Performance Measurement and Control
Exam Answer Key
Course Introduction
This course explores the concepts and techniques used to measure and control organizational performance. It examines the design and implementation of management control systems, including the development of performance metrics, budgetary control, and incentive systems. Students will learn how to align performance measurement tools with organizational objectives, analyze variances, and use both financial and non-financial indicators for effective decision-making. Through case studies and practical applications, the course highlights the challenges and best practices in ensuring that performance measurement supports strategy execution and organizational success.
Recommended Textbook Management Accounting 2nd Edition by Leslie
G. Eldenburg
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20 Chapters
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Page 2
Chapter 1: The Role of Accounting Information in Management Decision Making
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Sample Questions
Q1) Accounting information is the only thing managers need to make financial decisions.
A)True
B)False Answer: False
Q2) Uncertainties cause decision makers to ignore weaknesses in a preferred course of action.
A)True
B)False Answer: False
Q3) Which of the following is the best example of an internal report that might come from an organisation's information system?
A) Environmental Protection Agency regulatory report
B) Operating budget
C) Income tax returns
D) Credit rating agency report
Answer: B
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Page 3
Chapter 2: Cost Concepts, Behaviour and Estimation
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Sample Questions
Q1) Which cost estimation technique is useful in all situations?
A) Analysis at the account level
B) Regression analysis
C) Two-point method
D) No one method is useful in all situations
Answer: D
Q2) Janice's Kennel and Pet Spa is located in Sydney. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. Assume Janice's Kennel and Pet Spa is currently boarding ten pets. The cost of food to board one more pet is best described as a
A) Fixed cost
B) Marginal cost
C) Sunk cost
D) Mixed cost
Answer: B
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4
Chapter 3: A Costing Framework and Cost Allocation
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Sample Questions
Q1) To avoid passing on inefficiencies of the support departments, support department costs should be allocated using:
A) a budgeted cost allocation rate
B) an actual cost allocation rate
C) only fixed costs per unit of service
D) only variable costs per unit of service
Answer: A
Q2) A cost object is a thing or activity for which costs need to be measured for decision making.
A)True
B)False
Answer: True
Q3) In determining the amount of indirect costs to be allocated to the cost object the first step is:
A) to develop a cost allocation formula
B) to decide on the number of cost pools
C) to select a cost driver
D) to develop a predetermined cost rate
Answer: B
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Page 5
Chapter 4: Cost-Volume-Profit Cvp Analysis
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Sample Questions
Q1) SXF sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows: If SXF increases its sales volume by 10%, what will happen to its margin of safety?
A) It will decrease
B) It will increase
C) It will stay the same
D) Cannot be determined
Q2) When sales are $1,000, the contribution margin is $600 and a pretax loss of $60 occurs. What is the breakeven point in dollars?
A) $ 833
B) $1,100
C) $1,167
D) $1,750
Q3) Assumptions and limitations are irrelevant when using CVP analysis.
A)True
B)False
Q4) The margin of safety can be expressed in units, dollars, or a percentage.
A)True
B)False
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Chapter 5: Job Costing Systems
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Sample Questions
Q1) Under a job costing system rework costs are often not tracked.
A)True
B)False
Q2) The true statement is:
A) Period costs are expensed in the period the product is sold
B) Period costs are initially inventoried, then expensed
C) Product costs are expensed as the product is produced
D) Product costs are expensed in the period the product is sold
Q3) Tulip uses a job costing system that allocates overhead as a percentage of direct labour costs. The budget for this year was; direct materials $60,000, direct labour $30,000, overhead $45,000. The actual costs for this year were; direct materials $50,000, direct labour $35,000, overhead $45,000. How much overhead was over/under allocated?
A) $0
B) $150 overallocated
C) $21,550 underallocated
D) $7,500 overallocated
Q4) A cost driver is a synonym for an allocation base.
A)True
B)False
Page 7
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Chapter 6: Process Costing Systems
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Sample Questions
Q1) Materials are added at the beginning of the process. The beginning work in process is 30% complete. The total equivalent units for direct materials for the period using FIFO is equal to
A) The units in beginning work in process
B) The units started this period
C) The units started plus 70% of the units in beginning work in process
D) The units started and completed plus the beginning work in process
Q2) Conversion costs may be separated into direct labor and overhead when it is relatively easy to track direct labor and the use of labor occurs in a different pattern than the use of overhead resources.
A)True
B)False
Q3) Equivalent units measure the resources used in partially completed units relative to the resources needed to complete the units.
A)True
B)False
Q4) Conversion costs refer to the cost of direct labor and production overhead.
A)True
B)False
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Chapter 7: Absorption, Variable and Throughput Costing
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Sample Questions
Q1) Variable costing does not conform to GAAP because it does not match manufacturing costs with revenues.
A)True
B)False
Q2) Absorption costing systems subtract inventoried costs from revenues at the time of production.
