BUSINESS

1. When implementing a new management accounting and control system, it is BEST:
to allow management to implement their ideas.
for management to involve employees in the implementation.
to involve consultants and implement their experienced ideas.
to engage in benchmarking.

2. Knowledge-based pay for employees is a form of:
input-based reward.
output-based reward.
outcome-based reward.
None of these is correct.
3. When discussing the roles of budgets, a control role includes:
identifying organizational objectives and short-term goals.
developing long-term strategies and short-term plans.
measuring and assessing performance against budgeted amounts.
developing the master budget.
4. All of the following are true of flexible budgets EXCEPT that they:
use the same flexible (variable) cost per unit as the master budget.
result in higher total costs for greater levels of production.
allow comparison of actual results to targets based on the achieved level of production.
reflect the same level of production as the master budget.

5. The sales plan and inventory plan is compared to available productive capacity levels and ________ is determined.
an aggregate plan
a new sales plan
a materials purchasing plan
an administrative and discretionary spending plan

6. The numerator of the rate earned on total assets ratio is equal to
net income
net income plus tax expense
net income plus interest expense
net income minus preferred dividends

7. ________ provide(s) the starting point for developing the operating budget.
The demand forecast
Projected income statement
The production plan
Expected cash flows

8. ________ occur(s) when managers ask subordinates to discuss their ideas about the budget, but no joint decision-making occurs.
Authoritative budgeting
Stretch targets
Consultative budgeting
Budget slack
9. An analysis in which all the components of an income statement are expressed as a percentage of net sales is called
vertical analysis
horizontal analysis
liquidity analysis
common-size analysis
10. The MAJOR criticism of using return on investment (ROI) for financial control is that it:
gives managers an incentive to reject projects with an ROI greater than the company’s required rate of return but less than the department’s current ROI.
usually uses the blended rate of capital as the required rate of return.
encourages competition among segment managers.
is a measure of overall performance.

11. One reason that a common-size statement is a useful tool in financial analysis is that it enables the user to
judge the relative potential of two companies of similar size in different industries.
determine which companies in a single industry are of the same value.
determine which companies in a single industry are of the same size.
make a better comparison of two companies of different sizes in the same industry.

12. To the extent that an ethical hierarchy exists, ________ have the highest authority.
societal norms
legal rules
organizational norms
personal norms

13. A cost center is a business segment:
that usually evaluates employee performance by comparing the center’s actual costs with target or standard costs for the amount and type of work done.
in which interperiod cost comparisons can be misleading if the output level and production mix are constant.
that usually includes individual stores within a department-store chain.

14. The five stages in the process of keeping an organization in control are:
planning, implementing, measuring, evaluating and correcting.
planning, executing, monitoring, evaluating and correcting.
budgeting, implementing, monitoring, evaluation and feedback.
budgeting, executing, measuring, feedback and evaluation.

15. Corporate annual reports typically do not contain which of the following?
management discussion and analysis
SEC statement expressing an opinion
accompanying foot notes
auditor’s report
that should be evaluated solely on its ability to control and reduce costs.

16. Financial budgets are prepared:
to specify expectations for selling, purchasing, and production.
to evaluate the financial results of the proposed decisions.
so that financial statements can be prepared for shareholders.
to plan for production capacity.

17. ________ occur(s) when managers ask subordinates to discuss their ideas about the budget, but no joint decision-making occurs.
Traditional budgeting
Stretch targets
The beyond budgeting approach
Budget slack

18. All of the following encourage ethical behavior among employees EXCEPT:
having a system for employees to point out violations of the organization’s code of ethics without fear of retribution.
dealing promptly and consistently with persons who violate the organization’s code of ethics.
exemplary behavior demonstrated by senior management.
protecting whistle blowers who report unethical behavior who have also acted unethically.

19. Which of the following items appear on the corporate income statement before income from continuing operations?
cumulative effect of a change in accounting principle
income tax expense
extraordinary gain
loss on discontinued operations

20. A balance sheet that displays only component percentages is called
trend balance sheet
comparative balance sheet
condensed balance sheet
common-sized balance sheet

21. L&M Manufacturing produces a single product that sells for $16. Variable (flexible) costs per unit equal $11.20. The company expects the total fixed (capacity-related) costs to be $7,200 for the next month at the projected sales level of 20,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.
Suppose that L&M Manufacturing’s management believes that a 10% reduction in the selling price will result in a 30% increase in sales. If this proposed reduction in selling price is implemented, then:
profit will decrease by $12,800 in a month.
profit will increase by $12,800 in a month.
profit will decrease by $32,000 in a month.
profit will increase by $32,000 in a month.

22. When a subordinate is caught padding an expense report, the supervisor should FIRST:
ignore the incident if it is the first offense.
report the incident to the personnel department.
confront the employee and ask him to submit a corrected expense report.
take action that complies with the organization’s code of ethics.

23. Although planners update or revise the budgets during the period, ________ is typically performed once per year.
zero-based budgeting
periodic budgeting
incremental budgeting
continuous budgeting

24. In a centralized organization:
local-division managers do not need higher approval for most business decisions.
company-wide standard operating procedures are common.
local-division managers have an opportunity to gain decision-making experience.
decisions are made by local division managers.

25. In a management accounting and control system design, behavioral expectations are BEST incorporated by:
using a mix of short-term and quantitative performance measures.
developing a task-related control system.
including the organization’s code of conduct.
monitoring behavior with time and motion studies.

26. Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?
ratio of fixed assets to long-term liabilities
ratio of net sales to assets
number of days’ sales in receivables
rate earned on stockholders’ equity

27. The dimensions of motivation that are important in designing jobs and specific task include all of the following EXCEPT:
persistence.
control.
direction.
intensity.

28. The variance that LEAST affects cost control is the ________ variance.
flexible budget
direct material price
planning
direct labor efficiency
29. Hsu Company reported the following on its income statement:
Income before income taxes  $420,000
Income taz expense   120,000
Net Income  $300,000
An analysis of the income statement revelaed that interest expense was $80,000. Hsu Company’s times interest earned was
8 times
6.25 times
5.25 times
5 times
30. The PRIMARY reason for using cost variances is:
that they diagnose the cause of a problem and what should be done to correct it.
for superiors to communicate expectations to lower level employees.
to administer appropriate disciplinary action.
for financial control of operating activities.

31. Caution should be taken when interpreting a segment margin income statement because:
revenues may be based on transfer prices.
the interactive effects among responsibility centers are generally not clearly captured.
expenses may be a result of subjective allocation of jointly incurred costs.
All of these are correct.

32. Randall Company makes and distributes outdoor play equipment. Last year sales were $4,800,000, operating income was $1,200,000, and the assets used were $6,000,000.
Return on sales, the efficiency component of return on investment (ROI), is:
20%.
80%.
25%.
125%.

33. Feedback systems that force a dialogue among all organizational participants about the data that are coming out of the system and what to do about the data are called:
diagnostic control systems.
monitoring.
preventative controls.
interactive control systems.

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