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Exam 12: Fundamentals of Management Control Systems

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Question 61

True/False

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In general,there is a direct relationship between the quality of the information provided to managers and the quality of decisions made using that information.

A) True
B) False

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Question 62

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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: $\begin{array} { | l | r | r | } \hline & \text { Connections } & \begin{array} { r } \text { Time on } \\\text { Network (hous) }\end{array} \\\hline \text { Commercial } & 60,000 & 120,000 \\\hline \text { Retail } & 80,000 & 150,000 \\\hline \text { Consumer } & 100,000 & 330,000 \\\hline\end{array}$ The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections.The remaining costs should be allocated based on the time on the network.What is the total server network costs allocated to the Commercial Division,assuming the company uses dual-rates to allocate common costs?

A) $514,286.
B) $480,000.
C) $600,000.
D) $565,000.

E) C) and D)
F) A) and C)

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Question 63

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The Document Creation Center (DCC) for Arlington Corp.provides photocopying and document services for three departments in the Minneapolis office.The following budget has been prepared for the year. $\begin{array}{|l|l|}\hline \text { Available capacity } & 8,000,000 \text { pages } \\\hline \text { Budgeted us age: } & \\\hline \text { Software Development } & 1,600,000 \text { pages } \\\hline \text { Training } & 3,000,000 \text { pages } \\\hline \text { Management } & 2,400,000 \text { pages } \\\hline \text { Cost equation } & \$ 280,000+\$ 0.03 \text { per page } \\\hline\end{array}$ If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Management Department,assuming the Management Department actually made 2,100,000 copies during the year?

The controller of one division of a large diversified firm is compensated by salary plus bonus.The bonus is a significant part of total compensation,and is based directly on the profits of the division.Thus,the controller has an incentive to find ways to increase profits,including the delay of discretionary expenses such as research and development,delay of maintenance and repair of manufacturing equipment,and delay of sales promotions.Required: Is finding ways to increase profits as described above unethical? Why or why not? Who is to blame,if anyone?

The Document Creation Center (DCC) for Arlington Corp.provides photocopying and document services for three departments in the Minneapolis office.The following budget has been prepared for the year. $\begin{array}{|l|l|}\hline \text { Available capacity } & 8,000,000 \text { pages } \\\hline \text { Budgeted us age: } & \\\hline \text { Software Development } & 1,600,000 \text { pages } \\\hline \text { Training } & 3,000,000 \text { pages } \\\hline \text { Management } & 2,400,000 \text { pages } \\\hline \text { Cost equation } & \$ 280,000+\$ 0.03 \text { per page } \\\hline\end{array}$ If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Software Development Department,assuming the Software Development Department actually made 1,780,000 copies during the year?

The Document Creation Center (DCC) for Arlington Corp.provides photocopying and document services for three departments in the Minneapolis office.The following budget has been prepared for the year. $\begin{array}{|l|l|}\hline \text { Available capacity } & 8,000,000 \text { pages } \\\hline \text { Budgeted us age: } & \\\hline \text { Software Development } & 1,600,000 \text { pages } \\\hline \text { Training } & 3,000,000 \text { pages } \\\hline \text { Management } & 2,400,000 \text { pages } \\\hline \text { Cost equation } & \$ 280,000+\$ 0.03 \text { per page } \\\hline\end{array}$ If DCC uses a dual-rate for allocating its costs,how much cost will be allocated to the Training Department,assuming the Training Department actually made 2,770,000 copies during the year?

Barrington Box Enterprises has two divisions,large and small,that share the common costs of the company's communications network.The annual common costs are $4,500,000.You have been provided with the following information for the upcoming year: $\begin{array} { | l | r | r | } \hline & \text { Calls } & \begin{array} { r } \text { Time on } \\\text { Network (hous) }\end{array} \\\hline \text { Large } & 100,000 & 120,000 \\\hline \text { Small } & 80,000 & 330,000 \\\hline\end{array}$ What is the allocation rate for the upcoming,year assuming Barrington Box uses the single-rate method and allocates common costs based on the time on the network?

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: $\begin{array} { | l | r | r | } \hline & \text { Connections } & \begin{array} { r } \text { Time on } \\\text { Network (hous) }\end{array} \\\hline \text { Commercial } & 60,000 & 120,000 \\\hline \text { Retail } & 80,000 & 150,000 \\\hline \text { Consumer } & 100,000 & 330,000 \\\hline\end{array}$ 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?

