Cost Accounting, 14e, Test Bank Ch22 PDF

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Cost Accounting, 14e, Global Edition (Horngren/Datar/Rajan) Chapter 22 Management Control Systems, Transfer Pricing, and Multinational ConsiderationsObjective 22. Which of the following is NOT a characteristic of a management control system? A) It aids and coordinates the process of making decisions...

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Cost Accounting, 14e, Global Edition (Horngren/Datar/Rajan) Chapter 22 Management Control Systems, Transfer Pricing, and Multinational Considerations Objective 22.1 1) Which of the following is NOT a characteristic of a management control system? A) It aids and coordinates the process of making decisions. B) It encourages short-term profitability. C) It motivates individuals throughout the organization to act in concert. D) It coordinates forecasting sales and cost-driver activities, budgeting, and measuring and evaluating performance. Answer: B Diff: 2 Terms: management control system Objective: 1 AACSB: Reflective thinking 2) The formal management control system includes: A) performance measures B) mutual commitments C) incentive plans D) Both A and C are correct. Answer: D Diff: 1 Terms: management control system Objective: 1 AACSB: Reflective thinking 3) Exertion towards a goal is: A) motivation B) effort C) goal congruence D) incentive Answer: B Diff: 1 Terms: effort Objective: 1 AACSB: Reflective thinking 4) The degree of freedom to make decisions is: A) decentralization B) autonomy C) centralization D) motivation Answer: B Diff: 1 Terms: autonomy Objective: 1 AACSB: Reflective thinking 1 Copyright © 2012 Pearson Education

5) If an oil refinery used refinery down-time as a Balanced Scorecard control measure, it would represent the ________ perspective. A) financial B) customer C) internal business process D) learning and growth Answer: C Diff: 2 Terms: management control system Objective: 1 AACSB: Reflective thinking 6) If a computer manufacturer used its common stock price as a Balanced Scorecard control measure, it would represent the ________ perspective. A) financial B) customer C) internal business process D) learning and growth Answer: A Diff: 2 Terms: management control system Objective: 1 AACSB: Reflective thinking 7) The goal of a management control system is to improve the collective decisions in an organization in an economically feasible way. Answer: TRUE Diff: 1 Terms: management control system Objective: 1 AACSB: Communication 8) Management control systems reflect only financial data. Answer: FALSE Explanation: Management control systems also reflect nonfinancial data. Diff: 1 Terms: management control system Objective: 1 AACSB: Reflective thinking

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9) Of the four perspectives of the balanced scorecard the customer perspective refers to employee satisfaction, absenteeism, information systems capabilities, and number of processes with real-time feedback. Answer: FALSE Explanation: Of the four perspectives of the balanced scorecard the learning and growth perspective refers to employee satisfaction, absenteeism, information systems capabilities, and number of processes with real-time feedback. Diff: 1 Terms: Balanced Scorecard Objective: 1 AACSB: Reflective thinking 10) Motivation is the desire to attain a selected goal combined with the resulting drive or pursuit toward that goal. Answer: TRUE Diff: 1 Terms: motivation Objective: 1 AACSB: Reflective thinking 11) The essence of decentralization is the freedom for managers at lower levels of the organization to make decisions. Answer: TRUE Diff: 1 Terms: decentralization Objective: 1 AACSB: Analytical skills 12) The formal management control system includes shared values, loyalties, and mutual commitments among members of the company, company culture, and norms about acceptable behavior for managers and other employees. Answer: FALSE Explanation: The informal management control system includes shared values, loyalties, and mutual commitments among members of the company, company culture, and norms about acceptable behavior for managers and other employees. Diff: 2 Terms: management control system Objective: 1 AACSB: Analytical skills 13) A well-designed management control system obtains all of its information from within the company. Answer: FALSE Explanation: Well-designed management control systems use information both from within the company and from outside the company, such as stock price and customer satisfaction measures. Diff: 2 Terms: management control system Objective: 1 AACSB: Communication

