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Question Paper Management Control & Information Systems - I (MB2F3): October 2008
Answer all 86 questions.
Marks are indicated against each question. Total Marks : 100
1. Which of the following controls is said to be exist when an organization has a predetermined plan for achieving a set goal/objective, but does not have a system for modifications or adjustments to its plan once the planned activities have commenced? (a) (b) (c) (d) (e)
Feedback controls Informal controls Formal controls Open loop controls Closed loop controls.
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2. In which of the following organizational structures, the employees are grouped based on their expertise and skills? (a) (b) (c) (d) (e)
Divisional structure Matrix structure Horizontal structure Flexible structure Functional structure.
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3. Geert Hofstede discussed the different criteria which help in management control of public/nonprofit organizations. Different combinations of these criteria give rise to different types of controls. Which of the following is not such a control? (a) (b) (c) (d) (e)
Routine control Trial and error control Economic control Intuitive control Expert control.
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4. Standard cost center is also referred to as I. Divisional expense center. II. Engineered expense center. III. Discretionary expense center. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (II) above Both (II) and (III) above.
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5. Key performance indicators deal with aspects which when improved upon lead to radical performance improvements. Which of the following would be the primary yardstick(s) that serve(s) as measurable performance indicator(s) for restaurants? I. Occupancy level. II. Repeat customers. III. Frequency of repeat customers. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (II) above Both (II) and (III) above.
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6. Which of the following centers generally would formulate their budgets first? (a) (b) (c) (d) (e)
Budget centers Expense centers Cost center Profit centers Revenue centers.
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7. Factory Overhead is calculated as (a) (b) (c) (d) (e)
[Budgeted fixed overhead + (Budgeted variable overhead rate × Direct labor hours needed for production)] Standard rate (Standard hours for actual production – Budgeted hours) Actual output × Standard variable overhead rate – Budgeted variable overheads [Budgeted variable overhead + (Direct labor hours needed for production × Standard overhead rate per hour)] [Direct labor hours needed for production- (Budgeted fixed overhead Rate× Budgeted variable mark overhead rate)]. (2 s)
8. In Zero-based Budgeting (ZBB), the responsibility centers are called as (a) (b) (c) (d) (e)
Tree units Umbrella units Decision units Package units Decision packages.
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9. Top management plays a crucial role in influencing the organizational culture. The nature of interaction between the top management and the organizational culture may be in the form of different kinds of strategic business profiles. Which of the following profile would perform well if the business environment is dynamic? (a) (b) (c) (d) (e)
Rigid/efficient profile Flexible/inefficient profile Flexible/cost conscious profile Rigid/inefficient profile Rigid/cost conscious profile.
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10Costing details of the Whitening, toothpaste brand of Bharat Limited for 2007-08 are as follows: . Particulars Whitening Planned sales units 35,00,000 Actual number of units sold 40,00,000 Estimated market size 60,00,000 Actual market size 50,00,000 Standard selling price per unit Rs.20 Actual selling price per unit Rs.18 Standard margin per unit Rs.10 The Sales volume variance for Whitening is (a) (b) (c) (d)
Rs.20,00,000 Rs.50,00,000 Rs.30,00,000
(e)
Rs. 6,00,000.
Rs.40,00,000 (2
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11On the basis of object of control, management controls can be classified into action controls, result . controls and personnel controls. Action controls may be implemented in which of the following forms? I. II. III. IV. (a) (b) (c) (d) (e)
Behavioral restrictions. Pre-action appraisal. Action accountability. Post-action appraisal. Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above All (I), (II), (III) and (IV) above.
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12Closed loop mechanisms are classified into feedback control and feedforward control. Which of the . following is/are true about feedforward control? I. It is used in cash flow forecasting and management. II. It detects deviations from the plans before they occur. III. It is a follow-up control and helps in the diagnosis of the reasons for deviations. (a) (b) (c) (d) (e)
Only (I) above Only (III) above Both (I) and (II) above Both (II) and (III) above All (I), (II) and (III) above.
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13According to Christopher Bartlett and Sumantra Ghoshal, organizations can choose from the various . strategies for doing international business. Transnational strategy is one of such strategies. Which of the following is true regarding the ‘Transnational’ strategy? (a) (b) (c) (d) (e)
In this strategy there is usually a one-way flow of know-how from the parent organization to the subsidiary This strategy involves transfer of know-how and/or products developed in the home country to foreign markets where they are scarce or unavailable This strategy involves adapting to local requirements by customizing both product and marketing strategy This strategy is used when there is not much of a pressure on cost reduction or local responsiveness This strategy aims at achieving both cost reduction and local adaptability while encouraging a mark two-way flow of know-how between the parent organization and subsidiary. ) (1
14Which of the following is a limitation of the ‘Matrix organization structure’? r rel="nofollow"> . (a) There is the lack of coordination between different departments and a myopic view prevailing among employees regarding organizational objectives (b) There is the negative impact of some decisions on other divisions (c) It will fail if the participants are not mutually respectful (d) More time is taken by organization to identify core processes mark (e) Employees require a great deal of training in varied areas in order to be effective. (1 ) 15Performance indicators can either be lead indicators or lag indicators. Lead indicators are . (a) Outcome indicators (b) Performance drivers (c) Input indicators (d) Achievable indicators (e) Measurable indicators.
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16The information that goes into making budgets come from all the functions and processed and . compiled by the budget department. The budget formulation consists of a series of activities. Which of the following are budget activities? I. II. III. IV. (a) (b) (c) (d) (e)
Developing budget proposals at the department/business unit level. Determining the budget period and key budget factors. Benchmarking the budget. Developing guidelines for budget preparation. Both (I) and (II) above Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above All (I), (II), (III) and (IV) above.
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17The budgeted units of production can be calculated as r rel="nofollow"> . (a) The number of units sold, plus the desired ending finished goods inventory, plus the beginning finished goods inventory (b) The number of units sold, minus the desired ending finished goods inventory, plus the beginning finished goods inventory (c) The number of units sold, minus the desired ending finished goods inventory, minus the beginning finished goods inventory (d) The number of units sold, plus the desired ending finished goods inventory, minus the beginning finished goods inventory (e) The number of units sold, plus, the product of desired ending finished goods inventory and the beginning mark finished goods inventory. (2 s)
18Budgeted Cost of Goods Sold is calculated as r rel="nofollow"> . (a) (Budgeted Total Manufacturing Cost + Beginning Raw material-Ending Finished Goods) (b) (Budgeted Total Manufacturing Cost + Beginning Finished Goods-Desired Ending Finished Goods) (c) (Budgeted Total Selling Cost + Beginning Finished Goods – Ending Finished Goods) (d) (Budgeted Total Manufacturing Cost + Beginning Finished Goods – Ending Finished Goods) mark (e) (Budgeted Total Selling Cost + Beginning Raw material – Ending Finished Goods). (2 s)
19Which of the following is not one of the types of targets used for period-to-period reporting for . tracking performance? (a) (b) (c) (d) (e)
Vertical line Step Seasonal Growth curve Flat line.
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20Internal performance reports are intended to measure the performance of the organization in a . periodic form from time to time. Which of the following are the types of internal performance reports? I. II. III. IV. (a) (b) (c) (d) (e)
Progress report of the project. Auditor’s report. Variance reports. Trend charts of the sales of the organization. Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (III) and (IV) above.
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21Which of the following concepts has been said to be implemented in an organization when, top . management decides on the organizational goals, while the departmental heads decide on the functional and individual goals in discussion with the employees and these functional and individual goals are aligned with the organizational goals after the objectives have been decided upon, the targets are set and revised as required? (a) (b) (c) (d) (e)
Management by control Management by walking around Management by objectives Management by exception Bottom-up management.
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22A management control system may be viewed as a collection of controls that are used to address . which of the following situation(s)? I. Managers and employees have a clear idea of what is expected of them. II. Managers and employees have a fair idea of what is expected but do not feel motivated. III. In spite of knowing about the expectations and having sufficient motivation for performance, managers and/or employees are not able to perform. (a) (b) (c) (d) (e)
Only (I) above Only (III) above Both (I) and (II) above Both (II) and (III) above All (I), (II) and (III) above.
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23A company-owned sales outlet like the Pantaloons Flagship stores is an example of which of the . following centers? (a) (b) (c) (d) (e)
Expense center Profit center Investment center Revenue center Cost center.
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24Personnel ratio is among the various structural dimensions of an organization design as proposed by . Richard L. Daft. It is calculated as (a) (b) (c) (d) (e)
Number of employees in a particular function/Total number of people in the organization Number of employees in an organization/Total number of people in the department Number of employees in a particular function/Total number of employees in a department Number of employees in one organization/Total number of people in another organization Number of employees in a middle level management/Total number of people in the lower level mark management. s) (2
25Which of the following would be the ‘Critical Success Factors’ (CSFs) for retail chains such as . ‘Spencer’s’? I. II. III. IV. (a) (b) (c) (d) (e)
Store location. Expiry of the products. Pricing. Taxes. Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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26Budgets are business plans that are stated in quantitative terms and are usually based on estimations. . Which of the following is false regarding budgets? (a) (b) (c) (d) (e)
Budgets can be used to evaluate the performance of the operations of the organization as well as the performance of the employees against set standards Budget preparation is done only by the top management and does not require the participation of managers from different functions/departments Budgets help in the delegation of authority and allocation of responsibility and accountability to more people in an organization Budgets are used as forecast tools Budgets act as a means to verify the progress of the various activities undertaken to achieve the mark planned objectives. (1 )
27Preparation of an operating budget is one of the principal steps in the preparation of the master . budget. Which of the following are included in the operating budget? I. II. III. IV. (a) (b) (c) (d) (e)
Cash budget. Cash collections from customers. Disbursements for purchases. Budgeted balance sheet. Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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28Operating expenses are influenced by fluctuations in the sales volume and other cost-driven . activities. Which of the following is not an example of cost-driven activities? (a) (b) (c) (d) (e)
Sales commission Insurance Rent Depreciation Salaries.
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29Identify the correct sequence of steps followed in the Zero-based Budgeting (ZBB) process. r rel="nofollow"> . (a) Decisions unit identification → Decision package development → Evaluation and grading of decision packages → Resource allocation (b) Decisions unit identification → Evaluation and grading of decision packages → Decision package development → Resource allocation (c) Decisions unit identification → Resource allocation → Decision package development → Evaluation and grading of decision packages (d) Decision package development → Decisions unit identification → Evaluation and grading of decision packages → Resource allocation (e) Decision package development → Evaluation and grading of decision packages → Resource mark allocation→ Decisions unit identification. (2 s)
30The information to be provided in a performance report consists of a title and is described by the . number and types of the variables. If the information has the title, “Market capitalization in Rs., for Omkara Industries, from ‘year’ 2007-08”, then ‘year’ can be identified as which of the following variables ? (a) (b) (c) (d) (e)
Ordinal variable Scalar variable Continuous variable Categorical variable Numerical variable.
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31Organizational slack refers to that capacity in an organization which is in surplus of what is required . for normal operations. Slack may be said to exist under which of the following circumstances? I. II. III. IV. (a) (b) (c) (d) (e)
Pricing products higher than is necessary for retaining customers. Giving higher remuneration to employees than is necessary for retaining them. Setting targets lower than expected performance. Over utilizing resources. Both (I) and (II) above Both (I) and (III) above Both (I) and (IV) above Both (II) and (III) above (I), (III) and (IV) above.
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32Which of the following is an important technique to measure the contribution of individual centers . to the overall organizational goals, and to ensure that performance measurement systems are designed to be fair? (a) (b) (c) (d) (e)
Goal congruence Transfer pricing Controllability Responsibility centers Expense centers.
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33Managers must find ways to encourage employees to be creative and to initiate process . improvements, but must still retain enough control to ensure that employee creativity benefits the organization. Robert Simons proposed the concept of ‘levers of control’ to address this issue. In this context, which of the following are true about the ‘Diagnostic’ control systems, one of the levers of control? I.
This system helps organizations in positioning themselves strategically in a rapidly changing market. II. This system works well if the goals are reasonable and attainable. III. This system works on the premise that empowered employees should not be given the freedom to do whatever they want. IV. This system relieves managers of the task of constantly monitoring employees and is very useful for detecting problems. (a) (b) (c) (d) (e)
Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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34For effective control, the management needs to determine an optimal span of control for the . organization. Which of the following structures provides closer supervision and tighter control by supervisors? (a) (b) (c) (d) (e)
Tall structure Short structure Flat structure Informal structure Formal structure.
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35The internal business process perspective of the Balanced Scorecard (BSC) performance . measurement framework refers about the processes, decisions and actions internal to the organization. Which of the following are the internal factors considered in the internal business process perspective? I. II. III. IV.
