Management Control Systems
Exam Answer Key
Course Introduction
Management Control Systems explores the frameworks and processes organizations use to ensure that their activities align with strategic objectives and deliver desired performance outcomes. The course examines key concepts such as planning, budgeting, performance measurement, and incentive systems, highlighting how these tools facilitate effective decision-making and accountability at various organizational levels. Students will analyze both financial and non-financial controls, evaluate the impact of organizational structure and culture on control systems, and assess emerging trends such as sustainability and digital transformation. Through case studies and real-world examples, learners gain practical insights into designing and implementing effective control mechanisms in diverse business environments.
Recommended Textbook
Cost Accounting A Managerial Emphasis 7th 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) In what way do managers benefit from the use of a management information system?
A)Data can be entered at numerous input terminals within the organization.
B)The managers would not be completely responsible for the information that is entered into the database system.
C)The managers could combine or adjust data to answer the questions from particular internal and external users.
D)The managers do not benefit,as the information requires technical expertise to retrieve.
E)Managers can store old documents in hard copy.
Answer: C
Q2) Which of the following is a major benefit of utilizing a budgeting system?
A)It always results in more profitable decisions.
B)It is easier for managers than traditional decision-making models.
C)It saves costs by utilizing historical data to make projections.
D)It facilitates coordination and communication.
E)Once a successful budget is developed,it can be re-used year after year.
Answer: D
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) What is the unit cost for the direct materials for 2016 assuming direct materials costs are for the production of 1,014,000 units?
A)$0.80
B)$0.95
C)$1.00
D)$1.08
E)$1.11
Answer: C
Q2) Product costs used for external reporting under GAAP include
A)manufacturing costs only.
B)design costs plus manufacturing costs.
C)all costs incurred along the value chain.
D)prime costs but not conversion costs.
E)only conversion costs.
Answer: A
Q3) Conversion costs include all direct manufacturing costs.
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 margin of safety assuming 100 procedures are performed?
A)$16,000 or 40 times
B)$20,000 or 50 times
C)$24,000 or 60 times
D)$40,000 or 100 times
E)$50,000 or 110 times
Answer: C
Q2) There is no unique break-even point when there are multiple cost drivers.
A)True
B)False
Answer: True
Q3) If the sales mix shifts to four units of Product A and one unit of Product B,then the break-even point will
A)increase.
B)stay the same.
C)decrease.
D)decrease then increase.
E)increase then decrease.
Answer: A
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Page 5
Chapter 4: Job Costing
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Sample Questions
Q1) A local attorney employs ten full-time professionals.The budgeted compensation per employee is $80,000.The maximum billable hours for each client are 400.Clients always receive their full amount of time.All professional labour costs are included in a single direct cost category and are traced to jobs on a per-hour basis.Any other costs are included in a single indirect cost pool,allocated according to professional labour-hours.Budgeted indirect costs for the year are $400,000 and the firm had 20 clients.
Required:
a.What is the direct labour budgeted cost rate per hour?
b.What is the indirect cost pool budgeted cost rate per hour?
Q2) Which of the following statements about normal costing is TRUE?
A)Direct costs and indirect costs are allocated using an actual rate.
B)Direct costs and indirect costs are traced using budgeted rates.
C)Direct costs are traced using a budgeted rate,and indirect costs are allocated using an actual rate.
D)Direct costs are traced using an actual rate,and indirect costs are allocated using a budgeted rate.
E)Direct costs are traced by using the actual direct-cost rate times the budgeted quantity of the direct costs input.
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Chapter 5: Activity-Based Costing and Management
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Q1) How are cost drivers selected in activity-based costing systems?
Q2) Understanding the hierarchy of costs is critical when allocating costs to products.
A)True
B)False
Q3) Activity-based management describes management decisions that use activity-based costing information to
A)improve product pricing,cost reduction and design.
B)identify potential customers.
C)smooth indirect costs.
D)eliminate activities that add value but are not cost drivers.
E)anticipate changes in the market.
Q4) Uniformly assigning the costs of resources to cost objects when those resources are actually used in a non-uniform way is called
A)activity-based costing.
B)menu-based costing.
C)full product-cost allocation.
D)variable product-cost allocation.
E)broad averaging or peanut butter costing.
