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Student: _______________________________________________________________________________________

1. Performance evaluation in most firms is applied at: A. B. C. D. E. Many different levels from top management down to individual production and sales employees. All levels of production, but only top levels of sales. Top and mid-management levels only. Lower and mid-management levels only. The mid-management level only.

2. Risk aversion is by: A. B. C. D. Lack of a strategic emphasis in decision making. Use of non-strategic performance measurement systems. Presence of uncertainty in a manager's environment. A manager's inability to deal with stress.

3. The process by which managers at all levels in the firm gain information about the performance of tasks within the firm and judge that performance against pre-established criteria is: A. B. C. D. E. Performance measurement. Employee inspection. Goal congruence. Managerial evaluation. Management control.

4. Operational control has a management-by-exception approach in contrast to management control, which is more consistent with: A. B. C. D. E. The management-by-incentives approach. The management-by-objectives approach. The "hands off" approach. A non-quantitative set of measures. A non-qualitative set of measures.

5. A strategic business unit (SBU) consists of a well-defined set of controllable operating activities over/about which the SBU manager is: A. B. C. D. Knowledgeable. Responsible for strategy. Responsible for strategy and execution. Responsible for strategy, execution, and performance.

6. The objectives of management control of the manager include: A. B. C. D. E. Cost, quality, and functionality. Management by objectives. Management by exception. Motivation, incentive and fairness. Identification, response and performance.

7. The principal-agent economic model applied to employment contracts deals primarily with the two management performance aspects of: A. B. C. D. E. Rights and duties. Uncertainty and lack of observability. Performance and reward. Controllability and responsibility. Risk and motivation.

8. The "risk-averse" manager will be improperly biased to: A. B. C. D. E. Seek out decisions with uncertain outcomes. Make risky decisions. Avoid decisions with uncertain outcomes. Maximize his or her own risk and minimize the company's risk. Use resources beyond his/her control.

9. In properly developing formal systems at the team level that will have the desired impact on employees' performance, the management accountant should recognize any existing informal systems and: A. B. C. D. E. Make plans to eliminate these informal systems. Simply formalize them into the system being developed. Try to eliminate them prior to system development. Not let these "culture" aspects affect system development. Try to capture valued "culture" aspects in the formal system.

10. The common factor among control systems in hiring practices, promotion policies, and strategic performance measurement is: A. Management sets expectations for desired employee performance. B. Employee-determined expectations for desired employee performance.

C. Coordination of activities. D. Communication of results. 11. Among the benefits of centralized management in a firm is (are): A. B. C. D. Effective goal congruence. Utilization of top management expertise. Effective participation by all levels of management. A higher level of motivation for divisional managers.

12. The benefits of decentralized management in a firm include all the following except: A. B. C. D. Ability of SBU managers to use their local knowledge effectively. Ability of SBU managers to make more timely decisions. Motivation provided by the freedom and responsibility of a decentralized environment. Improved coordination among divisional managers.

13. The need for coordination between the production and the selling function will impact the choice of: A. B. C. D. E. Profit, cost or revenue center. Manager for the firm. Formal or informal control systems. Profitability goal for the firm. Control measures to prevent fraud.

14. By not distinguishing between direct and indirect costs in their performance reporting, many companies: A. B. C. D. E. Generate more useful control potential for managers. Can cause poor decision-making. Focus on long-term results. Focus on short-term results. Clearly distinguish between controllable and non-controllable costs.

15. As a strategic issue, "budget slack" could represent a: A. B. C. D. E. Very minor issue in most firms. Self-correcting problem over several operating periods. Problem only in a decentralized management environment. Lower overall level of expected performance than is achievable. Significant increase in the relative risk aversion of managers.

16. "Outsourcing" a cost center is often done to: A. B. C. D. Reduce cost and obtain strategic focus. Increase control over a strategic resource. Reduce the firm's contractual relationships. Shift costs within remaining cost centers.

17. Cost allocation of service department costs to production departments make the evaluation and control processes in the production departments: A. B. C. D. E. Simpler. More complex. Forthright and fair. Less efficient. Counter productive.

18. From a strategic standpoint, profit centers tend to: A. B. C. D. E. Free the center manager from concerns about markets. Place more cost emphasis on rush orders. Provide incentive for coordination among managers of different units. Focus managers on cost control rather than revenue generation. All of the above answers are correct.

19. The contribution by profit center (CPU) expands the contribution margin income statement by distinguishing: A. B. C. D. E. Variable and fixed costs. Short-term and long-term fixed costs. Controllable and non-controllable fixed costs. Noncontrollable and untraceable fixed costs. Net income and contribution margin.

20. The main concept of the balanced scorecard is that, to evaluate the SBU's progress to strategic success, a business must use all of the following except: A. B. C. D. Both financial and non-financial measures. Value chain analysis. Attend to customer satisfaction needs. Multiple measures for a comprehensive evaluation.

21. In a non-profit organization, you are more likely to see:

A. B. C. D.

Cost centers. Revenue centers. Profit centers. Investment centers.

22. The evaluation by upper-level managers of the performance of mid-level managers is: A. B. C. D. E. Performance evaluation. Operational control. Goal congruence. Principal-agent model. Management control.

23. The evaluation of operating level employees by mid-level managers is: A. B. C. D. E. Performance evaluation. Operational control. Goal congruence. Principal-agent model. Management control.

24. The manager acting independently in such a way as to simultaneously achieve top management's objectives is: A. B. C. D. E. Performance evaluation. Operational control. Goal congruence. Principal-agent model. Management control.

25. A model that has been used to better understand the key elements that contracts must have in order to achieve the desired objectives is the: A. B. C. D. E. Performance evaluation. Operational control. Goal congruence. Principal-agent model. Management control.

26. Order-filling costs: A. B. C. D. Include samples. Cannot often be effectively managed as an engineered-cost center. Usually have a relatively clear relationship to sales volume. Include commissions.

27. Controllable margin is determined by subtracting short-term controllable fixed costs from the: A. B. C. D. E. Long-term controllable fixed cost. Contribution margin. Variable costs. Fixed costs. Variable costs and fixed costs.

28. An employment contract is an agreement between the manager and top management designed to provide incentives for the manager to act: A. B. C. D. Independently to achieve top management's objectives. Consistently with that of other managers. Independently to achieve the manager's objectives. Independently to achieve the customer's objectives.

29. The least common type of SBU in a retail firm is the: A. B. C. D. Profit center. Cost center. Revenue center. Investment center.

30. Which one of the following is a drawback of decentralization? A. B. C. D. E. Uses local knowledge only. May hinder coordination among independent SBUs. Provides better management control. Provides goal congruence. Offers an efficient method of performance evaluation.

31. Production or support SBUs within the firm that have the goal of providing the best quality product or service at the lowest cost are: A. B. C. D. Revenue centers. Contribution centers. Profit centers. Cost centers.

E. Investment centers. 32. SBUs that generate revenues and incur the major portion of the cost for producing those revenues are: A. B. C. D. E. Revenue centers. Contribution centers. Profit centers. Cost centers. Investment centers.

33. SBUs that include the assets they employ as well as profits in the performance evaluation are: A. B. C. D. E. Revenue centers. Contribution centers. Profit centers. Cost centers. Investment centers.

34. The replacing of controllable costs with non-controllable costs by a department is: A. B. C. D. E. Budget slack. Cost shifting. Outsourcing. Discretionary-cost method. Engineered-cost approach.

35. For production and support departments, a method of implementing cost centers that is input-oriented is the: A. B. C. D. E. Budget slack. Cost shifting approach. Outsourcing approach. Discretionary-cost method. Engineered-cost approach.

36. For production and support departments, a method of implementing cost centers that is output-oriented is the: A. B. C. D. E. Budget slack method. Cost shifting approach. Outsourcing approach. Discretionary-cost method. Engineered-cost approach.

37. Expenditures of revenue centers usually include: A. B. C. D. E. Order-purchasing costs. Order-getting costs. Order-producing costs. Order-scheduling costs. Order-delivering costs.

38. The balanced scorecard measures the SBU's performance in all of the following areas except: A. B. C. D. E. Learning and growth. Managerial performance. Customer satisfaction. Internal business processes. Accounting and tax compliance.

39. Bilbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bilbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $40,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of joint cost that should have been allocated to the Pork Palace in April is calculated to be: A. B. C. D. E. $8,000. $10,800. $13,200. $18,800. $21,200.

40. Bilbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bilbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $40,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of the joint cost that should have been allocated to the Chicken Hut in April is calculated to be: A. $8,000. B. $10,800. C. $13,200.

D. $18,800. E. $21,200. 41. Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:

Using revenue as an allocation base, the amount of costs allocated to the Kentucky research facility is calculated to be: A. B. C. D. E. $24,000,000. $18,000,000. $9,000,000. $14,000,000. $26,000,000.

42. Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:

Using revenue as an allocation base, the amount of costs allocated to the Arizona research facility is calculated to be: A. B. C. D. E. $25,000,000. $31,000,000. $44,000,000. $19,000,000. $36,000,000.

43. Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:

Using revenue as an allocation base, the amount of costs allocated to the Illinois research facility is calculated to be: A. B. C. D. E. $17,000,000. $33,000,000. $14,000,000. $28,000,000. $21,000,000.

44. Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:

Using revenue as an allocation base, the amount of costs allocated to the Lower School is calculated to be: A. B. C. D. E. $240,000. $320,000. $400,000. $480,000. $600,000.

45. Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:

Using revenue as an allocation base, the amount of costs allocated to the Middle School is calculated to be: A. B. C. D. E. 46. $240,000. $320,000. $400,000. $480,000. $600,000. Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:

Using revenue as an allocation base, the amount of costs allocated to the Upper School is calculated to be: A. B. C. D. E. $240,000. $360,000. $400,000. $480,000. $600,000.

47. Pane Inc. manufactures hair brushes that sell at wholesale for $2.60 per unit. Budgeted production in both 2009 and 2010 was 3,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Full costing operating income for 2009 is calculated to be: A. B. C. D. E. $935. $1,150. $1,200. $1,352. $1,395.

48. Pane Inc. manufactures hair brushes that sell at wholesale for $2.60 per unit. Budgeted production in both 2009 and 2010 was 3,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Full costing operating income for 2010 is calculated to be: A. B. C. D. E. $935. $1,150. $1,200. $1,352. $1,395.

49. Pane Inc. manufactures hair brushes that sell at wholesale for $2.60 per unit. Budgeted production in both 2009 and 2010 was 3,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Variable costing operating income for 2009 is calculated to be: A. B. C. D. E. 50. $935. $1,150. $1,200. $1,352. $1,395. Pane Inc. manufactures hair brushes that sell at wholesale for $2.60 per unit. Budgeted production in both 2009 and 2010 was 3,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Variable costing operating income for 2010 is calculated to be: A. B. C. D. E. $935. $1,150. $1,200. $1,352. $1,395.

51. WriterOne Inc. manufactures ball point pens that sell at wholesale for $0.80 per unit. Budgeted production in both 2009 and 2010 was 8,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Full costing operating income for 2009 is calculated to be: A. B. C. D. E. $149. $430. $655. $1,030. $1,180.

52. WriterOne Inc. manufactures ball point pens that sell at wholesale for $0.80 per unit. Budgeted production in both 2009 and 2010 was 8,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Full costing operating income for 2010 is calculated to be: A. B. C. D. E. $149. $430. $655. $1,030. $1,180.

53. WriterOne Inc. manufactures ball point pens that sell at wholesale for $0.80 per unit. Budgeted production in both 2009 and 2010 was 8,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Variable costing operating income for 2009 is calculated to be: A. B. C. D. E. $149. $430. $655. $1,030. $1,180.