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14) Number of processes with real time feedback would be an example of a Balanced Scorecard control measure from a customer perspective. Answer: FALSE Explanation: Number of processes with real time feedback would be an example of a Balanced Scorecard control measure from a learning and growth perspective. Diff: 2 Terms: management control system Objective: 1 AACSB: Reflective thinking 15) Goal congruence exists when individuals work toward achieving one goal, and groups work toward achieving a different goal. Answer: FALSE Explanation: Goal congruence exists when individuals and groups work toward achieving the same goal. Diff: 2 Terms: goal congruence Objective: 1 AACSB: Reflective thinking 16) Effort is defined as achievement of a goal. Answer: FALSE Explanation: Effort is the extent to which managers strive or endeavor in order to achieve a goal. Diff: 2 Terms: effort Objective: 1 AACSB: Reflective thinking 17) Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate. Answer: FALSE Explanation: Effort goes beyond physical exertion and includes both physical and mental actions. Diff: 2 Terms: effort Objective: 1 AACSB: Reflective thinking 18) Management control systems motivate managers and other employees to exert effort through a variety of rewards tied to the achievement of goals. Answer: TRUE Diff: 2 Terms: effort Objective: 1 AACSB: Communication

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19) For each of the following Balanced Scorecard measures, identify which of the four perspectives (Financial, Customer, Internal Business Process, or Learning and Growth) the measure best represents. ________________ a. On-time delivery of gasoline from refineries to retail stations ________________ b. Customer satisfaction ________________ c. Common stock price ________________ d. Return on investment ________________ e. Market share ________________ f. Number of days lost to accidents ________________ g. Employee satisfaction ________________ h. Friendliness of employees ________________ i. Repeat purchases ________________ j. Cash flow from operations Answer: a. Internal business process b. Customer c. Financial d. Financial e. Customer f. Internal business process g. Learning and growth h. Internal business process i. Customer j. Financial Diff: 3 Terms: transfer price Objective: 1 AACSB: Analytical skills 20) Discuss the possible problems a corporation might have if its operations are totally decentralized. Answer: (Answers may vary.) Senior management has the ultimate responsibility for the business. In a totally decentralized operation, senior executive management has little say about the conduct of the business. Another problem could be caused by the appointment of managers who are not capable of running their business. The lack of senior management control might result in problems developing and resulting in even bigger problems before anyone was aware of the incompetent managers. Certain types of activities belong centralized such as gathering information and certain human resource functions. Diff: 2 Terms: decentralization Objective: 1 AACSB: Reflective thinking

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Objective 22.2 1) ________ means minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions and to take actions. A) Total centralization B) Use of market-based transfer pricing C) Total decentralization D) Use of negotiated transfer pricing Answer: C Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking 2) An advantage of decentralization is that it: A) creates greater responsiveness to local needs B) focuses manager's attention on the organization as a whole C) does not result in a duplication of activities D) reduces the cost of gathering information Answer: A Diff: 1 Terms: decentralization Objective: 2 AACSB: Reflective thinking 3) A DISADVANTAGE of decentralization is that it: A) creates greater responsiveness to local needs B) focuses manager's attention on the organization as a whole C) does not result in a duplication of activities D) encourages suboptimal decision making Answer: D Diff: 1 Terms: decentralization Objective: 2 AACSB: Reflective thinking 4) All of the following are benefits of decentralization EXCEPT that it: A) creates greater responsiveness to local needs B) decreases management and worker morale C) leads to quicker decision making D) sharpens the focus of managers Answer: B Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking

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5) What is the term used to describe the situation when a manager's decision, which benefits one subunit, is more than offset by the costs to the organization as a whole? A) suboptimal decision making B) dysfunctional decision making C) congruent decision making D) Both A and B are correct. Answer: D Diff: 2 Terms: suboptimal decision making, dysfunctional decision making Objective: 2 AACSB: Ethical reasoning 6) Which of the following statements is FALSE? A) A centralized structure does not empower employees to handle customer complaints directly. B) A decentralized structure forces top management to lose some control over the organization. C) Decentralization slows responsiveness to local needs for decision making. D) The extent to which decisions are pushed downward, and the types of decisions that are pushed down, provide a measure of the level of centralization/decentralization in an organization. Answer: C Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking 7) Area(s) which is/are usually appropriate for decentralized decision making is(are): A) sources of supplies and materials B) long-term financing C) product advertising D) Both A and C are correct. Answer: D Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking 8) The benefits of a decentralized organization are greater when a company: A) is large and unregulated B) is facing great uncertainties in their environment C) has few interdependencies among division D) All of these answers are correct. Answer: D Diff: 1 Terms: decentralization Objective: 2 AACSB: Reflective thinking

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9) A benefit of decentralization is that it creates better responsiveness to local needs. Answer: TRUE Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking 10) Decentralizaion can sometimes lead to suboptimal decisions. Answer: TRUE Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking 11) In a profit center, the manager is accountable for investments, revenues, and costs. Answer: FALSE Explanation: In an investment center, the manager is accountable for investments, revenues, and costs. Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking 12) Suboptimal decision making is also called congruent decision making. Answer: FALSE Explanation: It's also called incongruent decision making. Diff: 2 Terms: incongruent decision making, suboptimal decision making Objective: 2 AACSB: Ethical reasoning 13) Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture. Answer: FALSE Explanation: These decisions are made at a decentralized level. Diff: 2 Terms: decentralization Objective: 2 AACSB: Ethical reasoning 14) An important advantage of decentralized operations is that it improves corporate control. Answer: FALSE Explanation: Decentralized operations weaken controls. Diff: 1 Terms: decentralization Objective: 2 AACSB: Reflective thinking

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15) Autonomy is the freedom for managers at lower levels of the organization to make decisions. Answer: FALSE Explanation: Decentralization is the freedom for managers at lower levels of the organization to make decisions. Diff: 2 Terms: decentralization, autonomy Objective: 2 AACSB: Reflective thinking 16) For each of the following activities, characteristics, and applications, identify whether they can be found in a centralized organization, a decentralized organization, or both types of organizations. ________________ a. Freedom for managers at lower organizational levels to make decisions ________________ b. Gathering information may be very expensive ________________ c. Greater responsiveness to user needs ________________ d. Have few interdependencies among divisions ________________ e. Maximum constraints and minimum freedom for managers at lowest levels ________________ f. Maximization of benefits over costs ________________ g. Minimization of duplicate functions ________________ h. Minimum of suboptimization ________________ i. Multiple responsibility centers with various reporting units ________________ j. Profit centers Answer: a. Decentralization b. Decentralization c. Decentralization d. Decentralization e. Centralization f. Both g. Centralization h. Centralization i. Both j. Both Diff: 2 Terms: decentralization Objective: 2 AACSB: Analytical skills

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17) The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers. However, she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority. Required: Explain how a centralized organization might allow for responsibility centers. Answer: It does not make any difference what type of organizational structure exists when it comes to defining responsibility centers. If a centralized organization desires to hold its managers responsible for their actions, it can design a reporting system that assigns all costs and revenues to their controllable managers. It's just that, in a centralized organization, each manager may have more items to control than are reasonably possible. Diff: 2 Terms: management control system, decentralization Objective: 2 AACSB: Reflective thinking Objective 22.3 1) A product may be passed from one subunit to another subunit in the same organization. The product is known as a(n): A) interdepartmental product B) intermediate product C) subunit product D) transfer product Answer: B Diff: 1 Terms: intermediate product Objective: 3 AACSB: Reflective thinking 2) Transfer prices should be judged by whether they promote: A) goal congruence. B) the balanced scorecard method. C) a high level of subunit autonomy in decision making. D) Both A and C are correct. Answer: D Diff: 2 Terms: transfer price, goal congruence, autonomy Objective: 3 AACSB: Reflective thinking

