ACCT 3306 SU 15 & 16
A company uses return on investment (ROI) to evaluate year-end divisional performance. Which one of the following inventory practices would most reduce comparability among two similar divisions? A.One division uses LIFO, and the other division uses FIFO. B.One division places goods for sale on consignment, and the other division does not. C.One division uses a perpetual inventory system, and the other division uses a periodic inventory system. D.One division uses the net method to record purchases, and the other division uses the gross method to record purchases.
A.
A company uses standard costing and flexible budgeting and is evaluating its direct labor. The flexible budget variance can usually be broken down into two other variances identified as the A.Direct labor rate variance and direct labor efficiency variance. B.Direct labor rate variance and direct labor volume variance. C.Direct labor cost variance and direct labor volume variance. D.Direct labor cost variance and direct labor efficiency variance.
A.
A company's production manager is accountable for controlling costs while manufacturing quality products. The manager also provides recommendations for equipment improvements and replacements. In this market, customers are very sensitive to the product's quality. What type of responsibility center is the production manager in charge of? A.Cost center. B.Revenue center. C.Investment center. D.Profit center.
A.
A corporation's Marketing Department recently accepted a rush order for a nonstock item from a valued customer. The Marketing Department filed the necessary paperwork with the Production Department, which complained greatly about the lack of time to do the job the right way. Nevertheless, the Production Department accepted the manufacturing commitment and filed the required paperwork with the Purchasing Department for the needed raw materials. A purchasing clerk temporarily misplaced the paperwork. By the time the paperwork was found, it was too late to order from the company's regular supplier. A new supplier was located, and that vendor quoted a very attractive price. The materials arrived and were rushed into production, bypassing the normal inspection processes (as directed by the Production Department supervisor) to make up for lost time. Unfortunately, the goods were of low quality and created considerable difficulty for the assembly-line personnel. Which of the following best indicates the responsibility for the materials usage variance in this situation? A.Purchasing, Marketing, and Production. B.Purchasing and Marketing. C.Purchasing. D.Marketing and Production.
A.
A hospital has installed a new computer system. The system was designed and constructed based on the anticipated number of hours of usage required by the various hospital departments according to projections made by the departmental managers. Virtually all of the operating costs of the system are fixed. What would be the most systematic and rational manner in which to allocate the new computer system costs to the various hospital departments? A.By the anticipated number of hours of usage. B.To each department equally. C.By actual usage by each department. D.By the revenue generated in each department.
A.
A plan that is created using budgeted revenue and costs but is based on the actual units of output is known as a A.Flexible budget. B.Strategic plan. C.Continuous budget. D.Static budget.
A.
A project manager has been asked to provide an explanation regarding a $2,220 favorable material variance on a playground equipment project. After further analysis, the project manager was able to break down the material variance to an unfavorable price variance of $1,700 and a favorable quantity variance of $3,920. The best explanation of the variances is that the A.Purchasing department purchased a higher quality material, resulting in less wasted materials. B.Excellent scheduling by the production department enabled the purchasing department to reduce shipping costs. C.Human resources department failed to hire adequately trained workers, causing materials to be wasted. D.Decision by the purchasing department to use a new supplier resulted in the purchase of the materials for a lower price.
A.
A proposed transfer price may be a cost-plus price. Variable-cost-plus price is the price A.Set by charging for variable costs plus a lump sum or an additional markup, but less than full markup. B.Usually set by an absorption-costing calculation. C.Representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale. D.On the open market.
A.
A segment of an organization is referred to as a profit center if it has A.Authority to make decisions affecting the major determinants of profit including the power to choose its markets and sources of supply. B.Authority to provide specialized support to other units within the organization. C.Authority to make decisions affecting the major determinants of profit including the power to choose its markets and sources of supply and significant control over the amount of invested capital. D.Authority to make decisions over the most significant costs of operations including the power to choose the sources of supply.
A.
A successful responsibility accounting reporting system is dependent upon A.The proper delegation of responsibility and authority. B.A reasonable separation of costs into their fixed and variable components since fixed costs are not controllable and must be eliminated from the responsibility report. C.Identification of the management level at which all costs are controllable. D.The correct allocation of controllable variable costs.
A.
