Exam Prep Ch12 Fundamentals of Management Control Systems

Fundamentals of Cost Accounting, 6e (Lanen)

Chapter 12 Fundamentals of Management Control Systems

1) The design and use of management control systems affects how an individual makes and implements decisions.

2) 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.

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

4) Decentralization is the delegation of the authority to make decisions in the organization's name to subordinates.

5) In general, organizations are more centralized in the early stages of their existence and more decentralized as they grow.

6) One advantage of decentralization is faster response time to changes in the organization's environment by local managers.

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

8) Properly developed and implemented management control systems influence subordinates to act in the organization's best interest.

9) Delegated decision authority is the specification of what decisions a subordinate can make in the organization.

10) It is important to not consider an organization's compensation and reward system when designing its performance evaluation system.

11) Managers in a cost center are held responsible for both the costs and volumes of inputs used to produce a product or provide a service.

12) In general, profit centers are found at higher levels in an organization than investment centers.

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

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

15) Fixed compensation is generally not linked to measured performance; i.e., it is independent of measured performance.

16) Properly designed management control systems have both fixed compensation and contingent compensation.

17) Cost allocations based on dual rates assume that a common cost can be separated into a fixed component and a variable component.

18) The primary reason to use a dual-rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control.

19) It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior.

20) Properly designed management control systems will eliminate fraudulent behavior by maximizing goal congruence within the organization.

21) One of the key internal controls for any organization is separation of duties.

22) Internal controls are not legally required for publicly traded companies.

23) The design and use of management control systems uses concepts from which of the following disciplines?

A) Demography.

B) Economics.

C) Trigonometry.

D) Physics.

24) What is the purpose of a management control system? 

A) To align more closely the interests of the manager and the interests of the organization.

B) To allow individuals to obtain business experience.

C) To define the performance measures for employees.

D) To focus on the well-being of employees.

25) Which of the following correctly defines a principal-agent relationship?

A) The relationship between a superior and a subordinate.

B) The relationship between two superiors.

C) The relationship between two subordinates.

D) The relationship between a supervisor and a subversive.

26) What is the primary managerial responsibility in an organization?

A) Development of employees.

B) Development of profits.

C) Decision making.

D) Development of performance measurements.

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

A) A stockbroker in an investment arrangement.

B) A real estate agent for someone buying a house.

C) A customer leasing a car.

D) An employer hiring an employee.

28) Which of the following statements is/are true regarding managerial decisions?

(A) The design and use of management control systems affects how an individual makes and implements decisions.

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

A) Only A is true.

B) Only B is true.

C) Both of these are true.

D) None of these is true.

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

A) top management.

B) superiors.

C) board of directors.

D) subordinates.

30) Which of the following is not a characteristic of a decentralized organization?

A) Better use of local knowledge.

B) Better use of top management's time.

C) Reduced response time to environmental changes.

D) More decisions made by relatively few individuals.

31) Which of the following statements is false?

A) The U.S. military is a good example of an organization that is highly decentralized.

B) The degree of decentralization depends on how many decisions principals delegate to agents.

C) Management control systems are used to measure the performance of an agent's decisions.

D) Most organizations have some operating units that are centralized and some that are decentralized.

32) Which of the following is not a cost of decentralization?

A) Managers in a decentralized organization might have a narrow focus on their own unit's performance rather than the attainment of their organization's overall goals.

B) Managers in a decentralized organization might make the same types of decisions that are being made at headquarters resulting in administrative duplication.

C) Delegating decision making to the lowest level possible enables an organization to respond in a timely way to opportunities and problems.

D) Delegating decision making to the lowest level possible may lead to poor decisions based on incomplete information.

33) Which one of the following will not occur in an organization that gives managers throughout the organization maximum freedom to make decisions? (CMA adapted)

A) More effective solutions to operational problems.

B) Individual managers regard the managers of other segments as they do external parties.

C) Two divisions of the organization having competing models that aim for the same market segments.

D) Delays in securing approval for the introduction of new products.

34) ________ is the delegation of decision-making authority to lower management levels within the organization.

A) Transfer pricing

B) Centralization

C) Decentralization

D) Goal congruence

35) Which of the following is not a benefit of decentralization?

A) Allowing managers some autonomy in decision-making provides managerial training for future higher-level managers.

B) In a decentralized organization some tasks or services may be duplicated unnecessarily.

C) Managers with some decision-making authority usually exhibit greater motivation than those who merely execute the decisions of others.

D) Managers of the organization's subunits are specialists, thereby enabling them to manage their departments most effectively.

36) Which of the following statements is true regarding decentralization?