A)True
B)False
Q3) Brady Ltd uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred: The firm had no beginning or ending work in process inventories. However, there were 1,000 units in beginning finished goods. The number of units produced was
A) 26,400
B) 25,000
C) 20,000
D) 23,600
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Chapter 8: Activity Analysis: Costing and Management
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Sample Questions
Q1) FNG employs 4 purchasing agents. Rick processes purchase orders for vendors starting with the letters A through H, while Merrill does the same task for vendors from I through N. Phillip deals with vendors in the O through R range, and Kathy handles the rest of the alphabet. The most likely cost driver for the purchasing agents' salaries is the
A) Number of vendors within each alphabetical segment
B) Number of purchase orders processed each month
C) Average dollar amount of each purchase order
D) Number of product lines FNG produces
Q2) Which of these factors are associated with successful ABC implementations?
A) Top management support and high market share
B) Performance evaluations and low market share
C) Top management support and performance evaluations
D) Middle management support and high market share
Q3) ABC systems allow managers to focus on measurement at the activity level.
A)True
B)False
Q4) Managers can use activity-based management to control environmental costs.
A)True
B)False
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Chapter 9: Relevant Costs for Decision Making
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Sample Questions
Q1) In a linear programming problem, slack resources are the same as A) Idle capacity
B) Constraints
C) Limits on production
D) Mixed costs
Q2) The general rule is to discontinue a segment of the business when its total contribution margin does not cover avoidable fixed costs.
A)True
B)False
Q3) Wagner Ltd can manufacture 490,000 tennis rackets a year at a variable cost of $15 per racket and fixed costs of $500,000. Wagner budgeted that it can sell 400,000 at $25 each. An additional order of 100,000 was received, but at a discount of 35% from the regular price. The relevant cost to Wagner of the special order is
A) $1,500,000
B) $1,450,000
C) $1,625,000
D) Some other amount
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11
Chapter 10: Standard Costs, Flexible Budgets and Variance Analysis
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Sample Questions
Q1) Everett Ltd budgeted $1,488,000 for total overhead. The standard variable overhead rate was $2 per direct labor hour, or $6 per unit, based on an anticipated activity level of 600,000 direct labor hours. During the year 220,000 units were produced. Fixed overhead costs incurred were $300,000. The variable overhead budget variance was $19,800 unfavorable, and the actual variable overhead rate was $2.10 per direct labor hour. The standard fixed overhead rate per direct labor hour was
A) $0.48
B) $0.90
C) $0.50
D) $0.96
Q2) If a variance is investigated and determined to be random, managers should
A) Write off the variance against cost of goods sold
B) Do nothing
C) Identify and discipline the employee(s) responsible
D) Write off the variance against work in process
Q3) Errors in the accounting records related to actual production output could lead to a fixed overhead production volume variance.
A)True
B)False
Page 12
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Chapter 11: Operational Budgets
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Sample Questions
Q1) Kelita Ltd, projects sales for its first three months of operation as follows: Inventory on 1<sup>st</sup> October is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale. What is the projected cost of purchases for October?
A) $80,000
B) $93,333
C) $120,000
D) $180,000
Q2) A flexible budget reflects a range of operations.
A)True B)False
Q3) A master budget is a comprehensive plan for an upcoming financial period. A)True B)False
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Chapter 12: Strategy and Control
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Sample Questions
Q1) Contemporary management accounting topics include all of these, except:
A) risk management control
B) sustainable accounting
C) central planning versus an unplanned economy
D) none of the above, i.e. all of these topics are covered by contemporary management accounting
Q2) Early writers on strategic management believed that better control would occur within an organisation if the management accounting function was more closely aligned to the financial accounting.
A)True
B)False
Q3) The 'lean' accounting principle is:
A) just in time inventory management
B) cost volume profit
C) capital budgeting
D) all are lean accounting principles
Q4) The value-based management (VBM) technique, was proposed by Kaplan and Norton.
A)True
B)False
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Chapter 13: Planning and Budgeting for Strategic Success
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Sample Questions
Q1) Which of these is likely to remain a centralised function with a Beyond Budgeting approach?
A) advertising
B) large capital investment projects
C) setting prices
D) all of the above are likely to remain centralised
Q2) Dysfunctional behaviour is more likely in discretionary rather than engineering cost centres.
A)True
B)False
Q3) Beyond Budgeting proponents argue that the key to instilling accountability originates from the belief that employees enjoy contributing to the organisation.
A)True
B)False
Q4) Excessive reliance on budgets can mean:
A) a tendency towards meeting budget targets at any cost
B) a compromise of quality, customer service and long-term performance
C) a and b
D) Neither a nor b
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Chapter 14: Capital Budgeting and Strategic Investment
Decisions
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Sample Questions
Q1) Incremental operating cash flows can be associated with changes in capacity or product quality in capital budgeting decisions.