An advantage of using a flexible budget compared to a static budget is that, in a flexible budget, A.Budgeted costs for a given output level can be compared with actual costs for the same level of output. B.Fixed cost variances are more clearly presented. C.Shortfalls in planned production are clearly presented. D.Standards can easily be changed to adjust to changing circumstances.
A.
An example of an item that would fall under the customer perspective on the balanced scorecard of an airline is A.Customer complaints will decrease by 10%. B.Three new in-flight meals will replace existing offerings that are unpopular with customers. C.90% of the flights will arrive on time. D.Customers will have to wait no longer than 15 minutes to check their bags.
A.
Characteristics of a responsibility accounting system include all of the following except that A.Cost centers are responsible for revenues as well as common costs. B.The system should encourage employee involvement and participation. C.Responsibility for performance according to budget must be linked to the appropriate authority. D.Each level of management is responsible for its department's operations and employees.
A.
Companies with decentralized, autonomous divisions that sell their goods and services internally to other divisions of the company as well as externally in competitive markets have to establish transfer prices for the goods and services transferred internally among divisions. Generally, upper management has established such operating criteria for managing the divisions as goal congruence, subunit autonomy, and a sustained high level of management effort. An approach consistent with the above criteria would be to set the transfer price equal to the A.Additional outlay cost per unit incurred to the point of transfer plus the opportunity cost per unit to the supplying division. B.Variable cost per unit incurred to the point of transfer. C.Additional outlay cost per unit incurred to the point of transfer plus the opportunity cost per unit to the buying division. D.Full cost per unit incurred to the point of transfer plus a percentage markup on the full cost per unit.
A.
Consider the following categories of performance measures. I. Profitability measures. II. Customer-satisfaction measures. III. Efficiency, quality, and time measures. IV. Innovation measures. A cruise line operates on a national scale in a very competitive marketplace. In view of this information, which measures should the company use in the evaluation of its managers? A.I, II, III, and IV. B.I only. C.I and II. D.II and III.
A.
For a company that produces more than one product, the sales volume variance can be divided into which two of the following additional variances? A.Sales quantity variance and sales mix variance. B.Sales mix variance and production volume variance. C.Sales mix variance and sales price variance. D.Sales price variance and flexible budget variance.
A.
For several years, Northern Division of a company has maintained a positive residual income. Northern is currently considering investing in a new project that will lower the division's overall return on investment (ROI) but increase its residual income. What is the relationship between the expected rate of return on the new project, the firm's cost of capital, and the division's current ROI? A.The expected rate of return on the new project is higher than the firm's cost of capital, but lower than the division's current return on investment. B.The expected rate of return on the new project is higher than the division's current return on investment, but lower than the firm's cost of capital. C.The division's current return on investment is higher than the expected rate of return on the new project, but lower than the firm's cost of capital. D.The firm's cost of capital is higher than the expected rate of return on the new project, but lower than the division's current return on investment.
A.
If a corporation used a normal cost system, applying overhead based on the number of units produced, the variance that could arise that would not be present under an actual cost system is the A.Fixed overhead production volume variance. B.Direct material efficiency variance. C.Direct labor efficiency variance. D.Variable overhead efficiency variance.
A.
If a manufacturing company uses responsibility accounting, which one of the following items is least likely to appear in a performance report for a manager of an assembly line? A.Equipment depreciation. B.Repairs and maintenance. C.Supervisory salaries. D.Materials.
A.
The chief information officer of a university Computing Services Department is assigned to help reduce the recurrent problem of cost overruns due to uncontrolled computer usage by the user community, while at the same time, not curtailing the use of information technology for research and teaching. To ensure goal congruence, which one of the following algorithms should be used to allocate the cost of the university Computing Services Department to other departments within the university? A.Budgeted rate times actual hours of computer usage. B.Budgeted rate times budgeted hours of computer usage. C.Actual rate times budgeted hours of computer usage. D.Actual rate times actual hours of computer usage.
A.
The management team of a company is evaluating the use of either return on investment or residual income as a measure of the performance of the company's lines of business. In a presentation about the two measures, which of the following statements are correct? I. Both measures include key elements such as revenues, costs, and level of investments, which are critical for top management decision making. II. Both measures avoid all potential goal-congruency problems within the organization. II.I. The only disadvantage of the measures is that they both have a long-term focus rather than a short-term focus. IV. Both measures can be manipulated to suit the user's purposes as the calculation is based on accounting numbers. A.I and IV only. B.III and IV only. C.II and III only. D.I and II only.
