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Subject P2: Advanced Management Accounting

CHAPTER 5 – RESPONSIBILITY CENTRES

5.1 A vehicle manufacturing company is made up of a mix of some cost centres,
some profit centres and some investment centres. Manager A is responsible for
the level of residual income achieved by the vans division. Manager B is
responsible for the net profit margin achieved by the commercial leasing team.
Manager C is responsible for controlling spending in the factory maintenance
department.

The responsibility centre run by manager A is _____________, manager B
runs _____________and manager C runs _____________ .

(Choose between the following options: ‘a cost centre’, ‘a profit centre’ or ‘an
investment centre’).

5.2 The term ‘budget slack’ refers to:

A The extended lead time between the preparation of the functional budgets
and the master budget

B The difference between the budgeted output and the breakeven output

C The additional capacity available which can be budgeted for

D The deliberate overestimation of costs and underestimation of revenues in
a budget

5.3 Which of the following is NOT an advantage of top-down budgeting?

A It is less time consuming

B It reduces budgetary slack

C It is more likely to motivate managers

D Budgets will be closer to the company’s objectives

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