Deck 10: Decentralizing and Performance Evaluation

Question 1

Net income after interest and taxes is a common income measurement choice used to calculate ROI for an entire organization,because all expenses are under the CEO's control at the corporate level.

Answer 1

False

Question 2

An investment center manager's performance is typically measured based on the

Answer 2

False

Question 3

Although a profit center is expected to generate profits,not just revenues or costs,the manager cannot commit funds to invest in assets.

Answer 3

True

Question 4

Generally accepted accounting principles require companies to report selected information about operating segments in the annual report.

Question 5

A cost center manager's performance is measured largely by comparing the actual costs incurred to the flexible budget.

Question 6

A disadvantage of decentralized decision making is that two or more operational managers may evaluate and make the same decision,duplicating their efforts.

Question 7

After an organization implements a certain level of decentralization,it is committed to maintaining that level for the life of the organization.

Question 8

You cannot classify a unit as a cost, profit, or investment center by looking at its name or its location on the organizational chart.

Question 9

A segment margin income statement includes all allocated costs in the calculation of the segment margin.

Question 10

A disadvantage of decentralization is that the process does not give lower-level managers practice in developing their decision-making skills.

Question 11

The goal of the cost center manager is to minimize total costs and to maximize profit.

Question 12

If a cost was incurred to support the company as a whole,then it is a common cost.

Question 13

Return on investment measures the rate of return generated by an investment in assets.

Question 14

In preparing a segment margin income statement,instead of looking for a certain phrase that describes the cost,look for the reason the cost was incurred.

Question 15

A profit center manager's performance is measured using methods such as return on investment or residual income.

Question 16

An organizational structure in which decision-making authority for the entire organization rests in the hands of one person or a small group of people in a single location is called decentralization.

Question 17

A manager who is responsible for both the revenue and the cost incurred in generating a product is managing an investment center.

Question 18

An organizational structure in which decision-making authority for the entire organization rests in the hands of one person or a small group of people in a single location is called centralization.

Question 19

If a cost is a traceable fixed cost at one level,it will remain a traceable cost at a lower level.

Question 20

A segment of an organization is any part of the organization that management wishes to evaluate.

Question 21

The most common measure used as the denominator in the ROI calculation is a simple average of the assets used during the year.

Question 22

The organizational structure in which decision-making authority for the entire organization rests in the hands of one person or a small group of people in a single location is called

A)Responsibility centered.
B)Centralization.
C)Decentralization.
D)Segmentation .

Question 23

In calculating EVA,invested capital is the company's total assets minus its total liabilities.

Question 24

Which of the following would not be an advantage of decentralization?

A)Duplication of effort is minimized.
B)Companies can develop their own managers internally by giving lower-level managers practice in developing their decision-making skills.
C)Top management is free to focus on the long-term strategies of the organization.
D)All of these answer choices are advantages of decentralization.

Question 25

The ROI formula decomposed into two components,margin and asset turnover,is referred to as the Deaumon Model.

Question 26

If you think of an organization's structure as a continuum,on the centralized end of the continuum,operational managers

A)Are never evaluated.
B)Are evaluated on costs,revenue,and profit.
C)Have complete control over operational decisions.
D)Have no authority to make decisions.

Question 27

Finance theory says that the rate of return required by creditors is the same as the return required by investors.

Question 28

As long as EVA is positive,the firm's managers have used the invested capital to create additional value for shareholders.

Question 29

ABC Corporation has three divisions,a service division with two locations,a retail division with four locations,and a home office,each of which is evaluated individually.This is an example of which type of organization?

A)Segmented decision making
B)Decentralized
C)Divisional instability
D)None of these answer choices are correct.

Question 30

If you think of an organization's structure as a continuum,on the decentralized end of the continuum,operational managers

A)Are never evaluated.
B)Are evaluated on costs,revenue,and profit.
C)Have complete control over operational decisions.
D)Have no authority to make decisions.

Question 31

Return on investment is based on the fair market value of operating assets.

Question 32

Which of the following is an advantage of decentralization?

A)Managers at the operational level of the organization have the authority to identify problems,recognize situational changes,and respond quickly.
B)Companies can develop their own managers internally by giving lower-level managers practice in developing their decision-making skills.
C)Top management is free to focus on the long-term strategies of the organization.
D)All of these answer choices are correct.

Question 33

Although managers' actions may improve ROI in the short run,they may do so at the expense of the company's long-term financial health.

Question 34

The DuPont Model decomposes the original ROI formula into two components: margin and asset turnover.

Question 35

Which of the following is an advantage of decentralization?

A)Duplication of effort is minimized.
B)The potential for sharing ideas throughout the organization is enhanced.
C)Lower-level managers understand the company's strategies and goals,and thus make decisions that are in the best interest of the organization as a whole.
D)Top management is free to focus on the long-term strategies of the organization.