54. WriterOne Inc. manufactures ball point pens that sell at wholesale for $0.80 per unit. Budgeted production in both 2009 and 2010 was 8,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Variable costing operating income for 2010 is calculated to be: A. $149.

B. C. D. E.

$430. $655. $1,030. $1,180.

55. The value stream income statement can be compared to: A. B. C. D. Value chain analysis. The contribution income statement. A streamlined production process. A streamlined accounting system.

56. The six steps Ittner and Larcker propose for maximizing the value of nonfinancial measures when using a balanced scorecard include all the following except: A. B. C. D. E. Continually refine the model. Assess outcomes. Gather data. Base actions on the data. Base actions on the findings.

57. The balanced scorecard is particularly important in difficult economic times because: A. B. C. D. Financial measures are even more important. Nonfinancial measures are even more important. Financial measures may be distorted. Nonfinancial measures may be distorted.

58. The value stream income statement provides the following information not usually contained in the contribution income statement: A. B. C. D. Contribution by CPC. Contribution by profit center. A separate accounting for the effect of inventory change on profit. A separate accounting for the effect of productivity change on profit.

59. Tokless Inc. planned and manufactured 400,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2010. Tokless Inc. sold 195,000 units of product in 2010 at $65 per unit. Sales for 2010 are calculated to be: A. B. C. D. E. $9,750,000. $12,675,000. $13,000,000. $13,900,000. $20,000,000.

60. Tokless Inc. planned and manufactured 400,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2010. Tokless Inc. sold 195,000 units of product in 2010 at $65 per unit. Full costing operating income for 2010 is calculated to be: A. B. C. D. E. $1,525,000. $1,850,000. $1,935,000. $2,260,000. $2,750,000.

61. Tokless Inc. planned and manufactured 400,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2010. Tokless Inc. sold 195,000 units of product in 2010 at $65 per unit. Variable costing operating income for 2010 is calculated to be: A. B. C. D. E. $1,525,000. $1,850,000. $1,935,000. $2,260,000. $2,750,000.

62. Profit center income statements are most meaningful to managers when they are prepared: A. B. C. D. E. On a full cost basis. On a cost behavior basis. On a cash basis. In a single-step format. In a multiple-step format.

63. A unit of an organization is referred to as a profit center if it has: A. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply. B. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital. C. Authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply. D. Authority to provide specialized support to other units within the organization. E. Responsibility for combining material, labor, and other factors of production into a final output.

64. A unit of an organization is referred to as an investment center if it has: A. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply. B. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital. C. Authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply. D. Authority to provide specialized support to other units within the organization. E. Responsibility for developing markets for and selling the output of the organization. 65. Of most relevance in deciding how or which costs should be assigned to an SBU is the degree of: A. B. C. D. Avoidability. Causality. Controllability. Reliability.

66. A significant problem in comparing profitability measures among companies is the: A. B. C. D. E. Lack of general agreement over which profitability measure is best. Differences in the size of the companies. Differences in the accounting methods used by the companies. Differences in the dividend policies of the companies. Effect of interest rates on net income.

67. The most important objective of a strategic performance measurement system is: A. B. C. D. E. Budgeting. Motivation. Authority. Variances. Pricing.

68. What costs are treated as product costs under variable costing? A. B. C. D. Only variable costs. Only variable production costs. All variable costs. All variable and fixed manufacturing costs.

69. Inventory under the variable costing method includes: A. B. C. D. Direct materials cost, direct labor cost, but no factory overhead cost. Direct materials cost, direct labor cost, and variable factory overhead cost. Prime cost but not conversion cost. Prime cost and all conversion cost.

70. In an income statement prepared using the variable costing method, which of the following terms should appear?

A. B. C. D.

A B C D

71. Other things being equal, income computed by the variable costing method will exceed that computed by the full costing method if: A. B. C. D. Units produced exceed units sold. Units sold exceed units produced. Fixed manufacturing costs increase. Variable manufacturing costs increase.

72. Home Products Inc has failed to reach its planned activity level during its first two years of operation. The following table shows the relationship between units produced, sales, and normal activity for these years and the projected relationship for Year 3. All prices and costs have remained the same for the last two years and are expected to do so in Year 3. Income has been positive in both Year 1 and Year 2.

Because Home Products uses a full costing system, one would predict operating income for Year 3 to be: A. Greater than operating income under variable costing. B. Less than year 2.

C. The same as operating income under variable costing. D. Less than the operating income under variable costing. 73. A company's operating income was $70,000 using variable costing for a given period. Beginning and ending inventories for that period were 45,000 units and 50,000 units, respectively. Ignoring income taxes, if the fixed overhead application rate was $8.00 per unit, what would operating income have been using full costing? A. B. C. D. E. $30,000. $140,000. $110,000. $100,000. Cannot be determined from the information given.

74. A company had income of $50,000 using variable costing for a given period. Beginning and ending inventories for that period were 80,000 units and 90,000 units, respectively. If the fixed overhead application rate were $10.00 per unit, what would operating income have been using full costing? A. B. C. D. E. $(50,000). $170,000. $150,000. $0. Cannot be determined from the information given.

75. The balanced scorecard is widely used in performance evaluation and management control. In which regions around the world is it most and least, respectively, commonly used? A. B. C. D. Europe, Asia U.S and Canada, Africa U.S. and Canada, South and Central America South and Central America, Europe

76. Operating income reported under full costing will exceed operating income reported under variable costing for a given period if: A. B. C. D. Production equals sales for that period. Production exceeds sales for that period. Sales exceed production for that period. The variable overhead exceeds the fixed overhead.

77. A company's operating income recently increased by 30% while its inventory increased in a given year. Which of the following accounting methods would be most likely to produce the favorable income results? A. B. C. D. Full costing. Direct costing. Variable costing. Standard direct costing.

78. During January, Lang, Inc. produced 10,000 units of product with costs as follows:

What is Lang's unit cost for January, calculated on the variable costing basis? A. B. C. D. E. $6.20. $7.20. $7.50. $8.50. $9.50.

79. In the principal-agent model, the manager is modeled as having all of the following elements except: A. B. C. D. Risk aversion Outcomes of actions Provides effort Decision Making

80. During October, Rover Industries produced 35,000 units of product with costs as follows:

What is Rover's unit cost for October, calculated on the variable costing basis? A. $3.25. B. $3.75. C. $4.00.

D. $4.50. E. $5.00. 81. Under variable costing, fixed manufacturing overhead costs would be classified as: A. B. C. D. Period costs. Product costs. Selling costs. Inventory costs.

82. Under full costing, fixed manufacturing overhead costs would be classified as: A. B. C. D. Period costs. Product costs. Selling costs. Inventory costs.

83. Under the principal-agent model of contract relationships, situations such as machine breakdowns or a decrease in market demand would be classified under: A. B. C. D. Lack of observability. Lack of responsibility. Uncertainty. Decentralization.

84. In a formal management control system, top management sets expectations for desired manager performance. Which of the following is not one of the areas in which a formal individual management control system would be used? A. B. C. D. E. Hiring practices. Promotion policies. Operations. Sales. Organizational culture.

85. The type of strategic business unit (SBU) where the SBU focuses on the selling function of a specific product line or by a geographical location is referred to as a(n): A. B. C. D. E. Profit center. Cost center. Revenue center. Investment center. All of the above.

86. SBU is the acronym for: A. B. C. D. Small Business Unit. Sustainable Business Unit. Standard Business Unit. Strategic Business Unit.

87. Quick Technology Company is a supplier of high-end research equipment for the pharmaceutical industry. Quick currently has a variety of different firms producing computer chips for increased memory and improved processing speeds which are installed in Quick's equipment. In this case, having another firm provide supplies for Quick's equipment is an example of: A. B. C. D. E. Strategic positioning. Opportunity costing. Profitability maximization. Outsourcing. Value chain analysis.

88. Which of the following is not a criterion for choosing a cost allocation method? A. B. C. D. Provide an incentive for managers to make decisions consistent with top management's goals. Provide an opportunity for managers to make decisions consistent with the manager's goals. Provide a basis for a fair evaluation of manager's performance. Motivate managers to exert a high level of effort.

89. Which one of the following is not an order-filling cost? A. B. C. D. Freight. Warehousing. Inspection. Collections.

90. Controllable fixed costs: A. B. C. D. 91. Are those costs that the profit center manager can influence in approximately a year or less. Are those costs that the profit center manager can influence in approximately a year or more. Include variable costs. Have no effect on operating income. Using the balanced scorecard to describe the firm's strategy in detail through the use of a cause-and-effect diagram which is also known as

a(n): A. B. C. D. E. Status Diagram. Strategy Map. Performance Flowchart. Organizational Diagram. Operational Work-through.

92. The cost method that is input-oriented and considers costs largely uncontrollable at the planning stage is called the: A. B. C. D. E. Engineered-cost method. ABC costing. Discretionary-cost method. Job costing. Standard costing.

93. Costs such as depreciation, taxes and insurance and usually extending beyond one year are considered: A. B. C. D. E. Controllable fixed costs. Noncontrollable fixed costs. Noncontrollable variable costs. Controllable variable costs. Controllable margin costs.

94. Which of the following is not a revenue driver factor which affects sales volume for a manufacturing firm? A. B. C. D. E. Price changes. Customer service. Delivery dates. Discounts. Productivity.

95. Which of the following is an argument against the use of variable costing? A. B. C. D. Full costing overstates the balance sheet value of inventories. Variable factory overhead is a period cost. Fixed factory overhead is difficult to allocate properly. Fixed factory overhead is necessary for the production of a product.

96. Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $500,000. Marketing and administrative costs (all fixed) were $300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at $50 per unit. Sales for 2010 are calculated to be: A. B. C. D. E. $1,000,000. $5,000,000. $7,500,000. $10,000,000. $12,500,000.

97. Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $500,000. Marketing and administrative costs (all fixed) were $300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at $50 per unit. Full costing operating income for 2010 is calculated to be: A. B. C. D. E. $1,000,000. $3,200,000. $3,300,000. $4,200,000. $4,300,000.

98. Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $500,000. Marketing and administrative costs (all fixed) were $300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at $50 per unit. Variable costing operating income for 2010 is calculated to be: A. B. C. D. E. $1,000,000. $3,200,000. $3,300,000. $4,200,000. $4,300,000.

99. Strategic performance measurement is a(n): A. B. C. D. Accounting system used by top management for the evaluation of SBU managers. System of shared responsibility. Accounting system for determining strategy. System to design and implement the balanced scorecard.

100. Managers who are risk averse: A. Seek to accept options with low risk and would choose an option with lower expected value if it had more risk. B. Seek to avoid options with low risk and would choose an option with higher expected value if it had more risk.

C. Seek to avoid options with high risk and would choose an option with lower expected value if it had less risk. D. Seek to accept options with high risk and would choose an option with lower expected value if it had less risk. E. Seek to accept options with low risk and would choose an option with higher expected value if it had more risk. 101. Managers who are risk prone: A. B. C. D. Seek risky projects that promise some chance of a low benefit. Seek risky projects that promise some chance of a high benefit, although the projects may have a risk of low benefit. Seek risky projects. Seek high risk projects that promise some chance of a high benefit, although the projects may have a very significant risk of no benefit.

102. Risk plays a critical role in the decision making process. However, numerous studies have shown that most executives, managers and individuals are considered to be: A. B. C. D. Risk neutral. Risk prone. Risk averse. Risk seekers.