Terrain,Inc.has a maintenance department that provides services to the company's two operating departments.The variable costs of the maintenance department are charged on the basis of the number of maintenance hours logged in each department.Last year,budgeted variable maintenance costs were $8.60 per maintenance hour and actual variable maintenance costs were $8.75 per maintenance hour.The budgeted and actual maintenance hours for each operating department for last year appear below: Required: a.Compute the amount of variable maintenance department cost that should have been charged to each operating department at the end of the year for performance evaluation purposes.b.Compute the amount of actual variable maintenance department cost that should not have been charged to the operating departments at the end of the year for performance evaluation purposes.

The Document Creation Center (DCC) for Arlington Corp.provides photocopying and document services for three departments in the Minneapolis office.The following budget has been prepared for the year $\begin{array}{|l|l|}\hline \text { Available capacity } & 8,000,000 \text { pages } \\\hline \text { Budgeted us age: } & \\\hline \text { Software Development } & 1,600,000 \text { pages } \\\hline \text { Training } & 3,000,000 \text { pages } \\\hline \text { Management } & 2,400,000 \text { pages } \\\hline \text { Cost equation } & \$ 280,000+\$ 0.03 \text { per page } \\\hline\end{array}$ .If DCC uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Software Development Department?

Properly designed management control systems can totally eliminate the inherent conflict between individual behavior and organizational goals.

Which of the following items would be classified as a fixed compensation item?

One advantage of centralization is better use of top management's time on strategic decisions

There is no single accounting measure that can fully measure the performance of a profit or investment center.

What is the primary managerial responsibility in an organization?

The Document Creation Center (DCC) for Arlington Corp.provides photocopying and document services for three departments in the Minneapolis office.The following budget has been prepared for the year. $\begin{array}{|l|l|}\hline \text { Available capacity } & 8,000,000 \text { pages } \\\hline \text { Budgeted us age: } & \\\hline \text { Software Development } & 1,600,000 \text { pages } \\\hline \text { Training } & 3,000,000 \text { pages } \\\hline \text { Management } & 2,400,000 \text { pages } \\\hline \text { Cost equation } & \$ 280,000+\$ 0.03 \text { per page } \\\hline\end{array}$ If DCC uses a dual rate for allocating its costs based on usage,how much cost will be allocated to the Training Department?

Decentralization refers to the delegation of decision-making authority to:

Santa Fe Industries has two divisions,Marketing and Finance,that share the common costs of the company's communications network.The annual common costs are $2,250,000.You have been provided with the following information for the upcoming year: $\begin{array} { | l | r | r | } \hline & \text { Calls } & \begin{array} { r } \text { Time on } \\\text { Network (hous) }\end{array} \\\hline \text { Marketing } & 50,000 & 120,000 \\\hline \text { Finance } & 40,000 & 330,000 \\\hline\end{array}$ Required (use three decimal places in your calculations): a.What is the allocation rate for the upcoming year assuming Santa Fe uses the single-rate method and allocates common costs based on the number of calls? Calculate the costs allocated to each division.b.What is the allocation rate for the upcoming year assuming Santa Fe uses the single-rate method and allocates common costs based on the time on the network? Calculate the costs allocated to each division.

How does the separation of duties help prevent financial fraud?

Seaside Resorts operates a centralized call center for the reservation needs of its time-share units.Costs associated with use of the center are charged to the time-share group (Luxury and Standard)where a reservation is made on the basis of time spent on a call.Due to recent increased competition in the time-share business,the company has decided that it is necessary to more accurately allocate its costs to price its services competitively and profitably.During the current period,the use of the call center for each group was as follows (in thousands of seconds for time usage and in number of reservations): $\begin{array} { | l | r | r | } \hline \text { Disision } & \text { Time Usage } & \text { Number of Resewations } \\\hline \text { Luxury } & 500,000 & 50,000 \\\hline \text { Standard } & 2,000,000 & 300,000 \\\hline\end{array}$ During this period,the cost of the computer center amounted to $1,220,000 for personnel and $960,000 for equipment and other costs.Required: Determine the allocation to each of the divisions using (round all decimals to three places): a.a single rate based on time used.b.multiple rates based on time used (for personnel costs)and number of reservations (for equipment and other cost).