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Which type of centre is the toy department in a Wal-Mart store?


A) an exception centre
B) a profit centre
C) a cost centre
D) an investment centre

E) None of the above
F) A) and C)

Correct Answer

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What effects do increases in plant assets have on ROI?


A) an increase in controllable margin which increases ROI
B) a reduction of ROI
C) an increase in ROI
D) Unable to determine without the dollar amount of controllable margin known.

E) B) and D)
F) A) and B)

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What is a weakness of residual income?


A) It discourages goal congruence.
B) It can be misleading when comparing divisions of different sizes.
C) It routinely results in managers rejecting investment opportunities that would be advantageous to the company as a whole.
D) It does not take cost of capital into consideration.

E) B) and D)
F) A) and D)

Correct Answer

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For which of the following is a profit centre manager responsible?


A) invested assets, sales, and costs
B) sales, profits, and invested assets
C) sales, invested assets, and assets
D) revenues and costs

E) B) and C)
F) A) and B)

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Use the following information to answer questions EKPN Company prepared the following data in its static budget based on 150,000 machine hours:  Direct Materials $450,000 Direct Labour 225,000 Variable Overhead 1,125,000 Fixed Overhead 2,100,000 Actual Results:  Machine Hours  Direct Materials $60,000 hours  Direct Labour $475,000 Variable Overhead 245,000 Fixed Overhead 1,150,0002,110,000\begin{array}{lr}\text { Direct Materials } & \$ 450,000 \\\text { Direct Labour } & 225,000 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & 2,100,000\\\\\text { Actual Results: } \\\text { Machine Hours } & \\\text { Direct Materials } & \$ 60,000 \text { hours } \\\text { Direct Labour } & \$ 475,000 \\\text { Variable Overhead } & 245,000 \\\text { Fixed Overhead } & 1,150,000 \\& 2,110,000\end{array} -What was the difference between the actual and budgeted Direct Material costs at the actual level of activity?


A) $25,000 unfavourable
B) $25,000 favourable
C) $5,000 unfavourable
D) $5,000 favourable

E) A) and B)
F) A) and C)

Correct Answer

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Which of the following will most likely result in a favourable controllable margin difference?


A) sales exceeding budget; costs under budget
B) sales exceeding budget; costs over budget
C) sales under budget; costs under budget
D) sales under budget; costs over budget

E) A) and B)
F) A) and C)

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A static budget is a series of flexible budgets at different levels of activities.

A) True
B) False

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Of the following choices, which one is a common fixed cost?


A) profit centre manager's salary
B) sales clerks' salaries
C) costs from a central payroll department to create paycheques for a cost centre's employees
D) depreciation on a responsibility centre's equipment

E) B) and D)
F) C) and D)

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More costs become controllable as one moves up to each higher level of managerial responsibility.

A) True
B) False

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Which one of the following is a reason that a company may have significant deviations from budgeted performance?


A) Actual results were compared to flexible budget amounts instead of static budget amounts.
B) The budget was approved by the budget committee.
C) Economic conditions may have changed since the plan was developed.
D) A company has substantial variable costs.

E) A) and C)
F) None of the above

Correct Answer

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For what purpose do companies calculate residual income?


A) to determine whether decentralization is possible or not
B) to motivate managers through possible termination
C) to evaluate management performance
D) to measure company profits

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

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In what situations will a static budget be most effective in evaluating a manager's effectiveness?


A) The company has substantial fixed costs.
B) The company has substantial variable costs.
C) The planned activity levels match actual activity levels.
D) The company has no fixed costs.

E) All of the above
F) A) and D)

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Dunellon Company's actual sales results exceeded the planned results for February.This amount exceeded the amount of an unfavourable difference reported for January sales.Which one of the following statements about the sales budget report for the two months ending February 28 is true?


A) The sales report is not useful since it shows a favourable and unfavourable difference for the two months.
B) The differences for the two months will offset each other so the differences should not be a concern.
C) The difference for February can be ignored since it is favourable.
D) The differences for both months should be investigated if the amounts are material.

E) B) and D)
F) A) and B)

Correct Answer

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Which type of centre is the housekeeping department of a manufacturing company?


A) a segment
B) a profit centre
C) a cost centre
D) an investment centre

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

Correct Answer

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Merck Pharmaceuticals is evaluating its Vioxx division, an investment centre.The division has a $45,000 controllable margin and $300,000 of sales.How much will Merck's average operating assets be when its return on investment is 10%?


A) $450,000
B) $495,000
C) $300,000
D) $255,000

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

Correct Answer

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Behavioural principles are often included in performance evaluation.What does this mean?


A) The human factor should be considered when evaluating performance.
B) Top management should evaluate lower managers.
C) The evaluation process must allow managers to respond to their evaluation.
D) Evaluation should identify only poor performance.

E) B) and D)
F) None of the above

Correct Answer

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How does a graph of a flexible budget compare to a CVP graph?


A) Fixed costs appear differently.
B) Variable costs appear differently.
C) Sales revenues are not shown on a flexible budget graph.
D) The two are graphed identically.

E) A) and B)
F) A) and C)

Correct Answer

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Return on investment is the primary basis for evaluating profit and investment centre managers.

A) True
B) False

Correct Answer

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Which one of the following decreases the controllability of a particular cost?


A) moving up to higher levels of managerial responsibility
B) an increase in the responsibility for costs incurred
C) a greater number of costs in a manager's division
D) moving down to lower levels of management

E) A) and C)
F) A) and B)

Correct Answer

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Management by exception means that management will investigate all areas where actual results are greater than planned results.

A) True
B) False

Correct Answer

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