Question 36

The organizational structure in which decision-making authority is dispersed throughout the organization is called

A)Centralized.
B)Decentralized.
C)Divisional stability.
D)Segmented decision making.

Question 37

For a small business producing a single product,having one location and few employees,the organizational structure that is most appropriate is

A)Centralized.
B)Decentralized.
C)Divisional stability.
D)Segmented decision making.

Question 38

Just because a project's residual income is positive,that does not mean that it is earning a return in excess of the corporate minimum.

Question 39

Which of the following would not be a focus of top managers in a decentralized organizational structure?

A)Long-range projections
B)Corporate goals
C)Day-to-day operational issues
D)All of these answer choices would be focuses of top management.

Question 40

ROI is a relative measure of return,in other words,the result is a dollar amount of return.

Question 41

An investment center manager's performance can be based on

A)The same methods as managers of cost centers.
B)The same methods as managers of profit centers.
C)Residual income.
D)All of these answer choices are correct.

Question 42

The packaging department in a large manufacturing company would be classified as a

A)Cost center.
B)Profit center.
C)Investment center.
D)Segment.

Question 43

Which of the following is a reason why top managers would decide to increase the level of decentralized decision-making authority in their company?

A)Managers at the operational level can respond to issues more quickly than top management.
B)Top managers want to give attention to grooming the next generation of top managers.
C)Managing an organization is a time-consuming function.
D)All of these answer choices are correct.

Question 44

In a responsibility accounting environment,which of the following managers has his or her performance typically measured based on the

A)Cost center manager
B)Profit center manager
C)Investment center manager
D)Revenue center manager

Question 45

A manager who is responsible for both the revenue and the costs incurred in generating a product or service is managing a

A)Cost center.
B)Product center.
C)Profit center.
D)Investment center.

Question 46

An organizational

A)Expense center.
B)Cost center.
C)Product center.
D)Manufacturing center.

Question 47

A cost center manager's performance might be measured by

A)The center's ROI.
B)Direct material variance.
C)Segment profit.
D)Any of these answer choices are correct.

Question 48

A disadvantage of decentralization is that

A)If lower-level managers do not understand the company's strategies and goals,they may make decisions that are not in the best interest of the organization as a whole.
B)Two or more operational managers may evaluate and make the same decision,duplicating their efforts.
C)Managers tend to focus on their own units and often lose contact with others in the organization.
D)All of these answer choices are correct.

Question 49

In a responsibility accounting environment,upper managers evaluate the performance of the

A)On those items over which the unit managers have control.
B)Not only on cost,but also on revenues.
C)On the overall profit of the organization.
D)None of these answer choices of correct.

Question 50

On an organizational chart,from bottom to top,which of the following is the order of responsibility centers?

A)Cost,profit,investment
B)Cost,investment,profit
C)Profit,cost,investment
D)Profit,investment,cost

Question 51

At Devoe Manufacturing,the Southern Division is responsible for the production and selling of products in fifteen states.This division is an example of which of the following responsibility centers?

A)Cost center
B)Revenue center
C)Profit center
D)Investment center

Question 52

An investment center manager's performance can be based on

A)The same methods as managers of cost centers.
B)The same methods as managers of profit centers.
C)Either the same methods as managers of cost centers or the same methods as managers of profit centers.
D)Neither the same methods as managers of cost centers nor the same methods as managers of profit centers.

Question 53

The accounting department of a large corporation would be classified as a

A)Cost center.
B)Profit center.
C)Investment center.
D)Segment.

Question 54

A profit center manager's performance is typically measured based on the

A)Direct material and direct labor variances only.
B)Overall profit compared to the flexible budget.
C)ROI.
D)None of these answer choices are correct.

Question 55

In a responsibility accounting environment,which of the following managers is considered to have the broadest responsibility?

A)Cost center manager
B)Profit center manager
C)Investment center manager
D)Revenue center manager

Question 56

At Devoe Manufacturing,the vice-president of the Southern Division is responsible for the production and selling of products in fifteen states as well as securing the productive assets needed to create the product.This division is an example of which of the following responsibility centers?

A)Cost center
B)Revenue center
C)Profit center
D)Investment center

Question 57

A manager of a profit center cannot

A)Incur cost to operate the center.
B)Set the selling price of the center's product.
C)Commit funds to invest in assets.
D)None of these answer choices are correct.

Question 58

A disadvantage of decentralization is that decision making is spread throughout the organization.This is a disadvantage because

A)Managers tend to focus on their own units and lose contact with others in the organization.
B)When communication is reduced,the potential for sharing ideas throughout the organization is reduced with it.
C)Lower-level managers may not fully understand the ramifications of their localized decisions on the organization as a whole.
D)All of these answer choices are correct.