Cycle time. Quality. Employee skills. Increasing shareholders value.
(a) (b) (c) (d) (e)
Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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36The budgeting process in an organization, if linked to compensation, tends to lead to unethical . behavior on the part of employees, apart from being time consuming and expensive. Which of the following methods are used to prevent the employees from using unethical means to achieve targets? I. II. III. IV. (a) (b) (c) (d) (e)
The incentives should be directly linked to the set targets only. The compensation levels should have a lower and higher limit. If the achievement is higher than the set targets, the rewards should exceed the upper limit. Managers should define the performance measures properly. Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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37Which of the following calculations is done, while preparing the budgeted income statement in order . to obtain budgeted net income? (a) (b) (c) (d) (e)
Combining the sales, cost of goods sold, income taxes and then subtracting selling and administrative expenses, interest and bad debts Combining the sales, cost of goods sold and selling and administrative expenses and then subtracting interest, bad debts and income taxes Combining the sales, income taxes and then subtracting selling and administrative expenses, interest, bad debts and cost of goods sold Combining the sales, cost of goods sold, selling and administrative expenses and bad debts and then subtracting interest and income taxes Combining the sales and selling and administrative expenses and then subtracting interest, bad mark debts, cost of goods sold and income taxes. (2 s)
38Which of the following is the disadvantage of Zero-based Budgeting (ZBB)? r rel="nofollow"> . (a) ZBB involves creation of decision units and decision packages, it gives a clearer picture of the organization’s working (b) ZBB involves identification of decision units, the manager of every decision unit will portray his/her own unit as the most important and get a higher budget approved for it (c) ZBB involves itself in devising a more realistic budget as the resources are allocated depending on the ranking of the decision packages (d) ZBB involves itself in fostering better communication and participation between the different functions of the organization (e) ZBB involves itself in performance evaluation of subordinates and aids the top management in mark advanced planning and goal setting for the budget period. (1 )
39Market orientation enables an organization to be constantly vigilant about market conditions and to . respond promptly to the changes in customer needs and wants in order to compete effectively in the dynamic business environment. Market-oriented organizations are also known as (a) (b) (c) (d) (e)
Leaning-oriented organizations Learning-oriented organizations Adoptive-oriented organizations Product-oriented organizations Growth-oriented organizations.
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40Which of the following defines Sales mix variance? r rel="nofollow"> . ∑[(Standard margin per unit- Standard average margin per unit) × ( Actual sales – Actual sales (a) at standard sales mix)] (b) Planned sales× (Total actual sales/Total planned sales) (c) ∑[Standard margin per unit × ( Actual total sales - Planned total sales)] (d) ∑ [(Standard average margin per unit) × (Total actual market size) × (Total actual market size % – Total planned market share %)] mark (e) ∑[Actual sales revenue – (Actual sales volume × Standard selling price per unit)]. (2 s)
41Which of the following is/are true about ‘Management Audit’? . I. Management audits checks operational aspect of an organization. II. Management audit is an appraisal activity used to evaluate organizational performance. III. Management audits are used to examine the organization structure, constituents, objectives, etc. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (II) above Both (II) and (III) above.
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42Which of the following ratios measures the company’s effectiveness in generating revenue from . investments in total assets? (a) (b) (c) (d) (e)
Fixed assets turnover ratio Debtor’s turnover ratio Inventory turnover ratio Total assets turnover ratio Debt-assets ratio.
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43XT Company has furnished the following data relating to ‘Shiny Shampoo’ for the month of . September 2008: Actual number of units sold Actual selling price per unit
5,000 (Rs.)
8
Standard selling price per unit (Rs.)
15
Sales price variance of the product is (a) (b) (c) (d) (e)
Rs. 20,000 (Favorable) Rs. 35,000 (Favorable) Rs. 40,000 (Favorable) Rs. 35,000 (Adverse) Rs. 20,000 (Adverse).
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44Critical or essential information that can influence the decisions of the stakeholders is considered as . material information. Which of the following statements is/are false regarding ‘materiality’ of the information? I. II.
Materiality is not influenced by the legal and statutory requirements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. III. Judgment regarding materiality constitutes an evaluation of only quantity of misstatement in the financial statements. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
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45Which of the following has to certify that the financial statements of a company have been prepared . without violating accounting rules and the principles of accounting? (a) (b) (c) (d) (e)
Director of the company President of the company Chief executive officer of the company Statutory Auditor of the company Government.
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46Audit risk is the risk of an auditor failing to detect actual or potential material losses or account . misstatements at the conclusion of the audit. Control risk is one of the components of audit risk. Which of the following statements is/are true regarding control risk? I.
Control risk is the risk that the auditor’s substantive procedures will not detect an error which could be material, individually or in combination with other errors. II. Control risk is the risk of a material misstatement assuming that there are no related internal control structure policies or procedures. III. Control risk is the risk that a material misstatement could occur in an assertion for an account balance or class of transactions, and would not be prevented or detected on a timely basis by the internal control policies and procedures. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
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47For the audit evidence to be useful enough to form a reasonable basis for the auditor’s professional . opinion, it has to fulfill criteria like sufficiency and appropriateness. Sufficiency of audit evidence relates to (a) (b) (c) (d) (e)
The quality of the audit evidence The amount or quantum of audit evidence The materiality of information The source of the audit evidence The relevance and reliability of information.
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48Social audit is a systematic attempt to identify, analyze, measure, evaluate and monitor the effect of . an organization’s operation on the society. Constituency group attitudes audit is one of the social audits identified by Fredrick, Myers and Blake. Which of the following are false regarding ‘Constituency group attitudes audit’? I.
This type of audit is conducted to evaluate an organization’s social performance in terms of social indicators that signify public interest. II. This audit is conducted to assess the performance of organizations with respect to some area of social or public concern. III. This type of audit is conducted to ascertain how corporate actions affect employees or the general public in different ways. IV. This type of audit requires quantification of social costs and income. (a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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49Management auditing is proactive: it provides an early-warning signal of managerial problems and . related operational difficulties. One of the classes of management audits is propriety audits. Which of the following statements is true about ‘Propriety’ audits? (a) (b) (c) (d) (e)
In propriety audits, auditors are asked to identify the gaps between the organization’s existing policies and objectives and its actual practices Propriety audits are conducted to ensure that resources are utilized in such a way that they generate the best returns A propriety audit measures the difference between the actual performance of an organization and its objectives, with emphasis on a particular function Propriety audits are conducted to examine the effects of the management’s decisions and actions on society and the general public Propriety audits indirectly measure the workplace compliance and are particularly effective as a mark means of self-assessment for small organization as well as large global corporations. (1 )
50Mirinda Ltd., is undergoing an audit, where the probability of existence of a material misstatement . has been assessed to be 20% and there be a 10% probability of the internal control system preventing or detecting this occurrence of material misstatement. If the internal control system fails to do so, let there be a 40% probability of the auditor detecting this misstatement, then the audit risk in this particular situation will be (a) (b) (c) (d) (e)
20.0% 10.0% 10.8% 20.6% 40.0%.
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51A financial statement audit is conducted to examine the correctness of financial statements. In case . of financial statement audit, the audit report should be prepared based on which of the following guideline(s)? I.
The audit report should contain information on whether the financial statements of the organization conform to the GAAP. II. The report should state the opinion of the director regarding the fairness of the financial statements of the organization. III. If the disclosures in the financial statements are not adequate, the audit report should explicitly say so. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
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52Amity Steel Ltd., is selling steel to its subsidiary Hong Ko in China. If the rate charged by Amity in . India is the same as the current market price – as if the transaction is taking place between two unrelated organizations, then the method of estimating transfer pricing is known as (a) (b) (c) (d) (e)
Negotiated pricing method Resale price method Cost plus method Comparable uncontrolled price method Profit split method.
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53Apart from the objectives of the transfer pricing policy between responsibility centers in domestic . operations, multinational corporations must take into consideration several other factors for arriving at their transfer pricing policy that is applicable between the legal entities in different countries. Which of the following is not one of such factors? (a) (b) (c) (d) (e)
Competitive pressure The impact of taxes Domestic rate fluctuations Corporation’s country-specific preferences for investing funds The impact of tariffs.
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54Verification is one of the audit procedures which are intended to ascertain the accuracy, reliability, . validity of assets, records, statements, conformance to rules and regulations etc. Various procedures are involved in the verification process. Verifying recorded transactions or amounts by examining supporting documents is which of the following procedures of verification? (a) (b) (c) (d) (e)
Trace Vouch Examine Count Confirm.
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55In Resale Price (RP) method, transfer price is determined by r rel="nofollow"> . (a) Calculating back from the transaction taking place at the next level of the supply chain, by deducting a suitable mark-up from the price at which the internal buyer sells the item to an unrelated third party (b) Organizations transfer goods and services between their profit centers at a price equal to the prevailing open market price for those goods and services (c) Calculating the cost of the products and services (d) Crediting the revenue to the manufacturing unit at the market sales price while the buying unit is charged for the total standard costs (e) Transferring the product to the marketing unit at the standard variable cost. After the product is finally sold, the business units share the profit earned on the basis of contribution made by each mark of them. (1 )
56The ethical system of an individual consists of his/her ethical philosophy and ethical decision . ideology. Utilitarianism is among the different ethical philosophies that individuals follow under different situations in an organizational set-up. Which of the following is/are true regarding ‘Utilitarianism’? I.
Utilitarianism recommends that a course of action that achieves ‘the greatest good for the greatest number of people is ethical’. II. Utilitarianism recommends safeguarding the rights of individuals, such as the right to be informed, right to free speech and right to due process. III. Utilitarianism recommends that individuals should be accountable only for factors which are under their control. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
(2
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57The management can use various conflict resolution techniques. Which of the following reflect . ‘conflict avoidance’? I. II. III. IV.
Forcing. Smoothing. Bargaining. Problem solving.
(a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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58Which of the following statements is/are true regarding ‘Two sets of prices’ which is one of the . transfer pricing methods? I.
A disadvantage of this method is that it is difficult to maintain a separate account each time a transfer of goods is made. II. There is a disagreement over the way the profits are divided between the concerned divisions. III. This method is used when there are frequent conflicts between the buying and selling units, which cannot be resolved by any method. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
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59Which of the following transfer pricing methods is applied when the transactions between units are . much too integrated to be evaluated separately and the existence of intangibles makes it impossible to establish compararability with market conditions? (a) (b) (c) (d) (e)
Two-step pricing Two sets of prices Profit sharing Cost-based pricing Market-based pricing.
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60Ethical decision ideology is concerned with how different individuals apply their ethical . philosophies for decision-making when faced with ethical dilemmas. Which of the following persons is called as ‘Subjectivist’, one of the classifications of ethical decisions ideologies? (a) (b) (c) (d) (e)
A person who scores high on idealism and low on relativism A person who scores high both on idealism and relativism A person who scores low on idealism and high on relativism A person who scores low on both idealism and relativism A person who believes in strictly following the universally accepted ethical principles.
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61Several organizational factors directly impact the behavior of employees and the ethical decision. making process. Position-related factors influence ethical behavior. Which of the following is not one of the position-related factors? (a) (b) (c) (d) (e)
Peer pressure The presence or absence of a code of conduct Tax structure Superior-subordinate relationships The expectations of the top management regarding achievement of objectives.
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62The reward system in an organization may be both monetary and non-monetary. Monetary rewards . include I. II. III. IV.
Incentives. Bonuses. Travel allowance. Employee stock option plans.
(a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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63According to Lawrence Kohlberg, one of the individual factors that have major impact on ethical . behavior is the stage of moral development. The extent to which the manager’s moral judgment depends on outside influences decreases with each successive stage. Which of the following is/are true about ‘Post-conventional level’? I.
Managers perceive moral values as important for living up to the expectations of others and maintaining the social order. II. Managers decide whether an act is right or wrong depending on personal consequences like punishment, favors or rewards. III. Managers frame ethical principles without regard to social pressures. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
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64The current ratio measures the capability of the organization to meet its current liabilities. For most . of the manufacturing companies the acceptable current ratio is (a) (b) (c) (d) (e)
2 2 to 4 1.5 2 to 3 3.
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65Financial statements and financial ratios are extensively used as tools of financial control. Which of . the following tools of financial control, helps to analyze the performance of the business units or divisions within an organization? (a) (b) (c) (d) (e)
Economic value added Market value added Cash flow return on investments Strategic profit model Segment margin report.
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66Which of the following is a measure of performance of the business which is not affected by tax or . interest charges? (a) (b) (c) (d) (e)
Return on equity Return on capital employed Net profit margin Earning power Gross profit margin.