103. A value stream income statement is best associated with: A. B. C. D. Value chain analysis. Activity-based costing. The theory of constraints. Lean manufacturing.

104. A value stream is: A. B. C. D. A set of value-adding activities. A sequence of efficient processes. A group of related products. A strategy map with a focus on value-adding activities.

105. Reasons for failure to implement the balanced scorecard effectively include all but which of the following: A. B. C. D. E. Failure to link nonfinancial measures to strategy. Failure to validate the assumptions in the strategy map. Setting the wrong performance targets. Failure to include financial reporting requirements to the SEC. Measuring the results incorrectly.

106. The sales life cycle has three phases: early, growth, and maturity. The appropriate performance measures for the growth phase include A. B. C. D. Profitability, market penetration. Profitability, strategy. Revenue, strategy. Profitability, asset management.

107. SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

Determine the amount of cost to be allocated to the Harborview Resort using revenue as an allocation base. A. B. C. D. E. $1,050,000 $1,950,000 $1,500,000 $420,000 $1,680,000 SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the

108.

mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

What is the operating profit of the Crystal Coast Resort, using revenue as an allocation base? A. B. C. D. E. $2,450,000 $1,600,000 $1,500,000 $4,550,000 $3,550,000

109. SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

Using the information regarding the allocation of the $3 million to the four cost drivers, determine the amount of cost to be allocated to the Harborview Resort. A. B. C. D. E. $1,050,000 $1,950,000 $1,500,000 $715,000 $1,680,000 SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

110.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

Using the information regarding the allocation of the $3 million to the four cost drivers, determine the operating profit of the Crystal Coast Resort. A. B. C. D. E. $1,500,000 $2,050,000 $2,785,000 $3,525,000 $4,215,000

111. SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

The Crystal Coast resort is likely to be favored in terms of a lower cost allocation under: A. B. C. D. Revenue-based allocation. Cost-driver based allocation. Cannot be determined from the information. Would be the same for both allocation methods.

112. Tough-Built Corporation produces specialized truck body components, specializing in hydraulic lifts for dump trucks. Founded 35 years ago by George Halloway, the firm now employs 150 workers and has annual sales of over $10 million. George operates the firm in a highly centralized way, and retains control over all changes in operations. He is a regular visitor to the production area, which helps him "keep his finger on the pulse of the firm." Although George Halloway is now 67 years old, he has no apparent management successor, and has always hand-picked his department heads and staff personnel. He has been generous to those who worked for him, paying substantial bonuses each year to the employees based on his personal evaluation of each worker. Just six weeks ago, a heart attack convinced George to consider retirement, and he decided to sell the firm to his employees. You are assigned the task of recommending a set of strategic performance measures for the firm, assuming that the new worker management wants to operate as a decentralized firm. Required: What major management problems do you foresee in the transition from sole owner to employee ownership?

113. Harrison Hartwell and Zenith is a successful law firm employing 26 professionals. There is an internal controversy over allocation of the $104,000 purchase cost of a highly sophisticated electronic law library. Each professional employee of the firm has been assessed $4,000 as a charge against the profit distribution account of each of the 26 members affected. In addition, it is expected to cost about $2,600 per month to update information for the library system, resulting in a monthly $100 assessment against each professional in the firm. Required: (a) As a new junior member of the professional legal group of 26, why might you not like the proposed electronic library cost allocation? (b) Propose an alternate allocation method for both the initial purchase cost and the updating charge that is more equitable (fair).(c) Could one argue for no allocation at all in this case? On what basis?

114.

McShane Inc. manufactures hair brushes that sell at wholesale for $6.00 per unit. Budgeted production in both 2009 and 2010 was 2,000 units and fixed overhead budgeted was $25,000 in each year. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Required: Determine income under both full costing and variable costing and explain the difference.

115. The Daniels Tool & Die Corporation has been in existence for a little over three years; its sales have been increasing each year as it has built a reputation. The company manufactures dies to its customers' specifications; as a consequence, a job order cost system is employed. Factory overhead is applied to the jobs based on direct labor hours. Actual variable overhead is the same as applied variable overhead. Overapplied or underapplied overhead is treated as an adjustment to cost of goods sold. The company's income statements for the last two years are presented below. Daniels used the same predetermined overhead rate in applying overhead to production orders in both 2010 and 2011. The rate was based on the following estimates:

In 2009 and 2010, actual direct labor hours expended were 20,000 and 23,000, respectively. Raw materials put into production were $292,000 in 2009 and $370,000 in 2010. Actual fixed overhead was $37,400 for 2010 and $42,300 for 2009, and the planned direct labor rate was the direct labor rate achieved. For both years, all of the reported administrative costs were fixed, while the variable portion of the reported selling expenses result from a commission of five percent of sales revenue. Required: (1) For the year December 31, 2010, prepare a revised income statement for Daniels Tool & Die Corporation utilizing the variable costing method. Be sure to include the contribution margin on your statement. (2) Prepare a numerical reconciliation of the difference in operating income between Daniels Tool & Die Corporation's costing and the revised 2010 income statement prepared on the basis of variable costing. (3) Describe both the advantages and disadvantages of using variable costing.

116. Red Apple Industries manufactures institutional-use furniture. Dept. A is responsible for welding the base of the desk to the chair assembly. The desks are then placed on an automatic conveyer to Dept. B, where the desktop is riveted to the chair. The desks continue on the conveyer to Dept. C for further assembly. Wanda, the manager of Dept. A, is responsible for moving 800 welded desks per hour to Dept. B. A faulty circuit in Dept. B causes a delay in processing in the department and prompts Rosie, the Dept. B manager, to ask Wanda to stop the conveyer. Wanda refuses, necessitating the removal of the welded desks from the conveyer until the riveting can resume. Rosie bills Wanda's department for the costs of this extra work. Wanda disputes the charge, citing her responsibility to convey 800 desks/hour to Dept. B. Required: How should the managers' dispute be resolved? How could it have been avoided?

117. Betty Jones and Penny White are associates at the same law firm in Atlanta. They traveled to New York City together recently to visit

their respective clients. From the airport, they shared a cab ride to their hotel. The cab ride for Betty alone would have cost $18.00, but for two passengers the cost was $22.00. Had Betty not offered to share the cab ride, Penny (in deference to her client's frugality) would have taken the bus to Grand Central Station, which is six blocks from the hotel, at a cost of $10.00. Required: How should the $22.00 cost of the cab ride be allocated to the two clients?

118. Divisional managers of SIU Incorporated have been expressing growing dissatisfaction with the current methods used to measure divisional performance. Divisional operations are evaluated every quarter by comparison with the static budget prepared during the prior year. Divisional managers claim that many factors are completely out of their control but are included in this comparison. This results in an unfair and misleading performance evaluation. The managers have been particularly critical of the process used to establish standards and budgets. The annual budget, stated by quarters, is prepared six months prior to the beginning of the operating year. Pressure by top management to reflect increased earnings has often caused divisional managers to overstate revenues and/or understate expenses. In addition, once the budget had been established, divisions were required to "live with the budget." Frequently, external factors such as the state of the economy, changes in consumer preferences, and actions of competitors have not been adequately recognized in the budget parameters that top management supplied to the divisions. The credibility of the performance review is curtailed when the budget can not be adjusted to incorporate these changes. Top management, recognizing the current problems, has agreed to establish a committee to review the situation and to make recommendations for a new performance evaluation system. The committee consists of each division manager, the Corporate Controller, and the Executive Vice President who serves as the chairman. At the first meeting one division manager outlined an Achievement of Objectives System (AOS). In this performance evaluation system, divisional managers would be evaluated according to three criteria: Doing better than last year - Various measures would be compared to the same measures of the prior year. Planning realistically - Actual performance for the current year would be compared to realistic plans and/or goals. Managing current assets - Various measures would be used to evaluate the divisional management's achievements and reactions to changing business and economic conditions. A division manager believed this system would overcome many of the inconsistencies of the current system because divisions could be evaluated from three different viewpoints. In addition, managers would have the opportunity to show how they would react and account for changes in uncontrollable external factorA second division manager was also in favor of the proposed AOS. However, he cautioned that the success of a new performance evaluation system would be limited unless it had the complete support of top management. Further, this support should be visible within all divisions. He believed that the committee should recommend some procedures which would enhance the motivational and competitive spirit of the divisions. Required: (1) Explain whether or not the proposed AOS would be an improvement over the measure of divisional performance now used by SIU Incorporated. (2) Develop specific performance measures for each of the three criteria in the proposed AOS which could be used to evaluate divisional managers. (3) Discuss the motivational and behavioral aspects of the proposed performance system. Also, recommend specific programs which could be instituted to promote morale and give incentives to divisional management.

119. Chadd Fisher was recently appointed vice president of operations for Cary Corporation. He has a manufacturing background and previously served as operations manager of Cary's building products division. The business units of Cary Corporation include divisions that manufacture building products, process food, and provide financial services. In a recent conversation with Drew Williams, Cary's chief financial officer, Chadd suggested evaluating unit managers on the basis of the business unit data in Cary's annual financial report. This report presents revenues, earnings, identifiable assets, and depreciation for each business unit for a five-year period. He believes that evaluating business unit managers by criteria similar to that used to evaluate the company's top management is appropriate. Drew has reservations about using information from the annual financial report for this purpose and suggested that Chadd consider other criteria to use in the evaluation. Required: 1. Explain why the business unit information prepared for public reporting purposes might not be appropriate for the evaluation of unit managers' performance. 2. Describe the possible motivational impact on Cary Corporation's unit managers if Chadd's proposal for their evaluation is accepted. 3. Identify and describe several types of financial information that would be more appropriate for Chadd Fisher to use when evaluating the performance of unit managers.

120. Tyler Company had the following manufacturing information for the current year.

Required: Determine operating income under both full costing and variable costing and explain the difference.

121. Greg Peterson was recently appointed vice president of operations for Webster Corporation. He has a manufacturing background and previously served as operations manager of Webster's tractor division. The business units of Webster Corporation include divisions that manufacture heavy equipment, process food, and provide financial services. In a recent conversation with Carol Andrews, Webster's chief financial officer, Greg suggested evaluating unit managers on the basis of the business unit data in Webster's annual financial report. This report presents revenues, earnings, identifiable assets, and depreciation for each business unit for a five-year period. He believes that evaluating business unit managers by criteria similar to that used to evaluate the company's top management is appropriate. Carol has reservations about using information from the annual financial report for this purpose and suggested that Greg consider other criteria to use in the evaluation. Required: 1. Explain why the business unit information prepared for public reporting purposes might not be appropriate for the evaluation of unit managers' performance. 2. Describe the possible motivational impact on Webster Corporation's unit managers if Greg's proposal for their evaluation is accepted. 3. Identify and describe several types of information that would be appropriate for Greg Peterson to use when evaluating the performance of unit managers. (CMA Adapted)

18 KEY
1. Performance evaluation in most firms is applied at: A. B. C. D. E. Many different levels from top management down to individual production and sales employees. All levels of production, but only top levels of sales. Top and mid-management levels only. Lower and mid-management levels only. The mid-management level only.
Blocher - Chapter 18 #1 Difficulty: Easy Learning Objective: 18-1

2. Risk aversion is by: A. B. C. D. Lack of a strategic emphasis in decision making. Use of non-strategic performance measurement systems. Presence of uncertainty in a manager's environment. A manager's inability to deal with stress.
Blocher - Chapter 18 #2 Difficulty: Medium Learning Objective: 18-1

3. The process by which managers at all levels in the firm gain information about the performance of tasks within the firm and judge that performance against pre-established criteria is: A. B. C. D. E. Performance measurement. Employee inspection. Goal congruence. Managerial evaluation. Management control.
Blocher - Chapter 18 #3 Difficulty: Easy Learning Objective: 18-1

4. Operational control has a management-by-exception approach in contrast to management control, which is more consistent with: A. B. C. D. E. The management-by-incentives approach. The management-by-objectives approach. The "hands off" approach. A non-quantitative set of measures. A non-qualitative set of measures.
Blocher - Chapter 18 #4 Difficulty: Medium Learning Objective: 18-1

5. A strategic business unit (SBU) consists of a well-defined set of controllable operating activities over/about which the SBU manager is: A. B. C. D. Knowledgeable. Responsible for strategy. Responsible for strategy and execution. Responsible for strategy, execution, and performance.
Blocher - Chapter 18 #5 Difficulty: Hard Learning Objective: 18-1

6. The objectives of management control of the manager include: A. B. C. D. E. Cost, quality, and functionality. Management by objectives. Management by exception. Motivation, incentive and fairness. Identification, response and performance.
Blocher - Chapter 18 #6 Difficulty: Medium Learning Objective: 18-1

7. The principal-agent economic model applied to employment contracts deals primarily with the two management performance aspects of: A. B. C. D. E. Rights and duties. Uncertainty and lack of observability. Performance and reward. Controllability and responsibility. Risk and motivation.
Blocher - Chapter 18 #7 Difficulty: Easy Learning Objective: 18-1

8. The "risk-averse" manager will be improperly biased to: A. B. C. D. Seek out decisions with uncertain outcomes. Make risky decisions. Avoid decisions with uncertain outcomes. Maximize his or her own risk and minimize the company's risk.