A) Decentralization increases the complexity of problems.

B) Managers in a decentralized organization have less knowledge about local business advantages.

C) Decentralization limits fast responses to business changes.

D) Decentralization allows managers to receive on-the-job training in decision-making.

37) What does dysfunctional decision-making refer to? 

A) Administrative duplication.

B) Local managers making decisions in their interests, which can differ from those of the organization.

C) Delegated decision authority.

D) Poor decisions based on incomplete information.

38) Which of the following elements is not part of a management control system?

A) Delegated decision authority.

B) Performance evaluation system.

C) Knowledge of local conditions.

D) Compensation and reward system.

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

A) only for costs.

B) only for revenues.

C) for costs and revenues.

D) for investments in assets.

40) An operating unit of an organization is called an investment center if it is responsible:

A) only for costs.

B) only for revenues.

C) for costs and revenues.

D) for investments in assets.

41) An operating unit of an organization is called a revenue center if it is responsible:

A) only for costs.

B) for selling a product.

C) for all costs and revenues.

D) for investments in assets.

42) An operating unit of an organization is called a profit center if it is responsible:

A) only for costs.

B) only for revenues.

C) for costs and revenues.

D) for investments in assets.

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

A) expense center.

B) revenue center.

C) profit center.

D) asset center.

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

A) expense center.

B) revenue center.

C) profit center.

D) asset center.

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

A) cost center.

B) revenue center.

C) profit center.

D) asset center.

46) When managers are held responsible for costs but the input-output relationship is not well specified, a(n) ________ is established.

A) standard cost center

B) revenue center

C) discretionary cost center

D) asset center

47) When managers are held responsible for costs and the input-output relationship is well specified, a(n) ________ is established.

A) cost center

B) revenue center

C) discretionary cost center

D) asset center

48) Decentralized organizations can delegate authority and still maintain control and monitor managers' performance by designing appropriate management control systems. Which of the following responsibility centers would be evaluated similar to an independent business? (CMA, adapted)

A) Profit center.

B) Revenue center.

C) Investment center.

D) Discretionary cost center.

49) Controllable revenue is included in a performance report of a:

A) Option A

B) Option B

C) Option C

D) Option D

50) Controllable revenue is included in a performance report of a:

A) Option A

B) Option B

C) Option C

D) Option D

51) Controllable revenue is included in a performance report of a:

A) Option A

B) Option B

C) Option C

D) Option D

52) Assets invested in a responsibility center are included in a performance report of a:

A) Option A

B) Option B

C) Option C

D) Option D

53) Assets invested in a responsibility center are included in a performance report of a:

A) Option A

B) Option B

C) Option C

D) Option D

54) A manager makes a decision that is beneficial for a specific investment center and for the entire organization. From the organization's perspective, this decision results in:

A) goal congruence.

B) decentralization.

C) contingent compensation.

D) fixed compensation.

55) Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n): (CMA adapted)

A) profit center.

B) revenue center.

C) division.

D) operating unit.

56) The least complex segment or area of responsibility for which costs are allocated is a(n): (CMA adapted)

A) profit center.

B) investment center.

C) contribution center.

D) cost center.

57) Which of the following statements is/are correct?

  I. A profit center has control over both costs and revenues.

 II. An investment center has control over invested funds, but not over costs and revenues.

III. A cost center has no control over sales.

A) Only I.

B) Only II.

C) Only I and III.

D) Only I and II.

58) The purpose of the Data Processing Department of Haslam Corporation is to assist the various departments of the corporation with their information needs free of charge. The Data Processing Department would best be evaluated as a(n):

A) cost center.

B) revenue center.

C) profit center.

D) investment center.

59) Which of the following departments would not be a cost center?

A) County fire department.

B) University book store.

C) University power plant.

D) City building and grounds department.

60) Which of the following subunits would most likely be considered a cost center?

A) Jewelry department.

B) Parts department.

C) Legal department.

D) Electronics department.

61) A successful responsibility accounting reporting system is dependent upon (CMA adapted):

A) The correct allocation of controllable variable costs.

B) Identification of the management level at which all costs are controllable.

C) The proper delegation of responsibility and authority.

D) 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.

62) The following is a summarized income statement for McClaron Manor Co.'s profit center 12608 for April:

Which of the following amounts is most likely subject to the control of the profit center's manager? (CPA, adapted)

A) Contribution Margin of $175,000.

B) Contribution Margin of $175,000 and Period Expenses of $11,000.

C) Contribution Margin of $175,000 and Period Expenses of $13,000.

D) Contribution Margin of $175,000 and Period Expenses of $21,000.