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67In order to regulate ethical conduct, one of the practices followed by organization is, constituting an . Ethics Committee. Which of the following are the responsibilities of the ethics committees? I. Ascertaining that all employees are appropriately trained in the organization’s code of ethics. II. Communicating the importance of ethical values and ethical business practices. III. Establishing proper systems for monitoring the ethical implications of activities and performance, and ignoring unethical activities. IV. Creating avenues for employees to openly discuss ethical issues that they face. (a) (b) (c) (d) (e)
Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (IV) above (II), (III) and (IV) above.
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68Which of the following is true about ‘Debt service coverage ratio’? r rel="nofollow"> . (a) It is a measure to determine how easily a company can pay the interest due on an outstanding debt (b) It is a measure used to indicate the organization’s ability to meet fixed financing expenses (c) It is a measure of the cash flow available to meet annual interest and principal payments on debt (d) It is a measure that indicates the time taken by a company to collect its account receivables (e) It is a measure used to assess the effectiveness with which the organization utilizes external mark funding to improve return to shareholders. (1 )
69Which of the following are to be considered while using financial ratios as a financial control . mechanism? I.
The use of the ratios as a tool of control should be limited to the end of the financial period or year. II. The trend in the value of a ratio over time is often a better indicator of an organization’s progress (or lack of it) on a particular dimension. III. A high ratio always indicates a good performance. IV. The mere calculation of the financial ratios of an organization will not reveal much. (a) (b) (c) (d) (e)
Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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70Financial control pertains to processes within the finance department as well as to processes in the . entire organization. Which of the following components of financial control is in-built in business processes to prevent and/or detect errors during the regular course of business? (a) (b) (c) (d) (e)
Financial policies or procedures Book-keeping Segregation of duties Financial information system Controlling assets.
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71Which of the following ratio gives an indication of whether the organization is earning adequate . revenues and profits through the efficient use of its capital? (a) (b) (c) (d) (e)
ROE ROCE ROA RONW ROI.
72Acid test ratio is also known as . (a) Cash ratio (b) Current ratio (c) Quick ratio (d) Debt equity ratio (e) Leverage ratio.
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73Which of the following is an act whereby an employee of an organization informs the higher . authorities or public about the unethical practices taking place in the organization (a) (b) (c) (d) (e)
Kickback Whistleblowing Slack Corporate counsel Moral judgment.
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74The purchase accounting systems aim to achieve which of the following financial control goals? . I. Keeping a close watch over the timeliness and value of cash and bank outflows to vendors. II. Analyzing the input costs of various responsibility centers, products, etc. III. Optimizing inventory holding costs. IV. Ensuring that purchases are made at an optimal cost. (a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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75Grocery chains that sell fresh fruits and vegetables have which of the following type of ratio? . (a) High inventory turnover ratio (b) Low inventory turnover ratio (c) Insufficient inventory turnover ratio (d) Inventory turnover ratio lower than manufacturing industry (e) Inventory turnover ratio lower than service industry.
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76Which of the following are not the advantages of Economic Value Added (EVA)? . I. EVA helps to link the strategic planning function with the operating divisions and it eliminates the mistrust that typically exists between the operations and finance departments. II. It provides better goal congruence than ROI. III. It helps in identifying the best way to achieve a company’s financial targets through systematic control and evaluation of profit margin management, asset management and debt management. IV. It does not take into consideration size differences across the plants or divisions. (a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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77Home Made Ltd., is a company with two main business units - a food division and a furnishing . division. It has furnished the following data for furnishing division for the year 2007-08: Particulars Sales Variable cost Traceable fixed cost
Rs. in lakhs 700 400 70
Segment margin for Home Made Ltd., for the year 2007-08 is (a) (b) (c) (d) (e)
Rs.730 lakhs Rs.330 lakhs Rs.230 lakhs Rs.470 lakhs Rs.300 lakhs.
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78Which of the following is/are true about Market value to book value ratio? . I. It is desirable to have a market value to book value ratio greater than 1. II. The market value to book value ratio is an indication of the organization’s contribution to wealth creation in society. III. This ratio measures the rate of return earned by shareholders. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (II) above All (I), (II) and (III) above.
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79Which of the following provides a more realistic picture of the performance of the organization by . adjusting for accounting differences and inflation? (a) (b) (c) (d) (e)
MVA EVA CFROI SPM NOPAT.
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80For Aligator Ltd., Profit before Interest and Taxes (PBIT) is Rs. 80 lakhs, Capital is Rs. 200 lakhs, . Cost of capital is 15% and tax rate is 50%. The Economic value added for Aligator Ltd., is (a) (b) (c) (d) (e)
10 40 42 30 12.
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81Management style plays an important role in influencing the behavior of the employees in an . organization. Managers differ in their styles of managing employees. Which of the following manager allows subordinate participation in decision-making and allows them the freedom to decide their work pattern? (a) (b) (c) (d) (e)
Autocratic Autocratic directive Autocratic permissive Democratic permissive Democratic directive.
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82Results controls is among the management controls based on the object of controls. Which of the . following are false regarding ‘Results’ controls? I. II. III. IV. (a) (b) (c) (d) (e)
Results controls are directly focused on the output of actions. Costs involved in results controls are more than in action controls. Results controls can be used best only in areas which are quantifiable. Results controls restrict creativity as they place limits on actions. Both (I) and (II) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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83Traditional budgets are generally set at the beginning of every financial year and are followed till . the end of the year, even if the information used becomes outdated. As a result, many organizations have shifted their focus to rolling budgets. Which of the following is/are true about rolling budgets? I.
Rolling budgets consider key factors like orders, sales, costs and capital expenditures, which can be collected and collated easily. II. Rolling budgets, when used properly, help the top management in predicting the changes that are possible in performance beforehand and thus help them influence the expectations of the stakeholders. III. Rolling budgets help organizations to control inaccuracies regarding projections and in turn minimize the discrepancies between the standards and the actuals. (a) Only (I) above (b) Only (II) above (c) Only (III) above (d) Both (I) and (III) above (e) All (I), (II) and (III) above.
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84In which of the following management audits, auditors are asked to identify the gaps between the . organization’s existing policies and objectives and its actual practices? (a) (b) (c) (d) (e)
Complete management audit Compliance management audit Program management audit Functional management audit Efficiency audit.
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85Which of the following is/are the ethical issue(s) in Human Resource Management? . I. Lack of job security and increased risk of unemployment. II. Excessive scrutiny and control. III. Discrimination. IV. Safety of employees. (a) Only (III) above (b) Both (I) and (II) above (c) Both (II) and (III) above (d) Both (III) and (IV) above (e) (I), (II) and (III) above
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86Which of the following considerations are important while using financial ratios as a control . mechanism? I. II.
Financial ratios should be analyzed from an industry perspective. The use of ratios as a tool of control should not be limited to the end of the financial period or year. III. The analysis of financial ratios will indicate the quantum of cash being generated from business operations. IV. The financial ratios are calculated in order to analyze the results of the organization’s operations over a period of time. (a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above All (I), (II), (III) and (IV) above.
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Suggested Answers Management Control & Information Systems - I (MB2F3): October 2008
1.
Answer
Reason
D
Open loop controls are said to be exist when an organization has a predetermined plan for achieving a set goal/objective, but does not have a system for modifications or adjustments to its plan once the planned activities have commenced.
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Hence the answer is (d).
2.
E
Functional organization structure is that the employees are segregated based on their expertise and are able to specialize in the jobs assigned to their respective departments.
<
Hence the answer is (e).
3.
C
Economic control is not one of the types of control suggested by Geert Hofstede for public/non-profit organizations.
<
Hence the answer is (c).
4.
B
Standard cost center is also referred to as an engineered expense center.
<
Hence the answer is (b).
5.
A
The occupancy level is a primary yardstick for restaurants as it will reflect the acceptability of the menu offerings, location effectiveness, the ambience acceptability and the quality of the dining experience.
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The secondary yardsticks are the number of repeat customers and frequency of repeat customers. Hence the answer is (a). 6.
E
Generally, the revenue centers would formulate their budgets first. This is because the other business units are dependent on the revenue generated in these business units for their resources requirements..
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Hence the answer is (e).
7.
A
[Budgeted Fixed Overhead + (Budgeted Variable Overhead Rate Direct Labor Hours Needed for production)]. Hence the answer is (a).
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8.
Answer
Reason
C
In Zero-based Budgeting (ZBB), the responsibility centers are called as decision units.
<
Hence the answer is (c).
9.
B
If the business environment is dynamic then it will exert pressure on the organization to emphasize innovation. In such a scenario, the approach adopted by the top management and the flexible organizational culture will help the organization to achieve success through a flexible/inefficient profile approach.
<
Hence the answer is (b). 10.
B
Sales Volume Variance = ∑[(Standard margin per unit) × (Actual sales- planned sales)]
<
= Rs. 10 × (40,00,000 – 35,00,000) = Rs.10 × 5,00,000 = Rs. 50,00,000. Hence the answer is (b). 11.
D
Action controls may be implemented in one or more of the following forms:
Behavioral restrictions.
Pre-action appraisal. Action accountability.
<
Option (IV): Post-action appraisal is not a form to implement action controls. Hence the answer is (d). 12.
C
The true statements feedforward control are:
<
Statement (I): It is used in cash flow forecasting and management. Statement (II): It detects deviations from the plans before they occur. Hence the answer is (c). 13.
E
Transnational strategy aims at achieving both cost reduction and local adaptability while encouraging a two-way flow of know-how between the parent organization and subsidiary.
<
Hence the answer is (e).
14.
C
The limitation of a matrix organization structure is that it will fail if the participants are not mutually respectful. Hence the answer is (c).
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15.
Answer
Reason
B
As a control tool, the performance indicators describe what is to be done to achieve the desired results or outcomes. Lead indicator is one of the performance indicators. Lead indicators are performance drivers.
<
Hence the answer is (b).
16.
E
The following are the budget activities:
Developing budget proposals at the department/business unit level.
Determining the budget period and key budget factors.
Benchmarking the budget.
Developing guidelines for budget preparation.
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Hence the answer is (e). 17.
D
The budgeted units of production can be calculated as : the number of units sold, plus the desired ending finished goods inventory, minus the beginning finished goods inventory.
<
Hence the answer is (d).
18.
D
Budgeted Cost of Good Sold =
<
(Budgeted Total Manufacturing Cost + Beginning Finished Goods – Ending Finished Goods).
Hence the answer is (d). 19.
A
Vertical line is not one of the types of targets.
<
For period-to-period reporting, there are four types of targets, depending on the behavior of the performance parameters. They are:
Flat line
Step
Seasonal
Growth curve
Hence the answer is (a). 20.
E
The internal performance reports are:
Progress report of the project.
Variance reports.
Trend charts of the sales of the organization.
Hence the answer is (e).
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21.
Answer
Reason
C
The key feature of Management by objectives (MBO) is setting of goals/objectives jointly by the supervisor and the subordinate. MBO is said to be implemented in an organization when, top management decides on the organizational goals, while the departmental heads decide on the functional and individual goals in discussion with the employees. These functional and individual goals are aligned with the organizational goals after the objectives have been decided upon, the targets are set and revised as required.
<
Hence the answer is (c). 22.
D
A management control system may be viewed as a collection of controls that are used to address one or all the following situations:
<
Statement (II): Managers and employees have a fair idea of what is expected but do not feel motivated. Statement (III): In spite of knowing about the expectations and having sufficient motivation for performance, managers and/or employees are not able to perform. Hence the answer is (d). 23.
D
A company-owned sales outlet like the Pantaloons Flagship stores is an example of revenue center. Such a center is devoted to increasing the net revenue and assumes no responsibility for production. The outlet manager is responsible for the level of revenue or output measured in monetary terms, but is not responsible for the costs of the goods sold through the outlet.
<
Hence the answer is (d). 24.
A
Option (a): Personnel ratio = Number of employee in a particular function / Total number of people in the organization.
<
Other options are not appropriate. Hence the answer is (a). 25.
A
Critical success factors are those factors which the organization cannot ignore and it has to control the performance to address the needs placed on it by these factors. Although Option (II) and (IV) are factors affecting performance but they are not the critical success factors in terms of performance.
<
Hence the answer is (a). 26.
B
Option (b) is false: Budget preparation requires the participation of managers from different functions/departments.
<
Hence the answer is (b).
27.
B
The following are included in operating budget: Statement (II): Cash collections from customers. Statement (III): Disbursements for purchases. Hence the answer is (b).
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28.
Answer
Reason
A
Cost-driven activities do not include sales commission which is an expense driven by the sales volume.
<
Hence the answer is (a).
29.
A
The correct sequence of steps followed in Zero-based Budgeting (ZBB) process are:
<
Decision unit identification
Decision package development Evaluation and grading of decision packages Resource allocation.