Q5) Explain how a top-selling product may actually result in losses for the company.
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Cash collections for September are
A)$71,500
B)$86,700
C)$110,000
D)$102,000
E)$99,500
Q2) What is budgetary slack?
What are the pros and cons of building slack into the budget from the point of view of (a)an employee and (b)a senior manager?
Q3) In going from the sales budget to the production budget,adjustments need to be made for
A)finished goods inventories.
B)overhead charges.
C)direct materials inventories.
D)sales returns and allowances.
E)changing from revenue to costs.
Q4) The usual starting point in budgeting is to forecast net income.
A)True
B)False
Q5) List and describe the four approaches to budgeting.
Page 8
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Chapter 7: Flexible Budgets,variances,and Management
Control: I
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Q1) If a purchasing agent is able to negotiate a price lower than that set by the current budget by purchasing direct materials of similar quality
A)a reduction in customer service costs will result.
B)the effect on the direct materials efficiency variance will be favourable.
C)the effect on the direct labour efficiency variance will be favourable.
D)the effect on the purchase rate variance will be favourable.
E)the effect on the direct materials efficiency variance will be unfavourable.
Q2) Standards differ from budget amounts because standards change from onetime period to the next.
A)True
B)False
Q3) What is the static-budget variance of operating income?
A)$175,000 favourable
B)$195,000 unfavourable
C)$225,000 favourable
D)$200,000 unfavourable
E)$200,000 favourable
Q4) Describe the purpose of variance analysis.
Q5) What is benchmarking,and how is it useful to a company?
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Chapter 8: Flexible Budgets,variances,and Management
Control: II
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Sample Questions
Q1) In variance analysis,fixed manufacturing overhead will have
A)an efficiency variance.
B)a flexible-budget variance.
C)a rate variance.
D)a static-budget variance.
E)no variance,because it is fixed.
Q2) Mediquip International is a manufacturing firm that has many assembly lines,numerous heavy duty machines and highly skilled machine operators.It has used very complex variance analysis in planning and controlling it operations during the last few years.Everything always appeared to be satisfactory until an economic recession tightened the competition and cost control became critical to the company's success.The operating managers believe that the traditional managerial accounting variance measures do not provide all the information they need during times of economic difficulties.
Required:
Discuss what additional information could be provided to the managers.
Q3) Explain the meaning of a favourable production-volume variance.
Q4) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.
Page 10
Q5) How is a budgeted fixed overhead cost rate calculated?
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Q1) From the perspective of long-run product costing it is best to use
A)master-budget capacity utilization to highlight unused capacity.
B)normal capacity utilization for benchmarking purposes.
C)practical capacity for pricing decisions.
D)theoretical capacity for performance evaluation.
E)supply capacity to satisfy customer demand.
Q2) ________ utilization is an average that provides no meaningful feedback to the marketing manager for a particular year.
A)Normal capacity
B)Master-budget capacity
C)Practical capacity
D)Flexible budget capacity
E)Planned unused capacity
Q3) Explain three methods under absorption costing that managers can use to improve operating income.
Q4) Absorption-costing income statements cannot easily differentiate between variable and fixed costs.
A)True
B)False
Chapter 10: Analysis of Cost Behaviour
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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) Brad Henry has just purchased the film studio of a movie company that specializes in action adventures.He found that the company did not try to estimate the cost of making a movie.Instead it just gave the producer a budget and told him/her to make a movie within budget.Mr.Henry does not like the former movie-budget concept and desires to establish a formal cost estimation system.
Required: What are some of the potential problems that may be encountered in changing from a budget to a cost estimation movie-making system?
Q3) Understanding the drivers of costs is crucially important for managing costs.Provide two causes that create a cause-and-effect relationship between a cost driver and a cost.
Q4) List and briefly describe the five steps in estimating a cost function using quantitative analysis.
Q5) Describe the two assumptions upon which managers often estimate cost functions.
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Chapter 11: Decision Making and Relevant Information
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Q1) Which of the following is TRUE concerning opportunity costs?
A)They are incorporated into formal financial accounting reports.
B)They entail cash receipts.
C)They entail cash disbursements.
D)They require accounting journal entries.
E)They are relevant for the make/buy decision.