63) Revenue center and profit center managers are both responsible for meeting:

A) Budgeted income.

B) Budgeted costs.

C) Budgeted revenues.

D) Minimum return on investment as established by the company as a whole.

64) Which of the following subunits is most likely to be considered an investment center?

A) Accounting department.

B) Assembly department.

C) Petrochemical division.

D) Research and development department.

65) The controllability concept states that managers should be held responsible for:

A) all items over which they have decision-making authority.

B) costs and revenues, but not investments in assets used in their division.

C) only items that are allocated to their divisions on a per-unit basis.

D) fixed compensation items, but not contingent compensation items.

66) Relative performance evaluations (RPE) are not designed to:

A) compare managers to other comparable managers.

B) compare divisions with other comparable divisions.

C) remove the effect of environmental factors that are beyond a manager's control.

D) restate departmental goals so meaningful comparisons can be made.

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

A) Administrative salaries.

B) Sales commissions.

C) Stock options.

D) Piece rates.

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

A) Administrative salaries.

B) Sales commissions.

C) Stock options.

D) Piece rates.

69) Which of the following statements is/are true regarding compensation?

(A) Fixed compensation is generally not linked to measured performance; i.e., it is independent of measured performance.

(B) Properly designed management control systems have contingent compensation items but not fixed compensation items.

A) Only A is true.

B) Only B is true.

C) Both of these are true.

D) None of these is true.

70) In responsibility accounting, a center's performance is measured by those costs which are controllable. Controllable costs are best described as including: (CMA adapted)

A) direct materials and direct labor only.

B) only those costs that the manager can influence in the current period.

C) only discretionary costs.

D) those costs about which the manager is knowledgeable and informed.

71) Banglor Manufacturing Corporation uses a responsibility accounting system in its operations. Which one of the following items is least likely to appear in a performance report for a manager of one of Banglor's assembly lines? (CMA adapted)

A) Direct labor.

B) Materials.

C) Repairs and maintenance.

D) Depreciation on the manufacturing facility.

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

A) top management reports are more detailed.

B) lower-level management reports are typically for longer time periods.

C) top management reports show control over fewer costs.

D) lower-level management reports are likely to contain more quantitative data and less financial data.

73) Which of the following is the purpose of relative performance evaluation (RPE)? 

A) To ensure that all managers are subjected to identical evaluations.

B) To hold managers accountable for all divisions, regardless of control or responsibility.

C) To evaluate management on internal targets only to avoid ambiguity.

D) To compare managers or divisions to other comparable managers and divisions.

74) The use of dual rates in a cost allocation system assumes that common costs can be:

A) separated into their fixed and variable components.

B) traced directly to a specific division or manager.

C) allocated based on a physical quantities measure.

D) assigned to an investment responsibility center.

75) Which of the following statements is/are false regarding the effective use of management control systems?

(A) In general, single rate cost allocations should not be used in management control systems because clear control over the cost being allocated cannot be determined.

(B) The primary reason to use a dual rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control.

A) Only A is false.

B) Only B is false.

C) Both of these are false.

D) None of these is false.

76) 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:

What is the allocation rate for the upcoming year, assuming Barrington Box uses the single-rate method and allocates common costs based on the number of calls?

A) $10.00.

B) $15.00.

C) $20.00.

D) $25.00.

77) 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:

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 ?

A) $10.98.

B) $10.00.

C) $8.00.

D) $7.14.

78) 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:

The cost accountant determined $2,700,000 of the communication network's costs were fixed and should be allocated based on the number of calls. The remaining costs should be allocated based on the time on the network. What is the total communication network costs allocated to the Large Box Division, assuming the company uses dual-rates to allocate common costs?

A) $2,700,000.

B) $2,520,000.

C) $1,980,000.

D) $1,500,000.

79) 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:

The cost accountant determined $2,700,000 of the communication network's costs were fixed and should be allocated based on the number of calls. The remaining costs should be allocated based on the time on the network. What is total communication network costs allocated to the Small Box Division, assuming the company uses dual-rates to allocate common costs?

A) $2,520,000.

B) $1,800,000.

C) $1,320,000.

D) $1,200,000.

80) 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.

If the Copy Department uses a dual rate for allocating its costs based on usage, how much cost will be allocated to the Marketing Department?

A) $85,000.

B) $90,000.

C) $150,000.

D) $170,000.

81) 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.

If the Copy Department uses a dual rate for allocating its costs based on usage, how much cost will be allocated to the Economics Department?

A) $85,000.

B) $90,000.

C) $105,000.

D) $120,000.

82) 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.

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 2,100,000 copies during the year?