Hence the answer is (a). 30.
A
Year 2007-08 is the Ordinal variable.
<
Hence the answer is (a).
31.
D
Organizational slack refers to that capacity in an organization which is in surplus of what is required for normal operations. Slack may be said to exist under circumstances which includes
<
Giving higher remuneration to employees than is necessary for retaining them and
Setting targets lower than expected performance.
Hence the answer is (d). 32.
B
Transfer pricing is an important technique to measure the contribution of individual centers to the overall organizational goals, and to ensure that performance measurement systems are designed to be fair.
<
Hence the answer is (b).
33.
B
Statement (II) and (IV) are true about Diagnostic control systems, one of the levers of control. According to Robert Simon it works well if the goals are reasonable and attainable and relieves managers of the task of constantly monitoring employees and is very useful for detecting problems.
<
Hence the answer is (b). 34.
A
Tall structure provides closer supervision and tighter control by supervisors as there are only a few people reporting to a supervisor. Hence the answer is (a).
<
35.
Answer
Reason
D
The internal factors that are considered in internal business process perspective, which influence customer satisfaction are cycle time, quality and employee skills.
<
Option (IV): Increasing shareholders value is not a factor. It is the goal and internal and external factors help to achieve this goal. Hence the answer is (d). 36.
B
The following methods are used to prevent the employees from using unethical means to achieve targets:
<
Statement (II): The compensation levels should have a lower and higher limit. Statement (IV): Manager should define the performance measures properly.
The following statements are false:
Statement (I): The incentives should be directly linked to the set targets only are false as it should also be linked to the means to achieve the targets. Statement (III): If the achievement is higher than the set targets, the rewards should exceed the upper limit is false as rewards should not exceed a certain upper limit if unethical behavior is to be curbed.
Hence the answer is (b). 37.
B
While preparing the budgeted income statement in order to obtain budgeted net income the following calculation is done:
<
Combining the sales, cost of goods sold and selling and administrative expenses and then subtracting interest, bad debts and income taxes.
Hence the answer is (b). 38.
B
ZBB involves identification of decision units; the manager of every decision unit will portray his/her own units as the most important and get higher budgets approved for it. Therefore, ZBB can result in the creation of budgetary slack.
<
Hence the answer is (b).
39.
B
Learning-oriented organization is the other name given to market-oriented organizations.
<
Other options are not applicable in this context. Hence answer is (b). 40.
A
Sales mix variance = ∑[(Standard margin per unit- Standard average margin per unit) × (Actual sales - Actual sales at standard sales mix)]
<
Hence the answer is (a).
41.
E
The following are true about Management audit: Statement (II): Management audit is an appraisal activity used to evaluate organizational performance. Statement (III): Management audits are used to examine the organization structure, constituents, objectives etc. Hence the answer is (e).
<
42.
Answer
Reason
D
Total asset turnover ratio measure the company’s effectiveness in generating revenue from investments in total assets.
<
Hence the answer is (d).
43.
D
Sales price variance
<
= ∑[Actual sales revenue – (Actual sales volume × Standard selling price per unit) Actual selling price of actual sales volume of Shiny Shampoo = 5,000 × Rs. 8 = Rs.40, 000. Standard selling price of actual sales volume of Shiny Shampoo = 5,000 × Rs.15 = Rs.75,000. Therefore, the sales Price Variance for Shiny Shampoo = Rs. 40,000 – Rs.75,000 = Rs. 35,000 (Adverse). Hence the answer is (d). 44.
D
The following statements are false regarding ‘materiality’ of information:
Statement (I): Materiality is not influenced by the legal and statutory requirements.
Statement (III): Judgments regarding materiality constitute an evaluation of only quantity of misstatement in the financial statements.
<
Hence the answer is (d). 45.
D
The statutory auditor of the company has to certify that the financial statements have been prepared without violating accounting rules and the principles of accounting.
<
Hence the answer is (d).
46.
C
The following statement is true regarding control risk:
<
Control risk is the risk that a material misstatement could occur in an assertion for an account balance or class of transactions, and would not be prevented or detected on a timely basis by the internal control policies and procedures. The other two statements are true about inherent risk and detection risk. Hence the answer is (c). 47.
B
Sufficiency of audit evidence relates to the amount or quantum of audit evidence that is available. Hence the answer is (b).
<
Answer 48.
E
Reason The following are false regarding ‘Constituency group attitudes audit’:
<
Statement (I): This type of audit is conducted to evaluate an organization’s social performance in terms of social indicators that signify public interest. Statement (II): This audit is conducted to assess the performance of organization with respect to some area of social or public concern. Statement (IV): This type of audit requires quantification of social costs and income. Hence the answer is (e). 49.
D
The following statement is true about Propriety audits:
<
Option (d): Propriety audits are conducted to examine the effects of the management’s decisions and actions on society and the general public. Hence the answer is (d). 50.
C
The inherent risk is the probability of the existence of a material misstatement :
<
Inherent risk (I.R) = 20% = 0.20. Control risk is the risk of the internal control system not preventing or detecting this occurrence of material misstatement: Control risk (C.R) = (1 – 10%) = (1 – 0.1) = 0.90. Detection risk is the risk of the auditor not detecting material misstatement: Detection risk (D.R) = (1 – 40%) = (1 – 0.4) = 0.60. Therefore Audit risk = I.R × C.R × D.R = 0.2 × 0.90 × 0.60 = 0.108 = 10.8%. Hence the answer is (c). 51.
D
The audit report should be prepared based on the following guidelines:
<
Statement (I): The audit report should contain information on whether the financial statements of the organization conform to the GAAP. Statement (III): If the disclosures in the financial statements are not adequate, the audit report should explicitly say so. Hence the answer is (d). 52.
D
Comparable uncontrolled price method is the method used to price the goods and services an organization transfers between its profit centers at a level equal to the prevailing open market price for those goods and services.
<
Hence the answer is (d).
53.
C
Domestic rate fluctuations is not one of the factors that multinational corporations must take into consideration for arriving at their transfer pricing policy. Hence the answer is (c).
<
54.
Answer
Reason
B
Vouch is to verify recorded transactions or amounts by examining supporting documents.
<
Hence the answer is (b).
55.
A
In Resale Price (RP) method, transfer price is determined by calculating back from the transaction taking place at the next level of the supply chain, by deducting a suitable mark-up from the price at which the internal buyers sells the item to an unrelated third party.
<
Hence the answer is (a). 56.
A
The following is true regarding Utilitarianism:
<
Statement (I): Utilitarianism recommends that a course of action that achieves ‘the greatest good for the greatest number of people is ethical. Hence the answer is (a). 57.
A
The following reflect ‘conflict avoidance’ techniques: Forcing and smoothing.
<
Hence the answer is (a).
58.
D
The following statements are true regarding ‘Two sets of prices’ method:
<
Statement (I): A disadvantage of this method is that it is difficult to maintain a separate account each time a transfer of goods is made. Statement (III): This method is used when there are frequent conflicts between the buying and selling units, which cannot be resolved by any method. Hence the answer is (d). 59.
C
Profit sharing method is applied when the transactions between units are much too integrated to be evaluated separately and the existence of intangibles makes it is impossible to establish comparability with market conditions.
<
Hence the answer is (c).
60.
C
Option (c): A person who scores low on idealism and high on relativism is called as subjectivist.
<
Hence the answer is (c).
61.
C
Tax structure is not a position-related factor which influences ethical behavior. Hence the answer is (c).
<
Answer 62.
E
Reason Monetary rewards include: I.
Incentives.
II.
Bonuses.
<
IV. Employee stock option plans. Option (III) is incorrect as travel allowances is not a reward based on performance of an employee. Hence the answer is (e). 63.
C
At the third level i.e., post-conventional level: Statement (III): Managers frame ethical principles without regard to social pressures is true.
<
Hence the answer is (c).
64.
C
1.5 is an acceptable current ratio for most of the manufacturing companies.
<
Hence the answer is (c).
65.
E
Option (e): Segment margin report is a tool of financial control that helps to analyze the performance of the business units or divisions within an organization.
<
Hence the answer is (e).
66.
D
Earning power is a measure of performance of the business which is not affected by tax or interest charges.
<
Hence the answer is (d).
67.
D
Statement (III) is false.
<
The responsibilities of the ethics committees include:
Ascertaining that all employees are appropriately trained in the organization’s code of ethics.
Communicating the importance of ethical values and ethical business practices.
Creating avenues for employees to openly discuss ethical issues that they face.
Hence the answer is (d). 68.
C
Statement (c): Debt service coverage ratio is a measure of the cash flow available to meet annual interest and principal payments on debt. Hence the answer is (c).
<
69.
Answer
Reason
B
Statement (II) and (IV) need to be considered while using financial ratios as a control mechanism:
The trend in the value of a ratio over time is often a better indicator of an organization’s progress (or lack of it) on a particular dimension.
The mere calculation of the financial ratios of an organization will not reveal much.
<
Hence the answer is (b). 70.
C
Option (c): Segregation of duties is in-built in business processes to prevent and/or detect errors during the regular course of business.
<
Hence the answer is (c).
71.
B
Option (b): ROCE (Return on capital employed) gives an indication of whether the organization is earning adequate revenues and profits through the efficient use of its capital.
<
Hence the answer is (b).
72.
C
Acid test ratio is also known as Quick ratio.
<
Hence the answer is (c).
73.
B
Whistleblowing is an act whereby an employee of an organization informs the higher authorities or public about the unethical practices taking place in the organization.
<
Hence the answer is (b).
74.
E
The purchase accounting systems aim to achieve the following financial control goals:
<
Statement (I): Keeping a close watch over the timeliness and value of cash and bank outflows to vendors. Statement (II): Analyzing the input costs of various responsibility centers, products etc. Statement (IV): Ensuring purchases are made at an optimal cost. Hence the answer is (e). 75.
A
Grocery chains that sell fresh fruits and vegetables have high inventory turnover ratio. Hence the answer is (a).
<
Answer 76.
C
Reason Statement (III) and (IV) are not the advantages of Economic Value Added (EVA):
The SP model helps in identifying the best way to achieve a company’s financial targets through systematic control and evaluation of profit margin management, asset management and debt management.
One of the disadvantages of EVA is that it does not take into consideration size differences across the plants or divisions.
<
Hence the answer is (c). 77.
<
C Particulars Sales Variable costs Contribution margin(Sales- variable costs) (Less) Traceable fixed cost Segment margin (Contribution marginTraceable fixed cost)
Rs. in lakhs 700 400 300 70 230
Hence the answer is (c). 78.
D
The following are true about Market value to book value ratio Statement (I): It is desirable to have a market value to book value ratio greater than 1. Statement (II) :The market value to book value ratio is an indication of the organization’s contribution to wealth creation in society.
<
Hence the answer is (d). 79.
C
CFROI provides a more realistic picture of the performance of the organization by adjusting for accounting differences and inflation.
<
Hence the answer is (c).
80.
A
NOPAT = PBIT (1− Tax rate) = Rs. 80(1− 0.5) = Rs. 40 lakhs.
<
Capital = Rs. 200 lakhs. Cost of capital = 15%. Economic Value Added (EVA) = NOPAT− (Capital × Cost of capital) = Rs. 40 lakhs – (Rs. 200 lakhs × 15%) = 40 – 30 EVA
= 10 .
Hence the answer is (a). 81.
D
Democratic permissive manager allows subordinate participation in decisionmaking and allows them the freedom to decide their work pattern. Hence the answer is (d).
<
Answer 82.
B
Reason The following are false regarding results controls:
<
Statement (II): Costs involved in results controls are more than in action controls. Statement (IV): Results controls restrict creativity as they place limits on actions. Hence the answer is (b). 83.
E
All the statements about rolling budgets are true.
<
Hence the answer is (e).
84.
B
In compliance management audit, auditors are asked to identify the gaps between the organization’s existing policies and objectives and its actual practices.
<
Hence the answer is (b).
85.
E
The following are the ethical issues in Human Resource Management:
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Statement (I): Lack of job security and increased risk of unemployment. Statement (II); Excessive scrutiny and control. Statement (III): Discrimination. Hence the answer is (e). 86.
A
The following considerations are important while using financial ratios as a control mechanism: Statement (I):
Financial ratios should be analyzed from an industry perspective.
Statement (II): The use of ratios as a tool of control should not be limited to the end of the financial period or year. Hence the answer is (a). < TOP OF THE DOCUMENT >
<
Answer all 86 questions.
Marks are indicated against each question. Total Marks : 100
1. Which of the following controls is said to be exist when an organization has a predetermined plan for achieving a set goal/objective, but does not have a system for modifications or adjustments to its plan once the planned activities have commenced? (a) (b) (c) (d) (e)
Feedback controls Informal controls Formal controls Open loop controls Closed loop controls.
