represent a
limitation of using ROI for
measuring and evaluating
performance?
ROI cannot be used to compare divisions of
different sizes

How will INCREASES in the

following items affect ROI
A. Expenses: decrease, Inventory: Decrease

How will DECREASES in the

following items affect ROI
B. Sales: Decrease, Equipment: Increase

A division earning a profit will

increase its ROI if it increases
operating expenses and
B. sales by the same percentage

Which of the following

statements is true:
A) if a divisions ROI exceeds its
cost of capital, the its residual
income is positive
B) if a division's cost of capital
equals its ROI, then its residual
income is zero
C. Both A and B are true

Residual income is similar to the

_____ notion of profit as being the

amount left over after all costs,

including the cost of the capital
employed in the division, are
subtracted.
D. Economists

Which of the following

statements is FALSE:
A) residual income can be used
to compare divisions of different
sizes
B) residual income can be used
to compare divisions that are
profit centers
C. Both A and B are false

Managerial performance can be

measured in many different ways
including ROI and residual
income. A good reason for using
residual income instead of ROI is
that

B. Appropriate goal congruence behavior is

more likely to occur when using residual
income

How will decreases in the

following items affect residual
income?
D. Expenses: Increase, Inventory: Increase

How will INCREASES in the

following items affect residual
income?
C. SALES: increase, EQUIPMENT: decrease

Which of the following should

NOT be used for the cost of
capital to compute residual
income?
D. ROI

A manager can always increase

his/her ROI by
C. Increasing the operating profit margin