Question 1

Which one of the following is an advantage of decentralization?&#10;A)It may be difficult to achieve goal congruence between different divisions.&#10;B)It cuts out a lot of paperwork because performance reports are no longer required.&#10;C)The operations of the business remain under the close scrutiny of senior managers at head office.&#10;D)A productive level of competition between the managers of different divisions can be beneficial to the organization overall.

Accepted Answer

A productive level of competition between the managers of different divisions can lead to innovative ideas and better performance. It also allows for decision making to be more efficient as it is done at a lower level rather than being centralized at the top of the organization. Option A is a disadvantage of decentralization because achieving goal congruence may become difficult when there is a lack of communication or coordination between divisions. Option B is incorrect because performance reports are still necessary to ensure accountability and evaluate the success of each division. Option C is incorrect because decentralization involves delegating decision-making authority to lower levels within the organization, which means that operations are not under the close scrutiny of senior managers.

Question 2

Return on Investment (ROI) is calculated using which one of the following formulae?&#10;A)  &#10;B)  &#10;C)  &#10;D)  &#10;

Accepted Answer

11ec8c97_afe7_b120_ac44_bbce1b3f2eff_TB34225555_11

Question 3

In a division that is treated as a profit centre, which one of the following should be used as the basis for assessing divisional performance?&#10;A)Divisional profit before allocation of head office costs&#10;B)Divisional profit before tax&#10;C)Contribution less controllable fixed costs&#10;D)Contribution less all fixed costs

Accepted Answer

In a profit centre, the focus is on maximizing the contribution, which is revenue less controllable variable costs. However, this should also be reduced by controllable fixed costs to give a more accurate measure of divisional performance. Including all fixed costs in the calculation would not be appropriate as these costs are often beyond the control of the divisional managers. Therefore, option C is the best choice, which is contribution less controllable fixed costs.

Question 4

The manager of the X division of Spooner and Fry plc is responsible for controlling costs within her division.Selling prices and sales mix strategies are determined by the centralized sales and marketing department, and capital investment decisions are made by a committee of head office managers. X division can be best described as a:

A)Investment centre
B)Contribution centre
C)Cost centre
D)Profit centre

Accepted Answer

The X division manager is responsible for controlling costs within the division. This suggests that the main focus of the division is on managing costs rather than generating profits. Additionally, the selling prices and sales mix strategies are determined by the centralized sales and marketing department, indicating that the X division does not have control over revenue generation. The capital investment decisions are made by a committee of head office managers, further reinforcing the idea that the X division is not responsible for generating profits, but rather for managing costs. Therefore, the best description of X division is that it is a cost centre.

Question 5

Which one of the following statements about internal performance reporting is correct? Internal performance reports&#10;A)are subject to the requirements of the international financial reporting standard on performance reporting&#10;B)are always prepared in accordance with balanced scorecard principles&#10;C)are produced solely for use within the organization&#10;D)are required only in decentralized organizations

Accepted Answer

Internal performance reports are produced solely for use within the organization, for the purpose of monitoring and improving the organization's performance. They may be prepared using various methods, such as budget reports or performance dashboards, and may or may not follow balanced scorecard principles. They are not subject to the requirements of the international financial reporting standard, which applies only to external financial reporting. Internal performance reporting is relevant for both centralized and decentralized organizations.

Question 6

Which one of the following is an advantage of decentralization?&#10;A)It allows senior managers at head office to retain close scrutiny of all aspects of the organization's activities&#10;B)The organization always saves substantial amounts on running costs&#10;C)It can help to increase motivation by giving divisional managers greater autonomy&#10;D)It increases the need for regular performance reporting

Accepted Answer

Decentralization can help to increase motivation by giving divisional managers greater autonomy, as they have more control and responsibility over their own division or department. This can lead to increased job satisfaction and a sense of ownership in their work, which can in turn increase productivity and performance. The other options are not advantages of decentralization - A is a disadvantage as it reduces the scrutiny from head office, B is not always true as decentralization may require additional costs for setting up and maintaining the infrastructure, and D is neither an advantage nor a disadvantage as regular performance reporting is necessary regardless of the level of centralization.