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2. In which of the following organizational structures, the employees are grouped based on their expertise and skills? (a) (b) (c) (d) (e)
Divisional structure Matrix structure Horizontal structure Flexible structure Functional structure.
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3. Geert Hofstede discussed the different criteria which help in management control of public/nonprofit organizations. Different combinations of these criteria give rise to different types of controls. Which of the following is not such a control? (a) (b) (c) (d) (e)
Routine control Trial and error control Economic control Intuitive control Expert control.
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4. Standard cost center is also referred to as I. Divisional expense center. II. Engineered expense center. III. Discretionary expense center. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (II) above Both (II) and (III) above.
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5. Key performance indicators deal with aspects which when improved upon lead to radical performance improvements. Which of the following would be the primary yardstick(s) that serve(s) as measurable performance indicator(s) for restaurants? I. Occupancy level. II. Repeat customers. III. Frequency of repeat customers. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (II) above Both (II) and (III) above.
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6. Which of the following centers generally would formulate their budgets first? (a) (b) (c) (d) (e)
Budget centers Expense centers Cost center Profit centers Revenue centers.
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7. Factory Overhead is calculated as (a) (b) (c) (d) (e)
[Budgeted fixed overhead + (Budgeted variable overhead rate × Direct labor hours needed for production)] Standard rate (Standard hours for actual production – Budgeted hours) Actual output × Standard variable overhead rate – Budgeted variable overheads [Budgeted variable overhead + (Direct labor hours needed for production × Standard overhead rate per hour)] [Direct labor hours needed for production- (Budgeted fixed overhead Rate× Budgeted variable mark overhead rate)]. (2 s)
8. In Zero-based Budgeting (ZBB), the responsibility centers are called as (a) (b) (c) (d) (e)
Tree units Umbrella units Decision units Package units Decision packages.
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9. Top management plays a crucial role in influencing the organizational culture. The nature of interaction between the top management and the organizational culture may be in the form of different kinds of strategic business profiles. Which of the following profile would perform well if the business environment is dynamic? (a) (b) (c) (d) (e)
Rigid/efficient profile Flexible/inefficient profile Flexible/cost conscious profile Rigid/inefficient profile Rigid/cost conscious profile.
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10Costing details of the Whitening, toothpaste brand of Bharat Limited for 2007-08 are as follows: . Particulars Whitening Planned sales units 35,00,000 Actual number of units sold 40,00,000 Estimated market size 60,00,000 Actual market size 50,00,000 Standard selling price per unit Rs.20 Actual selling price per unit Rs.18 Standard margin per unit Rs.10 The Sales volume variance for Whitening is (a) (b) (c) (d)
Rs.20,00,000 Rs.50,00,000 Rs.30,00,000
(e)
Rs. 6,00,000.
Rs.40,00,000 (2
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11On the basis of object of control, management controls can be classified into action controls, result . controls and personnel controls. Action controls may be implemented in which of the following forms? I. II. III. IV. (a) (b) (c) (d) (e)
Behavioral restrictions. Pre-action appraisal. Action accountability. Post-action appraisal. Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above All (I), (II), (III) and (IV) above.
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12Closed loop mechanisms are classified into feedback control and feedforward control. Which of the . following is/are true about feedforward control? I. It is used in cash flow forecasting and management. II. It detects deviations from the plans before they occur. III. It is a follow-up control and helps in the diagnosis of the reasons for deviations. (a) (b) (c) (d) (e)
Only (I) above Only (III) above Both (I) and (II) above Both (II) and (III) above All (I), (II) and (III) above.
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13According to Christopher Bartlett and Sumantra Ghoshal, organizations can choose from the various . strategies for doing international business. Transnational strategy is one of such strategies. Which of the following is true regarding the ‘Transnational’ strategy? (a) (b) (c) (d) (e)
In this strategy there is usually a one-way flow of know-how from the parent organization to the subsidiary This strategy involves transfer of know-how and/or products developed in the home country to foreign markets where they are scarce or unavailable This strategy involves adapting to local requirements by customizing both product and marketing strategy This strategy is used when there is not much of a pressure on cost reduction or local responsiveness This strategy aims at achieving both cost reduction and local adaptability while encouraging a mark two-way flow of know-how between the parent organization and subsidiary. ) (1
14Which of the following is a limitation of the ‘Matrix organization structure’? r rel="nofollow"> . (a) There is the lack of coordination between different departments and a myopic view prevailing among employees regarding organizational objectives (b) There is the negative impact of some decisions on other divisions (c) It will fail if the participants are not mutually respectful (d) More time is taken by organization to identify core processes mark (e) Employees require a great deal of training in varied areas in order to be effective. (1 ) 15Performance indicators can either be lead indicators or lag indicators. Lead indicators are . (a) Outcome indicators (b) Performance drivers (c) Input indicators (d) Achievable indicators (e) Measurable indicators.
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16The information that goes into making budgets come from all the functions and processed and . compiled by the budget department. The budget formulation consists of a series of activities. Which of the following are budget activities? I. II. III. IV. (a) (b) (c) (d) (e)
Developing budget proposals at the department/business unit level. Determining the budget period and key budget factors. Benchmarking the budget. Developing guidelines for budget preparation. Both (I) and (II) above Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above All (I), (II), (III) and (IV) above.
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17The budgeted units of production can be calculated as r rel="nofollow"> . (a) The number of units sold, plus the desired ending finished goods inventory, plus the beginning finished goods inventory (b) The number of units sold, minus the desired ending finished goods inventory, plus the beginning finished goods inventory (c) The number of units sold, minus the desired ending finished goods inventory, minus the beginning finished goods inventory (d) The number of units sold, plus the desired ending finished goods inventory, minus the beginning finished goods inventory (e) The number of units sold, plus, the product of desired ending finished goods inventory and the beginning mark finished goods inventory. (2 s)
18Budgeted Cost of Goods Sold is calculated as r rel="nofollow"> . (a) (Budgeted Total Manufacturing Cost + Beginning Raw material-Ending Finished Goods) (b) (Budgeted Total Manufacturing Cost + Beginning Finished Goods-Desired Ending Finished Goods) (c) (Budgeted Total Selling Cost + Beginning Finished Goods – Ending Finished Goods) (d) (Budgeted Total Manufacturing Cost + Beginning Finished Goods – Ending Finished Goods) mark (e) (Budgeted Total Selling Cost + Beginning Raw material – Ending Finished Goods). (2 s)
19Which of the following is not one of the types of targets used for period-to-period reporting for . tracking performance? (a) (b) (c) (d) (e)
Vertical line Step Seasonal Growth curve Flat line.
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20Internal performance reports are intended to measure the performance of the organization in a . periodic form from time to time. Which of the following are the types of internal performance reports? I. II. III. IV. (a) (b) (c) (d) (e)
Progress report of the project. Auditor’s report. Variance reports. Trend charts of the sales of the organization. Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (III) and (IV) above.
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21Which of the following concepts has been said to be implemented in an organization when, top . management decides on the organizational goals, while the departmental heads decide on the functional and individual goals in discussion with the employees and these functional and individual goals are aligned with the organizational goals after the objectives have been decided upon, the targets are set and revised as required? (a) (b) (c) (d) (e)
Management by control Management by walking around Management by objectives Management by exception Bottom-up management.
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22A management control system may be viewed as a collection of controls that are used to address . which of the following situation(s)? I. Managers and employees have a clear idea of what is expected of them. II. Managers and employees have a fair idea of what is expected but do not feel motivated. III. In spite of knowing about the expectations and having sufficient motivation for performance, managers and/or employees are not able to perform. (a) (b) (c) (d) (e)
Only (I) above Only (III) above Both (I) and (II) above Both (II) and (III) above All (I), (II) and (III) above.
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23A company-owned sales outlet like the Pantaloons Flagship stores is an example of which of the . following centers? (a) (b) (c) (d) (e)
Expense center Profit center Investment center Revenue center Cost center.
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24Personnel ratio is among the various structural dimensions of an organization design as proposed by . Richard L. Daft. It is calculated as (a) (b) (c) (d) (e)
Number of employees in a particular function/Total number of people in the organization Number of employees in an organization/Total number of people in the department Number of employees in a particular function/Total number of employees in a department Number of employees in one organization/Total number of people in another organization Number of employees in a middle level management/Total number of people in the lower level mark management. s) (2
25Which of the following would be the ‘Critical Success Factors’ (CSFs) for retail chains such as . ‘Spencer’s’? I. II. III. IV. (a) (b) (c) (d) (e)
Store location. Expiry of the products. Pricing. Taxes. Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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26Budgets are business plans that are stated in quantitative terms and are usually based on estimations. . Which of the following is false regarding budgets? (a) (b) (c) (d) (e)
Budgets can be used to evaluate the performance of the operations of the organization as well as the performance of the employees against set standards Budget preparation is done only by the top management and does not require the participation of managers from different functions/departments Budgets help in the delegation of authority and allocation of responsibility and accountability to more people in an organization Budgets are used as forecast tools Budgets act as a means to verify the progress of the various activities undertaken to achieve the mark planned objectives. (1 )
27Preparation of an operating budget is one of the principal steps in the preparation of the master . budget. Which of the following are included in the operating budget? I. II. III. IV. (a) (b) (c) (d) (e)
Cash budget. Cash collections from customers. Disbursements for purchases. Budgeted balance sheet. Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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28Operating expenses are influenced by fluctuations in the sales volume and other cost-driven . activities. Which of the following is not an example of cost-driven activities? (a) (b) (c) (d) (e)
Sales commission Insurance Rent Depreciation Salaries.
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29Identify the correct sequence of steps followed in the Zero-based Budgeting (ZBB) process. r rel="nofollow"> . (a) Decisions unit identification → Decision package development → Evaluation and grading of decision packages → Resource allocation (b) Decisions unit identification → Evaluation and grading of decision packages → Decision package development → Resource allocation (c) Decisions unit identification → Resource allocation → Decision package development → Evaluation and grading of decision packages (d) Decision package development → Decisions unit identification → Evaluation and grading of decision packages → Resource allocation (e) Decision package development → Evaluation and grading of decision packages → Resource mark allocation→ Decisions unit identification. (2 s)
30The information to be provided in a performance report consists of a title and is described by the . number and types of the variables. If the information has the title, “Market capitalization in Rs., for Omkara Industries, from ‘year’ 2007-08”, then ‘year’ can be identified as which of the following variables ? (a) (b) (c) (d) (e)
Ordinal variable Scalar variable Continuous variable Categorical variable Numerical variable.
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31Organizational slack refers to that capacity in an organization which is in surplus of what is required . for normal operations. Slack may be said to exist under which of the following circumstances? I. II. III. IV. (a) (b) (c) (d) (e)
Pricing products higher than is necessary for retaining customers. Giving higher remuneration to employees than is necessary for retaining them. Setting targets lower than expected performance. Over utilizing resources. Both (I) and (II) above Both (I) and (III) above Both (I) and (IV) above Both (II) and (III) above (I), (III) and (IV) above.
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32Which of the following is an important technique to measure the contribution of individual centers . to the overall organizational goals, and to ensure that performance measurement systems are designed to be fair? (a) (b) (c) (d) (e)
Goal congruence Transfer pricing Controllability Responsibility centers Expense centers.
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33Managers must find ways to encourage employees to be creative and to initiate process . improvements, but must still retain enough control to ensure that employee creativity benefits the organization. Robert Simons proposed the concept of ‘levers of control’ to address this issue. In this context, which of the following are true about the ‘Diagnostic’ control systems, one of the levers of control? I.
This system helps organizations in positioning themselves strategically in a rapidly changing market. II. This system works well if the goals are reasonable and attainable. III. This system works on the premise that empowered employees should not be given the freedom to do whatever they want. IV. This system relieves managers of the task of constantly monitoring employees and is very useful for detecting problems. (a) (b) (c) (d) (e)
Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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34For effective control, the management needs to determine an optimal span of control for the . organization. Which of the following structures provides closer supervision and tighter control by supervisors? (a) (b) (c) (d) (e)
Tall structure Short structure Flat structure Informal structure Formal structure.
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35The internal business process perspective of the Balanced Scorecard (BSC) performance . measurement framework refers about the processes, decisions and actions internal to the organization. Which of the following are the internal factors considered in the internal business process perspective? I. II. III. IV.
Cycle time. Quality. Employee skills. Increasing shareholders value.