A) $85,000.

B) $92,500.

C) $132,500.

D) $112,500.

83) 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

If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to the Marketing Department, assuming the Marketing Department actually made 3,000,000 copies during the year?

A) $135,000.

B) $150,000.

C) $155,000.

D) $170,000.

84) 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.

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?

A) $77,500.

B) $92,500.

C) $132,500.

D) $112,500.

85) 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.

If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to the Marketing Department, assuming the Marketing Department actually made 3,800,000 copies during the year?

A) $135,000.

B) $150,000.

C) $155,000.

D) $175,000.

86) 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:

What is the allocation rate for the upcoming year, assuming Mesa Telcom uses the single-rate method and allocates common costs based on the number of connections?

A) $10.00.

B) $15.00.

C) $20.00.

D) $40.00.

87) 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:

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?

A) $480,000.

B) $514,286.

C) $600,000.

D) $1,200,000.

88) 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:

What is the allocation rate for the upcoming year, assuming Mesa Telcom uses the single-rate method and allocates common costs based on the time on the network?

A) $20.00.

B) $16.00.

C) $4.00.

D) $2.86.

89) 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:

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?

A) $429,000.

B) $600,000.

C) $657,800.

D) $3,000,000.

90) 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:

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.

91) 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:

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 total server network costs allocated to the Retail Division (rounded to the nearest whole dollar), assuming the company uses dual-rates to allocate common costs?  

A) $741,667.

B) $657,143.

C) $425,000.

D) $211,765.

92) 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:

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 total server network costs allocated to the Consumer Division (rounded to the nearest whole dollar), assuming the company uses dual-rates to allocate common costs?  

A) $1,200,000.

B) $1,093,333.

C) $954,896.

D) $750,000.

93) 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.

If DCC uses a dual-.rate for allocating its costs based on usage, how much cost will be allocated to the Software Development Department?  

A) $98,000.

B) $104,000.

C) $112,000.

D) $118,857.

94) 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.

If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the Training Department?  

A) $183,750.

B) $210,000.

C) $195,000.

D) $222,857.

95) 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.

If DCC uses a dual-ate for allocating its costs based on usage, how much cost will be allocated to the Management Department?  

A) $168,000.

B) $156,000.

C) $178,286.

D) $147,000.

96) 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.

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?

A) $147,000.

B) $136,500.

C) $159,000.

D) $150,761.

97) 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.

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 2,950,000 copies during the year?

A) $184,500.

B) $191,750.

C) $211,783.

D) $206,500.

98) 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.

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 3,250,000 copies during the year?

A) $227,500.

B) $211,250.

C) $217,500.

D) $223,017.

99) 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.

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?

A) $180,050.

B) $190,079.

C) $193,900.

D) $203,100.

100) 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.

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 1,160,000 copies during the year?

A) $75,400.

B) $98,800.

C) $81,200.

D) $84,312.

101) 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.

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?

A) $117,400.

B) $115,700.

C) $124,600.

D) $129,376.

102) Darren Corporation's Maintenance Department provides services to the company's two operating divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Paints Division at the end of the year?

A) $298,800.

B) $498,000.

C) $289,000.

D) $240,000.

103) The fixed costs of Black Company's personnel department are allocated to operating departments on the basis of direct labor-hours. The following data have been provided:

The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred in order to support long-run average requirements. How much of this fixed cost should be charged to Operating Department X at the end of the year for performance evaluation purposes?

A) $35,000.

B) $33,600.

C) $52,500.

D) $22,400.

104) Poole Corporation's Maintenance Department provides services to the company's two operating divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the end of the year?

A) $669,623.

B) $637,339.

C) $625,500.

D) $657,584.

105) Waterford Company maintains a cafeteria for its employees. For June, variable food costs were budgeted at $45 per employee based on a budgeted level of 200 employees in other departments. During the month, an average of 190 employees worked in other departments and actual food costs totaled $9,250. How much food cost should be charged to the other departments at the end of the month for performance evaluation purposes?

A) $9,000.

B) $9,250.

C) $8,550.

D) $9,737.

106) Cost allocation of shared facilities cost is intended to remind managers of:

A) the cost of using a shared resource.

B) both the cost and value of using shared resources.

C) how much capacity a firm has.

D) why the firm invests in these facilities.

107) The dual-rate method is a cost allocation approach that separates a common cost into fixed and variable components and:  

A) allocates only the fixed components.

B) allocates only the variable components.

C) allocates all components with a single standard allocation base.

D) allocates each component using a different allocation base.

108) If a budgeted activity base is used as the base in cost allocation, each department's cost allocation will be predictable, and not influenced by the:

A) actual total cost.