Question 59

In a responsibility accounting environment,which of the following is not a classification of organizational

A)Cost centers
B)Revenue centers
C)Profit centers
D)Investment centers

Question 60

The manager of which of the following responsibility centers is expected to invest in assets that generate profit?

A)Cost center
B)Revenue center
C)Profit center
D)Investment center

Question 61

Traceable fixed costs are the responsibility of

A)Top management only.
B)Managers who control them.
C)Investment center managers only.
D)None of these answer choices are correct.

Question 62

Which of the following terms are used in referring to common costs?

A)Allocated cost
B)Unavoidable costs
C)Both allocated cost and unavoidable costs.
D)Neither allocated cost nor unavoidable costs.

Question 63

What is really needed to measure a segment's performance is an income statement that highlights

A)Variable versus fixed costs.
B)Product versus period costs.
C)All the elements under the segment manager's control.
D)None of these answer choices are correct.

Question 64

An income statement presented in a functional format is not very helpful in managerial decision making because

A)It does not show which expenses are fixed and which are variable.
B)It does not show which expenses are direct and which are indirect.
C)It does not show which expenses are product costs and which are period costs.
D)It does not show which expenses are common and which are allocated.

Question 65

When does a traceable fixed cost become a common cost?

A)When it is at a lower level than where it is incurred.
B)When it is at a higher level than where it is incurred.
C)A traceable fixed cost is always a common cost at another level.
D)A traceable fixed cost is never a common cost at another level.

Question 66

In a centralized organization,decision-making authority

A)Is spread throughout the organization.
B)Always rests with profit center managers.
C)Rests with a small group of people in a single location.
D)None of these answer choices are correct.

Question 67

Segment margin income statements are most useful to managers when they are prepared

A)On a cash basis.
B)Using a segment contribution margin basis.
C)On a GAAP basis.
D)Using a function basis.

Question 68

The segment margin income statement excludes

A)All allocated costs in the calculation of the segment margin.
B)All fixed costs.
C)All period costs.
D)Manufacturing overhead.

Question 69

City Retail sells two products: Standard and Deluxe.The company had sales of $800,000 during the current year.The company's contribution margin ratio was 40% and total fixed costs totaled $300,000.Sales were $600,000 for Standard and $200,000 for Deluxe.Traceable fixed costs were $150,000 for Standard and $90,000 for Deluxe.Variable costs were $360,000 for Standard and $120,000 for Deluxe.What is the segment margin for the Standard product?
a.$20,000
b.$80,000
c.$90,000
d.$240,000

Question 70

If a cost is incurred to support the company as a whole,it is referred to as a

A)Common cost.
B)Traceable cost.
C)Direct cost.
D)None of these answer choices are correct.

Question 71

A segment margin income statement excludes all ________ costs in the calculation of the segment margin.

A)Selling
B)Traceable
C)Fixed
D)Allocated

Question 72

Which of the following items would not appear on a segment margin income statement?

A)Direct material
B)Traceable fixed costs
C)Selling expense
D)Common fixed costs

Question 73

Common fixed costs are most likely the responsibility of

A)Top management only.
B)Managers who have no control of them.
C)Investment center managers only.
D)Cost center managers only.

Question 74

Generally Accepted Accounting Principles GAAP require companies to

A)Report selected information about operating segments in the annual report.
B)Prepare financial statements using a cash basis.
C)Report information based on responsibility centers.
D)Report information in single-step format.

Question 75

Any part of an organization that management wishes to evaluate is referred to as a

A)Department.
B)Segment.
C)Factory.
D)Center.

Question 76

Which of the following terms is not used in referring to common costs?

A)Allocated cost
B)Unavoidable cost
C)Traceable cost
D)All of these answer choices are used in referring to common costs.

Question 77

One thing that is missing from GAAP-based segment reporting is a breakdown of

A)Product and period costs.
B)Cost of goods sold and operating costs.
C)Variable and fixed costs.
D)Gross margin and net income.

Question 78

If a cost is incurred specifically for a segment of an organization,it is referred to as a

A)Common cost.
B)Traceable cost.
C)Allocated cost.
D)Unavoidable cost.

Question 79

Kimble Industries production division reported a net operating loss of $500,000 in 2016.Included in that amount were common fixed corporate expenses of $720,000 that were allocated to divisions based on segment gross profit.The division's segment margin was
a.$220,000.
b.$500,000.
c.$220,000.
d.$500,000.

Question 80

City Retail sells two products: Standard and Deluxe.The company had sales of $800,000 during the current year.The company's contribution margin ratio was 40% and total fixed costs totaled $300,000.Sales were $600,000 for Standard and $200,000 for Deluxe.Traceable fixed costs were $150,000 for Standard and $90,000 for Deluxe.Variable costs were $360,000 for Standard and $120,000 for Deluxe.What is the segment margin for the Deluxe product?
a.$10,000
b.$10,000
c.$20,000
d.$80,000