A.
Under a standard cost system, direct labor price variances are usually not attributable to A.Union contracts approved before the budgeting cycle. B.Labor rate predictions. C.The use of a single average standard rate. D.The assignment of different skill levels of workers than planned.
A.
Under a standard cost system, the materials price variances are usually the responsibility of the A.Purchasing manager. B.Cost accounting manager. C.Production manager. D.Sales manager.
A.
Using the three-variance method for analyzing factory overhead, which of the following is used to compute the spending variance? Actual Factory Overhead Budget Allowance Based on Actual Input Budget Allowance Based on Standard Input A. Yes Yes No B. Yes No Yes C. No Yes Yes D. No No No
A.
Using the two-variance method for analyzing overhead, which of the following variances contains both variable and fixed overhead elements? (Budget) Variance Volume Variance Controllable Efficiency Variance A.YesNoNo B.NoNoNo C.YesYesYes D.YesYesNo
A.
When comparing the residual income of several investment centers, the validity of comparisons may be destroyed by A.Peculiarities of each investment center. B.Common amounts of invested capital for each investment center. C.None of the answers is correct. D.Consistent use of an imputed interest rate.
A.
When using return on investment (ROI) in local currency to evaluate divisional performance, valuing assets at net book value would result in the highest ROI for A.International divisions in countries with high inflation. B.Retail divisions purchasing goods from manufacturing divisions at negotiated prices. C.Retail divisions purchasing goods from manufacturing divisions at fixed prices. D.International divisions in countries with high deflation.
A.
Which of the following overhead variances would be helpful in bringing attention to a potential short-term problem in the control of overhead costs? Spending Variance Volume Variance A.YesNo B.NoYes C.NoNo D.YesYes
A.
Which type of variance will reflect overtime premiums when the overall volume of work is greater than expected? A.Overhead. B.Yield. C.Labor efficiency. D.Materials quantity.
A.
A Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market-based transfer price? A.The selling unit is operating at full capacity. B.Routine sales commissions and collection costs would be avoided. C.The profit centers' managers are evaluated on the basis of unit operating income. D.The buying unit has excess capacity.
B.
A company using a standard cost system established a standard fixed cost per finished unit of $4.00 and forecasted production and sales of 300,000 units. For the year, the company experienced an unfavorable production volume variance of $14,000. Which one of the following would be the cause of this variance? A.The number of units sold was less than 300,000. B.The number of units produced was less than 300,000. C.The number of units produced was more than 300,000. D.The number of units sold was more than 300,000.
B.
A cosmetics company is expanding its marketing presence by placing stores within a national department store chain. The cosmetics company hires its own store managers who are responsible for generating sales. The company pays rent per square foot to the department store. For the purpose of assessing the managers' performance, each cosmetics store would most appropriately be considered a(n) A.Cost center. B.Revenue center. C.Profit center. D.Investment center.
B.
A firm has begun using budgeting to evaluate performance. Budgets were prepared for the current year based on anticipated sales of 40,000 units. Actual sales totaled 45,000. What type of budgeting methodology should the firm use to evaluate performance this year? A.Continuous budgeting. B.Flexible budgeting. C.Zero-based budgeting. D.Static budgeting.
B.
A firm has intracompany service transfers from Division Core, a cost center, to Division Pro, a profit center. Under stable economic conditions, which of the following transfer prices is likely to be most conducive to evaluating whether both divisions have met their responsibilities? A.Actual cost plus markup. B.Standard variable cost. C.Actual cost. D.Negotiated price.
B.
A manager who is accountable for both income statement and balance sheet items is responsible for a(n) A.Cost center. B.Investment center. C.Profit center. D.Revenue center.
B.
Accountants for Hire is a firm that specializes in providing accounting-related services to a wide range of clients across several geographical areas. The accounting-related services vary and the unique qualifications required in each local market may differ significantly. Each geographical office has a manager who controls the type of accounting services offered to clients as well as the hiring of necessary staff to provide those services. The CEO is in the process of determining the appropriate responsibility centers to use for performance management in the organization. Based on this business scenario, which one of the following is the best type of responsibility center for each geographical area's office? A.Revenue center. B.Profit center. C.Investment center. D.Cost center.