E. Use resources beyond his/her control.


Blocher - Chapter 18 #8 Difficulty: Easy Learning Objective: 18-1

9. In properly developing formal systems at the team level that will have the desired impact on employees' performance, the management accountant should recognize any existing informal systems and: A. B. C. D. E. Make plans to eliminate these informal systems. Simply formalize them into the system being developed. Try to eliminate them prior to system development. Not let these "culture" aspects affect system development. Try to capture valued "culture" aspects in the formal system.
Blocher - Chapter 18 #9 Difficulty: Hard Learning Objective: 18-2

10. The common factor among control systems in hiring practices, promotion policies, and strategic performance measurement is: A. B. C. D. Management sets expectations for desired employee performance. Employee-determined expectations for desired employee performance. Coordination of activities. Communication of results.
Blocher - Chapter 18 #10 Difficulty: Medium Learning Objective: 18-2

11. Among the benefits of centralized management in a firm is (are): A. B. C. D. Effective goal congruence. Utilization of top management expertise. Effective participation by all levels of management. A higher level of motivation for divisional managers.
Blocher - Chapter 18 #11 Difficulty: Medium Learning Objective: 18-3

12. The benefits of decentralized management in a firm include all the following except: A. B. C. D. Ability of SBU managers to use their local knowledge effectively. Ability of SBU managers to make more timely decisions. Motivation provided by the freedom and responsibility of a decentralized environment. Improved coordination among divisional managers.
Blocher - Chapter 18 #12 Difficulty: Medium Learning Objective: 18-3

13. The need for coordination between the production and the selling function will impact the choice of: A. B. C. D. E. Profit, cost or revenue center. Manager for the firm. Formal or informal control systems. Profitability goal for the firm. Control measures to prevent fraud.
Blocher - Chapter 18 #13 Difficulty: Medium Learning Objective: 18-3

14. By not distinguishing between direct and indirect costs in their performance reporting, many companies: A. B. C. D. E. Generate more useful control potential for managers. Can cause poor decision-making. Focus on long-term results. Focus on short-term results. Clearly distinguish between controllable and non-controllable costs.
Blocher - Chapter 18 #14 Difficulty: Hard Learning Objective: 18-4

15. As a strategic issue, "budget slack" could represent a: A. B. C. D. E. Very minor issue in most firms. Self-correcting problem over several operating periods. Problem only in a decentralized management environment. Lower overall level of expected performance than is achievable. Significant increase in the relative risk aversion of managers.
Blocher - Chapter 18 #15 Difficulty: Easy Learning Objective: 18-4

16. "Outsourcing" a cost center is often done to: A. Reduce cost and obtain strategic focus. B. Increase control over a strategic resource. C. Reduce the firm's contractual relationships.

D. Shift costs within remaining cost centers.


Blocher - Chapter 18 #16 Difficulty: Easy Learning Objective: 18-4

17. Cost allocation of service department costs to production departments make the evaluation and control processes in the production departments: A. B. C. D. E. Simpler. More complex. Forthright and fair. Less efficient. Counter productive.
Blocher - Chapter 18 #17 Difficulty: Hard Learning Objective: 18-4

18. From a strategic standpoint, profit centers tend to: A. B. C. D. E. Free the center manager from concerns about markets. Place more cost emphasis on rush orders. Provide incentive for coordination among managers of different units. Focus managers on cost control rather than revenue generation. All of the above answers are correct.
Blocher - Chapter 18 #18 Difficulty: Easy Learning Objective: 18-4

19. The contribution by profit center (CPU) expands the contribution margin income statement by distinguishing: A. B. C. D. E. Variable and fixed costs. Short-term and long-term fixed costs. Controllable and non-controllable fixed costs. Noncontrollable and untraceable fixed costs. Net income and contribution margin.
Blocher - Chapter 18 #19 Difficulty: Hard Learning Objective: 18-4

20. The main concept of the balanced scorecard is that, to evaluate the SBU's progress to strategic success, a business must use all of the following except: A. B. C. D. Both financial and non-financial measures. Value chain analysis. Attend to customer satisfaction needs. Multiple measures for a comprehensive evaluation.
Blocher - Chapter 18 #20 Difficulty: Easy Learning Objective: 18-5

21. In a non-profit organization, you are more likely to see: A. B. C. D. Cost centers. Revenue centers. Profit centers. Investment centers.
Blocher - Chapter 18 #21 Difficulty: Medium Learning Objective: 18-6

22. The evaluation by upper-level managers of the performance of mid-level managers is: A. B. C. D. E. Performance evaluation. Operational control. Goal congruence. Principal-agent model. Management control.
Blocher - Chapter 18 #22 Difficulty: Easy Learning Objective: 18-1

23. The evaluation of operating level employees by mid-level managers is: A. B. C. D. E. Performance evaluation. Operational control. Goal congruence. Principal-agent model. Management control.
Blocher - Chapter 18 #23 Difficulty: Easy Learning Objective: 18-1

24. The manager acting independently in such a way as to simultaneously achieve top management's objectives is: A. Performance evaluation.

B. C. D. E.

Operational control. Goal congruence. Principal-agent model. Management control.


Blocher - Chapter 18 #24 Difficulty: Easy Learning Objective: 18-1

25. A model that has been used to better understand the key elements that contracts must have in order to achieve the desired objectives is the: A. B. C. D. E. Performance evaluation. Operational control. Goal congruence. Principal-agent model. Management control.
Blocher - Chapter 18 #25 Difficulty: Easy Learning Objective: 18-1

26. Order-filling costs: A. B. C. D. Include samples. Cannot often be effectively managed as an engineered-cost center. Usually have a relatively clear relationship to sales volume. Include commissions.
Blocher - Chapter 18 #26 Difficulty: Medium Learning Objective: 18-4

27. Controllable margin is determined by subtracting short-term controllable fixed costs from the: A. B. C. D. E. Long-term controllable fixed cost. Contribution margin. Variable costs. Fixed costs. Variable costs and fixed costs.
Blocher - Chapter 18 #27 Difficulty: Easy Learning Objective: 18-4

28. An employment contract is an agreement between the manager and top management designed to provide incentives for the manager to act: A. B. C. D. Independently to achieve top management's objectives. Consistently with that of other managers. Independently to achieve the manager's objectives. Independently to achieve the customer's objectives.
Blocher - Chapter 18 #28 Difficulty: Easy Learning Objective: 18-1

29. The least common type of SBU in a retail firm is the: A. B. C. D. Profit center. Cost center. Revenue center. Investment center.
Blocher - Chapter 18 #29 Difficulty: Medium Learning Objective: 18-2

30. Which one of the following is a drawback of decentralization? A. B. C. D. E. Uses local knowledge only. May hinder coordination among independent SBUs. Provides better management control. Provides goal congruence. Offers an efficient method of performance evaluation.
Blocher - Chapter 18 #30 Difficulty: Easy Learning Objective: 18-3

31. Production or support SBUs within the firm that have the goal of providing the best quality product or service at the lowest cost are: A. B. C. D. E. Revenue centers. Contribution centers. Profit centers. Cost centers. Investment centers.
Blocher - Chapter 18 #31 Difficulty: Easy Learning Objective: 18-3

32. SBUs that generate revenues and incur the major portion of the cost for producing those revenues are:

A. B. C. D. E.

Revenue centers. Contribution centers. Profit centers. Cost centers. Investment centers.
Blocher - Chapter 18 #32 Difficulty: Easy Learning Objective: 18-3

33. SBUs that include the assets they employ as well as profits in the performance evaluation are: A. B. C. D. E. Revenue centers. Contribution centers. Profit centers. Cost centers. Investment centers.
Blocher - Chapter 18 #33 Difficulty: Easy Learning Objective: 18-3

34. The replacing of controllable costs with non-controllable costs by a department is: A. B. C. D. E. Budget slack. Cost shifting. Outsourcing. Discretionary-cost method. Engineered-cost approach.
Blocher - Chapter 18 #34 Difficulty: Easy Learning Objective: 18-4

35. For production and support departments, a method of implementing cost centers that is input-oriented is the: A. B. C. D. E. Budget slack. Cost shifting approach. Outsourcing approach. Discretionary-cost method. Engineered-cost approach.
Blocher - Chapter 18 #35 Difficulty: Easy Learning Objective: 18-4

36. For production and support departments, a method of implementing cost centers that is output-oriented is the: A. B. C. D. E. Budget slack method. Cost shifting approach. Outsourcing approach. Discretionary-cost method. Engineered-cost approach.
Blocher - Chapter 18 #36 Difficulty: Easy Learning Objective: 18-4

37. Expenditures of revenue centers usually include: A. B. C. D. E. Order-purchasing costs. Order-getting costs. Order-producing costs. Order-scheduling costs. Order-delivering costs.
Blocher - Chapter 18 #37 Difficulty: Easy Learning Objective: 18-4

38. The balanced scorecard measures the SBU's performance in all of the following areas except: A. B. C. D. E. Learning and growth. Managerial performance. Customer satisfaction. Internal business processes. Accounting and tax compliance.
Blocher - Chapter 18 #38 Difficulty: Medium Learning Objective: 18-5

39. Bilbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bilbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $40,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of joint cost that should have been allocated to the Pork Palace in April is calculated to be: A. $8,000. B. $10,800.

C. $13,200. D. $18,800. E. $21,200. 1. 4400/(4400 + 3600) = 55% 2. ($16,000/2) + [55% x ($40,000 - $16,000)] = $21,200
Blocher - Chapter 18 #39 Difficulty: Easy Learning Objective: 18-4

40. Bilbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment. Bilbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $40,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables. The amount of the joint cost that should have been allocated to the Chicken Hut in April is calculated to be: A. B. C. D. E. $8,000. $10,800. $13,200. $18,800. $21,200.

