Management Control Systems
Final Exam
Course Introduction
Management Control Systems explores the structures and processes organizations use to align operations with strategic objectives, monitor performance, and ensure efficient resource utilization. The course covers key concepts including budgeting, performance measurement, incentive systems, internal controls, and both financial and non-financial control mechanisms. Students will analyze how different control systems influence decision-making, employee behavior, and organizational effectiveness within a variety of organizational contexts, preparing them to design and implement effective management controls in dynamic environments.
Recommended Textbook
Cost Accounting 15th Edition by Charles T. Horngren
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Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Generally,companies follow one of two broad strategies: offering a quality product at a low price,or offering a unique product or service priced higher than the competition.Is it possible to follow a strategy that is "in the middle"?
Answer: There is some dispute about the correct answer to this question.Some will argue that it is not good for companies to get "caught in the middle" because the customer might get confused as to whether or not the company is competing on price or is trying to make some other appeal.If the customer is confused about how the company is giving them value,they might perceive they are getting no value and abandon the product to a competitor with a clearer customer value proposition.The other side of the argument is that cost management is a necessary part of any strategy and even if the company chooses to pursue a differential strategy,management of the company should always be seeking ways to manage costs and increase customer value simultaneously regardless of their strategy.The student should be able to articulate one or the other arguments coherently.
Q2) The key to a company's success is always to be the low cost producer in a particular industry.
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) Which of the following statements is true?
A) Product costs and design costs are interchangeable terms.
B) Inventoriable costs are assigned to inventories under GAAP.
C) Manufacturing costs are a special case of period costs.
D) Intangible costs refer to a particular cost of a product.
Answer: B
Q2) What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost?
A) 32%
B) 28%
C) 26%
D) 20%
Answer: B
Q3) When making strategic decisions about which products and how much to produce,managers must need to distinguish fixed costs from variable costs.
A)True
B)False
Answer: True
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4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Pearl Lights sells only pearl necklaces.8,000 units were sold resulting in $240,000 of sales revenue,$60,000 of variable costs,and $40,000 of fixed costs.The breakeven point in total sales dollars is ________.
A) $40,000
B) $53,334
C) $100,000
D) $58,334
Answer: B
Q2) What is the operating income of Jeffries Corporation,assuming actual sales total 25,000 units,and the sales mix is three units of Product A and one unit of Product B?
A) $50,000
B) $60,000
C) $77,000
D) $66,000
Answer: A
Q3) A revenue driver is a variable,such as volume,that causally affects revenues.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Job Costing
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Sample Questions
Q1) A ________ links an indirect cost to a cost object.
A) cost-allocation base
B) cost pool
C) cost assignment
D) cost tracing
Q2) Fixed costs remain constant at $400,000 per month.During high-output months variable costs are $320,000,and during low-output months variable costs are $80,000.What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 16,000 for high-output months and 4,000 for low-output months?
A) $45.00 per hour; $120.00 per hour
B) $45.00 per hour; $45.00 per hour
C) $25.00 per hour; $20.00 per hour
D) $56.20 per hour; $120.00 per hour
Q3) Overhead costs allocated each month are expected to equal actual overhead costs incurred each month.
A)True
B)False
Q4) Differentiate between a cost pool and a cost-allocation base.
Q5) What is the difference between an actual cost system and a normal cost system?
Page 6
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) How are cost drivers selected in activity-based costing systems?
Q2) How much of invoice cost will be assigned to the Bush Department?
A) $6,400
B) $8,000
C) $25,600
D) $40,000
Q3) ________ is an example of an output unit-level cost in the cost hierarchy.
A) Factory rent expense
B) Building security costs
C) Top management compensation costs
D) Machine depreciation
Q4) Using pages printed as the only overhead cost driver,what is the manufacturing overhead cost estimate for Money Managers during 2015?
A) $5,000
B) $3,500
C) $4,200
D) $6,000
Q5) Explain how activity-based costing systems can provide more accurate product costs than traditional cost systems.
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Budgeting for a multinational company is made more complex due to the possibility of exchange rate fluctuations.
A)True
B)False
Q2) The ________ is a component of financial budgets.
A) cost of goods sold budget
B) marketing costs budget
C) distribution costs budget
D) cash budget
Q3) Which of the following departments is most likely to be a cost center?