Question 7

The manager of the Q division of Halter and Trueblood plc has the authority to set selling prices for his division, and to control costs.Decisions on capital investment are made at head office. Q division can be best described as a:

A)Contribution centre
B)Profit centre
C)Investment centre
D)Cost centre

Accepted Answer

A profit centre is a business unit that has both revenue and cost responsibilities, and the manager has the authority to make decisions regarding sales prices and cost control, as seen in the case of the Q division. In a profit centre, performance is measured by the profit generated by the unit, whereas in a cost centre, performance is measured by the ability to control and reduce costs. Investment centres have additional responsibility for capital investment decisions, which are made at head office in this case. Contribution centres differ from profit centres in that they only have revenue responsibility and their contribution to overall profits is measured.

Question 8

Prewitt & Webster plc organizes its activities into divisions.Head office determines investment policy and makes all capital expenditure decisions.At a divisional level managers control costs, fix selling prices, determine sales strategy and managerial salaries.Marketing, including advertising, is managed at head office. Division A incurred the following costs and earned the following revenue during the 20X2 financial year:
What was the total of controllable profit for the 20X2 financial year for A division (in £000s)?

A)£261
B)£349
C)£387
D)£153

Accepted Answer

Controllable profit for a division can be calculated as divisional revenue minus controllable costs. In this case, we need to determine the controllable costs. 
From the information given, we can see that direct material cost, direct labor cost, and variable production overhead costs are all controllable costs. 
Controllable costs = direct material cost + direct labor cost + variable production overhead cost = £162 + £53 + £51 = £266,000 
Controllable profit = divisional revenue - controllable costs = £615,000 - £266,000 = £349,000 
Therefore, the answer is B.

Question 9

Which one of the following statements about non-financial performance measures is correct?&#10;A)Non-financial measures do not involve the calculation or recording of any numbers&#10;B)Although non-financial measures can be useful, financial measures always provide more relevant information to managers&#10;C)The most appropriate non-financial measures vary, depending upon the nature of the organization&#10;D)There is a common set of non-financial measures that are applicable in any organization

Accepted Answer

The appropriateness of non-financial measures varies depending on the nature of the organization. Different organizations have different goals and objectives, and as such, the non-financial measures that are relevant to them will differ as well. Therefore, there is no universal set of non-financial measures that are applicable in any organization.

Question 10

Which two words are missing from the following sentence? Divisionalization can lead to a lack of ____ in the organization, where divisions compete against each other, divisional managers spend too much time and effort on internal politics, and less than optimal decisions are made.
The missing words are:

A)Goal delivery
B)Target practice
C)Target identification
D)Goal congruence

Accepted Answer

"Goal congruence" refers to the alignment of goals and objectives between different parts of an organization. Lack of goal congruence can occur in divisionalized organizations, where divisions may have different goals and compete against each other, leading to less optimal decisions being made.

Question 11

Slimm Washington plc's operations are broken down into divisional cost centres.Head office determines investment policy for its divisions and retains central control over selling, marketing and research and development functions.Raw material and labour costs are controllable at divisional level but managerial salaries and benefits are determined at head office. The following costs are attributable to the company's W division for the year ended 31 August 20X7:
What is the total of Division W's controllable costs (in £000)?

A)£823
B)£792
C)£741
D)£715

Accepted Answer

The answer of Slimm Washington plc's operations are broken down...

Question 12

Which one of the following is identified by Kaplan and Norton as one of the four fundamental perspectives that can be applied to any business?&#10;A)Customer perspective&#10;B)Investment perspective&#10;C)Contribution perspective&#10;D)Profit perspective

Accepted Answer

The answer of Which one of the following is identified...

Question 13

Which one of the following functions is NOT carried out by a divisional profit centre?&#10;A)Fixing sales prices&#10;B)Determining selling strategy&#10;C)Capital investment decisions&#10;D)Controlling costs

Accepted Answer

The answer of Which one of the following functions is...

Question 14

In a division that is treated as a profit centre, which one of the following calculations provides the total of controllable profit?&#10;A)Contribution less all fixed costs&#10;B)Divisional profit less head office cost allocation&#10;C)Sales less variable costs less controllable fixed costs&#10;D)Sales less all fixed and variable costs

Accepted Answer

The answer of In a division that is treated as...

Question 15

Which one of the following statements about the use of the Balanced Scorecard in business organizations is correct?&#10;A)It ensures that performance is linked to the business's statement of financial position&#10;B)It guarantees that the business will improve its performance&#10;C)It utilizes no numerical information&#10;D)It helps to minimize information overload for managers

Accepted Answer

The answer of Which one of the following statements about...

Deck 18: Performance Measurement