1. 3600/(4400 + 3600) = 45% 2. ($16,000/2) + [45% x ($40,000 - $16,000)] = $18,800


Blocher - Chapter 18 #40 Difficulty: Easy Learning Objective: 18-4

41. Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:

Using revenue as an allocation base, the amount of costs allocated to the Kentucky research facility is calculated to be: A. B. C. D. E. $24,000,000. $18,000,000. $9,000,000. $14,000,000. $26,000,000.

$14,000,000 = 60,000,000 x (56,000,000/240,000,000)


Blocher - Chapter 18 #41 Difficulty: Easy Learning Objective: 18-4

42. Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:

Using revenue as an allocation base, the amount of costs allocated to the Arizona research facility is calculated to be: A. B. C. D. E. $25,000,000. $31,000,000. $44,000,000. $19,000,000. $36,000,000.

$25,000,000 = 60,000,000 x (100,000,000/240,000,000)


Blocher - Chapter 18 #42 Difficulty: Easy Learning Objective: 18-4

43. Organic Laboratories allocates research and development costs to its three research facilities based on each facility's total annual revenue from new product developments:

Using revenue as an allocation base, the amount of costs allocated to the Illinois research facility is calculated to be: A. B. C. D. E. $17,000,000. $33,000,000. $14,000,000. $28,000,000. $21,000,000.

$21,000,000 = 60,000,000 x (84,000,000/240,000,000)


Blocher - Chapter 18 #43 Difficulty: Easy Learning Objective: 18-4

44. Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:

Using revenue as an allocation base, the amount of costs allocated to the Lower School is calculated to be: A. B. C. D. E. $240,000. $320,000. $400,000. $480,000. $600,000.

$400,000 = 1,200,000 x (1,000,000/3,000,000)


Blocher - Chapter 18 #44 Difficulty: Easy Learning Objective: 18-4

45. Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:

Using revenue as an allocation base, the amount of costs allocated to the Middle School is calculated to be: A. B. C. D. E. $240,000. $320,000. $400,000. $480,000. $600,000.

$320,000 = 1,200,000 x (800,000/3,000,000)


Blocher - Chapter 18 #45 Difficulty: Easy Learning Objective: 18-4

46. Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools:

Using revenue as an allocation base, the amount of costs allocated to the Upper School is calculated to be: A. B. C. D. E. $240,000. $360,000. $400,000. $480,000. $600,000.

$480,000 = 1,200,000 x (1,200,000/3,000,000)


Blocher - Chapter 18 #46 Difficulty: Easy Learning Objective: 18-4

47. Pane Inc. manufactures hair brushes that sell at wholesale for $2.60 per unit. Budgeted production in both 2009 and 2010 was 3,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Full costing operating income for 2009 is calculated to be: A. B. C. D. E. $935. $1,150. $1,200. $1,352. $1,395.

The solution involves underapplied overhead (production volume variance) in 2010 because units produced (2,800) is less than budgeted production (3,000).
Blocher - Chapter 18 #47 Difficulty: Medium Learning Objective: 18-4

48. Pane Inc. manufactures hair brushes that sell at wholesale for $2.60 per unit. Budgeted production in both 2009 and 2010 was 3,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Full costing operating income for 2010 is calculated to be: A. B. C. D. E. $935. $1,150. $1,200. $1,352. $1,395.

The solution involves underapplied overhead (production volume variance) in 2010 because units produced (2,800) is less than budgeted production (3,000).
Blocher - Chapter 18 #48 Difficulty: Hard Learning Objective: 18-4

49. Pane Inc. manufactures hair brushes that sell at wholesale for $2.60 per unit. Budgeted production in both 2009 and 2010 was 3,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Variable costing operating income for 2009 is calculated to be: A. B. C. D. E. $935. $1,150. $1,200. $1,352. $1,395.

The solution involves underapplied overhead (production volume variance) in 2010 because units produced (2,800) is less than budgeted production (3,000).
Blocher - Chapter 18 #49 Difficulty: Easy Learning Objective: 18-4

50. Pane Inc. manufactures hair brushes that sell at wholesale for $2.60 per unit. Budgeted production in both 2009 and 2010 was 3,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Variable costing operating income for 2010 is calculated to be: A. B. C. D. E. $935. $1,150. $1,200. $1,352. $1,395.

The solution involves underapplied overhead (production volume variance) in 2010 because units produced (2,800) is less than budgeted production (3,000).
Blocher - Chapter 18 #50 Difficulty: Easy Learning Objective: 18-4

51. WriterOne Inc. manufactures ball point pens that sell at wholesale for $0.80 per unit. Budgeted production in both 2009 and 2010 was 8,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Full costing operating income for 2009 is calculated to be: A. B. C. D. E. $149. $430. $655. $1,030. $1,180.

Blocher - Chapter 18 #51 Difficulty: Medium Learning Objective: 18-4

52. WriterOne Inc. manufactures ball point pens that sell at wholesale for $0.80 per unit. Budgeted production in both 2009 and 2010 was 8,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Full costing operating income for 2010 is calculated to be: A. B. C. D. E. $149. $430. $655. $1,030. $1,180.

Blocher - Chapter 18 #52 Difficulty: Easy Learning Objective: 18-4

53. WriterOne Inc. manufactures ball point pens that sell at wholesale for $0.80 per unit. Budgeted production in both 2009 and 2010 was 8,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Variable costing operating income for 2009 is calculated to be: A. B. C. D. E. $149. $430. $655. $1,030. $1,180.

Blocher - Chapter 18 #53 Difficulty: Medium Learning Objective: 18-4

54. WriterOne Inc. manufactures ball point pens that sell at wholesale for $0.80 per unit. Budgeted production in both 2009 and 2010 was 8,000 units. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Variable costing operating income for 2010 is calculated to be: A. B. C. D. E. $149. $430. $655. $1,030. $1,180.

Blocher - Chapter 18 #54 Difficulty: Easy Learning Objective: 18-4

55. The value stream income statement can be compared to: A. B. C. D. Value chain analysis. The contribution income statement. A streamlined production process. A streamlined accounting system.
Blocher - Chapter 18 #55 Difficulty: Medium Learning Objective: 18-4

56. The six steps Ittner and Larcker propose for maximizing the value of nonfinancial measures when using a balanced scorecard include all the following except: A. B. C. D. E. Continually refine the model. Assess outcomes. Gather data. Base actions on the data. Base actions on the findings.
Blocher - Chapter 18 #56 Difficulty: Easy Learning Objective: 18-4

57. The balanced scorecard is particularly important in difficult economic times because: A. B. C. D. Financial measures are even more important. Nonfinancial measures are even more important. Financial measures may be distorted. Nonfinancial measures may be distorted.
Blocher - Chapter 18 #57 Difficulty: Medium Learning Objective: 18-4

58. The value stream income statement provides the following information not usually contained in the contribution income statement:

A. B. C. D.

Contribution by CPC. Contribution by profit center. A separate accounting for the effect of inventory change on profit. A separate accounting for the effect of productivity change on profit.
Blocher - Chapter 18 #58 Difficulty: Easy Learning Objective: 18-4

59. Tokless Inc. planned and manufactured 400,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2010. Tokless Inc. sold 195,000 units of product in 2010 at $65 per unit. Sales for 2010 are calculated to be: A. B. C. D. E. $9,750,000. $12,675,000. $13,000,000. $13,900,000. $20,000,000.

$195,000 x $65 = $12,675,000

Blocher - Chapter 18 #59 Difficulty: Easy Learning Objective: 18-4

60. Tokless Inc. planned and manufactured 400,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2010. Tokless Inc. sold 195,000 units of product in 2010 at $65 per unit. Full costing operating income for 2010 is calculated to be: A. B. C. D. E. $1,525,000. $1,850,000. $1,935,000. $2,260,000. $2,750,000.

Blocher - Chapter 18 #60 Difficulty: Easy Learning Objective: 18-4

61. Tokless Inc. planned and manufactured 400,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $50 per unit of production. Planned and fixed manufacturing costs were $800,000. Marketing and administrative costs (all fixed) were $600,000 in 2010. Tokless Inc. sold 195,000 units of product in 2010 at $65 per unit. Variable costing operating income for 2010 is calculated to be: A. B. C. D. E. $1,525,000. $1,850,000. $1,935,000. $2,260,000. $2,750,000.

Blocher - Chapter 18 #61 Difficulty: Easy Learning Objective: 18-4

62. Profit center income statements are most meaningful to managers when they are prepared: A. B. C. D. E. On a full cost basis. On a cost behavior basis. On a cash basis. In a single-step format. In a multiple-step format.
Blocher - Chapter 18 #62 Difficulty: Medium Learning Objective: 18-4

63. A unit of an organization is referred to as a profit center if it has: A. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply. B. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital. C. Authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply. D. Authority to provide specialized support to other units within the organization. E. Responsibility for combining material, labor, and other factors of production into a final output.
Blocher - Chapter 18 #63 Difficulty: Hard Learning Objective: 18-3

64. A unit of an organization is referred to as an investment center if it has: A. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply. B. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital. C. Authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply. D. Authority to provide specialized support to other units within the organization. E. Responsibility for developing markets for and selling the output of the organization.
Blocher - Chapter 18 #64 Difficulty: Hard Learning Objective: 18-3

65. Of most relevance in deciding how or which costs should be assigned to an SBU is the degree of: A. B. C. D. Avoidability. Causality. Controllability. Reliability.
Blocher - Chapter 18 #65 Difficulty: Hard Learning Objective: 18-4

66. A significant problem in comparing profitability measures among companies is the: A. B. C. D. E. Lack of general agreement over which profitability measure is best. Differences in the size of the companies. Differences in the accounting methods used by the companies. Differences in the dividend policies of the companies. Effect of interest rates on net income.
Blocher - Chapter 18 #66 Difficulty: Hard Learning Objective: 18-3

67. The most important objective of a strategic performance measurement system is: A. B. C. D. E. Budgeting. Motivation. Authority. Variances. Pricing.
Blocher - Chapter 18 #67 Difficulty: Easy Learning Objective: 18-1

68. What costs are treated as product costs under variable costing? A. B. C. D. Only variable costs. Only variable production costs. All variable costs. All variable and fixed manufacturing costs.
Blocher - Chapter 18 #68 Difficulty: Medium Learning Objective: 18-4

69. Inventory under the variable costing method includes: A. B. C. D. Direct materials cost, direct labor cost, but no factory overhead cost. Direct materials cost, direct labor cost, and variable factory overhead cost. Prime cost but not conversion cost. Prime cost and all conversion cost.
Blocher - Chapter 18 #69 Difficulty: Medium Learning Objective: 18-4

70. In an income statement prepared using the variable costing method, which of the following terms should appear?

A. B. C. D.

A B C D
Blocher - Chapter 18 #70 Difficulty: Medium Learning Objective: 18-4

71. Other things being equal, income computed by the variable costing method will exceed that computed by the full costing method if: A. B. C. D. Units produced exceed units sold. Units sold exceed units produced. Fixed manufacturing costs increase. Variable manufacturing costs increase.
Blocher - Chapter 18 #71 Difficulty: Hard Learning Objective: 18-4

72. Home Products Inc has failed to reach its planned activity level during its first two years of operation. The following table shows the relationship between units produced, sales, and normal activity for these years and the projected relationship for Year 3. All prices and costs have remained the same for the last two years and are expected to do so in Year 3. Income has been positive in both Year 1 and Year 2.

Because Home Products uses a full costing system, one would predict operating income for Year 3 to be: A. B. C. D. Greater than operating income under variable costing. Less than year 2. The same as operating income under variable costing. Less than the operating income under variable costing.

Reason for answer: inventory increased in year 3.