B.
After investing in a new project, a company discovered that its residual income remained unchanged. Which one of the following must be true about the new project? A.The return on investment of the new project must have been less than the firm's cost of capital. B.The return on investment of the new project must have been equal to the firm's cost of capital. C.The net present value of the new project must have been negative. D.The net present value of the new project must have been positive.
B.
Business unit A has a return on investment of 10%, with a net profit for the year of $40,000. The opportunity cost for the business unit investments has been calculated at 8%. The company plans to purchase a new machine worth $100,000 and expects the net profit to rise by an additional $15,000. The new purchase decision will increase the return on investment A.By 1% and increase the residual income by $8,000. B.To 11% and increase the residual income by $7,000. C.To 11% and increase the residual income by $15,000. D.By 1% and increase the residual income by $15,000.
B.
In a highly decentralized organization, the best option for measuring the performance of subunits is the establishment of A.Revenue centers. B.Cost centers. C.Marketing centers. D.Product centers.
B.
Managerial performance can be measured in many different ways, including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is that A.ROI does not take into consideration both the investment turnover ratio and return-on-sales percentage. B.Goal congruence is more likely to be promoted by using residual income. C.Residual income can be computed without regard to identifying an investment base. D.Residual income is well understood and often used in the financial press.
B.
The Eastern division sells goods internally to the Western division of the same company. The quoted external price in industry publications from a supplier near Eastern is $200 per ton plus transportation. It costs $20 per ton to transport the goods to Western. Eastern's actual market cost per ton to buy the direct materials to make the transferred product is $100. Actual per ton direct labor is $50. Other actual costs of storage and handling are $40. The company president selects a $220 transfer price. This is an example of A.Negotiated transfer pricing. B.Market-based transfer pricing. C.Cost-based transfer pricing. D.Cost plus 20% transfer pricing.
B.
To maintain competitive prices, control of costs is critical. Management has considered moving production overseas, but so far they are committed to remaining in the U.S. Management has decided to permit their employees to participate in setting up a new standard cost system. Management likely expects the new standard cost system, along with the employee input, to provide all of the following benefits except that A.Employees who participate in setting standards may be more efficient. B.Unfavorable variances are more likely to occur. C.Standard costing permits management by exception, which should save some time. D.Standard costs will help management in uncovering potential cost problems.
B.
When items are transferred from stores to production, an accountant debits work-in-process and credits materials accounts. During production, a materials quantity variance may occur. The materials quantity variance is debited for an unfavorable variance and credited for a favorable variance. The intent of variance entries is to provide A.A means of safeguarding assets in the custody of the system. B.Information for use in controlling the cost of production. C.Compliance with GAAP. D.Accountability for materials lost during production.
B.
Which of the following factors should not be considered when deciding whether to investigate a variance? A.Trend of the variances over time. B.Whether the variance is favorable or unfavorable. C.Magnitude of the variance. D.Likelihood that an investigation will eliminate future occurrences of the variance.
B.
Which one of the following allocation approaches will ensure that the production departments do not underestimate their planned usage of service at the start of the budget period as well as make the service departments cost efficient? A.The use of a budgeted lump-sum amount based on estimates provided by the production departments for both variable and fixed costs. B.Budgeted rates and standard hours allowed for output attained for variable costs and budgeted rates and capacity available for fixed costs. C.The use of actual rates and actual hours for both fixed and variable costs. D.The use of rates and quantities based on long-term historical averages for both variable and fixed costs.
B.
Which one of the following companies is likely to experience dysfunctional motivation on the part of its managers due to its allocation methods? A.Company D's management information system is operated out of headquarters and serves its various divisions. The allocation of the management information system-related costs to its divisions is limited to costs the divisions will incur if they were to outsource their management information system needs. B.Company B uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building. It also uses return on investment to evaluate the divisional performances. C.To allocate depreciation of forklifts used by workers at its central warehouse, Company A uses predetermined amounts calculated on the basis of the long-term average use of the services provided. D.Company C does not allow its service departments to pass on their cost overruns to the production departments.
B.
