Question Paper

Management Control and Information Systems - I (MB2F3): January 2009

 Answer all 88 questions.
 Marks are indicated against each question.
Total Marks : 100
1. Which of the following would be the ‘Critical Success Factors’ (CSF’s) for consumer electronic <Answer>

industry such as ‘Whirlpool’?

I. Store location.
II. Sustainable customer relationships with distributors.
III. Sustainable supplier relationship.
IV. Cutting edge research and development.
(a) Both (I) and (III) above
(b) Both (II) and (IV) above
(c) Both (III) and (IV) above
(d) (I), (II) and (III) above
(e) (II), (III) and (IV) above. (1 mark)
2. Structural dimensions are the dimensions that are entirely internal to the organizations. The structural <Answer>

dimensions are shaped based on which of the following types of dimensions?

(a) Contextual dimensions
(b) Formal dimensions
(c) Informal dimensions
(d) Cultural dimensions
(e) Functional dimensions. (1 mark)
3. Tata Group implemented the ‘Tata Business Excellence Model (TBEM)’ to bring about a <Answer>

transformation in the organization to enable it to face the dynamic and competitive business
environment. TBEM include(s) core value(s) like
I. Organizational agility.
II. Valuing employees and partners.
III. Company-driven excellence.
IV. Visionary leadership.
(a) Only (I) above
(b) Only (III) above
(c) Both (I) and (III) above
(d) Both (II) and (IV) above
(e) (I), (II) and (IV) above. (1 mark)
4. Which of the following transactions results in decrease of working capital? <Answer>

(a) Issue of shares for cash

(b) Take over of long-term investments by creditors
(c) Stock sold at 20% below cost for cash
(d) Machinery purchased in exchange of debentures
(e) Preliminary expenses written-off. (2marks)
5. A budget for discretionary expenditure such as training, advertising, sales promotion and research and <Answer>

development etc., is an example of which of the following types of budget?

(a) Master budget
(b) Flexible budget
(c) Capital budget
(d) Appropriation budget
(e) Participative budget. (1 mark)

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6. Who among the following decides whether the financial statements audited are depicting the true and <Answer>

fair picture of the organization’s state of affairs?

(a) Director of the company
(b) Auditor of the company
(c) Chief executive officer of the company
(d) President of the company
(e) Government. (1 mark)
7. Mandira Ltd., has furnished the following budget for the next year: <Answer>

Quarters 1st 2nd 3rd 4th

Budgeted direct labor hours 69,000 74,000 71,000 76,000
Variable overhead rate per labor hour Rs. 6.20 Rs. 6.20 Rs. 6.20 Rs. 6.20
Fixed manufacturing overhead costs Rs.82,000 Rs.82,000 Rs.82,000 Rs.82,000
The fixed manufacturing overhead costs include depreciation of Rs.42,000 per quarter. 75% of the
manufacturing overhead costs of each quarter are paid in cash during that quarter and the remaining
25% is paid in the following quarter. The amount of overhead costs to be paid during the 2nd quarter is
(a) Rs.4,75,550
(b) Rs.4,91,050
(c) Rs.5,09,800
(d) Rs.5,40,800
(e) Rs.5,33,050. (2marks)
8. Which of the following is more convenient for Reliance telecom, if it wants to compare its market share <Answer>

with that of its competitors?

(a) Table
(b) Pie chart
(c) Bar chart
(d) Line chart
(e) Dot chart. (1 mark)
9. An individual’s value system is an important factor that determines whether he/she will behave <Answer>

ethically or unethically, when faced with an ethical dilemma. Which of the following is/are true about
locus of control, one of the individual factors that influence ethical behavior?
I. Is the ability of the individual to take decisions independently in the face of problems.
II. Relates to the reasons which a person cites for his/her success or failure.
III. People with high locus of control will not depend on others for decision-making whereas people
with low locus of control will look to other people for help in arriving at decisions.
IV. Managers with an external locus of control feel they are in control of the situation and are ready to
be held accountable for their actions.
(a) Only (II) above
(b) Both (I) and (III) above
(c) Both (II) and (IV) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)

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10.Key performance indicators have an impact on all the key results areas of the organizations. Which of <Answer>

the following is/are the characteristic(s) of the key performance indicators?

I. Key performance indicators are generally financial in nature and cannot be measured whenever
required.
II. They should be devised in such a way that employees at all levels in the organization understand
and utilize them effectively.
III. Key performance indicators have a major effect on most of the critical success factors but they
have a negative impact on most of the performance indicators.
IV. Both the teams and the individuals in an organization are held responsible for the key performance
indicators.
(a) Only (II) above
(b) Both (I) and (III) above
(c) Both (II) and (IV) above
(d) Both (III) and (IV) above
(e) (I), (II) and (III) above. (1 mark)
11.Which of the following organizational structure is also termed as Product structure? <Answer>

(a) Functional structure

(b) Horizontal structure
(c) Matrix structure
(d) Divisional structure
(e) Hybrid structure. (1 mark)
12.Which of the following constitute the foundation of the cybernetic process of management control? <Answer>

(a) Principles
(b) Actuals
(c) Standards
(d) Controls
(e) Objectives. (1 mark)
13.The calculation of which of the following heads are included in the preparation of direct material <Answer>

budget?
I. Quantity of material needed for production.
II. Quantity of material to be purchased.
III. Availability of raw material.
IV. Cost of material used.
(a) Both (I) and (II) above
(b) Both (I) and (III) above
(c) Both (III) and (IV) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
14.Which of the following is/are true about Compliance management audit? <Answer>

I. Auditors are asked to identify the gaps between the organization’s existing policies and objectives
and its actual practices.
II. Agribusiness firms engaged in food processing may regularly schedule audits of their quality
control function is an example of compliance management audit.
III. An organization conducts compliance management audit to find ways to optimize the usage of
energy in an organization.
IV. This type of audit eliminates the fear of directives being imposed on the organization by an
outside party.
(a) Only (III) above
(b) Both (I) and (IV) above
(c) Both (II) and (III) above
(d) (I), (III) and (IV) above
(e) (II), (III) and (IV) above. (1 mark)

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15.Which of the following lead to a cost variance for materials, if the cost of materials is recorded wrongly <Answer>

or it is recorded higher or lower than the correct or budgeted value?