A) sales department of a company selling industrial tools
B) call center of a company that serves customers and cross-sells other products
C) maintenance department of a luxury resort
D) research department of a company providing consultancy services
Q4) A budget is the quantitative expression of a proposed plan of action by management for a specified period.
A)True
B)False
Q5) Describe the benefits of preparing an operating budget to an organization.
Q6) Describe the concept of kaizen budgeting.
Page 8
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Chapter 7: Flexible Budgets, direct-Cost Variances, and Management Control
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Sample Questions
Q1) What is the static-budget variance of variable costs?
A) $25,000 favorable
B) $25,000 unfavorable
C) $215,000 favorable
D) $215,000 unfavorable
Q2) The flexible budget will report ________ for variable costs.
A) $136,364
B) $198,000
C) $30,000
D) $13,583
Q3) The textbook discusses three levels of variances,Level 0,Level 1,Level 2,and Level 3.Briefly explain the meaning of each of those levels and provide an example of a variance at each of those levels.
Q4) September's direct material flexible-budget variance is ________.
A) $100.00 unfavorable
B) $150.00 favorable
C) $50.00 unfavorable
D) $575 favorable
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Q5) Give at least three good reasons why a favorable price variance for direct materials might be reported.
Chapter 8: Flexible Budgets, overhead Cost Variances, and Management Control
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Sample Questions
Q1) What is the variable overhead spending variance?
A) $4,500 unfavorable
B) $3,937.50 unfavorable
C) $4,500 favorable
D) $3,937.50 favorable
Q2) What is the amount of the budgeted variable manufacturing overhead cost per unit?
A) $9.50 per unit
B) $18.58 per unit
C) $19.00 per unit
D) $19.56 per unit
Q3) Fixed overhead costs ________.
A) never have any unused capacity
B) have no spending variance
C) have no efficiency variance
D) have no production-volume variance
Q4) Under Generally Accepted Accounting Principles (GAAP),fixed manufacturing overhead costs are allocated as an inventoriable cost to the output units produced.
A)True
B)False
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) Practical capacity rather than master-budget volume is a better way to price product and avoid downward demand spiral.
A)True
B)False
Q2) Charlassier Corporation manufactures and sells laptop computers and uses standard costing.For the month of September there was no beginning inventory,there were 3,000 units produced and 2,500 units sold.The manufacturing variable cost per unit is $385 and the variable operating cost per unit was $312.50.The fixed manufacturing cost is $450,000 and the fixed operating cost is $75,000.The selling price per unit is $925.
Required: Prepare the income statement for Charlassier Corporation for September under variable costing.
Q3) The production-volume variance,which relates only to fixed manufacturing overhead,exists under absorption costing but not under variable costing.
A)True
B)False
Q4) Explain three methods under absorption costing that managers can use to improve operating income.
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) A steeply sloped regression line indicates ________.
A) a strong relationship between the cost driver and costs
B) a greater proportion of fixed costs than variable costs
C) an increase in number of units produced during the period
D) a strong relationship between fixed cost and variable cost
Q2) Each time Mayberry Nursery hires a new employee,it must wait for some period of time before the employee can meet production standards.Management is unsure of the learning curve in its operations but it knows the first job by a new employee averages 40 hours and the second job averages 32 hours.Assume all jobs to be equal in size.
Required:
a.What is the learning-curve percentage,assuming the cumulative average-time method?
b.What is the time for a new employee to build 16 units with this learning curve using the cumulative average-time method? You may use an index of 0.1520.
Q3) Generally a coefficient of determination (r<sup>2</sup>)of 0.30 or higher passes a goodness of fit test.
A)True
B)False
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Page 12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Camera Corner is considering eliminating Model AE2 from its camera line because of losses over the past quarter.The past three months of information for Model AE2 are summarized below: \(\begin{array}{lr}
\text { Sales (1,000 units) } & \$ 300,000 \\
\text { Manufacturing costs: } & \\
\quad \text { Direct materials } & 150,000 \\
\quad \text { Direct labor ( } \$ 15 \text { per hour) } & 60,000 \\
\quad \text { Overhead } & 100,000 \\
\text { Operating loss } & (\$ 10,000)
\end{array}\) Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE2 that has no resale value.
If Model AE2 is dropped from the product line,operating income will ________.
A) increase by $10,000
B) decrease by $20,000
C) increase by $30,000
D) decrease by $10,000
Q2) For decision making,differential costs assist in choosing between alternatives.