Which one of the following is a variance that could appear if a company uses a normal costing system? A.Direct labor efficiency variance. B.Variable overhead spending variance. C.Variable overhead efficiency variance. D.Direct material price variance.
B.
Which one of the following is an incorrect description of transfer pricing? A.It measures the value of goods or services furnished by a profit center to other responsibility centers within a company. B.It measures exchanges between a company and external customers. C.If a market price exists, this price may be used as a transfer price. D.If no market price exists, the transfer price may be based on cost.
B.
Which one of the following statements about a balanced scorecard is incorrect? A.The notion of value chain analysis plays a major role in the drawing up of a balanced scorecard. B.It is directly derived from the scientific management theories. C.It seeks to address the problems associated with traditional financial measures used to assess performance. D.It relies on the perception of the users with regard to service provided.
B.
Which one of the following variances is of least significance from a behavioral control perspective? A.Unfavorable direct materials quantity variance amounting to 20% of the quantity allowed for the output attained. B.Fixed overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%. C.Favorable direct labor rate variance resulting from an inability to hire experienced workers to replace retiring workers. D.Unfavorable direct labor efficiency variance amounting to 10% more than the budgeted hours for the output attained.
B.
Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial decision-making? A.Use standard costs only for inventory valuation. B.Set standards with the help of line personnel directly involved in the process. C.Do not differentiate between variable and fixed overhead in calculating overhead variances. D.Use the prior year's average actual cost as the current year's standard.
B.
Which statement below best represents a benefit of residual income (RI) as a performance measure? A.RI is more likely to promote goal congruence in a low-profit location versus return on investment. B.Managers maximize an absolute amount and invest as long as the required return is earned. C.RI blends all ingredients of profitability into one percentage that is easily comparable. D.Managers can increase their RI by decreasing the internal rate of return.
B.
Within a performance monitoring system, which of the following is the least valid reason for calculating variances between actual performance and budgeted performance? A.Improving future performance forecasts. B.Identifying the manager who is responsible for not achieving desired results. C.Identifying efficient practices that can be transferred to other areas of the company. D.Allowing managers to take early corrective action.
B.
A carpet manufacturer maintains a retail division consisting of stores stocking its brand and other brands and a manufacturing division that makes carpets and pads. An outside market exists for carpet padding material in which all padding produced can be sold. The proper transfer price for padding transferred from the manufacturing division to the retail division is A.Variable manufacturing division production cost plus variable selling and administrative cost. B.Variable manufacturing division production cost. C.The market price at which the retail division could purchase padding. D.Variable manufacturing division production cost plus allocated fixed factory overhead.
C.
A company has two divisions, Household Appliances and Construction Equipment. The manager of the Household Appliances Division is evaluated on the basis of return on investment (ROI). The manager of the Construction Equipment Division is evaluated on the basis of residual income. The cost of capital has been 12%, and the return on investment has been 16% for the two divisions. Each manager is currently considering a project with a 14% rate of return. According to the current evaluation system for managers, which manager(s) would have incentive to undertake the project? A.The manager of the Household Appliances Division would have incentive to undertake the project, while the manager of the Construction Equipment Division would not have incentive to undertake the project. B.Both managers would have incentive to undertake the project. C.The manager of the Construction Equipment Division would have incentive to undertake the project, while the manager of the Household Appliances Division would not have incentive to undertake the project. D.Neither manager would have incentive to undertake the project.
C.
A company uses return on investment (ROI) to compare its divisions, using this evaluation to determine division manager bonuses. Which method of asset measurement would provide the best method of comparison? A.Depreciated cost. B.Book value. C.Current cost. D.Historical cost.
C.
A corporation uses an accounting system that charges costs to the manager who has been delegated the authority to make the decisions incurring the costs. For example, if the sales manager accepts a rush order that will result in higher-than-normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as A.Reciprocal allocation. B.Functional accounting. C.Responsibility accounting. D.Transfer price accounting.
C.
A cosmetics company is expanding its marketing presence by placing stores within a national department store chain. The cosmetics company hires its own store managers who are responsible for generating sales. The company pays rent per square foot to the department store. For the purpose of assessing the managers' performance, each cosmetics store would most appropriately be considered a(n) A.Profit center. B.Investment center. C.Revenue center. D.Cost center.
C.
