Performance Measurement and Control
Pre-Test Questions
Course Introduction
This course explores the principles and practices of performance measurement and control within organizations. Students will examine frameworks and tools used to measure, analyze, and manage both financial and non-financial performance, including balanced scorecards, key performance indicators (KPIs), and benchmarking techniques. The course emphasizes aligning performance metrics with organizational strategies, monitoring results, and using data-driven insights for decision-making and continuous improvement. Through case studies and real-world examples, students will develop the skills needed to design effective control systems and foster accountability, transparency, and strategic goal achievement in diverse business environments.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 16th Edition by Srikant M. Datar
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Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Performing professional duties in accordance with relevant laws, regulations, and technical standards is a competent responsibility.
A)True
B)False
Answer: True
Q2) Cost accounting provides information for both management accounting and financial accounting professionals.
A)True
B)False
Answer: True
Q3) A budget helps to control activities by adhering to the prescribed plan.
A)True
B)False Answer: True
Q4) The best-designed strategies are valuable, whether or not they are effectively implemented.
A)True
B)False Answer: False
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) A company reported revenues of $382,000, cost of goods sold of $125,000, selling expenses of $16,000, and total operating costs of $74,000. Gross margin for the year is
A) $257,000
B) $241,000
C) $167,000
D) $292,000
Answer: A
Q2) The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.
A)True
B)False
Answer: False
Q3) Cost behavior refers to ________.
A) how costs react to a change in the level of activity
B) whether a cost is incurred in a manufacturing, merchandising, or service company
C) classifying costs as either perpetual or period costs
D) whether a particular expense is expensed in the same or the following period
Answer: A
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,200, variable costs are $700, and fixed costs are $100,000. How many dresses must the Bridal Shoppe sell to yield after-tax net income of $20,000, assuming the tax rate is 40%?
A) 267 dresses
B) 240 dresses
C) 200 dresses
D) 400 dresses
Answer: A
Q2) Suppose a company decided to automate a production line. Explain what effects this would have on a company's cost structure using CVP terminology. Could these changes have any possible negative effect on the firm?
Answer: An automated production line would increase fixed costs through extra depreciation on the new machinery and also decrease variable costs due to the elimination of direct labor as a result of automation. This would increase the breakeven point. This could possibly have a negative effect on the firm if demand for the product produced by this production line is expected to decline in the future. With high fixed costs and low demand, a decline in profits might be more severe due to the presence of unchanging fixed costs as volume drops.
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Page 5
Chapter 4: Job Costing
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Sample Questions
Q1) When using a normal costing system, manufacturing overhead is allocated using the ________ manufacturing overhead rate and the ________ quantity of the allocation base.
A) budgeted; actual
B) budgeted; budgeted
C) actual; budgeted
D) actual; actual
Q2) When $10,0000 direct materials are requisitioned, which of the following would be the correct journal entry?
A) Manufacturing Overhead Control $10,000 Materials Control $10,000
B) Work-in-Process Control $10,000 Materials Control $10,000
C) Materials Control $10,000 Work-in-Process Control $10,000
D) Accounts Payable Control $10,000 Materials Control $10,000
Q3) Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.
Q4) Indirect manufacturing costs are credited to Manufacturing Overhead Control. A)True B)False
Q5) Differentiate between a cost pool and a cost-allocation base.
Q6) 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) Which of the following statements is true of a peanut-butter costing system?
A) A peanut-butter costing system typically has more-homogeneous indirect cost pools.
B) A peanut-butter costing system broadly averages or spreads the cost of resources uniformly to cost objects.
C) A peanut-butter costing system assumes that all costs are variable.
D) In a peanut-butter costing system, costs of activities are used to assign costs to other cost objects such as products or services based on the activities the products or services consume.
Q2) Explain how a top-selling product may actually result in losses for the company.
Q3) Department costing systems always properly recognize how resources are used by products as they require the creation of multiple indirect cost pools.
A)True
B)False
Q4) If the separate activities of design, process design, and prototyping are combined into one activity called "design" in an ABC system, management is forming one homogeneous cost pool.
A)True
B)False
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) The use of activity-based budgeting is growing because of ________.
