Deck 24: Responsibility Accounting and Performance Evaluation

Question 1

Decentralized companies often lead to diminished customer relations and slower customer response time.

Answer 1

False

Question 2

Managerial accountants can design performance evaluation systems that encourage goal congruence.

Answer 2

True

Question 3

For a centralized company, the major planning and controlling decisions are made by top management.

Answer 3

True

Question 4

Decentralized companies rarely struggle to achieve goal congruence.

Question 5

One of the advantages of decentralization is that it allows top management to concentrate on long-term strategic planning.

Question 6

Discuss the difference between a centralized company and a decentralized company.

Question 7

The manager of a cost center is responsible for controlling costs and generating revenues for the company.

Question 8

Centralized operations are better for small companies due to the smaller scope of their operations.

Question 9

Centralized companies split their operations into segments and top management delegates decision making to the segment managers.

Question 10

In a decentralized company, all the planning and controlling decisions are made by top management.

Question 11

Decentralization may cause the company to duplicate certain costs or activities.

Question 12

A responsibility accounting system evaluates the performance of each responsibility center and its manager.

Question 13

Which of the following is a disadvantage of decentralization?

A) It results in increased customer response time.
B) It allows only the top management to make decisions.
C) It does not motivate employees because the decision-making powers are not delegated.
D) It results in problems with achieving goal congruence.

Question 14

Which of the following is an advantage of decentralization?

A) Managers' motivation and retention can be increased by empowering segment managers to make decisions.
B) Certain costs of activities may be duplicated.
C) Customer response time is generally decreased.
D) Top management can concentrate on decisions that relate to day-to-day operations of segments.

Question 15

Empowering segment managers to make decisions increases managers' motivation and retention.

Question 16

The term "goal congruence" refers to the ________.

A) matching of financial goals of the company with its nonfinancial goals
B) aligning the goals of business segment managers with the goals of top management
C) achievement of the goals set by the management by utilizing the resources available
D) duplication of costs as a result of decentralization

Question 17

Companies in which owners or top executives make all of the planning, directing and controlling decisions are ________ companies.

A) centralized
B) decentralized
C) formalized
D) segmented

Question 18

The manager of a revenue center is responsible for generating profits.

Question 19

In a decentralized company, segment managers may not fully understand the big picture when making decisions.

Question 20

Which of the following is NOT an advantage of decentralization?

A) provides training
B) frees top management time
C) works to achieve goal congruence
D) supports the use of expert knowledge

Question 21

Which of the following best describes the manager of a profit center?

A) The manager is only responsible for controlling costs.
B) The manager is responsible for generating profits and efficiently managing the center's invested capital.
C) The manager is only responsible for generating revenues.
D) The manager is responsible for generating revenues and controlling costs.

Question 22

The production line of a manufacturing company is most likely to be considered to be a(n) ________.

A) cost center
B) profit center
C) revenue center
D) investment center

Question 23

Which responsibility center managers are responsible for both generating revenue and either controlling costs or efficiently managing invested capital?

A) cost and profit centers
B) revenue and profit centers
C) profit and investment centers
D) revenue and investment centers

Question 24

Which of the following would most likely be evaluated using residual income?

A) cost center
B) profit center
C) revenue center
D) investment center

Question 25

Botanica Beauty, Inc. sells cosmetic products in the United States. Which one of the following is most likely to be a revenue center for Botanica?

A) a Botanica retail store in Dallas
B) the Botanica human resource department
C) a Botanica kiosk at a mall for selling its products
D) the Botanica product lines

Question 26

Profit center responsibility reports include ________.

A) revenues only
B) invested capital
C) both revenues and expenses
D) returns on investments

Question 27

List the four types of responsibility centers. For each center, state the responsibility of the manager.
$$\begin{array} { | c | l | } \hline \begin{array} { c } \text { Type of } \\\text { responsibility center }\end{array} & \text { Responsibility of the manager } \\\hline & \\\hline & \\\hline & \\\hline\end{array}$$

Question 28

Which of the following is a responsibility that is common to the managers of cost, profit, and investment centers?

A) generating revenues
B) generating profits
C) managing the invested capital
D) controlling costs

Question 29

Which of the following managers is likely to have the least amount of responsibilities?

A) the manager of a cost center
B) the manager of a profit center
C) the manager of an investment center
D) the manager of a transfer pricing center

Question 30

The responsibility report of Alejandro Garcia, the manager of one of the divisions of an auto parts manufacturing company, includes profits as well as return on investment and residual income. Alejandro is most likely the manager of a(n) ________.