Blocher - Chapter 18 #72 Difficulty: Medium Learning Objective: 18-4

73. A company's operating income was $70,000 using variable costing for a given period. Beginning and ending inventories for that period were 45,000 units and 50,000 units, respectively. Ignoring income taxes, if the fixed overhead application rate was $8.00 per unit, what would operating income have been using full costing? A. B. C. D. E. $30,000. $140,000. $110,000. $100,000. Cannot be determined from the information given.

$110,000 = [(50,000-45,000) x $8] + $70,000


Blocher - Chapter 18 #73 Difficulty: Hard Learning Objective: 18-4

74. A company had income of $50,000 using variable costing for a given period. Beginning and ending inventories for that period were 80,000 units and 90,000 units, respectively. If the fixed overhead application rate were $10.00 per unit, what would operating income have been using full costing? A. B. C. D. E. $(50,000). $170,000. $150,000. $0. Cannot be determined from the information given.

$150,000 = [(90,000-80,000) x $10] + $50,000


Blocher - Chapter 18 #74 Difficulty: Hard Learning Objective: 18-4

75. The balanced scorecard is widely used in performance evaluation and management control. In which regions around the world is it most and least, respectively, commonly used? A. B. C. D. Europe, Asia U.S and Canada, Africa U.S. and Canada, South and Central America South and Central America, Europe
Blocher - Chapter 18 #75 Difficulty: Hard Learning Objective: 18-5

76. Operating income reported under full costing will exceed operating income reported under variable costing for a given period if:

A. B. C. D.

Production equals sales for that period. Production exceeds sales for that period. Sales exceed production for that period. The variable overhead exceeds the fixed overhead.
Blocher - Chapter 18 #76 Difficulty: Medium Learning Objective: 18-4

77. A company's operating income recently increased by 30% while its inventory increased in a given year. Which of the following accounting methods would be most likely to produce the favorable income results? A. B. C. D. Full costing. Direct costing. Variable costing. Standard direct costing.
Blocher - Chapter 18 #77 Difficulty: Medium Learning Objective: 18-4

78. During January, Lang, Inc. produced 10,000 units of product with costs as follows:

What is Lang's unit cost for January, calculated on the variable costing basis? A. B. C. D. E. $6.20. $7.20. $7.50. $8.50. $9.50.

$7.50 = ($40,000 + 22,000 + 13,000)/10,000


Blocher - Chapter 18 #78 Difficulty: Easy Learning Objective: 18-4

79. In the principal-agent model, the manager is modeled as having all of the following elements except: A. B. C. D. Risk aversion Outcomes of actions Provides effort Decision Making
Blocher - Chapter 18 #79 Difficulty: Hard Learning Objective: 18-1

80. During October, Rover Industries produced 35,000 units of product with costs as follows:

What is Rover's unit cost for October, calculated on the variable costing basis? A. B. C. D. E. $3.25. $3.75. $4.00. $4.50. $5.00.

$4.00 = ($84,000 + 43,000 + 13,000)/35,000


Blocher - Chapter 18 #80 Difficulty: Easy Learning Objective: 18-4

81. Under variable costing, fixed manufacturing overhead costs would be classified as: A. B. C. D. Period costs. Product costs. Selling costs. Inventory costs.
Blocher - Chapter 18 #81 Difficulty: Medium Learning Objective: 18-4

82. Under full costing, fixed manufacturing overhead costs would be classified as: A. Period costs.

B. Product costs. C. Selling costs. D. Inventory costs.


Blocher - Chapter 18 #82 Difficulty: Medium Learning Objective: 18-4

83. Under the principal-agent model of contract relationships, situations such as machine breakdowns or a decrease in market demand would be classified under: A. B. C. D. Lack of observability. Lack of responsibility. Uncertainty. Decentralization.
Blocher - Chapter 18 #83 Difficulty: Easy Learning Objective: 18-1

84. In a formal management control system, top management sets expectations for desired manager performance. Which of the following is not one of the areas in which a formal individual management control system would be used? A. B. C. D. E. Hiring practices. Promotion policies. Operations. Sales. Organizational culture.
Blocher - Chapter 18 #84 Difficulty: Medium Learning Objective: 18-2

85. The type of strategic business unit (SBU) where the SBU focuses on the selling function of a specific product line or by a geographical location is referred to as a(n): A. B. C. D. E. Profit center. Cost center. Revenue center. Investment center. All of the above.
Blocher - Chapter 18 #85 Difficulty: Easy Learning Objective: 18-3

86. SBU is the acronym for: A. B. C. D. Small Business Unit. Sustainable Business Unit. Standard Business Unit. Strategic Business Unit.
Blocher - Chapter 18 #86 Difficulty: Easy Learning Objective: 18-1

87. Quick Technology Company is a supplier of high-end research equipment for the pharmaceutical industry. Quick currently has a variety of different firms producing computer chips for increased memory and improved processing speeds which are installed in Quick's equipment. In this case, having another firm provide supplies for Quick's equipment is an example of: A. B. C. D. E. Strategic positioning. Opportunity costing. Profitability maximization. Outsourcing. Value chain analysis.
Blocher - Chapter 18 #87 Difficulty: Easy Learning Objective: 18-4

88. Which of the following is not a criterion for choosing a cost allocation method? A. B. C. D. Provide an incentive for managers to make decisions consistent with top management's goals. Provide an opportunity for managers to make decisions consistent with the manager's goals. Provide a basis for a fair evaluation of manager's performance. Motivate managers to exert a high level of effort.
Blocher - Chapter 18 #88 Difficulty: Easy Learning Objective: 18-4

89. Which one of the following is not an order-filling cost? A. B. C. D. Freight. Warehousing. Inspection. Collections.
Blocher - Chapter 18 #89 Difficulty: Easy Learning Objective: 18-4

90. Controllable fixed costs: A. B. C. D. Are those costs that the profit center manager can influence in approximately a year or less. Are those costs that the profit center manager can influence in approximately a year or more. Include variable costs. Have no effect on operating income.
Blocher - Chapter 18 #90 Difficulty: Easy Learning Objective: 18-4

91. Using the balanced scorecard to describe the firm's strategy in detail through the use of a cause-and-effect diagram which is also known as a(n): A. B. C. D. E. Status Diagram. Strategy Map. Performance Flowchart. Organizational Diagram. Operational Work-through.
AACSB: Analytic Blocher - Chapter 18 #91 Difficulty: Easy Learning Objective: 18-5

92. The cost method that is input-oriented and considers costs largely uncontrollable at the planning stage is called the: A. B. C. D. E. Engineered-cost method. ABC costing. Discretionary-cost method. Job costing. Standard costing.
Blocher - Chapter 18 #92 Difficulty: Easy Learning Objective: 18-4

93. Costs such as depreciation, taxes and insurance and usually extending beyond one year are considered: A. B. C. D. E. Controllable fixed costs. Noncontrollable fixed costs. Noncontrollable variable costs. Controllable variable costs. Controllable margin costs.
Blocher - Chapter 18 #93 Difficulty: Easy Learning Objective: 18-4

94. Which of the following is not a revenue driver factor which affects sales volume for a manufacturing firm? A. B. C. D. E. Price changes. Customer service. Delivery dates. Discounts. Productivity.
Blocher - Chapter 18 #94 Difficulty: Easy Learning Objective: 18-4

95. Which of the following is an argument against the use of variable costing? A. B. C. D. Full costing overstates the balance sheet value of inventories. Variable factory overhead is a period cost. Fixed factory overhead is difficult to allocate properly. Fixed factory overhead is necessary for the production of a product.
Blocher - Chapter 18 #95 Difficulty: Hard Learning Objective: 18-4

96. Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $500,000. Marketing and administrative costs (all fixed) were $300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at $50 per unit. Sales for 2010 are calculated to be: A. B. C. D. E. $1,000,000. $5,000,000. $7,500,000. $10,000,000. $12,500,000.

200,000 x $50 = $10 million

Blocher - Chapter 18 #96 Difficulty: Easy Learning Objective: 18-4

97. Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $500,000. Marketing and administrative costs (all fixed) were $300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at $50 per unit. Full costing operating income for 2010 is calculated to be: A. B. C. D. E. $1,000,000. $3,200,000. $3,300,000. $4,200,000. $4,300,000.

Blocher - Chapter 18 #97 Difficulty: Easy Learning Objective: 18-4

98. Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $500,000. Marketing and administrative costs (all fixed) were $300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at $50 per unit. Variable costing operating income for 2010 is calculated to be: A. B. C. D. E. $1,000,000. $3,200,000. $3,300,000. $4,200,000. $4,300,000.

Blocher - Chapter 18 #98 Difficulty: Easy Learning Objective: 18-4

99. Strategic performance measurement is a(n): A. B. C. D. Accounting system used by top management for the evaluation of SBU managers. System of shared responsibility. Accounting system for determining strategy. System to design and implement the balanced scorecard.
Blocher - Chapter 18 #99 Difficulty: Easy Learning Objective: 18-3

100. Managers who are risk averse: A. B. C. D. E. Seek to accept options with low risk and would choose an option with lower expected value if it had more risk. Seek to avoid options with low risk and would choose an option with higher expected value if it had more risk. Seek to avoid options with high risk and would choose an option with lower expected value if it had less risk. Seek to accept options with high risk and would choose an option with lower expected value if it had less risk. Seek to accept options with low risk and would choose an option with higher expected value if it had more risk.
Blocher - Chapter 18 #100 Difficulty: Medium Learning Objective: 18-1

101. Managers who are risk prone: A. B. C. D. Seek risky projects that promise some chance of a low benefit. Seek risky projects that promise some chance of a high benefit, although the projects may have a risk of low benefit. Seek risky projects. Seek high risk projects that promise some chance of a high benefit, although the projects may have a very significant risk of no benefit.
Blocher - Chapter 18 #101 Difficulty: Medium Learning Objective: 18-1

102. Risk plays a critical role in the decision making process. However, numerous studies have shown that most executives, managers and individuals are considered to be: A. B. C. D. Risk neutral. Risk prone. Risk averse. Risk seekers.
Blocher - Chapter 18 #102 Difficulty: Medium Learning Objective: 18-1

103. A value stream income statement is best associated with: A. B. C. D. Value chain analysis. Activity-based costing. The theory of constraints. Lean manufacturing.
Blocher - Chapter 18 #103 Difficulty: Medium Learning Objective: 18-4

104. A value stream is:

A. B. C. D.

A set of value-adding activities. A sequence of efficient processes. A group of related products. A strategy map with a focus on value-adding activities.
Blocher - Chapter 18 #104 Difficulty: Medium Learning Objective: 18-4

105. Reasons for failure to implement the balanced scorecard effectively include all but which of the following: A. B. C. D. E. Failure to link nonfinancial measures to strategy. Failure to validate the assumptions in the strategy map. Setting the wrong performance targets. Failure to include financial reporting requirements to the SEC. Measuring the results incorrectly.
Blocher - Chapter 18 #105 Difficulty: Hard Learning Objective: 18-5

106. The sales life cycle has three phases: early, growth, and maturity. The appropriate performance measures for the growth phase include A. B. C. D. Profitability, market penetration. Profitability, strategy. Revenue, strategy. Profitability, asset management.
Blocher - Chapter 18 #106 Difficulty: Hard Learning Objective: 18-2

107. SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

Determine the amount of cost to be allocated to the Harborview Resort using revenue as an allocation base. A. B. C. D. E. $1,050,000 $1,950,000 $1,500,000 $420,000 $1,680,000

Because of the large amount of cost associated with the assets cost driver and because the Crystal Coast resort has a far higher proportion of the total assets, the revenue based allocation is likely to favor the Crystal Coast Resort Calculations for 107 (in 000s):