Q2) Central Medical Supply Inc. ,a manufacturer of medical testing equipment,has $240,000 worth of an obsolete line of testing equipment.The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $64,000;the market value would then be $136,000.However,Tripac offered to purchase the obsolete equipment as is for $88,000.
What are the relevant figures above for management in their decision?
A)($240,000 + $64,000); ($88,000 - 0)
B)($240,000 + $64,000); ($88,000 - 240,000)
C)($240,000 + $64,000); ($88,000 + 240,000)
D)($136,000 - $64,000); ($88,000 - 0)
E)($136,000 - $64,000); ($88,000 - 240,000)
Q3) Producing more non-bottleneck output increases throughput contribution.
A)True
B)False
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Chapter 12: Pricing Decisions, product Profitability
Decisions, and Cost Management
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Sample Questions
Q1) Backwoods Incorporated manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $80 per table,consisting of 70% variable costs and 30% fixed costs.The company has surplus capacity available.It is Backwoods' policy to add a 50% markup to full costs.
Required:
a.Backwoods Incorporated is invited to bid on an order to supply 100 rustic tables.What is the lowest price Backwoods should bid on this one-time-only special order?
b.A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style.Backwoods Incorporated is invited to submit a bid to the hotel chain.What is the lowest price per unit Backwoods should bid on this long-term order?
Q2) What is the target cost if the company wants to maintain its same income level,and marketing is correct (rounded to the nearest cent)?
A)$168.75
B)$170.46
C)$185.00
D)$210.00
E)$202.50
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Chapter 13: Strategy,balanced Scorecard,and Profitability Analysis
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Sample Questions
Q1) What is the Luke Company's operating income in Year 2?
A)$1,804,500
B)$1,440,000
C)$4,620,000
D)$200,000
E)$188,000
Q2) Unused capacity is the amount of productive capacity available over and above the productive capacity employed to meet customer demand in the current period.
A)True
B)False
Q3) Required:
a.What is the net effect on operating income as a result of the productivity component?
Q4) What is reengineering? Can you contrast a reengineering approach to change with a Kaizen approach to change?
Q5) Downsizing is also called rightsizing. A)True B)False
Q6) Explain the product differentiation and the cost leadership strategies.
Page 15
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) When using the causality criterion,cost drivers are selected based on a cause-and-effect relationship between the business functions.
A)True
B)False
Q2) The allocation of one particular cost must satisfy all four justifications of cost allocation.
A)True
B)False
Q3) The direct allocation method provides key information for outsourcing decisions regarding support services.
A)True
B)False
Q4) The fixed and variable costs allocated to the Sauna Department are
A)$50,000 and $75,000,respectively.
B)$50,000 and $60,000,respectively.
C)$30,000 and $75,000,respectively.
D)$30,000 and $50,000,respectively.
E)$30,000 and $60,000 respectively.
Q5) 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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Q1) Using the sales value at splitoff method,the joint costs allocated to Kharton would be
A)$289,520.
B)$115,808.
C)$110,480.
D)$154,672.
E)$405,328.
Q2) The estimated net realizable value method allocates joint costs on the basis of the expected final sales value in the ordinary course of business,less the expected separable costs of production and marketing of the total production for the period.
A)True B)False
Q3) Using the sales value at splitoff method,what is the gross margin percentage for condensed goat milk at the splitoff point?
A)21.1%
B)55.1%
C)58.1%
D)38.2%
E)41.9%
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) Which of the following is one of the items that are important to managers when analyzing sales-volume variance information?
A)the static-budget variance
B)the flexible-budget variance
C)direct materials price variance
D)the sales-mix variance
E)direct labour efficiency variance
Q2) Various Product Company is a manufacturer of numerous products which are similar and are processed on the same assembly line.The production manager has decided that she will require all product managers and assembly line managers to be responsible for their own operations.The accounting information system is a large complex system that can provide specialized reporting when needed.It also has room for new,permanent applications.
Required:
Discuss how the production manager can expand the reporting responsibilities of these managers.
Q3) 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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Q1) What is the difference between a weighted-average method of process costing and a first-in,first-out method of process costing?
Q2) Costing systems that are used for costing like or similar units of products in mass production are called
A)inventory-costing systems.