A) investment center
B) profit center
C) cost center
D) revenue center

Question 31

Long-term investments are made by the investment center manager for the purpose of ________.

A) increasing profits
B) decreasing profits
C) increasing interest expense
D) decreasing plant assets

Question 32

All of the following are advantages of decentralization except

A) duplication of costs
B) frees top management time
C) supports use of expert knowledge
D) improves motivation and retention

Question 33

Nora Kelly, one of the managers of a multi-national company, is responsible for generating revenues and controlling costs in order to increase the operating income of her division. However, she is not concerned about investment-related decisions. Nora is most likely to be the manager of a(n) ________.

A) cost center
B) investment center
C) profit center
D) revenue center

Question 34

The payroll department of a manufacturing company is most likely to be a(n) ________.

A) cost center
B) revenue center
C) investment center
D) profit center

Question 35

In an investment center, the manager is primarily responsible for ________.

A) controlling costs
B) generating revenues
C) generating revenues and controlling costs
D) generating profits and efficiently managing invested capital

Question 36

Divine, Inc. sells cosmetic products in the United States. Which one of the following is most likely to be a cost center for Divine?

A) a Divine retail store in Dallas
B) the Divine human resource department
C) a Divine kiosk at a mall for selling its products
D) the Divine product lines

Question 37

In a ________, the manager is responsible for generating revenues and controlling costs.

A) cost center
B) profit center
C) revenue center
D) transfer pricing center

Question 38

The manager of a profit center is responsible for generating revenues and managing the center's invested capital.

Question 39

Which of the following managers is likely to have the most diverse responsibilities?

A) the manager of a cost center
B) the manager of a profit center
C) the manager of an investment center
D) the manager of a revenue center

Question 40

An investment center manager is responsible for generating profits and managing invested capital.

Question 41

Fill in the blank with the phrase that best completes the sentence.

A) responsibility center
B) cost center
C) investment center
D) revenue center
E) profit center
A division of a manufacturing company responsible for a particular product is a(n) ________.

Question 42

Fill in the blank with the phrase that best completes the sentence.

A) responsibility center
B) cost center
C) investment center
D) revenue center
E) profit center
The gift shop at the local aquarium is a(n) ________.

Question 43

An effective performance evaluation system will ________.

A) promote goal congruence and coordination.
B) provide feedback.
C) communicate expectations.
D) all of the above.

Question 44

List the primary goals of performance evaluation systems.

Question 45

The practice of comparing the company's achievements against the best practices in the industry is known as ________.

A) segmentation
B) goal congruence
C) performance evaluation
D) benchmarking

Question 46

Fill in the blank with the phrase that best completes the sentence.

A) responsibility center
B) cost center
C) investment center
D) revenue center
E) profit center
A kiosk that sells sunglasses at a local mall is an example of a(n) ________.

Question 47

A lag indicator is a performance measure that forecasts future performance.

Question 48

In decentralized companies, performance evaluation systems provide upper management with the feedback it needs to maintain control over the entire organization.

Question 49

Fill in the blank with the phrase that best completes the sentence.

A) responsibility center
B) cost center
C) investment center
D) revenue center
E) profit center
The maintenance department at the local museum is a(n) ________.

Question 50

Communicating top management's expectations to segment managers improves goal congruence.

Question 51

Goal congruence can be achieved when ________.

A) segment managers' goals align with top management's goals
B) each segment manager makes decisions which best benefits their own division
C) managers don't fully understand the "big picture"
D) top management institutes strategic plans which segment managers have difficulty implementing

Question 52

Operational performance measures are nonfinancial measures that evaluate a firm's performance on the basis of effectiveness and efficiency to ensure all segments of the business are working together to achieve the company's goals.

Question 53

Goal congruence is the practice of comparing the company's achievements against the best practices in the industry.

Question 54

The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.

Question 55

The best measure for evaluating the effectiveness of a manger in an investment center would be ________.

A) residual income measures
B) success in controlling costs
C) success in meeting budgeted revenues
D) current ratio measures

Question 56

The performance evaluation system should provide incentives to segment managers for coordinating the activities of the subunits and directing them toward the overall company goals. Which of the following performance measurement goals has been described by this statement?

A) motivating segment managers
B) promoting goal congruence
C) providing feedback
D) benchmarking

Question 57

Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.