A manufacturer has several divisions and evaluates performance using segment income. Since sales include transfers to other divisions, the manufacturer has established a price for internal sales as cost plus 10%. Red Division has requested 10,000 units of Green Division's product. Green Division is selling its product externally at a 60% markup over cost. The corporate policy will encourage the Green Division to A.Accept the sale to the Red Division if it is operating at full capacity and the sale will contribute to fixed costs. B.Transfer the product to the Red Division because all costs are being covered and the division will earn a 10% profit. C.Transfer the product to the Red Division if it does not require the Green Division to give up any external sales. D.Reject the sale to the Red Division because it does not provide the same markup as external sales.
C.
A static budget A.Presents the plan for a range of activity so that the plan can be adjusted for changes in activity. B.Presents a statement of expectations for a period but does not present a firm commitment. C.Presents the plan for only one level of activity and does not adjust to changes in the level of activity. D.Drops the current month or quarter and adds a future month or a future quarter as the current month or quarter is completed.
C.
Flexible budgets A.Are budgets that project costs based on anticipated future improvements. B.Provide for external factors affecting company profitability. C.Accommodate changes in activity levels. D.Are used to evaluate capacity use.
C.
In a responsibility accounting system, managers are accountable for A.Incremental costs. B.Product costs but not for period costs. C.Costs over which they have significant influence. D.Variable costs but not for fixed costs.
C.
In responsibility accounting, a center's performance is measured by controllable costs. Controllable costs are best described as including A.Direct material and direct labor only. B.Those costs about which the manager is knowledgeable and informed. C.Only those costs that the manager can influence in the current time period. D.Only discretionary costs.
C.
One department of an organization, Final Assembly, is purchasing subcomponents from another department, Materials Fabrication. The price that will be charged to Final Assembly by Materials Fabrication is to be determined. Outside market prices for the subcomponents are available. Which of the following is the most correct statement regarding a market-based transfer price? A.Market transfer prices provide an incentive to use otherwise idle capacity. B.Marginal production cost transfer prices provide incentives to use otherwise idle capacity. C.Overall long term competitiveness is enhanced with a market-based transfer price. D.Corporate politics is more of a factor in a market-based transfer price than with other methods.
C.
Periodic internal reports used for performance evaluation purposes and based on a responsibility accounting system should not include A.An organization chart. B.Variances between actual and budgeted controllable costs. C.Allocated fixed overhead. D.A distinction between controllable and noncontrollable costs.
C.
Periodic internal reports used for performance evaluation purposes and based on a responsibility accounting system should not include A.Variances between actual and budgeted controllable costs. B.A distinction between controllable and noncontrollable costs. C.Allocated fixed overhead. D.An organization chart.
C.
Return on investment (ROI) is a very popular measure employed to evaluate the performance of corporate segments because it incorporates all of the major ingredients of profitability (revenue, cost, investment) into a single measure. Under which one of the following combinations of actions regarding a segment's revenues, costs, and investment would a segment's ROI always increase? Revenues Costs Investments A.DecreaseDecreaseDecrease B.IncreaseDecreaseIncrease C.IncreaseDecreaseDecrease D.IncreaseIncreaseIncrease
C.
The balanced scorecard provides an action plan for achieving competitive success by focusing management attention on critical success factors. Which one of the following is not one of the perspectives on the business into which critical success factors are commonly grouped in the balanced scorecard? A.Employee innovation and learning. B.Financial performance. C.Competitor business strategies. D.Internal business processes.
C.
The basic objective of the residual income approach to performance measurement and evaluation is to have a division maximize its A.Return on investment rate. B.Imputed interest rate charge. C.Income in excess of a desired minimum return. D.Cash flows.
C.
The basic purpose of a responsibility accounting system is A.Authority. B.Budgeting. C.Motivation. D.Variance analysis.
C.
The labor mix and labor yield variances together equal the A.Labor rate variance. B.Total labor variance. C.Labor efficiency variance. D.Sum of the labor efficiency and overhead efficiency variances.
C.
The performance of a supervisor of claims processing for a health care system is evaluated using various measures agreed upon in advance with the general manager. The general manager asked the supervisor to recommend several measures to evaluate the performance of his unit next year. Which one of the following performance measures would likely have the least positive effect on the supervisor's motivation and performance? A.Processing cost per claim. B.Average processing time per claim. C.Total dollar amount of claims processed per month. D.Percentage of claims processed accurately the first time.