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3) A transfer-pricing method leads to goal congruence when managers: A) always act in their own best interest B) act in their own best interest and the decision is in the long-term best interest of the manager's subunit C) act in their own best interest and the decision is in the long-term best interest of the company D) act in their own best interest and the decision is in the short-term best interest of the company Answer: C Diff: 3 Terms: transfer price, goal congruence Objective: 3 AACSB: Ethical reasoning 4) Negotiated transfer prices are often employed when: A) market prices are stable B) market prices are volatile C) market prices change by a regular percentage each year D) goal congruence is not a major objective Answer: B Diff: 2 Terms: transfer price Objective: 3 AACSB: Reflective thinking 5) The costs used in cost-based transfer prices: A) are actual costs B) are budgeted costs C) can either be actual or budgeted costs D) are lower than the market-based transfer prices Answer: C Diff: 2 Terms: transfer price Objective: 3 AACSB: Reflective thinking Answer the following questions using the information below: Penn Oil Corporation has two divisions, Refining and Production. The company's primary product is Luboil Oil. Each division's costs are provided below: Production:Variable costs per barrel of oil Fixed costs per barrel of oil Refining: Variable costs per barrel of oil Fixed costs per barrel of oil

$9 $6 $30 $36

The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Production Division and 15,000 barrels from other suppliers at $60 per barrel.

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6) What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 180% of variable costs? A) $16.20 B) $27.00 C) $54.00 D) $70.20 Answer: A Explanation: A) 1.8 × $9 = $16.20 Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills 7) What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 110% of full costs? A) $16.50 B) $66.00 C) $72.60 D) $89.10 Answer: A Explanation: A) 1.10 × ($9 + $6) = $16.50 Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills 8) Assume 200 barrels are transferred from the Production Division to the Refining Division for a transfer price of $18 per barrel. The Refining Division sells the 200 barrels at a price of $120 each to customers. What is the operating income of both divisions together? A) $7,200 B) $7,800 C) $10,800 D) $20,400 Answer: B Explanation: B) Revenues = ($120 × 200) = $24,000 Cost = ($9 + $6 + $30 + $36) × 200 = (16,200) Operating income $7,800 Diff: 3 Terms: transfer price Objective: 3 AACSB: Analytical skills

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Answer the following questions using the information below: Greenlawn Corporation has two divisions, Distribution and Production. The company's primary product is fertilizer. Each division's costs are provided below: Production: Distribution:

Variable costs per pound Fixed costs per pound Variable costs per pound Fixed costs per pound

$0.10 $0.50 $0.06 $0.04

The Distribution Division has been operating at a capacity of 4,000,000 pounds a week and usually purchases 2,000,000 pounds from the Production Division and 2,000,000 pounds from other suppliers at $0.90 per pound. 9) What is the transfer price per barrel from the Production Division to the Distribution Division, assuming the method used to place a value on each pound of fertilizer is 160% of variable costs? A) $0.10 B) $0.22 C) $0.16 D) $0.80 Answer: C Explanation: C) 1.6 × $0.10 = $0.16 Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills 10) What is the transfer price per barrel from the Production Division to the Distribution Division, assuming the method used to place a value on each pound of fertilizer is 120% of full costs? A) $0.60 B) $0.72 C) $0.90 D) $1.10 Answer: B Explanation: B) 1.20 × ($0.10 + $0.50) = $0.72 Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills

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11) Assume 100,000 pounds are transferred from the Production Division to the Distribution Division for a transfer price of $0.80 per pound. The Distribution Division sells the 100,000 pounds at a price of $1.10 each to customers. What is the operating income of both divisions together? A) $20,000 B) $30,000 C) $40,000 D) $50,000 Answer: C Explanation: C) Revenues = ($1.10 × 100,000) = $110,000 Cost = ($0.10 + $0.50 + $0.06 + $0.04) ×100,0000 = (70,000) Operating income $40,000 Diff: 3 Terms: transfer price Objective: 3 AACSB: Analytical skills

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Answer the following questions using the information below: Calculate the Division operating income for the AlphaShoe Company which manufactures only one type of shoe and has two d...