QUESTION: 45

Which TWO of the following actions taken during the budgetary planning process will result in the creation of budgetary slack?

Overestimating costs
Underestimating costs
Underestimating revenues
Overestimating revenues
Overestimating profit

Answer(s): A,C

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QUESTION: 46

Which of the following statements is NOT correct?

Transfer prices between responsibility centers should be set at a level that:

provides an artificial selling price that enables the transferring division to earn a return for its efforts and the receiving division to incur a cost for benefits received.
enables profit centre performance to be measured 'commercially'.
encourages a balance of goal congruence, managerial effort and centralized management.
encourages profit centre managers to agree on the amount of goods and services to be transferred at a level that is consistent with organizational aims.

Answer(s): C

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An organization produces only two products. Each month it produces 1,000 units of product A and 10,000 units of product B.

Using traditional absorption costing the products have very similar unit costs. However when costs are calculated using activity-based costing (ABC), product A's unit cost is significantly higher than that of product B.

Which of the following factors has the potential to cause this difference?

Select ALL that apply.

ABC cost calculations are not simply volume-related.
ABC costs are driven only by the volume of output.
ABC considers only marginal costs.
ABC uses multiple cost drivers to trace overhead costs to products.
ABC considers only direct costs.

Answer(s): A,D

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QUESTION: 48

The performance report for the production manager of a company for the last month included the following.

1,000 direct labor hours were worked at a basic rate of pay of $10 per hour. 200 of these hours were worked during overtime for which a 30% overtime premium was paid. 80 of these overtime hours were to fulfill a customer order that had originally been planned for manufacture next month. The sales manager had agreed to bring forward the delivery of this order at the request of the customer. The remaining overtime hours were due to unexpected inefficiency of the workforce; this has been traced to poor supervision by a junior manager.

Material costs included the following:

$5,300 of material A. Material A is a commodity and, due to changes on the global market, the actual unit cost of this material for last month was 6% higher than had been expected
$5,250 of material B. The usage of material B last month was 5% higher than it should have been due to faulty workmanship on the production line.

What is the total value of the above costs that was controllable by the production manager?

$20,610
$19,810
$20,910
$20,360

Answer(s): A

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