A)True
B)False
Q2) Sebastian is presenting a capital budgeting project to Tamara, his division manager. Which one of the following is likely to have the least amount of bias when evaluating this project?
A) Sebastian
B) Tamara
C) The company's accountant
D) Cannot be determined
Q3) Cash flows for a capital budgeting analysis are affected by inflation, but not by deflation.
A)True
B)False
Q4) In general, the initial project investment does not require discounting in a net present value analysis.
A)True
B)False
Page 16
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Chapter 15: The Strategic Management of Costs and Revenues
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Sample Questions
Q1) Which of the following industries is least likely to implement target costing?
A) Food products and beverages
B) Heavy equipment manufacturers
C) Car manufacturers
D) Bicycle manufacturers
Q2) BLG produces and sells yachts for wealthy customers. BLG's accountants produced the data shown below as a basis for client negotiations for the coming year: Assume that all the preceding costs are avoidable. The company will incur an additional $800 in unavoidable costs during the coming year. BLG's managers want to achieve a profit margin of 80% based on total costs. Which customer's yacht will have the lowest total cost if unavoidable costs are allocated based on the cost of a basic yacht?
A) Big Winner
B) Sport Star
C) CEO
D) Costs will be equal for all three customers
Q3) Explain how value chain analysis helps managers identify value-added and non-value-added activities.
Correct
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Chapter 16: Strategic Management Control: a Lean Perspective
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Sample Questions
Q1) 'Value' in lean accounting is defined through the eyes of the customer.
A)True
B)False
Q2) Under a total quality management approach entities that seek only to match the quality of their competitors should reposition themselves as high-quality producers to maxamise their profitability.
A)True
B)False
Q3) The first stage in the lean accounting model is:
A) Learning and growth within the organisation to strive for continual perfection
B) Identify the relevant value-chain processes and activities
C) Identify and define value in organisational offerings
D) Implement a pull system in sync with customer demand
Q4) Under a value chain approach to quality management, product inspections are an example of which category of quality costs?
A) Appraisal activities
B) Internal activities
C) Prevention activities
D) External activities
Chapter 17: Responsibility Accounting, Performance
Evaluation and Transfer Pricing
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Sample Questions
Q1) Which type of knowledge is most costly to transfer within an organisation?
A) Centralised
B) Decentralised
C) Financial
D) Specific
Q2) Teresa's Taco Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The capital investment was
A) $1,250,000
B) $75,000
C) $170,000
D) $200,000
Q3) Return on investment can be decomposed into two ratios: investment turnover and return on sales.
A)True
B)False
Q4) An ideal transfer price would be the opportunity cost of internal transfers.
A)True
B)False
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Chapter 18: The Balanced Scorecard and Strategy Maps
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Q1) Which of the following is an implementation mistake related to the balanced scorecard?
A) Beginning by clarifying organisational vision
B) Linking objectives to strategies
C) Defining objectives in too general a manner
D) Integrating vision and strategies into operations in a more complete manner
Q2) The first step in implementing a balanced scorecard is developing measures for each of the perspectives.
A)True
B)False
Q3) Steps in the operations cycle of the value chain include
A) Identifying customer preferences
B) Designing products and services
C) Building products and services
D) Providing customer service
Q4) Steps in the innovation cycle of the value chain include
A) Delivering products and services
B) Designing products and services
C) Building products and services
D) Providing customer service
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Chapter 19: Rewards, Incentives and Risk Management
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Sample Questions
Q1) Agency theory is related to accounting because organisations incur costs, including the costs to produce accounting information, to solve conflicts that might arise between managers and owners.
A)True
B)False
Q2) Agency theory recognises two kinds of information consumers. Which of the following describes the relationship between them?
A) Principals hire agents to make decisions for them.
B) Agents hire principals to hold them accountable for decisions.
C) Principals and agents work together in the best interest of the organisation.
D) Principals are government employees, while agents work in the private sector.
Q3) Which of these is a not a policy in a banking group that would help reduce company risk?
A) Requiring more scrutiny of less successful traders and less of the more successful
B) Requiring all employees to take regular holidays
C) Ensuring that incentive systems don't encourage excessive risk taking
D) None of the above, i.e. all are policies that would help reduce company risk
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Chapter 20: Sustainability Management Accounting
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Sample Questions
Q1) Costs that an entity imposes upon others as a result of its operations but which the entity typically ignores, are called:
A) societal costs
B) contingent costs
C) externalities
D) a and c
Q2) Which of these types of costs is not a private cost to an entity?
A) conventional costs
B) contingent costs
C) hidden costs
D) societal costs
Q3) The process of measuring, monitoring and simultaneously controlling the economic, environmental and social dimensions of an entity is known as:
A) sustainability
B) sustainability management
C) sustainability accounting
D) none of the above
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