A) the increased use of activity-based costing
B) the increased use of kaizen costing
C) increases in work-in-process inventory
D) increases in direct materials inventory
Q2) Financial planning models:
A) are primarily used to evaluate the differences between actual and planned volume
B) are not part of sensitivity analysis
C) are mathematical representations of the relationships among factors such as operating and financing activities that affect the budget
D) allow for analysis of changes in predicted data but not the other underlying assumptions of the budget
Q3) Budgets should ________.
A) not be so rigid that if conditions change, adjustments in spending can be made
B) be administered rigidly
C) only be developed for short periods of time such as quarters
D) include only variable costs
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) In variance analysis, if any single performance measure is underemphasized, managers will tend to make decisions that will cause the particular performance measure to look good.
A)True
B)False
Q2) Better Products Inc. planned to use $43 of material per unit but actually used $32 of material per unit, and planned to make 1,510 units but actually made 1,340 units.
The flexible-budget amount for materials is ________.
A) $57,620
B) $64,930
C) $48,320
D) $42,880
Q3) A purchasing manager's performance is best evaluated using information such as A) usage efficiency and direct materials price variance
B) direct materials flexible-budget variance
C) direct manufacturing labor flexible-budget variance
D) price and terms bargaining effectiveness, achievement of quality goals, and direct materials price variance
Q4) Describe the purpose of variance analysis.
Page 9
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) Which of the following is the correct mathematical expression to calculate the fixed overhead production-volume variance?
A) static-budget amount - flexible-budget amount
B) flexible-budget amount - actual costs incurred
C) actual costs incurred - fixed overhead allocated for actual output
D) budgeted fixed overhead - fixed overhead allocated for actual output
Q2) What are the arguments for prorating a production-volume variance that has been deemed to be material among work-in-process, finished goods, cost and cost of goods sold as opposed to writing it all off to cost of goods sold?
Q3) If the company's fixed overhead spending variance was unfavorable it could be attributed to higher plant-leasing costs.
A)True
B)False
Q4) Effective planning of fixed overhead costs includes ________.
A) planning day-to-day operational decisions
B) eliminating value-added costs
C) determining which products are to be produced
D) choosing the appropriate level of investment in productive assets
Q5) Explain how service-sector companies can benefit from variance analysis.
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) When production is less than sales, operating income will be the same regardless of whether variable cost or absorption costing is used.
A)True
B)False
Q2) ________ is the level of capacity based on producing at full efficiency all the time.
A) Practical capacity
B) Theoretical capacity
C) Normal capacity
D) Demand capacity
Q3) One possible means of determining the difference between operating incomes for absorption costing and variable costing is by ________.
A) subtracting sales of the previous period from sales of this period
B) subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory
C) multiplying the number of units produced by the budgeted fixed manufacturing cost rate
D) adding fixed manufacturing costs to the production-volume variance
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) Two common forms of quantitative analysis methods of cost estimation are the high-low method and regression analysis.
A)True B)False
Q2) A plot of data that results in one extreme observation most likely indicates that
A) more than one cost pool should be used B) an unusual event such as a plant shutdown occurred during that month C) the cost-allocation base has been incorrectly identified D) individual cost items do not have the same cost driver
Q3) An "economy of scale" function is an example of a linear cost function.
A)True
B)False
Q4) What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain each of the three criteria.
Q5) The high-low method relies on only two observations, the highest and lowest, to estimate a linear cost function.
A)True
B)False
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) A relevant revenue is revenue that is a(n) ________.
A) past revenue and differs among alternative courses of action
B) future revenue and differs among alternative courses of action
C) in-hand revenue
D) earned revenue
Q2) One-time-only special orders should only be accepted if ________.
A) incremental revenues exceed incremental costs
B) differential revenues exceed variable costs
C) incremental revenues exceed fixed costs
D) total revenues exceed total costs
Q3) In a one-time special order situation, if the price offered by the buyer is less than the absorption cost per unit, the special order may still be profitable since absorption costs include allocated fixed manufacturing overhead.
A)True
B)False
Q4) How can conflicts arise between the decision model and the performance evaluation model used to evaluate managers? Provide an example of this type of conflict.