(a) Operational causes
(b) Controllable causes
(c) Uncontrollable causes
(d) Situational causes
(e) Non-operational causes. (1 mark)
16.In order to have a clear idea of an organization’s financial health, some important information should <Answer>

be disclosed in the annual report. Which of the following is considered to be ‘Essential’ information
item in an annual report?
(a) Capitalized interest
(b) Major contractual relationships
(c) Information regarding assets
(d) Discussion on major factors influencing next year
(e) Capital expenditure. (1 mark)
17.Productivity and quality are the important aspects in operations management. Bad quality can lead to <Answer>

managers budgeting for slack in their operations, in terms of

I. Efficient utilization of resources.
II. Providing for greater lead times.
III. Accepting relatively poor quality.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) Both (II) and (III) above. (1 mark)
18.Strategic decision-making may involve a lot of uncertain and fuzzy variables. Using which of the <Answer>

following techniques, Decision support systems help in controlling the inherent risk in decision-making
in such scenario?
(a) Where-if analysis
(b) How-if analysis
(c) What-if analysis
(d) Who-if analysis
(e) When-if analysis. (1 mark)
19.Which of the following is an example of the cost center in which a certain fixed budget is allocated to <Answer>

the cost center and it is expected to achieve the best possible results within the allocated budget?
(a) Maintenance department
(b) A company-owned sales outlet
(c) Information technology department
(d) Finance department
(e) Public relation department. (1 mark)
20.Management controls are classified based on different schemes. Which of the following is a <Answer>

classification based on time of implementation of controls?

(a) Closed loop controls
(b) Personnel/cultural controls
(c) Formal controls
(d) Action accountability
(e) Pre-action appraisals. (1 mark)

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21.Which of the following are the benefits of master budgets? <Answer>

I. As the master budget is a compilation of the budgets from different departments, it helps in better
integration of all the organizational functions.
II. A master budget helps the employees track how each of their business unit objectives, when
achieved, contribute to the objectives of the organization.
III. The planning activity in master budgets helps organizations to look for alternative ways in which
they can enhance value to customers and also minimize costs.
IV. Master budgets serve only as planning tool and do not serve as control tool.
(a) Both (I) and (II) above
(b) Both (II) and (III) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
22.In certain organizations, the transfer pricing department only draws up the transfer pricing policies, the <Answer>

implementation and day-to-day management are taken care of by the

(a) Human resource department
(b) Marketing department
(c) Operations department
(d) Finance and tax departments
(e) Legal department. (1 mark)
23.There are many categories of audits that organizations undertake. The audit categories differ in terms of <Answer>

I. Their emphasis on financial data and/or non-financial data.

II. Secondary purpose.
III. Compliance, certification, communication and/or control.
IV. Scope.
(a) Both (I) and (III) above
(b) Both (II) and (IV) above
(c) (I), (III) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
24.Arogya Ltd., has furnished the following information pertaining to its product A for the month of <Answer>

December 2008:
Particulars Actual Budget
Sales (units) 20,000 24,000
Sales revenue (Rs.) 2,20,800 2,52,000
The sales price variance for the month was
(a) Rs.10,800 (Adverse)
(b) Rs.10,800 (Favorable)
(c) Rs.12,400 (Favorable)
(d) Rs.12,960 (Adverse)
(e) Rs.12,960 (Favorable). (1 mark)
25.Which of the following components of financial control, monitors the organization’s financial activities <Answer>

and maintains documentary evidence of all inflows and outflows?

(a) Financial policies
(b) Book-keeping
(c) Financial procedures
(d) Financial information system
(e) Controlling assets. (1 mark)

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26.Budgets are used to give an overview of the organization and its operations. Which of the following are <Answer>

true about budgets?

I. Budgets help in integrating the tactical and operational strategies of different departments with the
corporate strategy of the organization.
II. The budgeting process starts with the dissemination of guidelines approved by the senior
management.
III. 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.
IV. Budgeting helps managers to enhance their learning skills.
(a) Both (I) and (III) above
(b) Both (II) and (IV) above
(c) Both (III) and (IV) above
(d) (I), (II) and (III) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
27.Which of the following is true about multi-domestic strategy, one of the strategies for doing <Answer>

international business?
(a) In this strategy, there is a two-way flow of know-how between the parent organization and
subsidiary
(b) In this strategy, there is a one-way flow of know-how from the parent organization to the
subsidiary
(c) In this strategy, there is a transfer of know-how and/or products developed in the home country
to foreign markets where they are scarce or unavailable
(d) In this strategy, there is a poor flow of know-how between the parent organization and the
subsidiary
(e) In this strategy, there is no flow of know-how between the parent organization and the
subsidiary. (1 mark)
28.Geert Hofstede has defined culture and highlighted the dimensions on which culture varies across the <Answer>

countries. Which of the following dimensions of culture implies competitive spirit, independent
thinking, assertiveness etc.?
(a) Individualism
(b) Masculinity
(c) Collectivism
(d) Power distance
(e) Femininity. (1 mark)
29.In which of the following types of target in period-to-period reporting, the performance parameter is <Answer>

expected to exhibit a linear pattern throughout the period during which the performance is analyzed?
(a) Step
(b) Seasonal
(c) Growth curve
(d) Flat line
(e) Vertical. (1 mark)
30.Dustin Ltd., in India sells wool to its subsidiary organization Diakiba Ltd., in China. If the rate charged <Answer>

by Dustin Ltd., in India is 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) Comparable uncontrolled price method
(b) Profit sharing method
(c) Two sets of prices method
(d) Two-step pricing method
(e) Cost plus method. (1 mark)

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31.Audit evidence is any kind of information that the auditor uses to determine whether the financial <Answer>

statements being audited are in accordance with the established rules and regulations. Which of the
following is true about audit evidence?
(a) Audit evidence is not influenced by the legal and statutory requirements
(b) Audit evidence depends on the size of the item or error judged in the particular circumstances of
its omission or misstatement
(c) Judgment regarding audit evidence constitutes an evaluation of only quantity of misstatement in
the financial statements
(d) Audit evidence comprises of basic accounting data only
(e) For the audit evidence to be useful it has to fulfill criteria like sufficiency and appropriateness. (1 mark)
32.Damu Ltd., has furnished the following budgeted and actual sales for the month of December 2008: <Answer>

Particulars Budget Actual

Units sold 4,900 units 4,500 units
Sales margin Rs.60 per unit Rs.55 per unit
The sales volume variance for the month was
(a) Rs.13,400 (Adverse)
(b) Rs.13,400 (Favorable)
(c) Rs.13,000 (Adverse)
(d) Rs.24,000 (Adverse)
(e) Rs.24,000 (Favorable). (2marks)
33.An organization prepares a variety of financial statements to monitor business performance. Cash flow <Answer>

statement is one of the financial statements which are extensively used for exercising financial control.
Which of the following is/are true about cash flow statement?
I. Cash flow statement is based on the accrual accounting principle.
II. An analysis of the cash flows from operating activities will indicate the quantum of cash being
generated from business operations.
III. Cash flow from investing activities helps to estimate future cash outflow requirements in terms of
payments to shareholders and lenders.
(a) Only (II) above
(b) Only (III) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above. (1 mark)
34.Which of the following budgets help organizations to control inaccuracies regarding projections and in <Answer>

turn minimize the discrepancies between the standards and the actuals?
(a) Rolling
(b) Participative
(c) Master
(d) Financial
(e) Zero-based. (1 mark)
35.Which of the following controls is used when the objectives are clear and results are quantifiable, but <Answer>

the interfaces are not predictable and activities not repetitive?