(a) (b) (c) (d) (e)
Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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36The budgeting process in an organization, if linked to compensation, tends to lead to unethical . behavior on the part of employees, apart from being time consuming and expensive. Which of the following methods are used to prevent the employees from using unethical means to achieve targets? I. II. III. IV. (a) (b) (c) (d) (e)
The incentives should be directly linked to the set targets only. The compensation levels should have a lower and higher limit. If the achievement is higher than the set targets, the rewards should exceed the upper limit. Managers should define the performance measures properly. Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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37Which of the following calculations is done, while preparing the budgeted income statement in order . to obtain budgeted net income? (a) (b) (c) (d) (e)
Combining the sales, cost of goods sold, income taxes and then subtracting selling and administrative expenses, interest and bad debts Combining the sales, cost of goods sold and selling and administrative expenses and then subtracting interest, bad debts and income taxes Combining the sales, income taxes and then subtracting selling and administrative expenses, interest, bad debts and cost of goods sold Combining the sales, cost of goods sold, selling and administrative expenses and bad debts and then subtracting interest and income taxes Combining the sales and selling and administrative expenses and then subtracting interest, bad mark debts, cost of goods sold and income taxes. (2 s)
38Which of the following is the disadvantage of Zero-based Budgeting (ZBB)? r rel="nofollow"> . (a) ZBB involves creation of decision units and decision packages, it gives a clearer picture of the organization’s working (b) ZBB involves identification of decision units, the manager of every decision unit will portray his/her own unit as the most important and get a higher budget approved for it (c) ZBB involves itself in devising a more realistic budget as the resources are allocated depending on the ranking of the decision packages (d) ZBB involves itself in fostering better communication and participation between the different functions of the organization (e) ZBB involves itself in performance evaluation of subordinates and aids the top management in mark advanced planning and goal setting for the budget period. (1 )
39Market orientation enables an organization to be constantly vigilant about market conditions and to . respond promptly to the changes in customer needs and wants in order to compete effectively in the dynamic business environment. Market-oriented organizations are also known as (a) (b) (c) (d) (e)
Leaning-oriented organizations Learning-oriented organizations Adoptive-oriented organizations Product-oriented organizations Growth-oriented organizations.
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40Which of the following defines Sales mix variance? r rel="nofollow"> . ∑[(Standard margin per unit- Standard average margin per unit) × ( Actual sales – Actual sales (a) at standard sales mix)] (b) Planned sales× (Total actual sales/Total planned sales) (c) ∑[Standard margin per unit × ( Actual total sales - Planned total sales)] (d) ∑ [(Standard average margin per unit) × (Total actual market size) × (Total actual market size % – Total planned market share %)] mark (e) ∑[Actual sales revenue – (Actual sales volume × Standard selling price per unit)]. (2 s)
41Which of the following is/are true about ‘Management Audit’? . I. Management audits checks operational aspect of an organization. II. Management audit is an appraisal activity used to evaluate organizational performance. III. Management audits are used to examine the organization structure, constituents, objectives, etc. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (II) above Both (II) and (III) above.
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42Which of the following ratios measures the company’s effectiveness in generating revenue from . investments in total assets? (a) (b) (c) (d) (e)
Fixed assets turnover ratio Debtor’s turnover ratio Inventory turnover ratio Total assets turnover ratio Debt-assets ratio.
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43XT Company has furnished the following data relating to ‘Shiny Shampoo’ for the month of . September 2008: Actual number of units sold Actual selling price per unit
5,000 (Rs.)
8
Standard selling price per unit (Rs.)
15
Sales price variance of the product is (a) (b) (c) (d) (e)
Rs. 20,000 (Favorable) Rs. 35,000 (Favorable) Rs. 40,000 (Favorable) Rs. 35,000 (Adverse) Rs. 20,000 (Adverse).
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44Critical or essential information that can influence the decisions of the stakeholders is considered as . material information. Which of the following statements is/are false regarding ‘materiality’ of the information? I. II.
Materiality is not influenced by the legal and statutory requirements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. III. Judgment regarding materiality constitutes an evaluation of only quantity of misstatement in the financial statements. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
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45Which of the following has to certify that the financial statements of a company have been prepared . without violating accounting rules and the principles of accounting? (a) (b) (c) (d) (e)
Director of the company President of the company Chief executive officer of the company Statutory Auditor of the company Government.
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46Audit risk is the risk of an auditor failing to detect actual or potential material losses or account . misstatements at the conclusion of the audit. Control risk is one of the components of audit risk. Which of the following statements is/are true regarding control risk? I.
Control risk is the risk that the auditor’s substantive procedures will not detect an error which could be material, individually or in combination with other errors. II. Control risk is the risk of a material misstatement assuming that there are no related internal control structure policies or procedures. III. Control risk is the risk that a material misstatement could occur in an assertion for an account balance or class of transactions, and would not be prevented or detected on a timely basis by the internal control policies and procedures. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
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47For the audit evidence to be useful enough to form a reasonable basis for the auditor’s professional . opinion, it has to fulfill criteria like sufficiency and appropriateness. Sufficiency of audit evidence relates to (a) (b) (c) (d) (e)
The quality of the audit evidence The amount or quantum of audit evidence The materiality of information The source of the audit evidence The relevance and reliability of information.
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48Social audit is a systematic attempt to identify, analyze, measure, evaluate and monitor the effect of . an organization’s operation on the society. Constituency group attitudes audit is one of the social audits identified by Fredrick, Myers and Blake. Which of the following are false regarding ‘Constituency group attitudes audit’? I.
This type of audit is conducted to evaluate an organization’s social performance in terms of social indicators that signify public interest. II. This audit is conducted to assess the performance of organizations with respect to some area of social or public concern. III. This type of audit is conducted to ascertain how corporate actions affect employees or the general public in different ways. IV. This type of audit requires quantification of social costs and income. (a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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49Management auditing is proactive: it provides an early-warning signal of managerial problems and . related operational difficulties. One of the classes of management audits is propriety audits. Which of the following statements is true about ‘Propriety’ audits? (a) (b) (c) (d) (e)
In propriety audits, auditors are asked to identify the gaps between the organization’s existing policies and objectives and its actual practices Propriety audits are conducted to ensure that resources are utilized in such a way that they generate the best returns A propriety audit measures the difference between the actual performance of an organization and its objectives, with emphasis on a particular function Propriety audits are conducted to examine the effects of the management’s decisions and actions on society and the general public Propriety audits indirectly measure the workplace compliance and are particularly effective as a mark means of self-assessment for small organization as well as large global corporations. (1 )
50Mirinda Ltd., is undergoing an audit, where the probability of existence of a material misstatement . has been assessed to be 20% and there be a 10% probability of the internal control system preventing or detecting this occurrence of material misstatement. If the internal control system fails to do so, let there be a 40% probability of the auditor detecting this misstatement, then the audit risk in this particular situation will be (a) (b) (c) (d) (e)
20.0% 10.0% 10.8% 20.6% 40.0%.
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51A financial statement audit is conducted to examine the correctness of financial statements. In case . of financial statement audit, the audit report should be prepared based on which of the following guideline(s)? I.
The audit report should contain information on whether the financial statements of the organization conform to the GAAP. II. The report should state the opinion of the director regarding the fairness of the financial statements of the organization. III. If the disclosures in the financial statements are not adequate, the audit report should explicitly say so. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
(1
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52Amity Steel Ltd., is selling steel to its subsidiary Hong Ko in China. If the rate charged by Amity in . India is the same as the current market price – as if the transaction is taking place between two unrelated organizations, then the method of estimating transfer pricing is known as (a) (b) (c) (d) (e)
Negotiated pricing method Resale price method Cost plus method Comparable uncontrolled price method Profit split method.
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53Apart from the objectives of the transfer pricing policy between responsibility centers in domestic . operations, multinational corporations must take into consideration several other factors for arriving at their transfer pricing policy that is applicable between the legal entities in different countries. Which of the following is not one of such factors? (a) (b) (c) (d) (e)
Competitive pressure The impact of taxes Domestic rate fluctuations Corporation’s country-specific preferences for investing funds The impact of tariffs.
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54Verification is one of the audit procedures which are intended to ascertain the accuracy, reliability, . validity of assets, records, statements, conformance to rules and regulations etc. Various procedures are involved in the verification process. Verifying recorded transactions or amounts by examining supporting documents is which of the following procedures of verification? (a) (b) (c) (d) (e)
Trace Vouch Examine Count Confirm.
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55In Resale Price (RP) method, transfer price is determined by r rel="nofollow"> . (a) Calculating back from the transaction taking place at the next level of the supply chain, by deducting a suitable mark-up from the price at which the internal buyer sells the item to an unrelated third party (b) Organizations transfer goods and services between their profit centers at a price equal to the prevailing open market price for those goods and services (c) Calculating the cost of the products and services (d) Crediting the revenue to the manufacturing unit at the market sales price while the buying unit is charged for the total standard costs (e) Transferring the product to the marketing unit at the standard variable cost. After the product is finally sold, the business units share the profit earned on the basis of contribution made by each mark of them. (1 )
56The ethical system of an individual consists of his/her ethical philosophy and ethical decision . ideology. Utilitarianism is among the different ethical philosophies that individuals follow under different situations in an organizational set-up. Which of the following is/are true regarding ‘Utilitarianism’? I.
Utilitarianism recommends that a course of action that achieves ‘the greatest good for the greatest number of people is ethical’. II. Utilitarianism recommends safeguarding the rights of individuals, such as the right to be informed, right to free speech and right to due process. III. Utilitarianism recommends that individuals should be accountable only for factors which are under their control. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
(2
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57The management can use various conflict resolution techniques. Which of the following reflect . ‘conflict avoidance’? I. II. III. IV.
Forcing. Smoothing. Bargaining. Problem solving.
(a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
(1
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58Which of the following statements is/are true regarding ‘Two sets of prices’ which is one of the . transfer pricing methods? I.
A disadvantage of this method is that it is difficult to maintain a separate account each time a transfer of goods is made. II. There is a disagreement over the way the profits are divided between the concerned divisions. III. This method is used when there are frequent conflicts between the buying and selling units, which cannot be resolved by any method. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
(1
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59Which of the following transfer pricing methods is applied when the transactions between units are . much too integrated to be evaluated separately and the existence of intangibles makes it impossible to establish compararability with market conditions? (a) (b) (c) (d) (e)
Two-step pricing Two sets of prices Profit sharing Cost-based pricing Market-based pricing.
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60Ethical decision ideology is concerned with how different individuals apply their ethical . philosophies for decision-making when faced with ethical dilemmas. Which of the following persons is called as ‘Subjectivist’, one of the classifications of ethical decisions ideologies? (a) (b) (c) (d) (e)
A person who scores high on idealism and low on relativism A person who scores high both on idealism and relativism A person who scores low on idealism and high on relativism A person who scores low on both idealism and relativism A person who believes in strictly following the universally accepted ethical principles.
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61Several organizational factors directly impact the behavior of employees and the ethical decision. making process. Position-related factors influence ethical behavior. Which of the following is not one of the position-related factors? (a) (b) (c) (d) (e)
Peer pressure The presence or absence of a code of conduct Tax structure Superior-subordinate relationships The expectations of the top management regarding achievement of objectives.
(1
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62The reward system in an organization may be both monetary and non-monetary. Monetary rewards . include I. II. III. IV.
Incentives. Bonuses. Travel allowance. Employee stock option plans.
(a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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63According to Lawrence Kohlberg, one of the individual factors that have major impact on ethical . behavior is the stage of moral development. The extent to which the manager’s moral judgment depends on outside influences decreases with each successive stage. Which of the following is/are true about ‘Post-conventional level’? I.
Managers perceive moral values as important for living up to the expectations of others and maintaining the social order. II. Managers decide whether an act is right or wrong depending on personal consequences like punishment, favors or rewards. III. Managers frame ethical principles without regard to social pressures. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (III) above Both (II) and (III) above.
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64The current ratio measures the capability of the organization to meet its current liabilities. For most . of the manufacturing companies the acceptable current ratio is (a) (b) (c) (d) (e)
2 2 to 4 1.5 2 to 3 3.
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65Financial statements and financial ratios are extensively used as tools of financial control. Which of . the following tools of financial control, helps to analyze the performance of the business units or divisions within an organization? (a) (b) (c) (d) (e)
Economic value added Market value added Cash flow return on investments Strategic profit model Segment margin report.
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66Which of the following is a measure of performance of the business which is not affected by tax or . interest charges? (a) (b) (c) (d) (e)
Return on equity Return on capital employed Net profit margin Earning power Gross profit margin.
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67In order to regulate ethical conduct, one of the practices followed by organization is, constituting an . Ethics Committee. Which of the following are the responsibilities of the ethics committees? I. Ascertaining that all employees are appropriately trained in the organization’s code of ethics. II. Communicating the importance of ethical values and ethical business practices. III. Establishing proper systems for monitoring the ethical implications of activities and performance, and ignoring unethical activities. IV. Creating avenues for employees to openly discuss ethical issues that they face. (a) (b) (c) (d) (e)
Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (IV) above (II), (III) and (IV) above.