B) change in activity.

C) variations from budget.

D) actual usage in other departments.

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

A) service and not-for-profit industries.

B) service industries only.

C) not-for-profit industries only.

D) limited instances outside of manufacturing.

110) Which of the following is not one of the objectives of cost allocation?

A) Motivate managers to exert a high-level of effort.

B) Provide useful departmental and product costs.

C) Identify production constraints.

D) Provide the right incentive for managers to make decisions.

111) Examples of pressures that can lead to financial fraud do not include:

A) unrealistic budgets.

B) inappropriate bonus plans.

C) overemphasis on long-term results.

D) overemphasis on short-term results.

112) 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)

A) To allocate depreciation of forklifts used by workers at its central warehouse, Amir Electronics uses predetermined amounts calculated on the basis of the long-term average use of the services provided by the warehouse to the various segments.

B) Seattle Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building. It also uses ROI to evaluate the divisional performance.

C) Rose Industrial does not allow its service departments to pass on their cost overruns to production departments.

D) Xi Enterprises' management information system (MIS) is operated out of headquarters and serves its various divisions. Xi's allocation of MIS-related costs to its divisions is limited to costs the divisions will incur if they were to outsource their MIS needs.

113) The Sarbanes-Oxley Act of 2002 requires that management of publicly traded companies:

A) use investment centers to evaluate top managers.

B) report on the adequacy of the company's internal controls over financial reporting.

C) compensate managers with fixed compensation plans only.

D) eliminate stock options for managerial compensation.

114) Which of the following is not an internal control?

A) Rotating personnel among tasks.

B) Separation of duties.

C) Setting limits on the amount of expenditures.

D) Using absolute performance standards.

115) Internal controls include all of the following except:

A) using contingent compensation plans.

B) requiring management authorization for the use of a company's assets.

C) reconciling various sets of books.

D) requiring employees to take vacations.

116) Maryland Hotels 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, Resort, Standard, and Budget) where a reservation is made on the basis of time on a call. Idle time of the reservation agents, time spent on calls where no reservation is made, and the fixed cost of the equipment are allocated on the number of reservations made in each group. 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):

During this period, the cost of the computer center amounted to $2,410,000 for personnel and $1,240,000 for equipment and other costs.

Required:

Determine the allocation to each of the divisions using: (You may 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).

117) Atlantic 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, Standard, and Budget) 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):

During this period, the cost of the computer center amounted to $1,760,000 for personnel and $1,240,000 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).

118) 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):

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).

119) 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.

Required:

If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the three user departments?  (Use three decimal places in your calculations.)

120) The legal department for Trump Corporation provides legal services for four departments in the Manhattan office. The following budget has been prepared for the month.

Required:

If Trump uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to the four user departments? (Use three decimal places in your calculations.)

121) The Human Resources Department for Vargis Corp. provides personnel services for two departments in the Kansas City office. The following budget has been prepared for the month.

Required:

If Vargis uses a dual-rate for allocating its costs based on employees, how much cost will be allocated to the two departments?  (Use three decimal places in your calculations.)

122) 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.

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.)

123) 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.

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.)

124) Waverley Services has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $1,200,000. You have been provided with the following information for the upcoming year:

Required:

a. What is the allocation rate for the upcoming year assuming Waverley 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 Waverley uses the single-rate method and allocates common costs based on the time on network? (Do not round rate - carry out six decimal places.) Calculate the allocated amount for each division.

c. The cost accountant determined $850,000 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 each division? (Round immediate calculations to three decimal places.)

125) Collins Enterprises has four divisions, commercial, retail, research, 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:

Required:

a. What is the allocation rate for the upcoming year assuming Collins uses the single-rate method and allocates common costs based on the number of connections? (Do not round rate - carry out six decimal places.) Calculate the allocated amount for each division.

b. What is the allocation rate for the upcoming year assuming Collins uses the single-rate method and allocates common costs based on the time on network? (Do not round rate - carry out six decimal places.) Calculate the allocated amount for each division.

c. 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 each division? (Round immediate calculations to three decimal places.)  

126) 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:

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.

127) Markov Engineering 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:

Required:

The cost accountant determined $1,800,000 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 each division? (Use three decimal places in your calculations.)

128) Sumner Corporation has four divisions, commercial, retail, research, and consumer, that share the common costs of the company's computer server network. The annual common costs are $3,500,000. You have been provided with the following information for the upcoming year:

Required:

(Use three decimal places in your calculations.)

a. What is the allocation rate for the upcoming year assuming Sumner uses the single-rate method and allocates common costs based on the number of connections?

b. What is the allocation rate for the upcoming year assuming Sumner uses the single-rate method and allocates common costs based on the time on network? Calculate the allocated amount for each division.