(a) Intuitive
(b) Political
(c) Judgmental
(d) Routine
(e) Expert. (1 mark)

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36.Mr. Alok Nath, manager of bearing division of Levi Ltd., takes decisions all alone about the various <Answer>

operational aspects of the division and also decides the roles and responsibilities and the way work
should be carried out by the subordinates. Mr. Alok Nath can be categorized as
(a) Democratic manager
(b) Autocratic directive manager
(c) Autocratic permissive manager
(d) Democratic permissive manager
(e) Democratic directive manager. (1 mark)
37.The success or failure of a business organization depends on number of factors. Which of the following <Answer>

is not the factor which can be controlled by the organization?

(a) Service orientation
(b) Government rules and regulations
(c) Employees
(d) Leadership
(e) Administration. (1 mark)
38.Which of the following types of costs are used in the cost-based pricing methods? <Answer>

(a) Actual
(b) Variable
(c) Historical
(d) Fixed
(e) Standard. (1 mark)
39.Apex Ltd., is undergoing an audit, where the inherent risk is 50 percent, detection risk is <Answer>

82 percent and the control risk is 48 percent and the maximum audit risk the auditor wishes to accept is
18 percent. In above situation, if the audit risk is lower or higher than the maximum acceptable limit,
then the auditor should take necessary steps to
(a) Increase the probability of detecting the misstatement and decrease the detection risk
(b) Decrease the probability of detecting the misstatement and increase the detection risk
(c) Increase the probability of detecting the misstatement and decrease the inherent risk
(d) Decrease the probability of detecting the misstatement and decrease the detection risk
(e) Increase the probability of detecting the misstatement and decrease the control risk. (2marks)
40.Ambuli Ltd., manufactures plastic bags. The company’s directors have projected the following sales for <Answer>

the next three months:

February 2009 4,00,000 units
March 2009 4,20,000 units
April 2009 4,60,000 units
Opening stock of finished goods on February 01, 2009 is estimated as 50,000 units. The company has
some problems recently in supplying its customers promptly and the directors have decided to aim for a
10% increase in finished goods closing stock at the end of each of the three months.
Each bag uses 0.5 kg of plastic that costs Rs.12 per kg. The stock of plastic on February 01, 2009 is
estimated as 60,000 kg. The raw material is readily available, but in order to ensure that the company
will not run out of stock, the directors would like to increase the closing stock of plastic by 10% each
month for the next three months. The cost of raw material to be purchased during the month of April
2009 will be
(a) Rs.27,09,180
(b) Rs.28,83,420
(c) Rs.26,76,290
(d) Rs.28,12,200
(e) Rs.26,60,900. (2marks)
41.An interest coverage ratio of 6 indicates that <Answer>

(a) Sales are 6 times of interest expense

(b) Profit after tax is 6 times of interest expense
(c) Profit before tax is equal to 1/6th of interest expense
(d) Profit before interest and taxes is 6 times of interest expense
(e) Profit after tax is equal to 1/6th of interest expense. (2marks)
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42.In Almey Co., chemical manufacturing unit, top management compensation is based on its return on <Answer>

assets employed. Shareholders of the firm suspect that the top management is projecting an inflated
picture of the profits and underestimating the value of assets employed in the firms operations. This
type of scenario occurs due to
(a) Inaccessibility of information to shareholders
(b) Consequence of the statement
(c) Complexity of the statement
(d) Conflict of interest between the management and user
(e) Authenticity of statement. (1 mark)
43.Alpha Ltd., manufactures a toy baby with moving parts and a built-in voice box. The projected sales for <Answer>

6 months are as follows:

Month & Year Projected sales in units
December 2008 8,000
January 2009 8,600
February 2009 9,000
March 2009 8,500
April 2009 8,800
May 2009 9,000
Each toy requires direct materials from a supplier at Rs.35 for moving parts. Voice boxes are
purchased from another supplier at Rs.15 per toy. Labor cost is Rs.30 per toy and variable overhead
cost is Rs.10 per toy. Fixed manufacturing overhead applicable to production is Rs.54,000 per month.
It is the practice of the company to manufacture an output in a month, which is equivalent to 75% of the
current month’s estimated sales and 50% of the following month’s estimated sales.
The production budget for the month of February 2009 and the production cost budget for the month of
March 2009 will be
(a) 11,000 units and Rs.10,23,750 respectively
(b) 11,200 units and Rs.10,88,000 respectively
(c) 11,000 units and Rs.10,88,000 respectively
(d) 10,775 units and Rs.10,23,750 respectively
(e) 10,775 units and Rs. 8,86,000 respectively. (2marks)
44.Which of the following is/are true about market orientation? <Answer>

I. Market orientation can be imitated easily due to its tangible nature.

II. Market orientation requires investment in terms of time and money.
III. Market orientation ensures a greater chance of new product success and customer satisfaction.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above. (1 mark)
45.A person who scores high on idealism and low on relativism is a(an) <Answer>

(a) Exceptionist
(b) Situationist
(c) Absolutist
(d) Subjectivist
(e) Optimist. (1 mark)

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46.Entropia Ltd., introduced a fast food service with an assurance of delivering the order within the <Answer>

prescribed time of 30 minutes to the customers door step. Identify the performance indicators, incase
there is a delay in delivering the order.
I. Performance driver.
II. Outcome indicator.
III. Time perspective.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) Both (II) and (III) above. (1 mark)
47.Specialization is one among the structural dimensions of organizational design. Which of the following <Answer>

is/are true about degree of specialization?

I. One of the ways of achieving specialization is functional specialization.
II. In functional specialization the job is broken down into several parts which are useful in
overcoming restrictions of time and knowledge in performing complex jobs.
III. As the job performed by individual employees is of a routine nature in organizations with a low
degree of specialization, control systems usually consist of explicit rules and procedures which
help establish certain standard actions and results.
(a) Only (I) above
(b) Only (III) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above. (1 mark)
48.In the management context, the traditional concept of ‘control’ does not refer to <Answer>

I. The activities of establishing set performance, evaluating standard performance against these set
performance and implementing corrective actions to accomplish organizational objectives.
II. The activities of establishing standards for performance, evaluating actual performance against
these standards and implementing corrective actions to accomplish organizational objectives.
III. The activities of establishing actual performance, evaluating set performance against these actual
and implementing corrective actions to accomplish organizational objectives.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (III) above
(e) Both (II) and (III) above. (1 mark)
49.Master budgets form the basis of the control systems in organizations. Financial budget is one of the <Answer>

components of master budget. Which of the following are included in financial budget?
I. Capital budget.
II. Cash budget.
III. Production budget.
IV. Sales budget.
(a) Both (I) and (II) above
(b) Both (II) and (IV) above
(c) Both (III) and (IV) above
(d) (I), (II) and (III) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
50.According to Albrecht, the second component of the fraud involves <Answer>

