Question 1

The human resources department for Kohl's Department Stores may be classified as a(n)
A)cost center.
B)investment center.
C)profit center.
D)revenue center.

Accepted Answer

The human resources department is not directly responsible for generating profit or revenue, but rather incurs costs related to hiring, training, and management of employees. Therefore, it can be classified as a cost center.

Question 2

The maintenance department that focuses on efficiency at Continental Airlines may be classified as a(n)
A)cost center.
B)investment center.
C)profit center.
D)revenue center.

Accepted Answer

The maintenance department that focuses on efficiency is likely a cost center because it is focused on managing and minimizing costs associated with maintenance activities. Cost centers are responsible for managing the costs of a particular function or department within a company.

Question 3

Pizza Hut,a stand-alone division of Yum! Brands,may be classified as a(n)
A)cost center.
B)investment center.
C)profit center.
D)revenue center.

Accepted Answer

The answer of Pizza Hut,a stand-alone division of Yum! Brands,may...

Question 4

Which term below best fits "a part,segment,or subunit of a company whose manager is accountable for specified activities"?
A)Operating budget
B)Master budget
C)Sensitivity analysis
D)Responsibility center

Accepted Answer

The term "responsibility center" refers to a part, segment, or subunit of a company (such as a department or division) whose manager is accountable for specified activities and has a certain degree of authority and autonomy in decision-making. The other options - operating budget, master budget, and sensitivity analysis - are all financial management tools and techniques that may be used within a responsibility center.

Question 5

Which of the following is a disadvantage of decentralization that occurs when the organization struggles to achieve goal congruence?
A)Unit managers may not understand the big picture of the company.
B)Management does not have time to concentrate on long-term strategic planning.
C)Unit managers have decreased motivation and retention.
D)Managers receive training and experience to allow advancement in the organization.

Accepted Answer

When an organization is decentralized, unit managers might focus on their own goals, which can lead to a lack of understanding of the overall objectives and strategies of the company, thus struggling to achieve goal congruence.

Question 6

Troy Company budgeted $12 million for customer service costs,but actually spent only $10 million.Which of the following statements is the best course of action for management to take in this instance?
A)Management will investigate this $2 million favorable variance to ensure that the cost savings do not reflect skimping on customer service.
B)Because this $2 million variance is favorable,management does not need to investigate further.
C)Management will investigate this $2 million unfavorable variance to try to identify and correct the problem.
D)Management should not investigate every major variance,especially an unfavorable variance.

Accepted Answer

Although the variance is favorable, management should still investigate the cost savings to make sure that customer service was not negatively impacted. It is important to ensure that company goals and objectives are still being met despite the cost savings.

Question 7

An amusement park's games department which reports revenues and expenses may be classified as a(n)
A)profit center.
B)investment center.
C)cost center.
D)revenue center.

Accepted Answer

The games department of an amusement park generates revenues and incurs expenses, therefore it can be classified as a profit center. Profit centers are responsible for generating revenues and controlling expenses, resulting in the generation of profits or losses. The other options (investment center, cost center, and revenue center) do not necessarily fit the description of a department that generates revenues and incurs expenses like a profit center.

Question 8

The Frito-Lay,a stand-alone division of PepsiCo may be classified as a(n)
A)investment center.
B)cost center.
C)profit center.
D)revenue center.

Accepted Answer

The answer of The Frito-Lay,a stand-alone division of PepsiCo may...

Question 9

Lubrizol is a large chemical company that specializes in producing lubricants.Lubrizol was acquired in 2011 for $9 billion by investment holding company Berkshire Hathaway.Lubrizol may be classified as a(n)
A)cost center.
B)investment center.
C)profit center.
D)revenue center.

Accepted Answer

Lubrizol was acquired by investment holding company Berkshire Hathaway, suggesting that it is managed as an investment for the holding company rather than being focused on generating profits or revenues, making it an investment center.

Question 10

The convenience store that is responsible for its own revenues,costs,and is owned by a national convenience store chain may be classified as a(n)
A)cost center.
B)investment center.
C)revenue center.
D)profit center.

Accepted Answer

A profit center is responsible for generating its own revenues and incurring costs, and ultimately is expected to generate a profit for the company. In this case, the convenience store is responsible for its own revenues and costs, and is owned by a national convenience store chain, indicating that it is likely a profit center.

Question 11

Information technology has made many tasks easier,but not all tasks.Which of the following tasks performed by managers requires more critical thinking skills than the others because it is not as dependent upon information technology?
A)Sensitivity analysis
B)Analyzing and investigating the root causes of variances in responsibility center reports
C)Rolling up individual units' budgets into the companywide budget
D)Preparing responsibility center performance reports that identify variances between actual and budgeted revenues and costs

Accepted Answer

Analyzing and investigating the root causes of variances in responsibility center reports requires critical thinking skills because it involves identifying the underlying reasons for deviations from budgeted performance, which may not be solely attributed to information technology. Sensitivity analysis, rolling up individual units' budgets into the companywide budget, and preparing responsibility center performance reports all heavily rely on information technology to gather and process data, reducing the requirement for critical thinking skills.

