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Exam 12: Fundamentals of Management Control Systems

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Question 31

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The Document Creation Center (DCC) for Atlas Corp. provides document services for three departments in the St. Louis office. The following budget has been prepared for the month. $\begin{array} { l c r } & \text { Pages } & \text { Documents }\\\text { Budgeted usage: } \\\text { Software Developrnent } & 320,000 & 2,500 \\\text { Training } & 600,000 & 4,500\\\text { Marnagernent } &480,000 & 5,500 \\\text { Costs: } & \\\text { Fixed } &\$ 63,000 & \\\text { Variable } & \$ 35,000 & \\\end{array}$ Required: If DCC uses a dual-rate for allocating its costs, allocating fixed costs based on number of documents and variable costs based on number of pages, how much cost will be allocated to the three user departments? (Use three decimal places in your calculations.)

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Software Development: $20,600;...

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Question 32

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Decentralization is the delegation of decision-making authority to subordinates in the organization's name. A key part of this is the principal-agent relationship. Explain what this relationship is and give examples.

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The principal-agent relationship is a re...

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Question 33

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An operating unit of an organization is called a cost center if it is responsible:

Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year: $\begin{array} { | l | r | r | } \hline & \text { Connections } & { \text { Time on Network (hours) } } \\\hline \text { Commercial } & 60,000 & 120,000 \\\hline \text { Retail } & 80,000 & 150,000 \\\hline \text { Consumer } & 100,000 & 330,000 \\\hline\end{array}$ - Mesa Telcom uses the single rate method and allocates common costs based on the number of connections. What is the total computer server network cost allocated to the Commercial Division?

What is the primary managerial responsibility in an organization?

When comparing performance report information for top management with that of lower-level management: (CMA adapted)

Which of the following would be considered a principal in the principal-agent relationship?

Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year: $\begin{array} { | l | r | r | } \hline & \text { Connections } &{ \text { Time on Network (hours) } } \\\hline \text { Commercial } & 60,000 & 120,000 \\\hline \text { Retail } & 80,000 & 150,000 \\\hline \text { Consumer } & 100,000 & 330,000 \\\hline\end{array}$ - Mesa Telcom uses the single rate method and allocates common costs based on the time on the network. What is the total computer server network cost allocated to the Retail Division?

Rational managers will always make decisions that are in the best interest of the organization employing them.

An operating unit that is responsible for revenues and costs is commonly referred to as a(n) :

The legal department for Basil Corp. provides legal services for four departments in the Manhattan office. The following budget has been prepared for the month. $\begin{array} { l r c } { \text { Budgeted usage: } } & \text { Contracts } & \text { Pages Reviewed } \\\text { Purchasing } & 160 & 3,200 \\\text { Marketing } & 200 & 7,200 \\\text { Training } & 300 & 9,000 \\\text { Management } & 240 & 2,400 \\\text { Costs: } & & \\\text { Fixed } & \$ 267,000 & \\\text { Variable } & \$ 105,000 &\end{array}$ Required: If Basil uses a dual-rate for allocating its costs, allocating fixed costs based on number of contracts and variable costs based on number of pages reviewed, how much cost will be allocated to the four user departments? (Round fixed cost percentages to three decimal places and variable rate to four decimal places.)

Which of the following is not a benefit of decentralization?

Which one of the following firms is likely to experience dysfunctional motivation on the part of its managers due to its allocation methods? (CMA adapted)

Explain the difference between fixed compensation and contingent compensation. Give an example of each.

Which of the following is not a cost of decentralization?

The concepts of cost allocation that are used in manufacturing can also apply in:

Which of the following items would not be classified as a contingent compensation item?

The Copy Department in the College of Business at State University provides photocopying services for both the Marketing and Economics Departments. The following budget has been prepared for the year. $\begin{array} { l c } \text { Available capacity } & 6,000,000 \text { pages } \\\text { Budgeted usage: } & \\\text { Marketing } & 3,600,000 \text { pages } \\\text { Economics } & 1,800,00 \text { pages } \\\text { Cost equation } & \$ 120,000 + \$ 0.025 \text { per page }\end{array}$ - If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to the Economics Department, assuming the Economics Department actually made 1,500,000 copies during the year?

Jamison Industries has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year: $\begin{array} { | l | r | c | } \hline & \text { Cannections } & \text { Time on Netwark (haurs) } \\\hline \text { Commercial } & 60,000 & 120,000 \\\hline \text { Retail } & 80,000 & 150,000 \\\hline \text { Consumer } & 100,000 & 330,000 \\\hline\end{array}$ Required: (Use three decimal places in your calculations.) a. What is the allocation rate for the upcoming year assuming Jamison uses the single-rate method and allocates common costs based on the number of connections? Calculate the allocated amount for each division. b. What is the allocation rate for the upcoming year assuming Jamison uses the single-rate method and allocates common costs based on the time on network? Calculate the allocated amount for each division.

Langsam, Inc. has used a decentralized form of organizational structure for the past five years. The controller, Ms. Terrance, has noticed that some of the divisions are still using fixed assets that are fully depreciated and that there has been little acquisition activity in these divisions. Coupled with this are very high ROIs, especially when compared to the other divisions that seem to have a regular program of disposition and replacement of fixed assets. She takes her concerns and observations to the Financial Vice President who says he will review her findings and look into the problem. Required: What are the potential negative effects of decentralization?