Blocher - Chapter 18 #107 Difficulty: Easy Learning Objective: 18-4

108. SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

What is the operating profit of the Crystal Coast Resort, using revenue as an allocation base? A. B. C. D. E. $2,450,000 $1,600,000 $1,500,000 $4,550,000 $3,550,000

Because of the large amount of cost associated with the assets cost driver and because the Crystal Coast resort has a far higher proportion of the total assets, the revenue based allocation is likely to favor the Crystal Coast Resort Calculations for 108 (in 000s):

Blocher - Chapter 18 #108 Difficulty: Easy Learning Objective: 18-4

109. SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

Using the information regarding the allocation of the $3 million to the four cost drivers, determine the amount of cost to be allocated to the Harborview Resort. A. B. C. D. E. $1,050,000 $1,950,000 $1,500,000 $715,000 $1,680,000

Because of the large amount of cost associated with the assets cost driver and because the Crystal Coast resort has a far higher proportion of the total assets, the revenue based allocation is likely to favor the Crystal Coast Resort Calculations for 109 (in 000s):

Blocher - Chapter 18 #109 Difficulty: Medium Learning Objective: 18-4

110. SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

Using the information regarding the allocation of the $3 million to the four cost drivers, determine the operating profit of the Crystal Coast Resort. A. B. C. D. E. $1,500,000 $2,050,000 $2,785,000 $3,525,000 $4,215,000

Because of the large amount of cost associated with the assets cost driver and because the Crystal Coast resort has a far higher proportion of the total assets, the revenue based allocation is likely to favor the Crystal Coast Resort Calculations for 110 (in 000s):

Blocher - Chapter 18 #110 Difficulty: Medium Learning Objective: 18-4

111. SeaScape Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.

The nontraceable operating costs of the resort amount to $3 million. By careful study, the management accountant at SeaScape has determined that, while the costs are not directly traceable, the total of $3 million could be fairly allocated to the four cost drivers as follows.

The Crystal Coast resort is likely to be favored in terms of a lower cost allocation under: A. B. C. D. Revenue-based allocation. Cost-driver based allocation. Cannot be determined from the information. Would be the same for both allocation methods.

Because of the large amount of cost associated with the assets cost driver and because the Crystal Coast resort has a far higher proportion of the total assets, the revenue based allocation is likely to favor the Crystal Coast Resort. Calculations for 111 (in 000s):

Blocher - Chapter 18 #111 Difficulty: Medium Learning Objective: 18-4

112. Tough-Built Corporation produces specialized truck body components, specializing in hydraulic lifts for dump trucks. Founded 35 years ago by George Halloway, the firm now employs 150 workers and has annual sales of over $10 million. George operates the firm in a highly centralized way, and retains control over all changes in operations. He is a regular visitor to the production area, which helps him "keep his finger on the pulse of the firm." Although George Halloway is now 67 years old, he has no apparent management successor, and has always hand-picked his department heads and staff personnel. He has been generous to those who worked for him, paying substantial bonuses each year to the employees based on his personal evaluation of each worker. Just six weeks ago, a heart attack convinced George to consider retirement, and he decided to sell the firm to his employees. You are assigned the task of recommending a set of strategic performance measures for the firm, assuming that the new worker management wants to operate as a decentralized firm. Required: What major management problems do you foresee in the transition from sole owner to employee ownership? Please see Feedback for answers. Feedback: The management of Tough-Built is currently very centralized, and the new management is proposing a shift to the decentralized approach. Managers will have to learn to make more decisions for their units; they will need to develop and maintain good communication and coordination with other units; and their system for control and evaluation will have to change if it is to be effective. This change in style of management will have dramatic impact on all aspects of management control and evaluation. This impact will be further complicated by the change in ownership from proprietor to employees. However, the employee-ownership aspect could work to help motivate workers and managers to accept and implement the decentralization of management as proposed.
AACSB: Analytic Blocher - Chapter 18 #112 Difficulty: Medium Learning Objective: 18-4

113. Harrison Hartwell and Zenith is a successful law firm employing 26 professionals. There is an internal controversy over allocation of the $104,000 purchase cost of a highly sophisticated electronic law library. Each professional employee of the firm has been assessed $4,000 as a charge against the profit distribution account of each of the 26 members affected. In addition, it is expected to cost about $2,600 per month to update information for the library system, resulting in a monthly $100 assessment against each professional in the firm. Required: (a) As a new junior member of the professional legal group of 26, why might you not like the proposed electronic library cost allocation? (b) Propose an alternate allocation method for both the initial purchase cost and the updating charge that is more equitable (fair).(c) Could one argue for no allocation at all in this case? On what basis? Please see Feedback for answers. Feedback: (a) The junior members of the law firm would probably resist paying as much of the cost as more senior members, arguing that it isn't "fair." Equity (fairness) is difficult to define, but people seem to intuitively know when inequity exists. (b) The allocation of the purchase cost could be shared on the basis of each legal staff members' salarythe ability to "bear" the cost. The monthly charge could be assessed on the basis of usage, i.e., the number of hours each staff member uses the library resources. It is relatively easy to gather time use information in a computerized system. (Note: Other equitable ways of allocating the two costs are possible. Even the current system treats everyone "equally," which could be a measure of fairness.) (c) Yes, the initial purchase cost could simply be deducted from the law firm's revenue before bonuses beyond salaries are calculated. The same treatment could be used for the monthly updating charge. However, the firm could make use of allocation of this ongoing charge to limit, discourage, or encourage utilization of the new resource.
AACSB: Analytic Blocher - Chapter 18 #113 Difficulty: Medium Learning Objective: 18-6

114.

McShane Inc. manufactures hair brushes that sell at wholesale for $6.00 per unit. Budgeted production in both 2009 and 2010 was 2,000

units and fixed overhead budgeted was $25,000 in each year. There was no beginning inventory in 2009. The following data summarized the 2009 and 2010 operations:

Required: Determine income under both full costing and variable costing and explain the difference. Please see Feedback for answers. Feedback: Emerging Issue: Production Volume Variance

The difference in operating income for 2010 ($34,750-$41,000 = -$6,250 = $12.50 x 500

Blocher - Chapter 18 #114 Difficulty: Hard Learning Objective: 18-4

115.

The Daniels Tool & Die Corporation has been in existence for a little over three years; its sales have been increasing each year as it has built a reputation. The company manufactures dies to its customers' specifications; as a consequence, a job order cost system is employed. Factory overhead is applied to the jobs based on direct labor hours. Actual variable overhead is the same as applied variable overhead. Overapplied or underapplied overhead is treated as an adjustment to cost of goods sold. The company's income statements for

the last two years are presented below. Daniels used the same predetermined overhead rate in applying overhead to production orders in both 2010 and 2011. The rate was based on the following estimates:

In 2009 and 2010, actual direct labor hours expended were 20,000 and 23,000, respectively. Raw materials put into production were $292,000 in 2009 and $370,000 in 2010. Actual fixed overhead was $37,400 for 2010 and $42,300 for 2009, and the planned direct labor rate was the direct labor rate achieved. For both years, all of the reported administrative costs were fixed, while the variable portion of the reported selling expenses result from a commission of five percent of sales revenue. Required: (1) For the year December 31, 2010, prepare a revised income statement for Daniels Tool & Die Corporation utilizing the variable costing method. Be sure to include the contribution margin on your statement. (2) Prepare a numerical reconciliation of the difference in operating income between Daniels Tool & Die Corporation's costing and the revised 2010 income statement prepared on the basis of variable costing. (3) Describe both the advantages and disadvantages of using variable costing.

Please see Feedback for answers. Feedback: (1)

Supporting Calculations Fixed overhead rate = $25,000/25,000hours = $1 per hour Calculation of variable finished goods inventory at 1/1/10.

Calculation of variable cost work-in-process inventory at 1/1/10

Calculation of variable manufacturing costs incurred during 2010

Calculation of direct labor and variable overhead rates.

Calculation of variable cost work-in-process inventory at 12/31/10

Calculation of variable cost finished goods inventory at 12/31/10.

Calculation of variable selling expenses.

Calculation of fixed selling expenses.

(2) The difference in the operating income of $270 is caused by the different treatment of fixed manufacturing overhead. Under full costing, fixed overhead costs are assigned to inventory and are not expensed until the goods are sold. Under variable costing, these costs are treated as expenses in the period incurred. Since the direct labor hours in the work-in-process and finished goods inventories had a net increase of 270 hours, the full costing operating profit is higher because the fixed factory overhead associated with the increased labor hours in inventory is not expensed when full costing is used.

The increase in hours (270) times the fixed overhead rate ($1 per hour) equals the difference in operating income ($270). (3) The advantages of using variable costing follow. The fixed manufacturing costs are reported at incurred values, not at absorbed values, which increases the likelihood of better control over fixed costs. Profits are directly influenced by changes in sales volume and not by changes in inventory levels. Contribution margin by product line, territory, department, or division is emphasized and more readily ascertainable the disadvantages of using variable costing follow. Variable costing is not acceptable for tax reporting, for SEC reporting, nor for external financial reporting; therefore, companies need to keep two sets of records. Costs other than variable costs, i.e., fixed costs and total production costs, may be ignored when making decisions, especially long-term decisions. With the advancement of factory technology and the movement toward a fully automated factory, the fixed factory overhead may be a significant portion of the production costs. To ignore these significant costs in inventory valuation may not be acceptable.
Blocher - Chapter 18 #115 Difficulty: Hard Learning Objective: 18-4

116. Red Apple Industries manufactures institutional-use furniture. Dept. A is responsible for welding the base of the desk to the chair assembly. The desks are then placed on an automatic conveyer to Dept. B, where the desktop is riveted to the chair. The desks continue on the conveyer to Dept. C for further assembly. Wanda, the manager of Dept. A, is responsible for moving 800 welded desks per hour to Dept. B. A faulty circuit in Dept. B causes a delay in processing in the department and prompts Rosie, the Dept. B manager, to ask Wanda to stop the conveyer. Wanda refuses, necessitating the removal of the welded desks from the conveyer until the riveting can resume. Rosie bills Wanda's department for the costs of this extra work. Wanda disputes the charge, citing her responsibility to convey 800 desks/hour to Dept. B. Required: How should the managers' dispute be resolved? How could it have been avoided? Please see Feedback for answers. Feedback: This is an instance where the strategic performance measurement system has failed by causing a manager to adhere strictly to the performance goals of her unit. In strategic performance measurement systems, the emphasis on individual motivation and reward is a key aspect of the advantage of these systems. However, the efforts of individual managers should not be allowed to conflict with those of other managers in a way which injures the firm as a whole. This is top management's responsibility -- to maintain in effect the discipline of the strategic performance measurement system. All managers must be clearly informed that at all times they must act responsibly for the welfare of the firm as a whole. If an action by a manager causes harm to the firm, that manager will be charged (or reprimanded) for the loss, even if

the action caused an improvement in performance for the manager's unit. In this case Wanda acted irresponsibly, and should be charged with the extra costs as requested by Dan. In a broader sense, this incident shows the failure of top management to communicate responsible management behavior, and so the incident is a bad mark on management. An alternative approach then would be for the costs of the incident to be charged to top management (not charged to any SBU) and explained and discussed at an executive meeting, with Wanda given a stern warning not to repeat such actions.
AACSB: Analytic Blocher - Chapter 18 #116 Difficulty: Medium Learning Objective: 18-3