(a) Conversion
(b) Theft act
(c) Concealment
(d) Deterrence
(e) Detection. (1 mark)

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51.The total purchases of Paragon Ltd., is Rs.50,000. If the closing stock is more than the opening stock by <Answer>

Rs.10,000, the cost of goods sold will be

(a) Rs.30,000
(b) Rs.50,000
(c) Rs.40,000
(d) Rs.60,000
(e) Rs.70,000. (2marks)
52.A Corporate Annual Report (CAR) is a key public document prepared by organizations mainly to fulfill <Answer>

the mandatory corporate reporting requirements. Quantitative information is one important aspect that
is considered in annual reports. Which of the following are generally included in quantitative
information?
I. The balance sheet.
II. The cash flow statement.
III. The income statement.
IV. The funds flow statement.
(a) Both (I) and (III) above
(b) Both (II) and (IV) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
53.The management control system of any organization can be divided into various parts. Which of the <Answer>

following ethical control mechanism(s) is/are used by an organization to regulate activity of ‘indicating
and communicating objectives’?
I. Code of ethics.
II. Ethics training for employees.
III. System of whistleblowing.
IV. Corporate governance focused on ethics.
(a) Only (II) above
(b) Both (I) and (III) above
(c) Both (II) and (IV) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
54.Key result indicators emerge from the organization’s activities. Which of the following is an example <Answer>

of key result indicators that are relevant for many organizations?

(a) Return on capital employed
(b) Service coverage ratio
(c) Current ratio
(d) Assets turnover
(e) Inventory ratio. (1 mark)
55.Which of the following is/are not true about hybrid structure, one of the types of organizational <Answer>

structure?
I. In hybrid structure, there is a scope for different ways of thinking and a participative style of
management.
II. A combination of functional and divisional structures and matrix and horizontal structures are the
two types of hybrid structures.
III. Hybrid organizations aim at functioning effectively by fitting the organization design to the
demands of the environment.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (III) above
(e) Both (II) and (III) above. (1 mark)

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56.Which of the following control principle suggests that managers should be informed about a <Answer>

problematic situation only when the data shows a significant deviation from the established standards
and when a situation arises that is difficult for subordinates to handle?
(a) Management by control
(b) Management by walking around
(c) Management by objectives
(d) Management by exception
(e) Bottom-up management. (1 mark)
57.The monetary value of ending inventory is required for calculating the <Answer>

(a) Direct labor

(b) Cost of goods sold
(c) Sales
(d) Production
(e) Factory overhead. (1 mark)
58.The aim of conducting a social audit is to influence the policies, objectives and actions of the concerned <Answer>

organization to improve its social performance. Which of the following is true about macro-micro
social indicator audit, one of the types of social audit?
(a) It aims to appraise a program which has already been initiated by the organization
(b) It evaluates the contribution of the organization to the well being of the local community
(c) It can assume the form of a research based appraisal that is conducted to find out the social
impact of pollution caused by an organization
(d) It is conducted to assess social costs in terms of money
(e) This audit is limited to specific processes and programs of an organization that may have social
implications. (1 mark)
59.The following data has been furnished by Winci Ltd., for the year 2007-08 pertaining to its products: <Answer>

Estimated market size 7,25,000 units

Actual market size 5,00,000 units
Planned market share 29%
Standard margin per unit Rs. 3.28
The market size variance for Winci Ltd., for the year 2007-08 is
(a) – Rs.4,34,281
(b) – Rs.1,28,245
(c) Rs.3,12,222
(d) – Rs.2,14,020
(e) Rs.2,18,022. (1 mark)
60.One of the important approaches to performance analysis is the performance prism approach. This <Answer>

approach comprises
I. Stakeholder satisfaction and contribution.
II. Strategies.
III. Processes.
IV. Capabilities.
(a) Both (I) and (III) above
(b) Both (II) and (IV) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)

Page 12 of 30
61.In which of the following system of arbitration, to administer the transfer price mechanism and to <Answer>

resolve conflicts in an organization both the parties submit a written case to the arbitrator, who reviews
it and decides on the price?
(a) Voluntary
(b) Informal
(c) Formal
(d) Compulsory
(e) Official. (1 mark)
62.Customer perspective of the Balanced Scorecard performance measurement framework is concerned <Answer>

with attracting, satisfying and retaining profitable customers/consumers in chosen target segments.
Which of the following is not the factor that influences the customer’s perception of the value delivered
by an organization’s product or service?
(a) Quality
(b) Employee skills
(c) Performance and service
(d) Cost
(e) Time. (1 mark)
63.Which of the following controls incurs lower monetary costs and usually does not result in harmful side <Answer>

effects or negative attitudes?

(a) Action
(b) Result
(c) Personnel/cultural
(d) Tight
(e) Loose. (1 mark)
64.The brand manager for Arvinda Co., manufacturer of DVD players, need to take the approval of the <Answer>

vice president of Marketing, before launching a new television commercial to replace an existing one.
The above situation elucidates which of the following types of controls?
(a) Behavioral restriction
(b) Formal controls
(c) Action accountability
(d) Pre-action appraisals
(e) Informal controls. (1 mark)
65.Zero-based Budgeting (ZBB) is designed to evaluate the whole spectrum of functional activity, so that <Answer>

areas that are inefficient and of little value are identified. The other advantage(s) of the ZBB is/are
I. In ZBB, the contributions which are intangible in nature are evaluated and ranked.
II. ZBB helps in integrating the planning and budgeting control processes.
III. ZBB helps in curbing redundant expenditure.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above. (1 mark)
66.Divisions in an organization are not allowed to buy the goods from outside sources because of the <Answer>

internal constraints, even though outside capacity exists. In such situation, which of the following
methods of transfer pricing is implemented?
(a) Negotiated pricing
(b) Resale price
(c) Cost-based pricing
(d) Market-based pricing
(e) Profit split. (1 mark)

Page 13 of 30
67.Which of the following audit is an independent appraisal function established within an organization to <Answer>

examine and evaluate its activities as a service to the organization and it need not be limited to books of
accounts and related records?
(a) Environmental
(b) Management
(c) Operational
(d) Internal
(e) Financial statement. (1 mark)
68.Costing details of the Herbal and Health, detergent brands of India Limited, for 2008 are as follows: <Answer>

Particulars Herbal Health

Planned sales units 30,00,000 45,00,000
Actual number of units sold 35,00,000 35,00,000
Standard selling price per unit Rs.18 Rs.15
Actual selling price per unit Rs.16 Rs.12
Standard margin per unit Rs. 8 Rs. 6
The total sales mix variance was
(a) Rs.15,40,000
(b) Rs.18,40,000
(c) Rs.14,00,000
(d) Rs.13,20,000
(e) Rs.11,90,000. (2marks)
69.Which of the following is also known as statement of financial position? <Answer>