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68Which of the following is true about ‘Debt service coverage ratio’? r rel="nofollow"> . (a) It is a measure to determine how easily a company can pay the interest due on an outstanding debt (b) It is a measure used to indicate the organization’s ability to meet fixed financing expenses (c) It is a measure of the cash flow available to meet annual interest and principal payments on debt (d) It is a measure that indicates the time taken by a company to collect its account receivables (e) It is a measure used to assess the effectiveness with which the organization utilizes external mark funding to improve return to shareholders. (1 )
69Which of the following are to be considered while using financial ratios as a financial control . mechanism? I.
The use of the ratios as a tool of control should be limited to the end of the financial period or year. II. The trend in the value of a ratio over time is often a better indicator of an organization’s progress (or lack of it) on a particular dimension. III. A high ratio always indicates a good performance. IV. The mere calculation of the financial ratios of an organization will not reveal much. (a) (b) (c) (d) (e)
Both (I) and (III) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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70Financial control pertains to processes within the finance department as well as to processes in the . entire organization. Which of the following components of financial control is in-built in business processes to prevent and/or detect errors during the regular course of business? (a) (b) (c) (d) (e)
Financial policies or procedures Book-keeping Segregation of duties Financial information system Controlling assets.
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71Which of the following ratio gives an indication of whether the organization is earning adequate . revenues and profits through the efficient use of its capital? (a) (b) (c) (d) (e)
ROE ROCE ROA RONW ROI.
72Acid test ratio is also known as . (a) Cash ratio (b) Current ratio (c) Quick ratio (d) Debt equity ratio (e) Leverage ratio.
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73Which of the following is an act whereby an employee of an organization informs the higher . authorities or public about the unethical practices taking place in the organization (a) (b) (c) (d) (e)
Kickback Whistleblowing Slack Corporate counsel Moral judgment.
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74The purchase accounting systems aim to achieve which of the following financial control goals? . I. Keeping a close watch over the timeliness and value of cash and bank outflows to vendors. II. Analyzing the input costs of various responsibility centers, products, etc. III. Optimizing inventory holding costs. IV. Ensuring that purchases are made at an optimal cost. (a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
(1
75Grocery chains that sell fresh fruits and vegetables have which of the following type of ratio? . (a) High inventory turnover ratio (b) Low inventory turnover ratio (c) Insufficient inventory turnover ratio (d) Inventory turnover ratio lower than manufacturing industry (e) Inventory turnover ratio lower than service industry.
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76Which of the following are not the advantages of Economic Value Added (EVA)? . I. EVA helps to link the strategic planning function with the operating divisions and it eliminates the mistrust that typically exists between the operations and finance departments. II. It provides better goal congruence than ROI. III. It helps in identifying the best way to achieve a company’s financial targets through systematic control and evaluation of profit margin management, asset management and debt management. IV. It does not take into consideration size differences across the plants or divisions. (a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (I), (II) and (IV) above.
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77Home Made Ltd., is a company with two main business units - a food division and a furnishing . division. It has furnished the following data for furnishing division for the year 2007-08: Particulars Sales Variable cost Traceable fixed cost
Rs. in lakhs 700 400 70
Segment margin for Home Made Ltd., for the year 2007-08 is (a) (b) (c) (d) (e)
Rs.730 lakhs Rs.330 lakhs Rs.230 lakhs Rs.470 lakhs Rs.300 lakhs.
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78Which of the following is/are true about Market value to book value ratio? . I. It is desirable to have a market value to book value ratio greater than 1. II. The market value to book value ratio is an indication of the organization’s contribution to wealth creation in society. III. This ratio measures the rate of return earned by shareholders. (a) (b) (c) (d) (e)
Only (I) above Only (II) above Only (III) above Both (I) and (II) above All (I), (II) and (III) above.
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79Which of the following provides a more realistic picture of the performance of the organization by . adjusting for accounting differences and inflation? (a) (b) (c) (d) (e)
MVA EVA CFROI SPM NOPAT.
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80For Aligator Ltd., Profit before Interest and Taxes (PBIT) is Rs. 80 lakhs, Capital is Rs. 200 lakhs, . Cost of capital is 15% and tax rate is 50%. The Economic value added for Aligator Ltd., is (a) (b) (c) (d) (e)
10 40 42 30 12.
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81Management style plays an important role in influencing the behavior of the employees in an . organization. Managers differ in their styles of managing employees. Which of the following manager allows subordinate participation in decision-making and allows them the freedom to decide their work pattern? (a) (b) (c) (d) (e)
Autocratic Autocratic directive Autocratic permissive Democratic permissive Democratic directive.
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82Results controls is among the management controls based on the object of controls. Which of the . following are false regarding ‘Results’ controls? I. II. III. IV. (a) (b) (c) (d) (e)
Results controls are directly focused on the output of actions. Costs involved in results controls are more than in action controls. Results controls can be used best only in areas which are quantifiable. Results controls restrict creativity as they place limits on actions. Both (I) and (II) above Both (II) and (IV) above Both (III) and (IV) above (I), (II) and (III) above (II), (III) and (IV) above.
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83Traditional budgets are generally set at the beginning of every financial year and are followed till . the end of the year, even if the information used becomes outdated. As a result, many organizations have shifted their focus to rolling budgets. Which of the following is/are true about rolling budgets? I.
Rolling budgets consider key factors like orders, sales, costs and capital expenditures, which can be collected and collated easily. II. Rolling budgets, when used properly, help the top management in predicting the changes that are possible in performance beforehand and thus help them influence the expectations of the stakeholders. III. Rolling budgets help organizations to control inaccuracies regarding projections and in turn minimize the discrepancies between the standards and the actuals. (a) Only (I) above (b) Only (II) above (c) Only (III) above (d) Both (I) and (III) above (e) All (I), (II) and (III) above.
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84In which of the following management audits, auditors are asked to identify the gaps between the . organization’s existing policies and objectives and its actual practices? (a) (b) (c) (d) (e)
Complete management audit Compliance management audit Program management audit Functional management audit Efficiency audit.
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85Which of the following is/are the ethical issue(s) in Human Resource Management? . I. Lack of job security and increased risk of unemployment. II. Excessive scrutiny and control. III. Discrimination. IV. Safety of employees. (a) Only (III) above (b) Both (I) and (II) above (c) Both (II) and (III) above (d) Both (III) and (IV) above (e) (I), (II) and (III) above
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86Which of the following considerations are important while using financial ratios as a control . mechanism? I. II.
Financial ratios should be analyzed from an industry perspective. The use of ratios as a tool of control should not be limited to the end of the financial period or year. III. The analysis of financial ratios will indicate the quantum of cash being generated from business operations. IV. The financial ratios are calculated in order to analyze the results of the organization’s operations over a period of time. (a) (b) (c) (d) (e)
Both (I) and (II) above Both (II) and (III) above Both (III) and (IV) above (I), (II) and (III) above All (I), (II), (III) and (IV) above.
(1 END OF QUESTION PAPER
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Suggested Answers Management Control & Information Systems - I (MB2F3): October 2008
1.
Answer
Reason
D
Open loop controls are said to be exist when an organization has a predetermined plan for achieving a set goal/objective, but does not have a system for modifications or adjustments to its plan once the planned activities have commenced.
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Hence the answer is (d).
2.
E
Functional organization structure is that the employees are segregated based on their expertise and are able to specialize in the jobs assigned to their respective departments.
<
Hence the answer is (e).
3.
C
Economic control is not one of the types of control suggested by Geert Hofstede for public/non-profit organizations.
<
Hence the answer is (c).
4.
B
Standard cost center is also referred to as an engineered expense center.
<
Hence the answer is (b).
5.
A
The occupancy level is a primary yardstick for restaurants as it will reflect the acceptability of the menu offerings, location effectiveness, the ambience acceptability and the quality of the dining experience.
<
The secondary yardsticks are the number of repeat customers and frequency of repeat customers. Hence the answer is (a). 6.
E
Generally, the revenue centers would formulate their budgets first. This is because the other business units are dependent on the revenue generated in these business units for their resources requirements..
<
Hence the answer is (e).
7.
A
[Budgeted Fixed Overhead + (Budgeted Variable Overhead Rate Direct Labor Hours Needed for production)]. Hence the answer is (a).
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8.
Answer
Reason
C
In Zero-based Budgeting (ZBB), the responsibility centers are called as decision units.
<
Hence the answer is (c).
9.
B
If the business environment is dynamic then it will exert pressure on the organization to emphasize innovation. In such a scenario, the approach adopted by the top management and the flexible organizational culture will help the organization to achieve success through a flexible/inefficient profile approach.
<
Hence the answer is (b). 10.
B
Sales Volume Variance = ∑[(Standard margin per unit) × (Actual sales- planned sales)]
<
= Rs. 10 × (40,00,000 – 35,00,000) = Rs.10 × 5,00,000 = Rs. 50,00,000. Hence the answer is (b). 11.
D
Action controls may be implemented in one or more of the following forms:
Behavioral restrictions.
Pre-action appraisal. Action accountability.
<
Option (IV): Post-action appraisal is not a form to implement action controls. Hence the answer is (d). 12.
C
The true statements feedforward control are:
<
Statement (I): It is used in cash flow forecasting and management. Statement (II): It detects deviations from the plans before they occur. Hence the answer is (c). 13.
E
Transnational strategy aims at achieving both cost reduction and local adaptability while encouraging a two-way flow of know-how between the parent organization and subsidiary.
<
Hence the answer is (e).
14.
C
The limitation of a matrix organization structure is that it will fail if the participants are not mutually respectful. Hence the answer is (c).
<
15.
Answer
Reason
B
As a control tool, the performance indicators describe what is to be done to achieve the desired results or outcomes. Lead indicator is one of the performance indicators. Lead indicators are performance drivers.
<
Hence the answer is (b).
16.
E
The following are the budget activities:
Developing budget proposals at the department/business unit level.
Determining the budget period and key budget factors.
Benchmarking the budget.
Developing guidelines for budget preparation.
<
Hence the answer is (e). 17.
D
The budgeted units of production can be calculated as : the number of units sold, plus the desired ending finished goods inventory, minus the beginning finished goods inventory.
<
Hence the answer is (d).
18.
D
Budgeted Cost of Good Sold =
<
(Budgeted Total Manufacturing Cost + Beginning Finished Goods – Ending Finished Goods).
Hence the answer is (d). 19.
A
Vertical line is not one of the types of targets.
<
For period-to-period reporting, there are four types of targets, depending on the behavior of the performance parameters. They are:
Flat line
Step
Seasonal
Growth curve
Hence the answer is (a). 20.
E
The internal performance reports are:
Progress report of the project.
Variance reports.
Trend charts of the sales of the organization.
Hence the answer is (e).
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21.
Answer
Reason
C
The key feature of Management by objectives (MBO) is setting of goals/objectives jointly by the supervisor and the subordinate. MBO is said to be implemented in an organization when, top management decides on the organizational goals, while the departmental heads decide on the functional and individual goals in discussion with the employees. These functional and individual goals are aligned with the organizational goals after the objectives have been decided upon, the targets are set and revised as required.
<
Hence the answer is (c). 22.
D
A management control system may be viewed as a collection of controls that are used to address one or all the following situations:
<
Statement (II): Managers and employees have a fair idea of what is expected but do not feel motivated. Statement (III): In spite of knowing about the expectations and having sufficient motivation for performance, managers and/or employees are not able to perform. Hence the answer is (d). 23.
D
A company-owned sales outlet like the Pantaloons Flagship stores is an example of revenue center. Such a center is devoted to increasing the net revenue and assumes no responsibility for production. The outlet manager is responsible for the level of revenue or output measured in monetary terms, but is not responsible for the costs of the goods sold through the outlet.
<
Hence the answer is (d). 24.
A
Option (a): Personnel ratio = Number of employee in a particular function / Total number of people in the organization.
<
Other options are not appropriate. Hence the answer is (a). 25.
A
Critical success factors are those factors which the organization cannot ignore and it has to control the performance to address the needs placed on it by these factors. Although Option (II) and (IV) are factors affecting performance but they are not the critical success factors in terms of performance.
<
Hence the answer is (a). 26.
B
Option (b) is false: Budget preparation requires the participation of managers from different functions/departments.
<
Hence the answer is (b).
27.
B
The following are included in operating budget: Statement (II): Cash collections from customers. Statement (III): Disbursements for purchases. Hence the answer is (b).
<
28.
