Question 1

Small companies tend to use decentralized decision making.

Accepted Answer

False

Question 2

Product lines are generally considered profit centers.

Accepted Answer

Product lines are designed to bring in revenue for a company by offering a variety of products within a specific category or market segment. By generating sales and creating customer loyalty, product lines can be a significant source of profit for a company.

Question 3

The local Burger King restaurant is likely to be considered to be a revenue center.

Accepted Answer

False

Question 4

Duplication of costs is a disadvantage of decentralized organizations.

Accepted Answer

In decentralized organizations, different departments or units may duplicate efforts, such as hiring their own staff or purchasing their own equipment, which can result in redundant costs.

Question 5

Responsibility accounting performance reports compare budgets with actual results for each responsibility center.

Accepted Answer

Responsibility accounting performance reports are designed to allocate accountability to different levels of management within an organization. These reports compare budgets with actual results and allow managers to identify where variance from the plan has occurred and why. By doing so, managers can take corrective action and improve performance in the future.

Question 6

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

Accepted Answer

Management by exception is a concept in which management focuses on significant variances between actual and planned results. By identifying these exceptions, management can take timely corrective actions to bring performance back on track.

Question 7

Most companies consider divisions to be investment centers.

Accepted Answer

Most companies consider divisions as investment centers because they have their own set of assets, liabilities, revenues, and expenses. As such, they can be analyzed based on their profitability, efficiency, and return on investment, and be held accountable for their financial performance.

Question 8

Goal congruence is more likely to be achieved at a centralized organization rather than a decentralized organization.

Accepted Answer

In a centralized organization, decision-making is typically done by a small group or individual at the top of the organization, which makes it easier to ensure that decisions align with the overall goals of the organization. In contrast, a decentralized organization may have decision-making spread out among multiple levels or departments, which can make it more difficult to achieve goal congruence across the organization.

Question 9

Goal congruence is a system for evaluating the performance of each responsibility center and its manager.

Accepted Answer

Goal congruence refers to aligning the objectives of individual managers or departments with the overall goals of the organization, not specifically a system for evaluating performance.

Question 10

There are two types of responsibility centers.

Accepted Answer

There are more than two types of responsibility centers, including cost centers, revenue centers, profit centers, and investment centers.

Question 11

Companies that decentralize split their operations into different divisions or operating units.

Accepted Answer

Decentralization involves splitting operations into separate units or divisions, allowing for more autonomy and decision-making power at lower levels of the organization.

Question 12

Investigating significant variances from a budget to assign responsibility is an example of management by exception.

Accepted Answer

Management by exception is a management technique that focuses on investigating and addressing significant variances from the budget or other established standards. By focusing on exceptions, managers can identify areas of concern and assign responsibility for addressing them.

Question 13

The accounting department for a convenience store chain is likely to be considered a cost center.

Accepted Answer

A cost center is a department or unit within an organization that does not generate direct income, but incurs costs in supporting other departments or functions of the organization. The accounting department of a convenience store chain supports the overall financial management of the organization and its various locations, but does not directly generate income. Therefore, it is likely to be considered a cost center.

Question 14

In a(n)________ center, managers are accountable for both revenues and costs.
A)cost
B)profit
C)equity
D)investment

Accepted Answer

In a profit center, managers are responsible for generating revenue and controlling costs in order to maximize profits. This is in contrast to a cost center, where managers are only responsible for controlling costs, or an investment center, where managers are responsible for maximizing return on investments. Equity is a measure of ownership in a company and is not relevant to this question.

Question 15

Decentralization allows top management to concentrate on long-term strategic planning.

Accepted Answer

Decentralization allows lower-level managers to make decisions and handle day-to-day operations, freeing up top management to focus on long-term planning and overall strategic direction.

Question 16

All of the following are responsibility centers except
A)cost center.
B)profit center.
C)investment center.
D)equity center.

Accepted Answer

The term "equity center" is not commonly used in management accounting and is not a recognized responsibility center like cost center, profit center, and investment center.

Question 17

Decentralization may duplicate a company's costs since each business unit may, for example, have its own purchasing department.

Accepted Answer

Decentralization can lead to duplication of costs as each business unit may have its own separate departments like purchasing, accounting, HR, etc. This can result in increased expenses for the company.

Question 18

Goal incongruence frequently exists in decentralized organizations.

Accepted Answer

Decentralized organizations are those where decision-making power is distributed among various units or individuals rather than being centralized at the top. In such organizations, goal incongruence can arise because different units may have their own objectives that don't align with the overall goals of the organization. This can lead to conflicts, duplication of efforts, and inefficiencies. Therefore, the statement is true.

Question 19

A profit center is a responsibility center in which a manager is accountable for costs only.

Accepted Answer

A profit center manager is responsible for both costs and revenues, as their goal is to generate a profit for the organization.

Question 20

Decentralization allows top management to hire workers with expert knowledge for each business unit.

Accepted Answer

Decentralization involves delegating decision-making power to lower levels of the organization, allowing business units to hire specialized workers with expert knowledge in their respective fields. This helps to improve efficiency and effectiveness in each department.

Quiz 10: Performance Evaluation