(a) Cash flow statement

(b) Trial balance
(c) Income statement
(d) Funds flow statement
(e) Balance sheet. (1 mark)
70.Who among the following is responsible for issuing the guidelines for budget preparation and for <Answer>

making sure that this information is properly communicated throughout the organization?
(a) Chief executive officer of the company
(b) Company secretary
(c) Chief financial officer of the company
(d) Budget controller of the company
(e) Director of the company. (1 mark)
71.Multi-domestic strategy and international strategy are among the strategies suggested for doing <Answer>

international business. Which of the following controls is/are more appropriate for these strategies?
I. Action controls.
II. Personnel/cultural controls.
III. Results controls.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (III) above
(e) Both (II) and (III) above. (1 mark)
72.Management controls differ depending on the type of diversification. Related diversified firms depend <Answer>

more on
(a) Dynamic controls
(b) Financial controls
(c) Strategic controls
(d) Feedforward controls
(e) Feedback controls. (1 mark)

Page 14 of 30
73.In which of the following stages of product life cycle, the penetration, awareness, sales, market share, <Answer>

etc., are very low?

(a) Introductory
(b) Growth
(c) Maturity
(d) Decline
(e) Saturation. (1 mark)
74.Transfer pricing problem is encountered by vertically integrated organizations in industries where the <Answer>

raw material is extracted and processed further to produce the final product. In order to overcome the
pricing problem, which of the following alternative way(s) of calculating transfer price is adopted?
I. Transfer price comprises a standard variable cost plus a share of actual profits on sales.
II. The selling unit is credited with the market sales price and the buying unit is charged for the total
standard costs.
III. The organizations transfer the goods and services between their profit centers at a price equal to
the prevailing open market price for those goods and services.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) Both (II) and (III) above. (1 mark)
75.Detection risk is one of the components of audit risk. Which of the following is true regarding <Answer>

detection risk?
(a) The auditors can control the level of detection risk by properly planning, directing etc.
(b) These risks arise due to various factors that affect the entity’s operations
(c) Assessment of detection risk will involve considering the reliability of both the management and
the application controls
(d) Detection risk is not influenced by the audit procedures used by the auditors
(e) Detection 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. (1 mark)
76.Max Ltd., has provided the following information pertaining to its sales for the month of December <Answer>

2008:
Estimated market size 80,000 units
Actual market size 84,000 units
Planned sales 16,000 units
Actual sales 14,700 units
Standard margin per unit Rs.25
The variance due to market share for the period was
(a) Rs. 52,500 (Favorable)
(b) Rs. 52,500 (Adverse)
(c) Rs. 32,500 (Adverse)
(d) Rs. 32,500 (Favorable)
(e) Rs.1,00,000 (Favorable). (2marks)
77.Which of the following is classified as an efficiency ratio? <Answer>

(a) Total assets turnover ratio

(b) Fixed charges coverage ratio
(c) Debt-equity ratio
(d) Price-earnings ratio
(e) Debt service coverage ratio. (1 mark)

Page 15 of 30
78.Which of the following is defined as ‘resources and effort toward activities that cannot be justified <Answer>

easily in terms of their immediate contribution to organizational objectives’?

(a) Kickback
(b) Whistleblowing
(c) Slack
(d) Corporate counsel
(e) Moral judgment. (1 mark)
79.The concept of ‘levers of control’ proposed by Robert Simons help managers not only in motivating <Answer>

people to be creative but also in enforcing the control systems of the organization effectively. Which of
the following are false regarding boundary systems, one of the levers of control used in management?
I. These systems use quantitative data, statistical analyses and variance analyses to scan for anything
unusual that might indicate a potential problem.
II. These systems are used to communicate the doctrines of the corporate culture to every employee
of the organization.
III. Performance management, budgeting, brand management etc., are a few boundary systems.
IV. These systems are based on the principle that in an age of empowered employees, it is easier and
more effective to set the rules regarding what is inappropriate rather than what is appropriate.
(a) Both (I) and (II) above
(b) Both (II) and (IV) above
(c) Both (III) and (IV) above
(d) (I), (II) and (III) above
(e) (II), (III) and (IV) above. (1 mark)
80.Feedforward control is a(an) <Answer>

(a) Follow-up control

(b) Follow-back control
(c) Assumed control
(d) Reverse control
(e) Anticipatory control. (1 mark)
81.Which of the following strategic business profile will be best suited, if the industry is stable and the <Answer>

main challenge is to maintain or improve operational efficiencies, which the top management can
monitor due to its focus on cost efficiencies?
(a) Rigid/cost conscious
(b) Flexible/inefficient
(c) Flexible/cost conscious
(d) Rigid/inefficient
(e) Rigid/efficient. (1 mark)
82.Limra Ltd., is a company with two main business units - an equipment division and a furnishing <Answer>

division. The following data is available for furnishing division for the year 2007-08:
Particulars Rs. in lakhs
Sales 1,000
Variable costs 800
Traceable fixed costs 40

Segment margin of furnishing division of Limra Ltd., for the year 2007-08 is
(a) Rs.400 lakhs
(b) Rs.300 lakhs
(c) Rs.160 lakhs
(d) Rs.100 lakhs
(e) Rs.200 lakhs. (1 mark)

Page 16 of 30
83.Which of the following is an estimate of the amount by which the earnings of the company exceed or <Answer>

fall short of the return that shareholders and lenders could have got, had they invested their money
elsewhere?
(a) Cost of capital
(b) Opportunity cost
(c) Economic value added
(d) Market value added
(e) Brand value added. (1 mark)
84.Which of the following is not a current liability? <Answer>

(a) Acceptances or Bills payable

(b) Sundry creditors
(c) Interest accrued and due on secured loans
(d) Amounts due to subsidiary companies
(e) Declared dividends. (1 mark)
85.For Snable Ltd., Profit before Interest and Taxes (PBIT) is Rs.90 lakhs, Capital is Rs.190 lakhs, Cost of <Answer>

capital is 35% and tax rate is 40%. The Economic Value Added (EVA) for Snable Ltd., is
(a) + 03.8
(b) − 12.5
(c) − 08.0
(d) + 04.3
(e) + 09.2. (2marks)
86.Lumbini Ltd., has furnished the following details for the year 2007-08: <Answer>

Particulars Rs. 000’s

Net Worth 900
Preference Share Capital 150
Preference Share dividend 11
Net Profit after Taxes 110
Interest 26
The Return on Net Worth (RNOW) for the given data is
(a) 0.30
(b) 0.20
(c) 0.80
(d) 0.12
(e) 0.18. (1 mark)
87.A debt-asset ratio of 0.83 of a firm implies <Answer>

(a) 83% of debt is yet to be repaid from the assets

(b) 83% of total assets are financed from debt sources
(c) 83% of the current assets are financed from debt
(d) 83% of the debt is already repaid from the assets
(e) 83% of the debt is used for financing fixed assets. (2marks)
88.A gross profit margin ratio does not indicate <Answer>

(a) The earning power

(b) The efficiency of production
(c) The efficiency of pricing
(d) The gap between net sales and cost of goods sold
(e) The balance left to meet the administration and financial expenses. (1 mark)

END OF QUESTION PAPER

Page 17 of 30
 Suggested Answers
Management Control and Information Systems - I (MB2F3): January 2009
Answer Reason
1. B The critical success factors in case of consumer electronics industry such as Whirlpool would <
be sustainable customer relationship with distributors and cutting edge research and
development.
Hence the answer is (b).

