MARK JAYSON T. PENAFIEL PROF. LEANDRO C.

FUA
BSA 4-1

CHAPTER 8 (EVEN)
REVIEW QUESTIONS

2. How are journal vouchers used as a control mechanism?

 Journal vouchers are used as a control mechanism by only being approved
by responsible managers, which prevents unauthorized entries. Since every
entry has proper information about transactions amounts and summaries of
transactions, it's considered a control mechanism.

4. What is the purpose of the general ledger history file?

 The purpose of the general ledger history file is responsible for providing the
historical financial data of the past situations. Information from these files can
help with comparing financial reports.

6. List the primary users of the FRS and discuss their information needs.
 The primary recipients of financial statement information are external users,
such as stockholders, creditors, and government agencies. Generally
speaking, outside users of information are interested in the performance of
the organization as a whole. Therefore, they require information that allows
them to observe trends in performance over time and to make comparisons
between different organizations. Given the nature of these needs, financial
reporting information must be prepared and presented by all organizations in
a manner that is generally accepted and understood by external users.

8. What assumption is made regarding the external users of financial statements?

 The statements are prepared on the assumption that the users understand
the conventions and accounting principles that are applied, and that the
financial statements have information content and useful.

10. What tasks should the general ledger clerk not be allowed to do?
 The general ledger clerk isn't allowed to have responsibility of maintaining
special journals or general ledgers, preparation of journal vouchers, control
and custody of physical assets.

12. Explain which of the four potential exposures in the FRS may be controlled better by
a close examination of the journal voucher listing.
 Should help uncover any journal voucher in error, either incorrect or
unauthorized

14. What does XBRL stand for?

 XBRL stands for extensible business reporting language and is another type
of internet standard. XBRL is based on XML and is designed for providing

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 global standards for the exchange of business information and also to provide
for their preparation and publishing. Things are automated instead of manual

16. What is an XBRL instance document?

 An XBRL instance document is a financial statement of a company or part of
it. It denotes the actual financial reports of the organization or financial
communities. Can be viewed as an application to taxonomy business
reporting data.

18. Explain how the formalization of tasks promotes internal control.

 Responsibility refers to an individual's obligation to achieve desired results.
Authority refers to the empowerment of an individual to make decisions
regarding the obligations that he/she may be assigned. Thus, if a person is
held accountable for certain tasks, he/she must be given the authority and
power to affect the outcomes.

20. Distinguish between narrow and wide span of control. Give an example of tasks
appropriate to each type.
 Wide spans of control have fewer managers/supervisors and more
subordinates. Whereas, a narrow span of control has more
managers/supervisors and fewer subordinates.
 Usually the span of control is dependent on the activity performed. If the
activity is more routine and structured in nature the less control is needed and
a manager can supervise more subordinates.

22. Identify instances for which feedback becomes useless in helping to control
activities.
 When it’s too late.

24. What are the three elements that distinguish structured and unstructured problems?
Give an example of each type of problem. Which types of problems is more suitable to a
transaction processing system?

 Problems are classified into two types: Structured and Unstructured. The three
elements that distinguish structured and unstructured problems are as follows:

1. Data—the values used to represent factors that are relevant to the problem.
2. Procedures—the sequence of steps or decision rules used in solving the
problem.
3. Objectives—the results the decision maker desires to attain by solving the
problem.

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 PROBLEM STRUCTURE
When all three elements are known with certainty, the problem is structured.
Payroll calculation is an example of a structured problem:
1. We can identify the data for this calculation with certainty (hours worked,
hourly rate, withholdings, tax rate, and so on).

2. Payroll procedures are known with certainty:

Gross pay = Hours worked x Pay rate
Net pay = Gross pay x Taxes x Withholdings

3. The objective of payroll is to discharge the firm’s financial obligation to its

employees.

Structured problems do not present unique situations to the decision

maker and, because their information requirements can be anticipated, they are
well suited for traditional data processing techniques. In effect, the designer who
specifies the procedures and codes the programs solves the problem.