Q5) Explain the five-step decision process that managers can use to make decisions.
Page 13
Q6) Explain what revenues and costs are relevant when choosing among alternatives.
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Discretionary costs are not easily controllable compared to engineered costs.
A)True
B)False
Q2) Which of the following statements is a valid argument for BarGraphs to reduce its manufacturing capacity?
A) BarGraphs 's strategy is to grow its business as L3 have unlimited demand.
B) BarGraphs can call back the expelled employees if the reduced capacity level proves to be insufficient.
C) BarGraphs already has a high employee turnover rate and a few more will make no difference.
D) BarGraphs wants to reduce product costs as they want to be the cost leaders.
Q3) Productivity describes the relationship between different quantities of inputs consumed and the quantities of output produced.
A)True
B)False
Q4) Advertising cost is an example of a discretionary cost.
A)True
B)False
Q5) What are the four key perspectives in the balanced scorecard?
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) After conducting a market research study, Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $260. The annual target sales volume for interior doors is 20,000. Magnificent has target operating income of 40% of sales. What is the target cost for each interior door?
A) $364
B) $260
C) $156
D) $104
Q2) Costing systems measure ________.
A) locked in costs
B) sunk costs
C) cost incurrence
D) out of pocked costs
Q3) Life-cycle budgeting estimates the costs and revenues attributed to a product from its initial R&D through production of a prototype product.
A)True
B)False
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $13,000,000 bond issuance, the Electric Mixer Division used $9,500,000 and the Electric Lamp Division used $3,500,000 for expansion. Interest costs on the bond totaled $975,000 for the year. What amount of interest costs should be allocated to the Electric Mixer Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
A) $563,333
B) $711,750
C) $3,500,000
D) $9,500,000
Q2) There is a direct cause-and effect relationship between division-sustaining costs and customer or sales manager's actions.
A)True
B)False
Q3) What actions might be taken with an unprofitable customer?
Q4) A customer cost hierarchy may include customer-sustaining costs.
A)True
B)False
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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Q1) Which of the following would be considered the biggest advantage of using practical capacity to allocate costs?
A) focuses the user's division with the costs of overused capacity
B) never causes over or under-allocated overhead
C) burdens the user divisions with the costs of unused capacity
D) focuses management's attention on unused capacity
Q2) Which of the following is an advantage of a dual-rate method?
A) It is the most widely used method in practice.
B) It is less costly to implement.
C) It avoids the expensive analysis for categorizing costs as either fixed or variable.
D) It allocates fixed cost as per the budgeted usage that helps in short and long-run planning.
Q3) The dual-rate cost-allocation method classifies costs in each cost pool into a
A) budgeted-cost pool and an actual-cost pool
B) variable-cost pool and a fixed-cost pool
C) direct-cost pool and an indirect-cost pool
D) direct-cost pool and a reciprocal-cost pool
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) All separable costs in joint-cost allocations are always incremental costs.
A)True
B)False
Q2) Which of the following is not true of the joint allocation methods?
A) the sales value at the split-off method is the best measure of benefits received
B) when selling prices of all products at the split-off are unavailable, the NRV method is the best alternative
C) the constant gross-margin percentage NRV method treats the joint products as though they comprise a single product
D) when selling prices are at the split-off point are available but further processing is necessary, the NRV method is the preferred allocation method
Q3) Which method of accounting recognizes byproducts in the financial statements at the time their production is completed?
A) gross margin method
B) sales method
C) production method
D) market value method
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Chapter 17: Process Costing
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Q1) Which of the following is true of weighted-average process-costing?
A) It does not represent the average cost of units when inputs prices fluctuates markedly from month to month.
B) It facilitates period-to-period comparisons and hence is very useful in analyzing the performances of managers for different periods.
C) It arrives at the same unit costs as arrived under FIFO method, but the computations are easier under weighted-average process-costing.
D) It calculates the cost per equivalent unit of all work done to date, regardless of the accounting period in which it was done.
Q2) An operation-costing system is a hybrid-costing system applied to batches of similar, but NOT identical, products.
A)True
B)False
Q3) In hybrid-costing systems, managers use process costing to account for the conversion costs and job costing for the material and customizable components.