2. A The structural dimensions are shaped based on the Contextual dimensions. <
Hence the answer is (a).

3. E Statement (III): Company-driven excellence is not the core value in TBEM. <
Tata Group implemented the ‘Tata Business Excellence Model (TBEM)’ to bring about a
transformation in the organization to enable it to face the dynamic and competitive business
environment. TBEM includes core values like organizational agility, valuing employees and
partners, customer-driven excellence, visionary leadership etc.
Hence the answer is (e)
4. C Working capital refers to current assets minus current liabilities. If stock is sold at 20% below <
cost for cash, the value of current assets decreases and thereby decreases the value of working
capital.
Hence the answer is (c).

5. D A budget for certain discretionary expenditures such as training, advertising, sales promotion <
and R&D etc., is an example of Appropriation budget.
Hence the answer is (d).

6. B Auditor of the company decides whether the financial statements audited are depicting the true <
and fair picture of the organizations state of affairs.
Hence the answer is (b).

7. B Total planned overhead costs for the 1st quarter = (69,000 × 6.20 + 82,000) = Rs.5,09,800 <
Total planned overhead costs for the 2nd quarter = (74,000 × 6.20 + 82,000) = Rs.5,40,800.
2nd quarter cash payments = {75% × (5,40,800 – 42,000} + {25% × (Rs.5,09,800 -
Rs.42,000)} = (3,74,100 + 1,16,950) = Rs. 4,91,050.

8. B Pie chart is more convenient for Reliance telecom, if it wants to compare its market share with <
that its competitors.
Hence the answer is (b)

Page 18 of 30
9. A Locus of control relates to the reasons which a person cites for his/her success or failure. <
Hence the answer is (a).

10. C The characteristics of key performance indicators are: <

Statement (II): They should be devised in such way that employees at all levels in the
organization understand and utilize them effectively.
Statement (IV): Both the teams and the individuals in an organization are held responsible for
the key performance indicators.
Hence the answer is (c).
11. D Divisional structure is also termed as Product structure. <
Hence the answer is (d).

12. C Standards constitute the foundation of the cybernetic process of management control. <
Hence the answer is (c).

13. D The direct material budget constitutes calculation of five different heads: Quantity of material <
needed in production, quantity of material to be purchased, cost of material used, cash
payment of direct material purchases, budgeted cost of material purchases.
Hence the answer is (d).

14. B Statement (I) and (IV) are true about compliance management audit: <
 Auditors are asked to identify the gaps between the organization’s existing policies and
objectives and its actual practices.

This type of audit eliminates the fear of directives being imposed on the organization by an
outside party.

Hence the answer is (b).

15. E Non-operational causes lead to cost variance for materials, if the cost of materials is recorded <
wrongly or it is recorded higher or lower than the correct or budgeted value.
Hence the answer is (e).

16. C Information regarding assets is considered to be ‘Essential’ information item in an annual <
report.
Hence the answer is (c).

Page 19 of 30
17. E Productivity and quality are the important aspects in operations management. Bad quality can <
lead to managers budgeting for slack in their operations, in terms of providing for greater lead
times and accepting relatively poor quality.
Hence the answer is (e).

18. C Strategic decisions-making may involve a lot of uncertain and fuzzy variables. Using <
technique such as what-if analysis help in controlling the inherent risk in decision-making in
such scenario.
Hence the answer is (c).

19. E Public relation department forms an example of the cost center where the cost budget is <
specified first.
Hence the answer is (e).

20. A Closed loop controls are the classification based on time of implementation of controls. <
Hence the answer is (a).

21. C The following are the benefits of master budget: <

 As the master budget is a compilation of the budgets from different departments, it helps
in better integration of all the organizational functions.

A master budget helps the employees track how each of their business unit objectives, when
achieved, contribute to the objectives of the organization.

The planning activity in master budgets helps organizations to look for alternative ways in
which they can enhance value to customers and also minimize costs.

Hence the answer is (c).

22. D In certain organizations, the transfer pricing department only draws up the transfer pricing <
policies, the implementation and day-to-day management are taken care of by the finance and
tax departments.
Hence the answer is (d).

23. C The audit categories differ in terms of <

Statement (I) : Their emphasis on financial data and/or non-financial data.
Statement (III) : Compliance, certification, communication and/or control.
Statement (IV) : Scope.
Hence the answer is (c).

24. B The sales price variance is determined by multiplying the difference between actual price and <
budgeted price by actual units.
Actual price per unit = Rs. 2,20,800 ÷ 20,000 units = Rs.11.04
Budgeted price per unit = Rs. 2,52,000 ÷ 24,000 units = Rs.10.50
 Sales price variance is 20,000 units (Rs.11.04 – Rs.10.50) = Rs.10,800 (Favorable).
Hence the answer is (b).

Page 20 of 30
25. B Book-keeping monitors the organization’s financial activities and maintains documentary <
evidence of all inflows and outflows.
Hence the answer is (b).

26. E The following statements are true about budgeting: <

 Budgets help in integrating the tactical and operational strategies of different departments
with the corporate strategy of the organization.

The budgeting process starts with the dissemination of guidelines approved by the senior
management.

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.

Budgeting helps managers to enhance their learning skills.

Hence the answer is (e).

27. D Multi-domestic strategy involves adapting to local requirements by customizing both product <
and marketing strategy. In this strategy, there is usually a poor flow of know-how between the
parent organization and the subsidiary.
Hence the answer is (d).

28. B Masculinity is one of the dimensions of culture which implies competitive spirit, independent <
thinking, assertiveness etc.
Hence the answer is (b).

29. D In Flat line target of period-to-period reporting, the performance parameter is expected to <
exhibit a linear pattern throughout the period during which the performance is analyzed.
Hence the answer is (d).

30. A Dustin Ltd., in India sells wool to its subsidiary organization Diakiba Ltd., in China. If the rate <
charged by Dustin Ltd., in India is 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 Comparable uncontrolled price method.
Hence the answer is (a).

31. E For the audit evidence to be useful it has to fulfill criteria like sufficiency and appropriateness. <
Hence the answer is (e).

Page 21 of 30
32. D Sales volume variance = ∑[(Standard margin per unit)× (Actual sales − Planned sales)] <
= Rs.60 (4,500 units −4,900 units)
= Rs.60  (-400) units = Rs. 24,000 (Adverse).
Hence the answer is (d).