117. Betty Jones and Penny White are associates at the same law firm in Atlanta. They traveled to New York City together recently to visit their respective clients. From the airport, they shared a cab ride to their hotel. The cab ride for Betty alone would have cost $18.00, but for two passengers the cost was $22.00. Had Betty not offered to share the cab ride, Penny (in deference to her client's frugality) would have taken the bus to Grand Central Station, which is six blocks from the hotel, at a cost of $10.00. Required: How should the $22.00 cost of the cab ride be allocated to the two clients? Please see Feedback for answers. Feedback: This cost allocation case deals with cost reimbursement more than cost management, but the principles of management control still apply -- the objective is to achieve fairness and a desired motivation. In this case the desired motivation is for the associates of the law firm to provide excellent service to their client at fair prices. Thus, the idea to share a taxi achieves this objective. Also, the cost allocation should fairly allocate the cost to the different clients. One alternative would be to bill Jones's client for the $18 single rider charge, and bill White's client for the $4 second rider surcharge. However, there is no reason in fairness for Jones's client to pay more. Another option would be to charge the clients $11 each, which would be an intuitive, satisfying solution. A third option would be to charge White's client $10 for the cost of the bus ride that White did not take, and charge Jones's client the $12 remainder. The logic of this is that White's client should pay no more than the $10 bus fare that White had planned, but that the sharing of the taxi should allow Jones to reduce the cost to her client. The choice in this case will depend on Jones's and White's discussion of the desired fairness in this case.
Blocher - Chapter 18 #117 Difficulty: Medium Learning Objective: 18-3

118. Divisional managers of SIU Incorporated have been expressing growing dissatisfaction with the current methods used to measure divisional performance. Divisional operations are evaluated every quarter by comparison with the static budget prepared during the prior year. Divisional managers claim that many factors are completely out of their control but are included in this comparison. This results in an unfair and misleading performance evaluation. The managers have been particularly critical of the process used to establish standards and budgets. The annual budget, stated by quarters, is prepared six months prior to the beginning of the operating year. Pressure by top management to reflect increased earnings has often caused divisional managers to overstate revenues and/or understate expenses. In addition, once the budget had been established, divisions were required to "live with the budget." Frequently, external factors such as the state of the economy, changes in consumer preferences, and actions of competitors have not been adequately recognized in the budget parameters that top management supplied to the divisions. The credibility of the performance review is curtailed when the budget can not be adjusted to incorporate these changes. Top management, recognizing the current problems, has agreed to establish a committee to review the situation and to make recommendations for a new performance evaluation system. The committee consists of each division manager, the Corporate Controller, and the Executive Vice President who serves as the chairman. At the first meeting one division manager outlined an Achievement of Objectives System (AOS). In this performance evaluation system, divisional managers would be evaluated according to three criteria: Doing better than last year - Various measures would be compared to the same measures of the prior year. Planning realistically - Actual performance for the current year would be compared to realistic plans and/or goals. Managing current assets - Various measures would be used to evaluate the divisional management's achievements and reactions to changing business and economic conditions. A division manager believed this system would overcome many of the inconsistencies of the current system because divisions could be evaluated from three different viewpoints. In addition, managers would have the opportunity to show how they would react and account for changes in uncontrollable external factorA second division manager was also in favor of the proposed AOS. However, he cautioned that the success of a new performance evaluation system would be limited unless it had the complete support of top management. Further, this support should be visible within all divisions. He believed that the committee should recommend some procedures which would enhance the motivational and competitive spirit of the divisions. Required: (1) Explain whether or not the proposed AOS would be an improvement over the measure of divisional performance now used by SIU Incorporated. (2) Develop specific performance measures for each of the three criteria in the proposed AOS which could be used to evaluate divisional managers. (3) Discuss the motivational and behavioral aspects of the proposed performance system. Also, recommend specific programs which could be instituted to promote morale and give incentives to divisional management. Please see Feedback for answers. Feedback: (1) The proposed Achievement of Objectives System (AOS) would be an improvement over the current measure of divisional performance for the following reasons: There appears to be greater participation in the establishment of objectives by divisional managers. The use of multiple criteria for performance measures should be a more equitable standard of evaluation. This performance measure tends to reduce over-emphasis on single measurement criteria and may also balance extremes in performance in one area versus another. Realistic planning encourages accurate budget estimations and promotes intermediate and long-range planning objectives which enhances goal congruence. Static budgets established six months before the start of the year would be replaced by flexible budgets would be subject to change as needed. The emphasis on performance is based upon factors controllable by and upon efforts actually directed by divisional managers. Divisional managers should have an increased sense of responsibility and control over activities within their divisions once they are not held responsible for uncontrollable factors. Top management support along with timely and regular reviews of performance will promote division manger's feeling of self-worth. Programs which may be instituted to promote morale and give incentives to divisional managers in conjunction with the achievement of objectives system include the following: Intrinsic motivators can be provided by allowing the manager to assess his/her own achievements and his/her own worth. Extrinsic motivators can be developed through a managers' competition against him/herself or with other divisions with recognition given to the successful participants in the form of awards or monetary incentives. (2) Specific performance measures for the criteria "doing better than last year" could include total sales, contribution margin, controllable costs, net income, net income as a function of sales, return on investment, market share, and productivity. Measurement of these items should be compared in absolute terms or by percentages to the prior year. Specific performance measures for the criteria "planning realistically" could include an analysis of variance between actual and budget and the use of a flexible budget to determine sales, net income, net income as a function of sales, and return on investment. Specific performance measures for the criteria "managing current assets" could include accounts receivable turnover, inventory turnover, return on current assets, and year to year comparisons of current assets in total and by account classification. (3) The motivational and behavioral aspects of the achievement of objectives system depend upon the level of acceptance of the system by top management and the divisional managers. Divisional managers could have a sense of participation in the role of goal setting and budget development which could encourage goal congruence. Multiple criteria enhance a sense of equity or fairness, and remove pressures to pursue measured goals, the achievement of which may conflict with corporate long-run objectives (i.e., promotes goal congruence). Increased morale can result in participation in budget setting and management level decisions as well as having positive

feedback.
AACSB: Analytic Blocher - Chapter 18 #118 Difficulty: Hard Learning Objective: 18-3

119. Chadd Fisher was recently appointed vice president of operations for Cary Corporation. He has a manufacturing background and previously served as operations manager of Cary's building products division. The business units of Cary Corporation include divisions that manufacture building products, process food, and provide financial services. In a recent conversation with Drew Williams, Cary's chief financial officer, Chadd suggested evaluating unit managers on the basis of the business unit data in Cary's annual financial report. This report presents revenues, earnings, identifiable assets, and depreciation for each business unit for a five-year period. He believes that evaluating business unit managers by criteria similar to that used to evaluate the company's top management is appropriate. Drew has reservations about using information from the annual financial report for this purpose and suggested that Chadd consider other criteria to use in the evaluation. Required: 1. Explain why the business unit information prepared for public reporting purposes might not be appropriate for the evaluation of unit managers' performance. 2. Describe the possible motivational impact on Cary Corporation's unit managers if Chadd's proposal for their evaluation is accepted. 3. Identify and describe several types of financial information that would be more appropriate for Chadd Fisher to use when evaluating the performance of unit managers. Please see Feedback for answers. Feedback: 1. The business unit information prepared for public reporting purposes may not be appropriate for the evaluation of business unit management performance because: an allocation of common costs incurred for the benefit of more than one business unit must be included for public reporting purposes, common costs are generally allocated on an arbitrary basis, the business units identified for public reporting purposes may not coincide with actual managerial responsibilities, this information does not distinguish between a business unit that is a poor investment and the performance of manager who has done well despite adverse circumstances. The balanced scorecard is now adopted by many firms to address the limitations of financial-based evaluations only. The balanced scorecard provides quantitative measures in other key areas for the organizations success, including: internal processes, customer satisfaction, and learning and growth of managers and staff. 2. If their performance is evaluated on the basis of the information in the annual financial report, Cary Corporation's business unit managers may become frustrated and dissatisfied because they would be held responsible for an earnings figure that includes the arbitrary allocation of common costs and costs traceable to but not controllable by them. Performance evaluation on this basis could cause dissatisfaction, and the best managers may seek employment elsewhere. 3. Cary Corporation should define strategic business units that coincide with managers' actual responsibilities rather than using the rules developed for public financial reporting. All reports should be prepared utilizing the contribution approach which would separate costs by behavior and assign costs to business units only if they could be controlled by the business unit. The report should disclose contribution margin, contribution controllable by business unit managers, and contribution by each business unit after the allocation of common costs. Also, the company should adopt the balanced scorecard as a means to comprehensively link the performance of managers with the critical measures necessary for success.
Blocher - Chapter 18 #119 Difficulty: Medium Learning Objective: 18-4 Learning Objective: 18-5

120. Tyler Company had the following manufacturing information for the current year.

Required: Determine operating income under both full costing and variable costing and explain the difference. Please see Feedback for answers.

Feedback:

Blocher - Chapter 18 #120 Difficulty: Medium Learning Objective: 18-4

121. Greg Peterson was recently appointed vice president of operations for Webster Corporation. He has a manufacturing background and previously served as operations manager of Webster's tractor division. The business units of Webster Corporation include divisions that manufacture heavy equipment, process food, and provide financial services. In a recent conversation with Carol Andrews, Webster's chief financial officer, Greg suggested evaluating unit managers on the basis of the business unit data in Webster's annual financial report. This report presents revenues, earnings, identifiable assets, and depreciation for each business unit for a five-year period. He believes that evaluating business unit managers by criteria similar to that used to evaluate the company's top management is appropriate. Carol has reservations about using information from the annual financial report for this purpose and suggested that Greg consider other criteria to use in the evaluation. Required: 1. Explain why the business unit information prepared for public reporting purposes might not be appropriate for the evaluation of unit managers' performance. 2. Describe the possible motivational impact on Webster Corporation's unit managers if Greg's proposal for their evaluation is accepted. 3. Identify and describe several types of information that would be appropriate for Greg Peterson to use when evaluating the performance of unit managers. (CMA Adapted) Please see Feedback for answers. Feedback: 1. The business unit information prepared for public reporting purposes may not be appropriate for the evaluation of business unit management performance because: an allocation of common costs incurred for the benefit of more than one business unit must be included for public reporting purposes, common costs are often allocated on an arbitrary (non-causal) basis, the business units identified for public reporting purposes may not coincide with actual managerial responsibilities, this information does not distinguish between a business unit that is a poor investment and the performance of manager who has done well despite adverse circumstances. 2. If their performance is evaluated on the basis of the information in the annual financial report, Webster Corporation's business unit managers may become frustrated and dissatisfied because they would be held responsible for an earnings figure that includes the arbitrary allocation of common costs and costs traceable to but not controllable by them. Performance evaluation on this basis would be unmotivating. As a result of this dissatisfaction, the best managers may seek employment elsewhere. 3. Webster Corporation should define strategic business units centers that coincide with managers' actual responsibilities rather than using the rules developed for public financial reporting. All reports should be prepared utilizing the contribution approach which would separate costs by behavior and assign costs to business units only if they could be controlled by the business unit. The report should disclose contribution margin, contribution controllable by business unit managers, and contribution by each business unit after the allocation of common costs.
AACSB: Analytic Blocher - Chapter 18 #121 Difficulty: Medium Learning Objective: 18-4

18 Summary
Category # of Questions

AACSB: Analytic Blocher - Chapter 18 Difficulty: Easy Difficulty: Hard Difficulty: Medium Learning Objective: 18-1 Learning Objective: 18-2 Learning Objective: 18-3 Learning Objective: 18-4 Learning Objective: 18-5 Learning Objective: 18-6

6 121 59 21 41 20 5 15 74 6 2