A)True
B)False
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Page 13
Chapter 12: Strategy, balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Which of the following statements is a possible pitfall while implementing a balanced scorecard?
A) Managers using cost-benefit considerations while designing a balanced scorecard.
B) Managers ignoring
C) Managers using subjective measures in the balanced scorecard.
D) Top management ignoring nonfinancial measures when evaluating employee performance.
Q2) Bosely Corporation is reviewing its business strategy.The first step for Bosely is to perform an industry analysis.You have been hired to help the company go through the strategy formulation process.
Required:
To perform the industry analysis,what areas should Bosely focus on and give at least one example of how Bosely can effectively deal with each area.
Q3) Define engineered and discretionary costs and give two examples of each.
Q4) One of the five forces of industry analysis is understand the bargaining power of customers.
A)True
B)False
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) What is the target cost?
A) $5,760,000
B) $4,800,000
C) $3,840,000
D) $960,000
Q2) What are the five steps that are followed while implementing target pricing and target costing?
Q3) ________ focuses on reducing costs during the manufacturing stage.
A) Target costing
B) Kaizen costing
C) Cost-plus pricing
D) Life-cycle costing
Q4) Roberto Inc.,operates a chain of luxury hotels in the Asia-Pacific region.It charges $150 for one night stay.However when 90% of the rooms are occupied,Roberto charges a premium of 20% on room tariff for the remaining rooms.What pricing method has Roberto Inc.adopted?
A) customer-preference pricing
B) seasonal-load pricing
C) peak-load pricing
D) capacity pricing
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Chapter 14: Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) Discontinuing an unprofitable customer ________.
A) will eliminate all corporate costs assigned to and may result in losing more revenues relative to costs saved
B) will eliminate all costs assigned to and may result in gaining more revenues relative to costs saved
C) will not eliminate all costs assigned to and may result in losing more revenues relative to costs saved
D) will not eliminate all corporate costs assigned to and may result in gaining more revenues relative to costs saved
Q2) To guide cost allocation decisions,the fairness or equity criterion ________.
A) considers reasonableness as a matter of judgment rather than an operational criterion
B) allocates cost among the beneficiaries in proportion to the benefits each receives C) is used more frequently than any other criteria
D) is the primary criterion used in activity-based costing
Q3) Should a company allocate its corporate costs to divisions?
Q4) How can a company's revenues and costs differ across customers?
Q5) What are the two components of the sales-volume variance?
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Sample Questions
Q1) Special cost-allocation problems arise when ________.
A) support department costs exceed budgetary estimates
B) practical capacity is used as the allocation base
C) support departments provide reciprocal services to each other and operating departments
D) the same cost-allocation base is used among various support departments
Q2) Using the direct method,what amount of Data Center Department costs will be allocated to Department Music?
A) $150,000
B) $66,667
C) $83,333
D) $60,000
Q3) The Shapley value method of allocating common costs considers each party as first the primary party and then the incremental party and computes an average allocation.
A)True
B)False
Q4) Describe and discuss the two methods of allocating revenues of a bundled package to the individual products in that package.Describe any special problems associated with the method.
17
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) When a product is the result of a joint process,the decision to process the product past the splitoff point further should be influenced by the ________.
A) total amount of the joint costs
B) portion of the joint costs allocated to the individual products
C) extra revenue earned past the splitoff point
D) extra operating income earned past the splitoff point
Q2) Which of the following statements best define splitoff point in joint costing?
A) It is the point at which managers decide to discontinue one or more of the products.
B) It is the point at which the managers decide to outsource some of its production processes.
C) It is the juncture in a joint production process when two or more products become separately identifiable.
D) It is the juncture at which decisions determining joint costs of various products to be produced are taken.
Q3) Firms should be wary of using the full cost of a joint product as the basis for making pricing decisions.Why?
Q4) What are joint costs,separable costs,and a splitoff point?
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Page 18
Chapter 17: Process Costing
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Sample Questions
Q1) The president of the Gulf Coast Refining Corporation wants to know why his golfing partner,who is the chief financial officer of a large construction company,calculates his costs by the job,but his own corporation calculates costs by large units rather than by individual barrel of oil.
Q2) The principal difference between process costing and job costing is that in job costing an averaging process is used to compute the unit costs of products or services.
A)True
B)False
Q3) What is the unit cost per equivalent unit of the beginning inventory in the Finishing Department?