33. A Statement (II): An analysis of the cash flows from operating activities will indicate the <
quantum of cash being generated from business operations is true about cash flow statement.
Hence the answer is (a).

34. A Rolling budgets help organizations to control inaccuracies regarding projections and in turn <
minimize the discrepancies between the standards and the actuals.
Hence the answer is (a)

35. A Intuitive controls is used when the objectives are clear and results quantifiable but the <
interfaces are not predictable and activities not repetitive.
Hence the answer is (a).

36. B Mr. Alok Nath is an autocratic directive manager. <

Hence the answer is (b).

37. B Government rules and regulations is not the factor which can be controlled by the <
organization.
Hence the answer is (b).

38. E Standard costs are used in the cost-based pricing methods. <
Hence the answer is (e)

39. A Audit risk = inherent risk × control risk × detection risk. <
= 50% × 82% × 48% = 19.68%.
Since the audit risk is exceeding the acceptable level of risk by the auditor he will increase the
probability of detecting the misstatement and decrease the detection risk.
Hence the answer is (a)

Page 22 of 30
40. B Finished goods: <
Closing stock at the end of February must be 10% higher than at the beginning of the month:
50,000  110% = 55,000 units. (Closing stock for February is the same as opening stock for
March.)
Closing stock at the end of March must be 10% higher than at the beginning of the month:
55,000  110% = 60,500 units.
Closing stock at the end of April must be 10% higher than at the beginning of the month:
60,500  110% = 66,550 units.
Production in the month of April 2009 = Closing stock + Sales - Opening stock = 66,550 +
4,60,000 – 60,500 = 4,66,050 units
Raw materials:
Opening stock of raw material at the beginning of February
= 60,000 kg  Rs.12 = Rs.7,20 000
Closing stock at the end of February must be 10% higher than opening stock
= Rs.7,20,000  110% = Rs.7,92,000
Closing stock at the end of March must be 10% higher than opening stock
= Rs.7,92,000  110% = Rs.8,71,200
Closing stock at the end of April be 10% higher than opening stock:
= Rs.8,71,200  110% = Rs.9,58,320
Purchases in the month of April 2009 = Closing stock + Raw materials used in production –
opening stock = Rs.9,58,320 + (4,66,050  0.5  Rs.12) – Rs.8,71,200
= Rs.9,58,320 + Rs.27,96,300 – Rs.8,71,200 = Rs.28,83,420.
Hence the answer is (b).
41. D Interest coverage ratio measures the firm’s ability to handle financial burdens. This ratio tells <
how many times the firm can cover or meet the interest payment associated with debt. Interest
coverage ratio = Profit before interest and taxes / Interest expense. Hence interest coverage
ratio of 6 indicates Profit before interest and taxes is 6 times of interest expense.
Hence the answer is (d).

42. D If top management compensation is based on firm return on asset employed. Shareholders of <
the firm suspect that the management projects the inflated picture of the profits and
underestimate the value of assets employed in the firms operations. This type of scenario
occurs due to conflict of interest between the management and user.
Hence the answer is (d).

43. A The production budget for February 2009 = 9,000 units × 0.75 + 8,500 × 0.50 <
= 6,750 units + 4,250 units = 11,000 units.
The production cost budget for March 2009
= (8,500 × 0.75 + 8,800 × 0.5) × (Rs.35 + Rs.15 + Rs.30 + Rs.10) + Rs.54,000
= (6,375 + 4,400) × Rs.90 + Rs.54,000 = 10,775 units × Rs.90 + Rs.54,000
= Rs.9,69,750 + Rs.54,000 = Rs. 10,23,750.
Hence the answer is (a).
44. D The following are true about market orientation: <
 Market orientation requires investment in terms of time and money.

Market orientation ensures a greater chance of new product success and customer satisfaction.

Hence the answer is (d).

Page 23 of 30
45. C A person who scores high on idealism and low on relativism is an absolutist. <
Hence the answer (c).

46. D In the Entropia Ltd., example, consider the performance indicator, late delivery of food. This <
may be considered as an outcome (lag) indicator (focus is on late) as well as a performance
driver (lead) indicator (focus is on delivery).
Hence the answer is (d).

47. C The following statements are true about degree of specialization: <
Statement (I): One of the ways of achieving specialization is functional specialization.
Statement (II): In functional specialization the job is broken down into several parts which are
useful in overcoming restrictions of time and knowledge in performing complex jobs.
Hence the answer is (c)

48. B In the management context, the traditional concept of ‘control’ refers to the activities of <
establishing standards of performance, evaluating actual performance against these standards
and implementing corrective actions to accomplish organizational objectives.
Hence the answer is (b)

49. A The financial budget includes capital budget, cash budget and the budgeted balance sheet. <
Hence the answer is (a).

50. C According to Albrecht, the second component of the fraud involves ‘concealment’ which <
involves the steps taken by the perpetrators to hide the fraud from others.
Hence the answer is (c).

51. C Cost of goods sold = Purchases + Opening stock – Closing stock <
= Purchases – (Closing stock – Opening stock)
= Rs.50,000 – (Rs. 10,000)* = Rs.40,000
Since, the closing stock has been increased by Rs.10,000.
Hence the answer is (c).

52. C Quantitative information includes the balance sheet, the cash flow statement and the income <
statement.
Hence the answer is (c).

Page 24 of 30
53. D The following ethical control mechanisms are used by an organization to regulate activity of <
‘indicating and communicating objectives’:
 Code of ethics.

Ethics training for employees.

Corporate governance focused on ethics.

Hence the answer is (d).

54. A Return on capital employed and profitability are two examples of key result indicators that are <
relevant for many organizations.
Hence the answer is (a).

55. B Statement (II): A combination of functional and divisional structures and matrix and <
horizontal structures are the two types of hybrid structure is not true.
Hence the answer is (b).

56. D Management by exception suggests that managers should be informed about a problematic <
situation only when the data shows a significant deviation from the established standards and
when a situation arises that is difficult for subordinate to handle.
Hence the answer is (d).

57. B The monetary value of ending inventory is required for calculating the Cost of goods sold. <
Hence the answer is (b).

58. B Macro-micro social indicator audit is conducted to evaluate an organization’s social <
performance. It evaluates the contribution of the organization to the well being of the local
community.
Hence the answer is (b).

59. D Market size variance = <

(standard margin per unit )×
 ( Planned market share %)×( Actualmarket size - Estimated market size)
 Rs.3.28  29%  (5, 00, 000  7, 25, 000)   Rs. 2,14, 020 .
Hence the answer is (d).
60. E Performance prism approach comprises stakeholder satisfaction, strategies, processes, <
capabilities and the stakeholder contribution.
Hence the answer is (e).

Page 25 of 30
61. C In formal system of arbitration to administer the transfer price mechanism and to resolve <
conflicts in an organization both the parties submit a written case to the arbitrator, who
reviews it and decides on the price.
Hence the answer is (c).