A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) How does inspecting at various stages of completion affect the amount of normal and abnormal spoilage?
Q2) Some amounts of spoilage, rework, or scrap are inherent in many production processes.
A)True
B)False
Q3) When spoiled goods have a disposal value, the net cost of the spoilage is computed by ________.
A) deducting disposal value from the costs of the spoiled goods accumulated to the inspection point
B) adding the costs to complete a saleable product to the costs accumulated to the inspection point
C) deducting the costs to complete a saleable product from the costs accumulated to the inspection point
D) adding disposal value to the costs of the good units transferred
Q4) If scrap is returned to the company's storeroom and inventoried, it should NOT have any value in the accounting records.
A)True
B)False
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) The two basic aspects of quality are quality of design and conformance quality. Define and give an example of each.
Q2) Conformance quality is the performance of a product or service relative to its design and product specifications.
A)True
B)False
Q3) Which of the following types of costs are incurred in precluding the production of products that do not conform to specifications?
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
Q4) A machine has been identified as a bottleneck and the source of the constraint for a manufacturing company that has multiple products and multiple machines. Discuss ways the company can overcome the bottleneck.
Q5) What are ISO 9000 and ISO 14000?
Q6) What are control charts and how can inferences be drawn from them?
Q7) Discuss the methods used to identify quality problems.
Page 21
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Chapter 20: Inventory Management, Just-in-Time, and Simplified Costing Methods
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Q1) Which of the following is not a reason why a company would adopt JIT purchasing practices?
A) high shrinkage costs
B) low ordering costs
C) low carrying costs of inventory
D) reliable supply chains
Q2) Inventory management is the planning, organizing, and controlling activities that focus on the flow of materials into, through, and out of the organization.
A)True
B)False
Q3) Relevant total costs in the economic order quantity decision model equal relevant ordering costs plus which of the following costs?
A) carrying costs
B) stockout costs
C) quality costs
D) purchasing costs
Q4) Just-in-Time (JIT) production systems are also referred to as lean production.
A)True
B)False
22
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) Sam's Structures desires to buy a new crane and accessories to help move and install modular buildings. The machine sells for $75,000 and requires working capital of $10,000. Its estimated useful life is six years and it will have a salvage value of $17,560. Recovery of working capital will be $10,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $20,000.
Required:
a.Compute the net present value at a 12% required rate of return.
b.Compute the internal rate of return.
c.Determine the payback period of the investment.
Q2) The nominal approach to incorporating inflation into the net present value method predicts cash inflows in real monetary units and uses a real rate as the required rate of return.
A)True
B)False
Q3) The three common discounted cash flow methods are net present value, internal rate of return, and payback.
A)True
B)False
Q4) What are the relevant cash inflows and outflows for capital budgeting decisions?
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Q1) Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.
A)True
B)False
Q2) Which of the following is a drawback of decentralizing a multinational company?
A) It may lead to increased exchange rate risk.
B) It may result in lack of control and results in increasing risk.
C) It creates less responsiveness to the needs of a subunit's customers, suppliers, and employees.
D) It may lead to an increase in bureaucracy.
Q3) The seller of a product has no idle capacity and can sell all it can produce at $40 per unit. Outlay cost is $19. What is the opportunity cost, assuming the seller sells internally?
A) $19
B) $21
C) $40
D) $59
Q4) What are transfer prices and what are its criteria?
Q5) What does Section 482 of the U.S. Internal Revenue Code govern?
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Q1) In performance evaluations ________.
A) managers should use the swap exchange rate prevailing at the end of a financial period
B) managers should use the average exchange rate prevailing at the end of a financial period
C) managers should use the exchange rate prevailing on the date the assets were acquired
D) managers should use the exchange rate prevailing at the end of a financial period
Q2) Which of the following describes a situation in which an employee prefers to exert less effort than the effort the owner desires because the employee's effort cannot be accurately monitored and enforced?
A) Goal incongruence
B) Moral hazard
C) Performance report variance
D) Incentive report variance
Q3) An important element in designing accounting-based performance measures is choosing the time horizon of the performance measures. Discuss.
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