Question 12

The reservations department that has self-contained sales operations at a car rental chain may be classified as a(n)
A)cost center.
B)investment center.
C)profit center.
D)revenue center.

Accepted Answer

The answer of The reservations department that has self-contained sales...

Question 13

All of the following are potential advantages of decentralization except
A)Frees top management's time
B)Encourages use of expert knowledge
C)Potential duplication of costs
D)Provides training

Accepted Answer

Potential duplication of costs is a potential disadvantage of decentralization, not an advantage. The other options (A, B, and D) are potential advantages of decentralization.

Question 14

Management by ________ is the practice that directs executive attention to large budget variances.
A)control
B)objective
C)exception
D)analysis

Accepted Answer

Management by exception is a practice where managers focus their attention on areas where actual results differ significantly from planned or expected results. This approach allows managers to prioritize their time and resources to address the most critical issues or opportunities within the organization. In this context, directing executive attention to large budget variances is an example of management by exception.

Question 15

A manager is only accountable for expenses in a(n)________ center.
A)cost
B)revenue
C)profit
D)investment

Accepted Answer

A cost center is responsible for managing and controlling expenses only. Managers in cost centers do not have direct responsibility for generating revenue or profit, but they are responsible for managing costs and maximizing efficiency in order to contribute to the overall financial performance of the company.

Question 16

The production line at Morningstar Farms may be classified as a(n)
A)investment center.
B)cost center.
C)profit center.
D)revenue center.

Accepted Answer

The production line at Morningstar Farms is best classified as a cost center because it is a part of the organization that does not directly generate revenue but incurs costs. In a manufacturing context like Morningstar Farms, the production line's primary responsibility is to efficiently produce goods while managing and minimizing costs, rather than generating profits or revenue directly.

Question 17

A potential disadvantage of decentralization is which of the following?
A)Benchmarking
B)Provides training
C)Provides feedback
D)Duplication of costs

Accepted Answer

Decentralization can lead to duplication of costs as separate departments or units may end up purchasing similar resources or services.

Question 18

The human resources department for a steel manufacturer may be classified as a(n)
A)investment center.
B)cost center.
C)profit center.
D)revenue center.

Accepted Answer

The human resources department is responsible for managing and administering the company's workforce, which is a necessary expense to keep the business running. As such, it is classified as a cost center.

Question 19

The security department that is evaluated on its ability to control costs when the company compares actual costs to budget costs at a department store chain may be classified as a(n)
A)cost center.
B)investment center.
C)profit center.
D)revenue center.

Accepted Answer

A cost center is a department or unit within a company that is responsible for controlling costs. Its performance is evaluated based on its ability to manage expenses within the budget. The security department in a department store chain would fall under the category of a cost center as its primary function is to maintain security while keeping costs in check.

Question 20

To evaluate the performance of a(an)________,a top manager is responsible for revenues,costs,and the efficient use of the assets invested in the division.
A)cost center
B)investment center
C)profit center
D)revenue center

Accepted Answer

An investment center is responsible for generating revenue, controlling costs, and efficiently using assets invested in the division. The top managers of investment centers are evaluated based on their ability to meet these goals and generate a return on the assets invested in the division. Cost centers are evaluated on their ability to control costs, revenue centers on their ability to generate revenue, and profit centers on their ability to generate a profit.

Quiz 10: Performance Evaluation

The human resources department for Kohl's Department Stores may be classified as a(n)

The maintenance department that focuses on efficiency at Continental Airlines may be classified as a(n)

Pizza Hut,a stand-alone division of Yum! Brands,may be classified as a(n)

Which term below best fits "a part,segment,or subunit of a company whose manager is accountable for specified activities"?

Which of the following is a disadvantage of decentralization that occurs when the organization struggles to achieve goal congruence?

Troy Company budgeted $12 million for customer service costs,but actually spent only $10 million.Which of the following statements is the best course of action for management to take in this instance?

An amusement park's games department which reports revenues and expenses may be classified as a(n)

The Frito-Lay,a stand-alone division of PepsiCo may be classified as a(n)

Lubrizol is a large chemical company that specializes in producing lubricants.Lubrizol was acquired in 2011 for $9 billion by investment holding company Berkshire Hathaway.Lubrizol may be classified as a(n)

The convenience store that is responsible for its own revenues,costs,and is owned by a national convenience store chain may be classified as a(n)

Information technology has made many tasks easier,but not all tasks.Which of the following tasks performed by managers requires more critical thinking skills than the others because it is not as dependent upon information technology?

The reservations department that has self-contained sales operations at a car rental chain may be classified as a(n)

All of the following are potential advantages of decentralization except

Management by ________ is the practice that directs executive attention to large budget variances.

A manager is only accountable for expenses in a(n) ________ center.

The production line at Morningstar Farms may be classified as a(n)

A potential disadvantage of decentralization is which of the following?

The human resources department for a steel manufacturer may be classified as a(n)

The security department that is evaluated on its ability to control costs when the company compares actual costs to budget costs at a department store chain may be classified as a(n)

To evaluate the performance of a(an) ________,a top manager is responsible for revenues,costs,and the efficient use of the assets invested in the division.