62. B Quality, time, performance and service and cost are the factors that influence the customer’s <
perception of the value delivered by an organization’s product and service.
Hence the answer is (b).

63. C Personnel/cultural controls incur lower monetary costs and usually does not result in harmful <
side effects or negative attitudes.
Hence the answer is (c).

64. D Pre-action appraisal involves a supervisor reviewing a subordinate’s plan of action. Brand <
manager taking approval of the vice president- Marketing before launching a new television
commercial to replace an existing on elucidates pre-action appraisals control.
Hence the answer is (d).

65. D Following are the advantages of ZBB: <

 ZBB helps in integrating the planning and budgeting control processes.

ZBB helps in curbing redundant expenditure.

Hence the answer is (d).

66. C Cost-based pricing method is implemented in case of an organization makes a significant <
investment in facilities: then, it will not buy the goods from outside sources even though
outside capacity exists because of the internal constraints

67. D Internal audit is an independent appraisal function established within an organization to <
examine and evaluate its activities as a service to the organization and it need not be limited to
books of accounts and related records.
Hence the answer is (d).

Page 26 of 30
68. C [(Standard margin per unit -Standard avearge margin per unit)] × <
 (Actualsales -Actual salesat standard sales mix)]
Particulars Herbal Health Total
Planned sales units 30,00,000 45,00,000 75,00,000
Actual number of units sold 35,00,000 35,00,000 70,00,000
Standard selling price per unit Rs.18 Rs.15 Rs. 33
Actual selling price per unit Rs.16 Rs.12 Rs.28
Standard margin per unit Rs.8 Rs.6
5,10, 00, 000
Rs.
Standard average margin per unit = = 75, 00, 000 = Rs.6.8

Total actual sales

Planned Sales 
Actual sales of Herbal at standard sales mix = Total planned sales

70, 00, 000

30, 00, 000 
= 75, 00, 000
= 28,00,000 units.
Total actual sales
Planned Sales 
Actual sales of Health at standard sales mix = Total planned sales

70, 00, 000

45, 00, 000 
= 75, 00, 000
= 42,00,000 units
Sales mix variance for Herbal = Rs. (8- 6.8) × (35,00,000 – 28,00,000) = Rs. 8,40,000
Sales mix variance for Health = Rs. (6-6.8) × (35,00,000 – 42,00,000) = Rs. 5,60,000
Total sales mix variance = Rs. (8,40,000 + 5,60,000) = Rs. 14,00,000.
Hence the answer is (c).
69. E Balance sheet is also known as statement of financial position. <
Hence the answer is (e).

70. D Budget controller of the company is responsible for issuing the guidelines for budget <
preparation and for making sure that this information is properly communicated throughout
the organization.
Hence the answer is (d).

71. C Results controls is more appropriate for multi-domestic and international strategies. <
Hence the answer is (c).

72. C Related diversified firms depend more on Strategic controls. <

Hence the answer is (c).

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73. A In introductory stage of the product life cycle, the penetration, awareness, sales, market share, <
etc., are very low.
Hence the answer is (a).

74. D Transfer pricing problem is encountered by vertically integrated organizations in industries <
where the raw material is extracted and processed further to produce the final product. In order
to overcome the pricing problem the following methods can be used:
Profit sharing or Profit split method: A method where transfer price comprises a standard
variable cost plus a share of actual profits on sales.
Two sets of pricing method: A method where the selling unit is credited with the market sales
price and the buying unit is charged for the total standard costs.
Hence the answer is (d).
75. A The auditors can control the level of detection risk by properly planning, directing, supervising <
and reviewing the procedures used, appropriately deciding the nature and timing of audit
procedures, correctly carrying out the procedures and assessing the results.
Hence the answer is (a).

76. B Market share variance = <

[(Standard margin per unit)×(Actualmarket size)×(Actualmarket share%-Plannedmarket share%)

Actual number ofunits sold
Actual market share %   100
Actual market size
14, 700
 100  17.50%
= 84, 000
Planned number of units sold
Planned market share % 
Estimated market size
16, 000
 100  20%
= 80, 000
Market share variance = Rs. 25 × 84,000 × (17.5% -20%).
= Rs. 25 × 84,000 × 2.5% = Rs. 52,500 (Adverse).
Hence the answer is (b).
77. A Total assets turnover ratio highlights the amount of assets that the firm used to generate its <
total sales. It measures the efficiency of the firm’s activities and its ability to generate profits.
It is also known as turnover ratio.
Hence the answer is (a).

78. C Slack is defined as ‘resources and effort toward activities that cannot be justified easily in <
terms of their immediate contribution to organizational objectives.
Hence the answer is (c).

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79. D The following are false regarding boundary systems: <
Statement (I): These systems use quantitative data, statistical analyses and variance analyses
to scan for anything unusual that might indicate a potential problem.
Statement (II): These systems are used to communicate the doctrines of the corporate culture
to every employee of the organization.
Statement (III): Performance management, budgeting, brand management etc., are a few
boundary systems.
Hence the answer is (d).
80. E Feedforward control is an anticipatory control. <
Hence the answer is (e).

81. E Rigid/efficient profile will be best suited if the industry is stable and the main challenge is to <
maintain or improve operational efficiencies, which the top management can monitor due to
its focus on cost efficiencies.
Hence the answer is (e).

82. C <
Particulars Rs. in lakhs
Sales 1,000
Variable costs 800
Contribution margin(Sales- variable costs) 200
(Less) Traceable fixed cost 40
Segment margin (Contribution margin- 160
Traceable fixed cost)
Hence the answer is (c).
83. C Economic value added is an estimate of the amount by which the earnings of the company <
exceed or fall short of the return that shareholders and lenders could have got had they
invested their money elsewhere.
Hence the answer is (c).

84. C Interest accrued but due on secured loan should be included along with the loan to which it <
relates is not current liability.
Hence the answer is (c).

B NOPAT = PBIT (1− Tax rate) = Rs. 90 lakhs (1− 0.4) = Rs. 54 lakhs. <
85.
Capital = Rs. 190 lakhs.
Cost of capital = 35%.
Economic Value Added (EVA) = NOPAT− (Capital × Cost of capital)
= Rs. 54 lakhs – (Rs. 190 lakhs × 35%)
= Rs. 54 lakhs – 66.5
EVA = −12.5
Hence the answer is (b).

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86. <
Net Pr ofit 110
D  0.12
Return on Net Worth (RNOW) = NetWorth = 900
Hence the answer is (d).

87. B A debt-asset ratio of 0.83 implies that 83% of the total assets are financed from debt sources. <
Hence the answer is (b).

88. A Gross profit margin = Gross profit/Net sales <

This shows the profit relative to sales after the direct production cost are deducted. It may be
used as an indicator of the efficiency of the production operation and the relation between
production costs and selling prices. The gross profit is used to meet administrative and
financial expenses.
Hence the answer is (a).

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