129) Kingston Industries has four divisions, commercial, retail, research, and consumer, that share the common costs of the company's computer server network. The annual common costs are $3,600,000. You have been provided with the following information for the upcoming year:

Required:

a. The cost accountant determined $2,300,000 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 each division? (Use three decimal places in your calculations.)

130) Roadways Enterprises has two divisions, Production and Support, 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:

Required:

(Use three decimal places in your calculations.)

a. What is the allocation rate for the upcoming year assuming Roadways 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 Roadways uses the single-rate method and allocates common costs based on the time on the network? Calculate the costs allocated to each division.

c. The cost accountant determined $2,700,000 of the communication network's costs were fixed and should be allocated based on the number of calls. The remaining costs should be allocated based on the time on the network. What is the total communication network costs allocated to each division?

131) 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:

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.

132) Talent Engineering has two divisions, Research and Sales, 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:

Required:

The cost accountant determined $1,350,000 of the communication network's costs were fixed and should be allocated based on the number of calls. The remaining costs should be allocated based on the time on the network. What is the total communication network costs allocated to each division? (Use three decimal places in your calculations.)

133) The Barton Creek Company has three client-contact departments: Market Research, Branding, and Promotion. Each department requires the services of the Legal Department for the contracts that each undertakes. The size of the Legal Department was based on long-run estimates of contracts. Information on the Legal Department's budgeted and actual costs is as follows:

The budget for the Legal Department is $300,000 + $10/contract. The budgeted volume of contracts is as follows:

The actual number of contracts for Market Research was 315, for Branding was 450, and for Promotion was 720.

Required:

(Use three decimal places in your calculations.)

a. If a single charging rate based on budgeted usage is used, how much of the cost of the Legal Department would be allocated to each of the producing departments?

b. If a dual charging rate is used, how much of the cost of the Legal Department would be allocated to each of the producing departments?

134) The Barton Creek Company has three client-contact departments: Market Research, Branding, and Promotion. Each department requires the services of the Legal Department for the contracts that each undertakes. The size of the Legal Department was based on long-run estimates of contracts. Information on the Legal Department's budgeted and actual costs is as follows:

The budget for the Legal Department is $200,000 + $7.50/contract. The budgeted volume of contracts is as follows:

The actual number of contracts for Market Research was 286, for Branding was 450, and for Promotion was 675.

Required:

(Use three decimal places in your calculations.)

a. If a single charging rate based on budgeted usage is used, how much of the cost of the Legal Department would be allocated to each of the producing departments?

b. If a dual charging rate is used, how much of the cost of the Legal Department would be allocated to each of the producing departments?

135) The Barton Creek Company has three client-contact departments: Market Research, Branding, and Promotion. Each department requires the services of the Legal Department for the contracts that each undertakes. The size of the Legal Department was based on long-run estimates of contracts. Information on the Legal Department's budgeted and actual costs is as follows:

The budget for the Legal Department is $400,000 + $15/contract. The budgeted volume of contracts is as follows:

The actual number of contracts for Market Research was 207, for Branding was 512, and for Promotion was 820.

Required:

(Use four decimal places in your calculations.)

a. If a single charging rate based on budgeted usage is used, how much of the cost of the Legal Department would be allocated to each of the producing departments?

b. If a dual charging rate is used, how much of the cost of the Legal Department would be allocated to each of the producing departments?

136) Seattle Corporation has two operating divisions - Inland Division and Coast Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $29 per order. The Customer Service Department's fixed costs are budgeted at $381,600 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.

At the end of the year, actual Customer Service Department variable costs totaled $219,905 and fixed costs totaled $383,860. The Inland Division had a total of 1,520 orders and the Coast Division had a total of 5,690 orders for the year.

Required:

a. Prepare a report showing how much of the Customer Service Department's costs should be charged to each of the operating divisions at the end of the year.

b. How much of the actual Customer Service Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

137) Warehouse Services is a service department in the Vancouver Company, providing storage service to three operating departments. The company charges the costs of this department to operating departments on the basis of cubic feet occupied.

Last year, Warehouse Services budgeted variable storage cost of $0.15 per cubic foot occupied. The budgeted total fixed cost was $120,000 and was determined by the long-term storage needs of the operating departments. Actual storage space occupied during the year, along with long-term storage needs of operating departments, is given below:

Actual variable storage costs amounted to $0.16 per cubic foot occupied. Actual fixed storage costs were $123,000.

