Question 1

A decentralized business organization is one in which all major planning and operating decisions are made by top management.

Accepted Answer

A decentralized business organization is one in which decision-making authority is delegated to lower-level managers or employees.

Question 2

The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer.

Accepted Answer

Decentralized operations can sometimes lead to conflicts or inconsistencies in decision-making, which can have a negative impact on the overall profitability of the company. It is important for managers to work collaboratively and communicate effectively to minimize these risks.

Question 3

The process of measuring and reporting operating data by responsibility centers is termed responsibility accounting.

Accepted Answer

Responsibility accounting involves measuring and reporting operating data by responsibility centers, which may include departments, divisions, or other units within an organization. This approach allows managers to track performance, evaluate results, and make decisions based on the specific responsibilities assigned to each center. By assigning accountability for results to responsible individuals or teams, responsibility accounting can help ensure that resources are used effectively, goals are achieved, and performance is optimized.

Question 4

A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.

Accepted Answer

A responsibility center where the manager has control over costs, revenues, and invested assets is known as an investment center, not a cost center. A cost center only involves responsibility for costs.

Question 5

Budget performance reports prepared for the vice president of production would generally contain less detail than reports prepared for the various plant managers.

Accepted Answer

Reports for higher-level executives tend to include less detailed information than reports for lower-level managers who are responsible for specific operations. The reports for the vice president of production would provide a more general overview of the budget performance, while the reports for plant managers would likely include more specific data about their respective plants' performance.

Question 6

The amount of detail presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

Accepted Answer

This statement is true. A budget performance report will include different levels of detail depending on the audience. For example, a report for a high-level executive may include more overview information, while a report for a department manager may include more specific details about individual expenses.

Question 7

Sales commission expense for a department store is an example of a direct expense.

Accepted Answer

Sales commission expense is a cost directly related to generating sales revenue, therefore it is a direct expense.

Question 8

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

Accepted Answer

A profit center is a responsibility center in which the manager is responsible for both the costs and the revenues.

Question 9

The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.

Accepted Answer

This statement is true. Cost centers are responsible for controlling and minimizing costs, profit centers are responsible for generating profits, and investment centers are responsible for both generating profits and making investment decisions.

Question 10

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed direct operating expenses.

Accepted Answer

Direct operating expenses are those expenses that can be directly traced to a specific department and are under the control of the department manager. Examples of direct operating expenses can include wages and salaries, equipment rental, and supplies that are specifically used by a particular department.

Question 11

A manager in a cost center also has responsibility and authority over the revenues.

Accepted Answer

A cost center is responsible for controlling and reducing costs, therefore, the manager in a cost center does not have authority over revenues, which is the responsibility of revenue centers.

Question 12

The primary accounting tool for controlling and reporting for cost centers is a budget.

Accepted Answer

Cost centers are responsible for controlling costs and reporting them to management. Budgets are a primary accounting tool used for setting and monitoring spending limits and tracking actual expenses against budgeted amounts for cost centers.

Question 13

In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.

Accepted Answer

In an investment center, the manager has control over the costs, revenues, and investments in plant assets. This allows them to make decisions that impact the overall performance of the center.

Question 14

Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report.

Accepted Answer

Responsibility accounting reports are usually designed to meet the specific needs and responsibilities of each level of management. Hence, lower level managers are provided with detailed reports while higher level managers are given summary reports to facilitate their decision-making processes.

Question 15

One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.

Accepted Answer

While decentralization can lead to more informed decisions by leveraging local knowledge, it does not always result in better decisions due to potential lack of overall perspective, expertise, or alignment with broader organizational goals.

Question 16

A centralized business organization is one in which all major planning and operating decisions are made by top management.

Accepted Answer

In a centralized business organization, top management has the authority to make all major decisions.

Question 17

Developing and retaining quality managers are advantages of decentralization.

Accepted Answer

Decentralization allows for managers to have more autonomy and decision-making power, which can attract and retain high-quality managers who value these opportunities. It also provides more opportunities for employee development and career growth within the organization.

Question 18

The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.

Accepted Answer

The plant managers in a cost center are accountable for major dissimilarities between budgeted and actual costs in their plants, as they are primarily accountable for controlling and managing costs in their particular cost centers.

Question 19

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

Accepted Answer

Indirect expenses are those expenses that cannot be directly attributed to a particular department or product and are incurred for the entire business as a unit. They include expenses such as rent, utilities, and insurance that are not under the control of individual department managers.

Question 20

Separation of businesses into more manageable operating units is termed decentralization.

Accepted Answer

Decentralization means the distribution of decision-making power and authority to lower-level units or departments within an organization. One way to achieve decentralization is to separate businesses into smaller units, which can then operate more independently and efficiently.

Quiz 23: Performance Evaluation for Decentralized Operations