Answer
Reason
A
Cost-driven activities do not include sales commission which is an expense driven by the sales volume.
<
Hence the answer is (a).
29.
A
The correct sequence of steps followed in Zero-based Budgeting (ZBB) process are:
<
Decision unit identification
Decision package development Evaluation and grading of decision packages Resource allocation.
Hence the answer is (a). 30.
A
Year 2007-08 is the Ordinal variable.
<
Hence the answer is (a).
31.
D
Organizational slack refers to that capacity in an organization which is in surplus of what is required for normal operations. Slack may be said to exist under circumstances which includes
<
Giving higher remuneration to employees than is necessary for retaining them and
Setting targets lower than expected performance.
Hence the answer is (d). 32.
B
Transfer pricing is an important technique to measure the contribution of individual centers to the overall organizational goals, and to ensure that performance measurement systems are designed to be fair.
<
Hence the answer is (b).
33.
B
Statement (II) and (IV) are true about Diagnostic control systems, one of the levers of control. According to Robert Simon it works well if the goals are reasonable and attainable and relieves managers of the task of constantly monitoring employees and is very useful for detecting problems.
<
Hence the answer is (b). 34.
A
Tall structure provides closer supervision and tighter control by supervisors as there are only a few people reporting to a supervisor. Hence the answer is (a).
<
35.
Answer
Reason
D
The internal factors that are considered in internal business process perspective, which influence customer satisfaction are cycle time, quality and employee skills.
<
Option (IV): Increasing shareholders value is not a factor. It is the goal and internal and external factors help to achieve this goal. Hence the answer is (d). 36.
B
The following methods are used to prevent the employees from using unethical means to achieve targets:
<
Statement (II): The compensation levels should have a lower and higher limit. Statement (IV): Manager should define the performance measures properly.
The following statements are false:
Statement (I): The incentives should be directly linked to the set targets only are false as it should also be linked to the means to achieve the targets. Statement (III): If the achievement is higher than the set targets, the rewards should exceed the upper limit is false as rewards should not exceed a certain upper limit if unethical behavior is to be curbed.
Hence the answer is (b). 37.
B
While preparing the budgeted income statement in order to obtain budgeted net income the following calculation is done:
<
Combining the sales, cost of goods sold and selling and administrative expenses and then subtracting interest, bad debts and income taxes.
Hence the answer is (b). 38.
B
ZBB involves identification of decision units; the manager of every decision unit will portray his/her own units as the most important and get higher budgets approved for it. Therefore, ZBB can result in the creation of budgetary slack.
<
Hence the answer is (b).
39.
B
Learning-oriented organization is the other name given to market-oriented organizations.
<
Other options are not applicable in this context. Hence answer is (b). 40.
A
Sales mix variance = ∑[(Standard margin per unit- Standard average margin per unit) × (Actual sales - Actual sales at standard sales mix)]
<
Hence the answer is (a).
41.
E
The following are true about Management audit: Statement (II): Management audit is an appraisal activity used to evaluate organizational performance. Statement (III): Management audits are used to examine the organization structure, constituents, objectives etc. Hence the answer is (e).
<
42.
Answer
Reason
D
Total asset turnover ratio measure the company’s effectiveness in generating revenue from investments in total assets.
<
Hence the answer is (d).
43.
D
Sales price variance
<
= ∑[Actual sales revenue – (Actual sales volume × Standard selling price per unit) Actual selling price of actual sales volume of Shiny Shampoo = 5,000 × Rs. 8 = Rs.40, 000. Standard selling price of actual sales volume of Shiny Shampoo = 5,000 × Rs.15 = Rs.75,000. Therefore, the sales Price Variance for Shiny Shampoo = Rs. 40,000 – Rs.75,000 = Rs. 35,000 (Adverse). Hence the answer is (d). 44.
D
The following statements are false regarding ‘materiality’ of information:
Statement (I): Materiality is not influenced by the legal and statutory requirements.
Statement (III): Judgments regarding materiality constitute an evaluation of only quantity of misstatement in the financial statements.
<
Hence the answer is (d). 45.
D
The statutory auditor of the company has to certify that the financial statements have been prepared without violating accounting rules and the principles of accounting.
<
Hence the answer is (d).
46.
C
The following statement is true regarding control risk:
<
Control risk is the risk that a material misstatement could occur in an assertion for an account balance or class of transactions, and would not be prevented or detected on a timely basis by the internal control policies and procedures. The other two statements are true about inherent risk and detection risk. Hence the answer is (c). 47.
B
Sufficiency of audit evidence relates to the amount or quantum of audit evidence that is available. Hence the answer is (b).
<
Answer 48.
E
Reason The following are false regarding ‘Constituency group attitudes audit’:
<
Statement (I): This type of audit is conducted to evaluate an organization’s social performance in terms of social indicators that signify public interest. Statement (II): This audit is conducted to assess the performance of organization with respect to some area of social or public concern. Statement (IV): This type of audit requires quantification of social costs and income. Hence the answer is (e). 49.
D
The following statement is true about Propriety audits:
<
Option (d): Propriety audits are conducted to examine the effects of the management’s decisions and actions on society and the general public. Hence the answer is (d). 50.
C
The inherent risk is the probability of the existence of a material misstatement :
<
Inherent risk (I.R) = 20% = 0.20. Control risk is the risk of the internal control system not preventing or detecting this occurrence of material misstatement: Control risk (C.R) = (1 – 10%) = (1 – 0.1) = 0.90. Detection risk is the risk of the auditor not detecting material misstatement: Detection risk (D.R) = (1 – 40%) = (1 – 0.4) = 0.60. Therefore Audit risk = I.R × C.R × D.R = 0.2 × 0.90 × 0.60 = 0.108 = 10.8%. Hence the answer is (c). 51.
D
The audit report should be prepared based on the following guidelines:
<
Statement (I): The audit report should contain information on whether the financial statements of the organization conform to the GAAP. Statement (III): If the disclosures in the financial statements are not adequate, the audit report should explicitly say so. Hence the answer is (d). 52.
D
Comparable uncontrolled price method is the method used to price the goods and services an organization transfers between its profit centers at a level equal to the prevailing open market price for those goods and services.
<
Hence the answer is (d).
53.
C
Domestic rate fluctuations is not one of the factors that multinational corporations must take into consideration for arriving at their transfer pricing policy. Hence the answer is (c).
<
54.
Answer
Reason
B
Vouch is to verify recorded transactions or amounts by examining supporting documents.
<
Hence the answer is (b).
55.
A
In Resale Price (RP) method, transfer price is determined by calculating back from the transaction taking place at the next level of the supply chain, by deducting a suitable mark-up from the price at which the internal buyers sells the item to an unrelated third party.
<
Hence the answer is (a). 56.
A
The following is true regarding Utilitarianism:
<
Statement (I): Utilitarianism recommends that a course of action that achieves ‘the greatest good for the greatest number of people is ethical. Hence the answer is (a). 57.
A
The following reflect ‘conflict avoidance’ techniques: Forcing and smoothing.
<
Hence the answer is (a).
58.
D
The following statements are true regarding ‘Two sets of prices’ method:
<
Statement (I): A disadvantage of this method is that it is difficult to maintain a separate account each time a transfer of goods is made. Statement (III): This method is used when there are frequent conflicts between the buying and selling units, which cannot be resolved by any method. Hence the answer is (d). 59.
C
Profit sharing method is applied when the transactions between units are much too integrated to be evaluated separately and the existence of intangibles makes it is impossible to establish comparability with market conditions.
<
Hence the answer is (c).
60.
C
Option (c): A person who scores low on idealism and high on relativism is called as subjectivist.
<
Hence the answer is (c).
61.
C
Tax structure is not a position-related factor which influences ethical behavior. Hence the answer is (c).
<
Answer 62.
E
Reason Monetary rewards include: I.
Incentives.
II.
Bonuses.
<
IV. Employee stock option plans. Option (III) is incorrect as travel allowances is not a reward based on performance of an employee. Hence the answer is (e). 63.
C
At the third level i.e., post-conventional level: Statement (III): Managers frame ethical principles without regard to social pressures is true.
<
Hence the answer is (c).
64.
C
1.5 is an acceptable current ratio for most of the manufacturing companies.
<
Hence the answer is (c).
65.
E
Option (e): Segment margin report is a tool of financial control that helps to analyze the performance of the business units or divisions within an organization.
<
Hence the answer is (e).
66.
D
Earning power is a measure of performance of the business which is not affected by tax or interest charges.
<
Hence the answer is (d).
67.
D
Statement (III) is false.
<
The responsibilities of the ethics committees include:
Ascertaining that all employees are appropriately trained in the organization’s code of ethics.
Communicating the importance of ethical values and ethical business practices.
Creating avenues for employees to openly discuss ethical issues that they face.
Hence the answer is (d). 68.
C
Statement (c): Debt service coverage ratio is a measure of the cash flow available to meet annual interest and principal payments on debt. Hence the answer is (c).
<
69.
Answer
Reason
B
Statement (II) and (IV) need to be considered while using financial ratios as a control mechanism:
The trend in the value of a ratio over time is often a better indicator of an organization’s progress (or lack of it) on a particular dimension.
The mere calculation of the financial ratios of an organization will not reveal much.
<
Hence the answer is (b). 70.
C
Option (c): Segregation of duties is in-built in business processes to prevent and/or detect errors during the regular course of business.
<
Hence the answer is (c).
71.
B
Option (b): ROCE (Return on capital employed) gives an indication of whether the organization is earning adequate revenues and profits through the efficient use of its capital.
<
Hence the answer is (b).
72.
C
Acid test ratio is also known as Quick ratio.
<
Hence the answer is (c).
73.
B
Whistleblowing is an act whereby an employee of an organization informs the higher authorities or public about the unethical practices taking place in the organization.
<
Hence the answer is (b).
74.
E
The purchase accounting systems aim to achieve the following financial control goals:
<
Statement (I): Keeping a close watch over the timeliness and value of cash and bank outflows to vendors. Statement (II): Analyzing the input costs of various responsibility centers, products etc. Statement (IV): Ensuring purchases are made at an optimal cost. Hence the answer is (e). 75.
A
Grocery chains that sell fresh fruits and vegetables have high inventory turnover ratio. Hence the answer is (a).
<
Answer 76.
C
Reason Statement (III) and (IV) are not the advantages of Economic Value Added (EVA):
The SP model helps in identifying the best way to achieve a company’s financial targets through systematic control and evaluation of profit margin management, asset management and debt management.
One of the disadvantages of EVA is that it does not take into consideration size differences across the plants or divisions.
<
Hence the answer is (c). 77.
<
C Particulars Sales Variable costs Contribution margin(Sales- variable costs) (Less) Traceable fixed cost Segment margin (Contribution marginTraceable fixed cost)
Rs. in lakhs 700 400 300 70 230
Hence the answer is (c). 78.
D
The following are true about Market value to book value ratio Statement (I): It is desirable to have a market value to book value ratio greater than 1. Statement (II) :The market value to book value ratio is an indication of the organization’s contribution to wealth creation in society.
<
Hence the answer is (d). 79.
C
CFROI provides a more realistic picture of the performance of the organization by adjusting for accounting differences and inflation.
<
Hence the answer is (c).
80.
A
NOPAT = PBIT (1− Tax rate) = Rs. 80(1− 0.5) = Rs. 40 lakhs.
<
Capital = Rs. 200 lakhs. Cost of capital = 15%. Economic Value Added (EVA) = NOPAT− (Capital × Cost of capital) = Rs. 40 lakhs – (Rs. 200 lakhs × 15%) = 40 – 30 EVA
= 10 .
Hence the answer is (a). 81.
D
Democratic permissive manager allows subordinate participation in decisionmaking and allows them the freedom to decide their work pattern. Hence the answer is (d).
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Answer 82.
B
Reason The following are false regarding results controls:
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Statement (II): Costs involved in results controls are more than in action controls. Statement (IV): Results controls restrict creativity as they place limits on actions. Hence the answer is (b). 83.
E
All the statements about rolling budgets are true.
<
Hence the answer is (e).
84.
B
In compliance management audit, auditors are asked to identify the gaps between the organization’s existing policies and objectives and its actual practices.
<
Hence the answer is (b).
85.
E
The following are the ethical issues in Human Resource Management:
<
Statement (I): Lack of job security and increased risk of unemployment. Statement (II); Excessive scrutiny and control. Statement (III): Discrimination. Hence the answer is (e). 86.
A
The following considerations are important while using financial ratios as a control mechanism: Statement (I):
Financial ratios should be analyzed from an industry perspective.
Statement (II): The use of ratios as a tool of control should not be limited to the end of the financial period or year. Hence the answer is (a). < TOP OF THE DOCUMENT >
<
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