Unstructured Problems

Problems are unstructured when any of the three characteristics identified

previously are not known with certainty. In other words, an unstructured problem
is one for which we have no precise solution techniques. Either the data
requirements are uncertain, the procedures are not specified, or the solution
objectives have not been fully developed. Such a problem is normally complex
and engages the decision maker in a unique situation. In these situations, the
systems analyst cannot fully anticipate user information needs, rendering
traditional data processing techniques ineffective.

 Structured Problems is more suitable to a transaction processing system.

26. What are two objectives that enable reports to be considered useful?
 Characteristics of a report.
 To be effective, a report must possess the following attributes: relevance,
summarization, exception orientation, accuracy, completeness, timeliness,
and conciseness.

28. What is responsibility accounting?

 Concept that every economic event affecting the organization is the responsibility
of and can be traced to an individual manager. The responsibility accounting
system personalizes performance by saying to the manager, ‘‘This is your
original budget, and this is how your performance for the period compares to
your budget.’’ Most organizations structure their responsibility reporting system
around areas of responsibility in the firm. A fundamental principle of this concept
is that responsibility area managers are accountable only for items (costs,
revenues, and investments) that they control.

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 30. What are the three most common forms of responsibility centers?
 Cost centers are organizational units with responsibility for cost management.
 Profit centers have responsibility for both cost management and revenue
generation.
 Investment centers have responsibility for cost management, revenue
generation, and also the investment and use of assets.

32. What is data mining?

 Data mining is the process or strategy of finding, determining, and discovering
patterns for the purpose of uncovering relationships among data sets.
Extracts information from large databases.

34. What is information overload?

 Information overload is when the information received by the manager
contains too much information and makes it hard to make and optimal
decision or understand the issue.

36. Explain how ad hoc reports have allowed managers to make timelier and better
quality decisions. Give an example.
 Ad Hoc reports have allowed managers to make timely and better decisions
because it contains all the information and data in one central unit so that
managers can quickly produce ad hoc reports without the use of data
processing professionals.

38. What types of variances are found on cost center reports? Explain what each
variance is measuring and why this information is important.
 A cost center is an organizational unit with responsibility for cost management
within budgetary limits. The variances found in cost center reports are:
 Labor Variances
- The logic for direct labor variances is very similar to that of direct
material. The total variance for direct labor is found by comparing
actual direct labor cost to standard direct labor cost. If actual cost
exceeds standard cost, the resulting variances are unfavorable and
vice versa. The overall labor variance could result from any
combination of having paid laborers at rates equal to, above, or below
standard rates, and using more or less direct labor hours than
anticipated.
 Material Variances
- Material variances compares actual raw material cost with budgeted
material cost. It also compares the actual quantity of raw material used
with budget quantity of raw material requires.
- It helps a user to control a wastage of raw material and maintain
appropriate input-output ratio.

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  Overhead Variances
- Overhead variances are a bit more challenging to calculate and
evaluate. As a result, the techniques for factory overhead evaluation
vary considerably from company to company. To begin, recall that
overhead has both variable and fixed components (unlike direct labor
and direct material that are exclusively variable in nature). The variable
components may consist of items like indirect material, indirect labor,
and factory supplies. Fixed factory overhead might include rent,
depreciation, insurance, maintenance, and so forth. Because variable
and fixed costs behave in a completely different manner, it stands to
reason that proper evaluation of variances between expected and
actual overhead costs must take into account the intrinsic cost
behavior. As a result, variance analysis for overhead is split between
variances related to variable overhead and variances related to fixed
overhead.
For example, a production department may be responsible for meeting its production
obligation while keeping production costs (labor, materials, and overhead) within the
budgeted amount. The performance report for the cost center manager reflects its
controllable cost behavior by focusing on budgeted costs, actual costs, and variances
from budget. Performance measurements should not consider costs that are outside the
manager’s control, such as investments in plant equipment or depreciation on the
building.

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