C.
The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should be to A.Trace the variances to finished goods so that the inventory can be properly valued at year-end. B.Determine the proper cost of the products produced so that selling prices can be adjusted accordingly. C.Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations. D.Pinpoint fault for operating problems in the organization.
C.
The segment margin of an investment center after deducting the imputed interest on the assets used by the investment center is known as A.Return on assets. B.Operating income. C.Residual income. D.Return on investment.
C.
The vice president of finance (VP) has been asked to design a new budgeting system. The VP has changed to a monthly budgeting system by dividing the company's annual budget by 12. The VP then prepared monthly budgets for each department and asked the managers to submit monthly reports comparing actual to budget. A sample monthly report for Department A is shown below. Monthly Report for Department A Actual Budget Variance Units 1,000 900 100 F Variable production costs: Direct material $ 2,800 $ 2,700 $ 100 U Direct labor 4,800 4,500 300 U Variable factory overhead 4,250 4,050 200 U Fixed costs: Depreciation 3,000 2,700 300 U Taxes 1,000 900 100 U Insurance 1,500 1,350 150 U Administration 1,100 990 110 U Marketing 1,000 900 100 U Total costs $19,450 $18,090 $1.360 U This monthly budget has been imposed from the top and will create behavior problems. All of the following are causes of such problemsexcept A.The inclusion of noncontrollable costs, such as depreciation. B.Top management authoritarian attitude toward the budget process. C.The use of a flexible budget rather than a fixed budget. D.The lack of consideration for factors, such as seasonality.
C.
When compared to static budgets, flexible budgets A.Provide a better understanding of the capacity variances during the period being evaluated. B.Encourage managers to use fewer fixed cost items and more variable cost items that are under their control. C.Offer managers a more realistic comparison of budget and actual revenue and cost items under their control. D.Offer managers a more realistic comparison of budget and actual fixed cost items under their control.
C.
Which of the following management practices involves concentrating on areas that deserve attention and placing less attention on areas operating as expected? A.Management by objectives. B.Responsibility accounting. C.Management by exception. D.Benchmarking.
C.
Which of these variances is least significant for cost control? A.Variable O/H spending variance. B.Labor price variance. C.Fixed O/H volume variance. D.Materials quantity variance.
C.
Which one of the following best identifies a profit center? A.A large toy company. B.The Production Operations Department of a small job-order machine shop company. C.A new car sales division for a large local auto agency. D.The Information Technology Department of a large consumer products company.
C.
Which one of the following variances is most controllable by the production control supervisor? A.Variable overhead spending variance. B.Fixed overhead budget variance. C.Materials usage variance. D.Materials price variance.
C.
A company uses negotiated transfer prices between divisions. All of the following are advantages for this type of transfer pricing model except that negotiated transfer prices A.Achieve goal congruence. B.Are useful for evaluating individual division performance. C.Allow divisions to make their own decisions. D.Are simple and quick to implement.
D.
A fixed overhead volume variance based on standard direct labor hours measures A.Deviation from standard direct labor hour capacity. B.Fixed overhead efficiency. C.Fixed overhead use. D.Deviation from the normal, or denominator, level of direct labor hours.
D.
A possible short-term problem in controlling overhead costs would be detected by which of the following variances? A.Both the fixed overhead spending variance and the volume variance. B.The volume variance but not the fixed overhead spending variance. C.Both the variable overhead spending variance and the volume variance. D.The spending variance but not the volume variance.
D.
A proposed transfer price may be based upon the full-cost price. Full-cost price is the price A.Representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale. B.Set by charging for variable costs plus a lump sum or an additional markup, but less than full markup. C.On the open market. D.Usually set by an absorption-costing calculation.
D.
A proposed transfer price may be based upon the outlay cost. Outlay cost plus opportunity cost is the A.Price usually set by an absorption-costing calculation. B.Price set by charging for variable costs plus a lump sum or an additional markup, but less than full markup. C.Retail price. D.Price representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale.
D.