B)job-costing systems.
C)process-costing systems.
D)weighted-average costing systems.
E)bulk costing systems.
Q3) What is the Townsend Company direct materials cost per equivalent unit during April?
A)$1,250.00
B)$1,241.94
C)$575.00
D)$581.25
E)$900.00
Q4) Compare and contrast process costing and job order costing.
Q5) Discuss some typical products which would likely use process costing.
Q6) List and describe the five steps in process costing.
Page 19
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Chapter 18: Spoilage, rework, and Scrap
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Q1) Redwing Shoes manufactures shoes.All direct materials are included at the inception of the production process.For March there were 2,000 units in beginning inventory with a direct material cost of $1,000.Direct materials totalled $20,000 for the month.Work-in-process records revealed that 40,000 shoes were started in March and that 36,000 were finished.Normal spoilage of 5 percent of units finished was incurred.Ending work-in-process units are complete in respect to direct materials costs.Spoilage is not detected until the process is complete.Redwing uses the weighted-average method.
Required:
a.What are the costs assigned to completed units when spoilage units are recognized and when they are not recognized in the cost per equivalent unit?
b.What are the costs transferred out if spoilage units are recognized and if they are ignored?
c.What are the amounts allocated to the work-in-process ending inventory when spoilage units are recognized and when spoilage units are ignored?
Q2) How can a company account for scrap? Include in your explanation a discussion of the two aspects of accounting for scrap.
Q3) Distinguish among spoilage,reworked units,and scrap.Give an example of each.
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Chapter 19: Inventory Cost Management Strategies
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Sample Questions
Q1) A trigger point in backflush costing refers to the inventory level at which a reorder is generated.
A)True
B)False
Q2) Disc Company sells 400 discs per week.Purchase order lead time is 3 weeks and the economic order quantity is 900 units.What is the reorder point?
A)950 units
B)1,200 units
C)3,500 units
D)4,500 units
E)5,600 units
Q3) How many deliveries will be made during each time period?
A)22 deliveries
B)26 deliveries
C)29 deliveries
D)32 deliveries
E)30 deliveries
Q4) What are the principles of lean accounting? Are there any limitations? Discuss.
Q5) What are five features of a just-in-time manufacturing system?
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Chapter 20: Capital Budgeting: Methods of Investment Analysis
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Q1) A Company wants to buy a moulding machine that can be integrated into its computerized manufacturing process.It has received three bids for the machine and related manufacturer's specifications.The bids range from $3,500,000 to $3,550,000.The estimated annual savings of the machines range from $260,000 to $270,000.The payback periods are almost identical and the net present values are all within $8,000 of each other.The president just doesn't know what to do about which vendor to choose;all the selection criteria are so close together.
Required:
What suggestions do you have for the president?
Q2) Many new capital projects are investments in new technologies.Both benefits and costs of these new technologies are hard to estimate. Required:
Discuss some of the difficulties in quantifying the expected benefits and costs of new technologies.
Q3) A Canadian corporation can deduct a full year's worth of CCA on any asset acquired in the year.
A)True
B)False
Q4) Explain why the term tax shield is used in conjunction with amortization.
Page 22
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Chapter 21: Transfer Pricing and Multinational Management
Control
Systems
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Q1) What is the total cost to Crush Company if the carbonated water is purchased from the local supplier?
A)$900,000
B)$1,200,000
C)$975,000
D)$1,080,000
E)$1,620,000
Q2) What is Division B's operating income per kilogram assuming the transfer price of the soybean paste is set at $1.25 per kilogram?
A)$0.500
B)$0.875
C)$1.250
D)$1.625
E)$1.525
Q3) Opportunity costs represent the cash flows directly associated with the production and transfer of the products and services.
A)True
B)False
Q4) What is the purpose of the internal control system within an organization?
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Chapter 22: Multinational Performance Measurement and Compensation
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Q1) 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
Q2) What is Economic Value Added ()for the Gold Division?
A)-$283,200
B)-$82,560
C)$196,800
D)$397,440
E)-$195,200
Q3) ROI,residual income,and economic value-added,can be used as performance measures.
A)True
B)False
Q4) Briefly explain each of the four levers of control.Why does a company need to implement more than a diagnostic control system?
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