72. Answer: b. A cost centre manager is responsible for controlling and reporting costs only.

Direct
material costs would be a typical cost that needs to be monitored and controlled. Choice a) Since Mary is
not responsible for sales, residual income is not a meaningful measurement. Choice c) Since Mary is not
responsible for sales, gross margin is not a meaningful measurement. Choice d) Not a reasonable
measurement since Mary does not control investment. 73. Answer: d. Estimated departmental
overhead/estimated driver for department: A: $395,000/50,000 machine-hours = $7.90/machine-hour
B: $455,000/$220,000 = 2.068 times direct material cost Choice a) Uses estimated total overhead and
drivers for both departments: $395,000+$455,000/50,000+68,000 machine-hours=$7.20/machine-hour
$395,000+$455,000/$250,000+$220,000=1.809 times direct material cost Choice b) Uses direct labour
hours for A: $395,000/45,000=$8.78/machine-hour Choice c) Uses estimated total overhead and drivers
for A: $395,000+$455,000/50,000+68,000 machine-hours=$7.20/machine-hour Uses direct labour costs
for B: $455,000/$280,000=1.625 74. Answer: c. Department A overhead: $8 x 500 = $ 4,000 Department
B overhead: 2.15 x $20,000 = 43,000 Direct materials: $27,000 + $20,000 = 47,000 Direct labour cost:
$31,000 + $32,000 = 63,000 Total cost $157,000 Choice a) Misses direct materials and labour for
department B: $4,000 + $43,000 + $27,000 + $31,000 = $105,000 Choice b) Mixes up cost drivers:
Department A overhead: 2.15 x $27,000 = $ 58,050 Department B overhead: $8 x 550 = 4,400 Direct
materials: $27,000 + $20,000 = 47,000 Direct labour cost: $31,000 + $32,000 = 63,000 Total cost
$172,450 Choice d) Uses machine-hours for both departments: Department A overhead: $8 x 500 = $
4,000 Department B overhead: $8 x 550 = 4,400 Direct materials: $27,000 + $20,000 = 47,000 Direct
labour cost: $31,000 + $32,000 = 63,000 Total cost $118,400 2013 Sample Entrance Examination CMA
Canada Page 64 75. Answer: d. From the company’s perspective, when all 50,000 units of component
EX1 are sold at $160 to external customers: Contribution margin from sales of 50,000 units $1,650,000
[$160 - ($120 + $7)] x 50,000 units Cost of purchasing 10,000 units from external supplier 1,600,000
$160 x 10,000 units Net contribution $ 50,000 From the company’s perspective, when 40,000 units of
component EX1 are sold at $160 to external customers and 10,000 units supplied to Division A:
Contribution margin from sales of 40,000 units $1,320,000 [$160 - ($120 + $7)] x 40,000 units
Incremental costs of supplying 10,000 units to Division A 1,200,000 $120 x 10,000 units Net contribution
$ 120,000 Division A should purchase 10,000 units from Division B at $164 because there is an increase
in income of $70,000 for the company as a whole. Choice a) There is a cost saving of $40,000 [($164 -
$160) x 10,000 units] to Division A if Division A purchased the 10,000 units from an external supplier. The
statement is FALSE because costs for the company are unchanged. 50,000 units are still produced at the
same cost. Choice b) There is an increase in income of $110,000 {[$164 - ($160-$7)] x 10,000 units} to
Division B if Division B sold the 10,000 units to Division A. The statement is FALSE. Choice c) There is no
idle capacity in Division B when Division A purchased the 10,000 units from an external supplier because
Division B can sell all units produced, i.e. 50,000 units, in the market. The statement is FALSE. 76.
Answer: d. Chemical X $1.00 x (97,900 - 5 x 20,000) = $2,100 favourable Chemical Y $0.40 x (132,000 - 7 x
20,000) = $3,200 favourable Chemical Z $0.20 x (210,100 - 8 x 20,000) = $10,020 unfavourable Total
direct materials quantity variance = $4,720 unfavourable Choice a) Mistakes all three as unfavourable:
($2,100 + $3,200 + $10,020) = $15,320 Choice b) Uses actual prices: X: $1.05 x (97,900 - 5 x 20,000) =
$2,205 favourable Y: $0.36 x (132,000 - 7 x 20,000) = $2,880 favourable Z: $0.18 x (210,100 - 8 x 20,000)
= $9,018 unfavourable Total direct materials quantity variance = $3,933 unfavourable Choice c) Mistakes
Y as unfavourable: (-$2,100 + $3,200 + $10,020) = $11,120 2013 Sample Entrance Examination CMA
Canada Page 65 77. Answer: c. Since the actual total amount of direct materials used (97,900 kg +
132,000 kg + 210,100 kg = 440,000 kg) is greater than the standard total amount of direct materials
allowed for actual production (20 kg x 20,000 bags = 400,000 kg), direct materials yield variance for all
three chemicals in total is unfavourable. Choice a) Direct materials price variance for Chemical X is
unfavourable because actual purchase price ($1.05) is greater than budgeted purchase price ($1.00).
Choice b) Direct materials mix variance for Chemical Y is favourable because actual mix
(132,000/440,000 = 0.30) is less than budgeted mix (7/20 = 0.35). 78. Answer: b. Reducing inventory
levels, through initiatives such as just-in-time management, supply chain management and process re-
engineering, will reduce carrying costs and increase process efficiencies. This is an appropriate objective
from the internal business perspective. Choices a) and c) would be appropriate objectives for a company
with a product differentiation strategy. Choice c) is appropriate from the customer perspective, and
choice d) is appropriate from the learning and growth perspective. 79. Answer: d. North Central ROI
$450,000/$1,950,000 = 23% $600,000/$2,395,000 = 25% RI $450,000 - ($1,950,000 x 15%) = $157,500
$600,000 - ($2,395,000 x 18%) = $168,900 Profit Margin $450,000/$1,750,000 = 26%
$600,000/$2,900,000 = 21% Choice a) North had the better profit margin. Choice b) Amount of assets is
not a convincing performance measurement. Choice c) Central had the better ROI and RI. 80. Answer: d.
Since the East Division has excess capacity, there is no opportunity cost for transferring the motors to the
West Division up to full capacity. Thus, the minimum transfer price acceptable to the East Division is the
incremental costs for manufacturing the motors, $50 per motor (choice a). If the East Division were
operating at full capacity, there would be opportunity costs associated with transferring to the West
Division, and the minimum acceptable transfer price would be $90. On the other hand, since the West
Division can purchase the motors for $90 in the market, this is the maximum transfer price the West
Division is willing to pay (choice c). Since