Required:

a. Compute the amount of variable storage cost that should be charged to each operating department at the end of the year for performance evaluation purposes.

b. Compute the amount of fixed storage cost that should be charged to each operating department at the end of the year for performance evaluation purposes.

138) 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.

139) Layton Company operates a cafeteria for the benefit of its employees. The company subsidizes the cafeteria heavily by allowing employees to purchase meals at greatly reduced prices. Budgeted and actual costs in the cafeteria for the year just ended are as follows:

Costs of the cafeteria are charged to producing departments on the basis of the number of employees in these departments. Fixed costs are charged on the basis of the peak-period number of employees. Data on employees in the company's producing departments follows:

Required:

a. Compute the dollar amount of variable and fixed costs that should be charged to each of the producing departments at the end of the year for purposes of evaluating performance.

b. Identify the amount, if any, of actual costs that should not be charged to the operating departments.

140) The Sunset Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year.

Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1,400 hours and by the Night Light Division was 600 hours.

Required:

1. If a single-rate cost-allocation method is used, what amount of cost will be allocated to the Flashlight Division? Assume actual usage is used to allocate operating costs.

2. If a dual-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Night Light Division?

3. If a dual-rate cost-allocation method is used, what amount of cost will be allocated to the Night Light Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

141) Smash Burgers is a fast-food restaurant that sells vegetarian burgers and hot dogs in a 1950s environment. The fixed operating costs of the company are $5,000 per month. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to either the burgers or the hot dogs. The following information is provided for the operations of the company:

Required:

a. What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for January? For February?

b. Hot dog sales for January and February remained constant. Did the amount of fixed operating costs allocated to hot dogs also remain constant for January and February? Explain why or why not. Comment on any other observations.

142) Cost allocation bases are factors that cost management analysts use to assign indirect costs to cost objects. Ideally, cost-allocation bases should reflect a cause-and-effect relationship between resource spending and use. Ideally, an Activity-Based-Costing (ABC) approach will provide a more accurate and useful accounting for an organization's resources. Recent studies have found that, in spite of increasing costs and diminishing resources, very few Higher Education Institutions use the tools and techniques of an ABC cost allocation system to assign costs to academic departments. While direct costs, such as faculty salaries, are traceable to individual academic departments or courses, many indirect costs, such as facility use, computer use, and student support services, are more difficult to assign. In a traditional approach, many higher education institutions assign such costs based on a single factor, such as the number of courses taught in the university. (Source: Activity-Based Costing for Higher Education Institutions, Management Accounting Quarterly, Winter, 2001)

Required:

(a) Explain why the use of a single-cost driver such as the number of courses may result in inaccurate management information as to the cost of running courses in individual academic departments.

(b) For each of the indirect costs listed below, identify an appropriate cost-driver that might be used to allocate costs to determine the cost of offering a single course in an academic department if an Activity-Based-Costing model were used.

∙ Computer use

∙ Facility use

∙ Student services

∙ Course design

∙ Lecturing/class meeting time

∙ Assignment grading

143) Affordable Credit Checks produces two styles of credit reports: personal and corporate. The difference between the two is the amount of background information and data collection required. The corporate report uses more skilled personnel because additional checking and data are required. Total support service costs to be allocated are $3,200,000. The relevant figures for the year just completed follow:

Required:

(a) Which allocation base would be preferred by each manager? Which allocation base would be least preferred?

(b) Provide arguments that each manager would make for his/her preferred allocation base. How would each manager argue against his/her least preferred allocation base?  

144) Rainier Company has a purchasing department that provides services to two factories located in Carbondale and the other in Peoria. Budgeted costs for the purchasing department consist of $55,000 per year of fixed costs and $8 per purchase order for variable costs. The level of budgeted fixed costs is determined by the peak-period requirements. The Carbondale factory requires 40% of the peak-period capacity and the Peoria factory requires 60%.

During the current year, 1,800 purchase orders were processed for the Carbondale factory and 2,700 purchase orders for the Peoria factory.

Required:

Compute the amount of purchasing department cost that should be charged to each factory for the year.

145) Koski Corporation's Maintenance Department provides services to the company's two operating divisions - the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined based on the number of cases produced by the operating departments during the peak period. Data appear below:

Required:

a. Prepare a report showing how much of the Maintenance Department's costs should be charged to each of the operating divisions at the end of the year.

b. How much of the actual Maintenance Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

146) 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.

147) Describe five advantages of decentralization.

148) Describe two disadvantages of decentralization.

