Question 1

In an investment responsibility center, the manager is only responsible for costs.

Accepted Answer

In an investment responsibility center, the manager is responsible for both costs and investments. They are accountable for managing and evaluating the return on investment (ROI) for various projects and initiatives.

Question 2

Goal congruence means that the goals of managers are aligned with the goals of the company.

Accepted Answer

Goal congruence is achieved when the goals of individual managers align with the overall goals of the company. This ensures that everyone in the organization is working towards the same objectives, and can improve overall performance and success.

Question 3

Firms encourage goal congruence by constructing management early retirement programs.

Accepted Answer

Goal congruence refers to aligning the objectives of individuals or teams with the overall goals of the organization. Management early retirement programs are typically designed to reduce costs or manage workforce size, rather than to directly encourage goal congruence.

Question 4

Margin is the ratio of operating income to sales.

Accepted Answer

The answer of Margin is the ratio of operating income...

Question 5

Return on investment (ROI) refers to earnings before interest and income taxes.

Accepted Answer

The answer of Return on investment (ROI) refers to earnings...

Question 6

Transfer pricing exists when one division of a company produces a product that can be used in the production by a different division.

Accepted Answer

Transfer pricing is the practice of determining the price at which goods or services are transferred between different divisions or subsidiaries of a company. This is done to allocate the cost of production accurately and to ensure that each division is operating at a profit. In the case where one division produces a product that can be used in the production by a different division, transfer pricing will come into play.

Question 7

Cognitive limitations mean it is difficult for central managers to be fully knowledgeable about all products and markets.

Accepted Answer

Cognitive limitations refer to the limited capacity of the human mind to process and retain information. This means that central managers may not be able to fully comprehend and keep up with all the details and updates about various products and markets, especially as the organization grows and expands into new areas.

Question 8

Economic value added (EVA) is after-tax operating income minus the total annual cost of capital.

Accepted Answer

Economic value added (EVA) is a financial performance measure that calculates after-tax operating income minus a company's total cost of capital. This represents the amount of value the company has created for its shareholders.

Question 9

A responsibility center is a part of a business whose workers are accountable for specified activities.

Accepted Answer

The answer of A responsibility center is a part of...

Question 10

The transfer price is revenue to the selling division and cost to the buying division.

Accepted Answer

This is the basic concept of transfer pricing. The selling division receives revenue for the goods or services sold to the buying division, while the buying division incurs a cost for purchasing those goods or services.

Question 11

Decentralization is the practice of delegating decision-making authority to the lower levels of management.

Accepted Answer

Decentralization involves spreading decision-making authority throughout an organization, allowing lower-level managers and employees to have greater autonomy in their decision-making. This can lead to faster decision-making and greater responsiveness to local needs and conditions.

Question 12

Responsibility accounting is a system that measures the results of each responsibility center and compares those results with some expected or budgeted outcome.

Accepted Answer

Responsibility accounting is a system that measures the performance of each responsibility center and compares it with the expected outcome or budgeted standards. This helps in determining the strengths and weaknesses of each center and taking corrective actions to achieve the desired outcomes.

Question 13

Decentralization stimulates competition among the divisions of a firm.

Accepted Answer

Decentralization allows different divisions within a firm to make their own decisions, leading to greater autonomy and competition among them. This can result in increased efficiency and innovation as each division strives to outperform the others.

Question 14

One disadvantage of ROI in evaluating performance is that it encourages managers to slack off.

Accepted Answer

ROI can be a useful measure of performance, but it is not perfect. One disadvantage is that it can create pressure for short-term financial gains at the expense of long-term success, and it may not capture important non-financial factors that contribute to overall success. However, there is no evidence to suggest that ROI encourages managers to slack off. In fact, if anything, it is the opposite -- managers may feel pressure to work harder and cut costs in order to improve ROI.

Question 15

In centralized organizations, lower-level managers are responsible only for implementing decisions.

Accepted Answer

Lower-level managers in centralized organizations are not responsible for making decisions, they only implement decisions made by higher-level managers.

Question 16

Local managers can make better decisions using distant information and outside managers can provide more timely responses to changing conditions.

Accepted Answer

Local managers are typically more attuned to the nuances of their specific environment, allowing them to provide more timely responses to changing conditions due to their proximity and familiarity. Conversely, outside managers might bring distant information or broader perspectives that can be valuable, but they may lack the immediacy in response that local conditions demand.

Question 17

The transfer pricing problem concerns finding a system that simultaneously satisfies the three objectives of the transfer pricing system.

Accepted Answer

The transfer pricing problem does indeed concern finding a system that simultaneously satisfies the three objectives of the transfer pricing system.

Question 18

The minimum transfer price is the absolute maximum price that can be accepted.

Accepted Answer

The minimum transfer price is the absolute minimum price that can be accepted, not the maximum. It is the lowest price that the selling division is willing to accept for the product or service being transferred to another division within the same company.

Question 19

A transfer price is the price charged by one division of a company to another company.

Accepted Answer

A transfer price is the price charged by one division of a company to another division within the same company, not to another company.

Question 20

It is important for the multinational firm to separate the evaluation of a division manager from the division.

Accepted Answer

Evaluating a division manager separately from the division allows for a more accurate assessment of the individual's performance and contributions. This can help identify areas for improvement, training needs, or potential for promotion within the company. Additionally, it prevents the performance of the division as a whole from impacting the evaluation of the individual manager.

Quiz 10: Decentralization: Responsibility Accounting, Performance Evaluation, and Transfer Pricing