A sign of the successful implementation of a balanced scorecard is the presence of cause-and-effect relationship. An example of this success for a hotel is meeting the target of A.Increasing employee training hours, which causes employee compensation to increase. B.Increasing profit, which causes an increase in employee job satisfaction ratings. C.Decreasing a customer's check-in time, which causes an increase in the number of implemented employee suggestions. D.Receiving more 5-star ratings from customers, which causes an increase in profit.
D.
A software firm produces software for individual users and small businesses.The manager for the customer hotline department is responsible for answering customer questions related to software products produced by all divisions of the firm. For purposes of promoting goal congruence, which one of the following would be the least appropriate measure of the manager's performance? A.Average time a customer is on hold. B.Number of customer complaints due to incorrect responses given to customers. C.Average time to provide an answer or solution to a customer. D.Number of calls to the hotline for each new release of software.
D.
Division A produces a product that can be sold to outside customers or sold to Division B for further processing. If the performance of managers is evaluated based on division profitability, what transfer pricing method will the manager of Division A request? A.Hybrid transfer pricing. B.Standard transfer pricing. C.Cost-based transfer pricing. D.Market-based transfer pricing.
D.
Multinational transfer prices are sometimes influenced by restrictions that some countries place on the repatriation of profits to the parent firm. Companies can minimize the effect of such restrictions by A.Charging less than the price that would be charged by an unrelated third party for goods transferred into divisions in these countries. B.Keeping prices uniform throughout all domestic and foreign units within the company. C.Decreasing the prices of goods transferred into divisions in these countries. D.Increasing the prices of goods transferred into divisions in these countries.
D.
None of the fixed manufacturing costs can be eliminated, but 25% of the administrative costs are variable and can be eliminated if the product line is eliminated. Based on the information above, should the Easy Living product line be eliminated? A.No, because eliminating the product line would only save $500,000 of administrative costs still resulting in an overall loss. B.Yes, because eliminating the product line would increase the operating income by $1,100,000. C.Yes, because eliminating the product line would increase the operating income by $1,500,000 from the saved administrative costs. D.No, because eliminating the product line would increase the operating loss by $(2,800,000).
D.
Of the following pairs of variances found in a flexible budget report, which pair is most likely to be related? A.Material price variance and variable overhead efficiency variance. B.Material usage variance and labor efficiency variance. C.Labor rate variance and variable overhead efficiency variance. D.Labor efficiency variance and fixed overhead volume variance.
D.
Ordinarily, the most appropriate basis on which to evaluate the performance of a division manager is the division's A.Gross profit. B.Net income minus the division's fixed costs. C.Contribution margin. D.Net revenue minus controllable division costs.
D.
The most fundamental responsibility center affected by the use of market-based transfer prices is a(n) A.Production center. B.Cost center. C.Investment center. D.Profit center.
D.
The segment margin of the Wire Division of a manufacturer should not include A.Fixed selling expenses of the Wire Division. B.Variable selling expenses of the Wire Division. C.Net sales of the Wire Division. D.The Wire Division's fair share of the salary of the manufacturer's president.
D.
The use of standard costs in the budgeting process signifies that an organization has most likely implemented a A.Zero-based budget. B.Capital budget. C.Static budget. D.Flexible budget.
D.
Under a standard cost system, the materials efficiency variances are the responsibility of A.Sales and industrial engineering. B.Purchasing and sales. C.Purchasing and industrial engineering. D.Production and industrial engineering.
D.
Which of the following is not a potential disadvantage of a cost center? A.Long-term issues may be disregarded. B.The complexity of allocating service department costs to cost centers. C.The potential for cost shifting. D.Increased monitoring of costs.
D.
Which one of the following variances is of least significance from a behavioral control perspective? A.Unfavorable direct labor efficiency variance amounting to 10% more than the budgeted hours for the output attained. B.Favorable direct labor rate variance resulting from an inability to hire experienced workers to replace retiring workers. C.Fixed overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%. D.Unfavorable direct materials quantity variance amounting to 20% of the quantity allowed for the output attained.
D.
With respect to a firm's transfer pricing policy, an advantage of using a dual pricing arrangement is that it A.Simplifies tax calculations when the buying and supplying subunits are taxed in different jurisdictions. B.Provides an incentive for the supplying subunit to control costs. C.Exposes the supplying subunit to the discipline of market prices. D.Promotes goal congruence between the supplying and buying subunits of the firm.
D.