A) $200
B) $400
C) $800
D) $1,000
Q4) What is the conversion cost per equivalent unit in June?
A) $552.00
B) $541.24
C) $441.24
D) $428.00
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Chapter 18: Spoilage, rework, and Scrap
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Sample Questions
Q1) Costs of abnormal spoilage are NOT considered to be inventoriable costs and are written off as costs of the accounting period in which the abnormal spoilage is detected.
A)True
B)False
Q2) Costs are assigned to scrap only if it is abnormal scrap.
A)True
B)False
Q3) Counting spoiled units as part of output units in a process-costing system usually results in a higher cost per unit.
A)True
B)False
Q4) Which of the following is an example of spoilage?
A) short lengths from woodworking operations
B) edges from plastic molding operations
C) defective units of laptops detected after the production process but reworked before the units are sold as good products to customers
D) defective aluminum cans sold to aluminum manufacturers for remelting to produce other aluminum products
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) A Pareto diagram is usually in a bar-chart format,that indicates how frequently each type of defect occurs,ordered from the most frequent to the least frequent.
A)True
B)False
Q2) One way to increase capacity is to reduce the time it takes for setups and processing.
A)True
B)False
Q3) The last step of the five-step decision making process is implementing the decision,evaluating performance,and learning.How can a balanced scorecard play a role in helping to assure this final step will be successful?
Q4) The two basic aspects of quality are quality of design and conformance quality.Define and give an example of each.
Q5) What is the change in the daily contribution margin if the change is made?
A) $250
B) $750
C) $2,000
D) $800
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Q1) Which of the following statements best defines lean accounting?
A) an accounting system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities
B) a costing method that supports creating value for the customer by costing the entire value stream thereby eliminating waste in the accounting process
C) an accounting system that omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods
D) an integrated costing system covering a company's accounting, distribution, manufacturing, purchasing, human resources, and other functions
Q2) What is a supply chain,and what are the benefits of a supply chain analysis? Provide an example of these benefits.
Q3) To comply with GAAP,backflush cost numbers can be adjusted by recording a journal entry.
A)True
B)False
Q4) Lean accounting is much simpler than traditional product costing.Why?
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Page 22
Chapter 21: Capital Budgeting and Cost Analysis
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Q1) The net present value method can be used in situations where the required rate of return varies over the life of the project.
A)True
B)False
Q2) Which of the following is the numerator in the mathematical expression for accrual accounting rate-of-return (AARR)?
A) increase in expected average investment
B) increase in expected average annual after-tax operating income
C) increase in expected average cash flow
D) increase in expected net initial investment
Q3) Net present value is calculated using the ________.
A) internal rate of return
B) discount rate
C) risk-free rate
D) predetermined overhead cost rate
Q4) In determining whether to keep a machine or replace it,the original cost of the machine is a sunk cost and is NOT a relevant factor.
A)True
B)False
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Chapter 22: Management Control Systems, transfer Pricing, and
Multinational Considerations
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Q1) Which of the following helps in avoiding costly transfer-pricing disputes between taxpayers and tax authorities?
A) transfer price redressal panel
B) grievance redressal forum
C) transfer price agreements
D) advanced pricing agreements
Q2) If the Fabrication Division sells 1,000 air conditioners at a price of $375.00 per washing machine to customers,what is the operating income of both divisions together?
A) $105,500
B) $102,250
C) $97,000
D) $82,875
Q3) What is the transfer price per compressor from the Compressor Division to the Fabrication Division if the transfer price per compressor is 110% of full costs?
A) $16.50
B) $24.50
C) $28.18
D) $36.03
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Chapter 23: Performance Measurement, compensation, and Multinational Considerations
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Q1) What is the EVA for Bish Bash Falls?
A) $338,563
B) $305,000
C) $275,500
D) $255,500
Q2) Inflation clouds the real economic returns on an asset and ________.
A) makes variable-cost-based ROI higher
B) makes historical-cost-based ROI lower.
C) makes historical-cost-based ROI higher
D) makes variable-cost-based ROI lower
Q3) Higher inflation will lead to higher prices for goods or services,which will increase a company's operating income and lead to a higher ROI.
A)True
B)False
Q4) What were the sales for the Tiller Division?
A) $9,600,000
B) $12,000,000
C) $15,000,000
D) $15,500,000
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