149) Logistics Services Company has recently expanded by acquiring two smaller companies in the transportation industry. Prior to these acquisitions, Logistics Services used a centralized style of organization because it was small enough that the top management team was heavily involved in the day-to-day activities of the firm. Ms. Trane, the CEO, feels that this style is no longer suitable for the larger, more diverse organization.

She has hired a consultant to help her and her management team create a new structure which, when developed on paper, will be described to the affected employees and their inputs will be sought. Since no one in the company knows much about management styles, Ms. Trane felt this would be an efficient way to get the ball rolling, but realized the consultants would not have the specialized knowledge about her company and the two acquisitions.

One of the first things she feels she will need to do is to explain the benefits of decentralization that will accrue to both the company and the affected employees.

Required:

Ms. Trane has asked you, as the consultant, to provide her with a general list of advantages of decentralization that she will tailor to her company before presenting it to the executives and other affected employees.

150) 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?

151) Describe the three main elements of a management control system.

152) Describe the five basic types of decentralized units in responsibility accounting.

153) There are five common types of responsibility centers listed below.

Required:

Briefly describe each of the following terms and provide an example of each term.

(a) Cost Center

(b) Discretionary Cost Center

(c) Revenue Center

(d) Profit Center

(e) Investment Center

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

155) The order entry department of Dano Associated Industries is considering improvements in the order entry process, which includes preparing quotations based on customers' requests (via the sales representative) and processing orders received from customers.

A typical sequence of events might begin with a sales representative meeting with a customer to discuss the type of system desired. The sales representative then fills out a paper form and faxes it or phones it in to an order entry associate, who might make several subsequent phone calls to the sales representative, the potential customer, or the manufacturing department to prepare the quote properly. These phone calls deal with such questions as exchangeability of parts, part numbers, current prices for parts, or allowable sales discounts. Order entry staff then keys in the configuration of the desired system, including part numbers, and informs the sales representative of the quoted price. Each quote is assigned a quotation number. To smooth production, manufacturing often produces systems with standard configurations in anticipation of obtaining orders from recent quotes for systems. The systems usually involve adding on special features to the standard configuration. Production in advance of orders sometimes results in duplication in manufacturing; however, because customers often fail to put the assigned quotation numbers on their orders. When order entry receives an order, the information on the order is reentered into the computer to produce an order acknowledgement. This order acknowledgement is sent to the manufacturing department, which produces the system ordered by customer. When the order acknowledgement is sent to the invoicing department, the information is reviewed again to generate an invoice to send to the customer.

Enrique Ramos, the order entry manager, has received many complaints from the order entry department's internal customers regarding quality and timeliness problems, and is considering ways to improve the efficiency and quality of the order entry process.

Required:

(a) Develop some indicators that Ramos could use to assess the performance of the order entry process.

(b) List four possible errors that might be found in the quote and/or the order acknowledgement (i.e., the outputs of the order entry process).

(c) What do you think are the likely causes of delays and quality problems?

156) The manager of a business unit of a large corporation made some projections regarding sales and profits for the upcoming final quarter of the year. The manager's performance evaluation and compensation depended significantly on his ability to meet budget goals. The manager discovered that the final quarter would have to be a particularly good quarter in order to meet these goals. He decided to implement a sales program offering liberal payment terms in order to pull some sales that would normally occur next year into the current year. Customers accepting delivery in the fourth quarter would not have to pay the invoice for 140 days. Also, he sold some equipment that was not being used and realized a significant profit on the sale.

Required:

Are these actions ethical? Why or why not?

157) 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?

158) How does the separation of duties help prevent financial fraud?

159) The fixed costs of operating the maintenance facility of Indian River Hospital are $4,500,000 annually. Variable costs are incurred at the rate of $30 per maintenance hour. The facility averages 40,000 maintenance hours a year. Budgeted and actual hours for 2020 are as follows:

Assume that budgeted maintenance hours are used to calculate the allocation rates.

Required:

a. If a single-rate cost allocation method is used, what amount of maintenance cost will be budgeted for each department?

b. If a single-rate cost allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage?

c. If a dual-rate cost allocation method is used, what amount of maintenance cost will be budgeted for each department?

d. If a dual-rate cost allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage?

160) The Michael Vamosi Corporation operates one central plant that has two divisions, the Lamp Division and the Flashlight Division. The following data apply to the coming budget year:

Assume that practical capacity is used to calculate the allocation rates. Further assume that actual usage of the Lamp Division was 700 hours and the Flashlight Division was 400 hours for the month of June.

Required:

a. If a single-rate cost allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?

b. For the month of June, if a single-rate cost allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs.

c. If a dual-rate cost allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?

d. For the month of June, if a dual-rate cost allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division?