Question 58

The responsibility report for a profit center would compare ________.

A) actual costs to budgeted costs
B) actual revenues to budgeted revenues
C) actual revenues and costs to budgeted revenues and costs
D) actual profits to budgeted profits

Question 59

The responsibility report for a revenue center would compare ________.

A) actual costs to budgeted costs
B) actual revenues to budgeted revenues
C) actual revenues and costs to budgeted revenues and costs
D) actual profits to budgeted profits

Question 60

Fill in the blank with the phrase that best completes the sentence.

A) responsibility center
B) cost center
C) investment center
D) revenue center
E) profit center
A(n) ________ is a part of the organization for which a manager has decision-making authority and accountability for the results of those decisions.

Question 61

A high rate of employee turnover indicates that ________.

A) employees of the organization leave their jobs frequently
B) pay packages of employees are at par with that of the industry
C) the employee retention ratio is also high
D) employees also participate in the decision-making process

Question 62

The level of employee satisfaction is a key performance indicator of the ________ perspective of a balanced scorecard.

A) financial
B) learning and growth
C) internal business
D) customer

Question 63

Percentage of market share and rate of on-time deliveries are indicators of the ________ perspective.

A) quality management
B) internal business
C) customer
D) learning and growth

Question 64

Madsen, Inc. intends to increase its profits by 50% in the next fiscal year. Which of the following is most likely to be a lead indicator in Madsen's performance report?

A) return on investment
B) number of repeat customers
C) net profit margin
D) sales revenue growth

Question 65

Which of the following perspectives of the balanced scorecard focuses on the increase of company profits through increasing revenue growth and productivity?

A) financial
B) customer
C) internal business
D) learning and growth

Question 66

Which of the following four perspectives of the balanced scorecard enables management to answer the question, "How can we continue to improve and create value?"

A) financial
B) customer
C) internal business
D) learning and growth

Question 67

One part of the balanced scorecard helps management answer the question, "How do we look to investors and creditors?" Which of the four perspectives is being described with this statement?

A) financial
B) customer
C) internal business
D) learning and growth

Question 68

The balanced scorecard focuses only on lead indicators, because lag indicators are not important for performance evaluation.

Question 69

A company uses a balanced scorecard and has established a key performance indicator for product quality. If the actual warranty claims are higher than expected, there is an indication that the quality standards have been met.

Question 70

A company's "climate for action" is a corporate culture ________.

A) that encourages communication, change, and growth
B) that is focused on strong, top-down command and control
C) that is aimed exclusively at period earnings
D) that discourages physical activity, sports, and recreation to improve employee health and morale

Question 71

Which of the following is a key performance indicator of the internal business perspective of the balanced scorecard?

A) number of units produced per hour
B) employee turnover
C) cash flow
D) number of cross-trained employees

Question 72

The balanced scorecard is a performance evaluation system that requires management to consider financial measures of performance, but not nonfinancial measures.

Question 73

Uniox, Inc. intends to increase its profits by 50% in the next fiscal year. Which of the following is most likely to be a lag indicator in Uniox's performance report?

A) return on investment
B) number of repeat customers
C) rate of on-time deliveries
D) defect rate

Question 74

Which of the following affects the company's ability to make on-time deliveries?

A) return on investment
B) product's price
C) warranty claims
D) production cycle time

Question 75

Sales revenue growth, gross margin growth, and return on investment are the key performance indicators for the ________.

A) financial perspective
B) customer perspective
C) internal business perspective
D) learning and growth perspective

Question 76

Key performance indicators (KPIs) are summary performance measures that help managers assess whether the company is achieving its goals.

Question 77

Which of the following is a key performance indicator of the internal business perspective in a balanced scorecard?

A) hours of employee training
B) number of warranty claims received
C) percentage of market share
D) return on investment

Question 78

Which of the following is a key performance indicator of the financial perspective in a balanced scorecard?

A) hours of employee training
B) number of warranty claims
C) percentage of market share
D) return on investment

Question 79

Which of the following internal business perspective key performance indicators (KPIs) is commonly used to assess the innovation process?

A) number of new products developed
B) number of warranty claims
C) employee turnover rate
D) rate of on-time deliveries

Question 80

The balanced scorecard system requires management to consider ________.

A) both financial and operational performance measures
B) only performance measures
C) only leading indicators
D) only financial and customer perspectives