Deck 24: Responsibility Accounting and Performance Evaluation

Question 1

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

Answer 1

C

Question 2

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

Answer 2

True

Question 3

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

Answer 3

In a small company,the owner or top manager often makes all planning and controlling decisions.Small companies are most often considered to be centralized companies because centralizing decision making is easier due to the smaller scope of their operations.Decentralized companies split their operations into different segments,such as departments or divisions.Decentralization may be based on geographic area (domestic and international),customer base (commercial and residential),product line (motorcycles and all-terrain vehicles),business function (sales and service),or some other business characteristic.

Question 4

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 5

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

Question 6

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

Question 7

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

Question 8

Decentralized companies rarely struggle to achieve goal congruence.

Question 9

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

Question 10

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

Question 11

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

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

Question 12

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 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

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 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 21

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

Question 22

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

Question 23

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 24

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 25

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 26

Profit center responsibility reports include ________.

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

Question 27

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 28

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 29

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

Question 30

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

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

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 33

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

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

Question 34

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

Question 35

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 36

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

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

Question 37

Brad Turret,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 his division.However,he is not concerned about investment-related decisions.Brad is most likely to be the manager of a(n)________.

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

Question 38

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 39

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

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

Question 40

List the primary goals of performance evaluation systems.

Question 41

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 42

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 43

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 44

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 45

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

Question 46

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 47

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 48

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

Question 49

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 50

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 51

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 52

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 53

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 54

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

Question 55

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 56

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 57

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 58

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 59

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

Question 60

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 61

A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.

Question 62

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

A)defect rate
B)employee satisfaction
C)gross margin growth
D)number of repeat customers

Question 63

Both the sales volume variance and the flexible budget variance help revenue center managers understand why they have exceeded or fallen short of budgeted revenue.

Question 64

Flexible budgets use budgeted (or standard)costs at the actual level of activity.

Question 65

How is the use of a balanced scorecard as a performance evaluation system helpful to companies?

Question 66

Management by exception directs the management's attention to important differences between the actual and the budgeted amounts.

Question 67

Uncontrollable costs are the costs that can be influenced by the decisions of a manager.

Question 68

Explain the difference between a controllable and a noncontrollable cost.

Question 69

Cost center responsibility reports typically focus on the flexible budget variance.

Question 70

Which of the following statements is true of performance reporting?

A)Responsibility reports should focus on the person responsible for unfavorable variances,rather than information.
B)Managers should not be held accountable for uncontrollable variances.
C)Only unfavorable variances should be explained in the reports.
D)Every variance,regardless of magnitude,must be investigated by the managers.

Question 71

The production manager is responsible for ________.

A)all product costs
B)decisions to acquire new equipment
C)his or her own salary
D)efficiently and effectively producing quality products

Question 72

Regarding controllable costs,which of the following statements is incorrect?

A)The production manager cannot make the decision to replace older equipment.
B)All costs are ultimately controllable at the upper levels of management.
C)The production manager is not responsible for avoiding waste of direct materials.
D)The production manager must be able to control all costs of his or her department.

Question 73

Regardless of the type of responsibility center,responsibility reports should focus on information,not blame.

Question 74

A cost center responsibility report ________.

A)includes depreciation expense
B)typically focuses on the flexible budget variance
C)is the same as a performance report
D)shows all costs incurred by the department

Question 75

State the strategy for each of the perspectives of the balanced scorecard.

Question 76

Cost center responsibility reports generally focus on the static budget variance.

Question 77

Responsibility accounting can help managers identify the causes of variances,thereby allowing them to determine what was controllable.

Question 78

Revenue center responsibility reports show all costs incurred by the department and are useful when management needs to know the full cost of operating the department.

Question 79

A profit center performance report includes both revenues and expenses.

Question 80

A profit center responsibility report ________.

A)should not include costs for which the profit center manager is not accountable
B)does not include revenues since that information only appears on the revenue center responsibility report
C)includes traceable fixed expenses
D)is the same as a performance report