Deck 10: Performance Evaluation

Question 1

Small companies tend to use decentralized decision making.

Answer 1

False

Question 2

Product lines are generally considered profit centers.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Duplication of costs is a disadvantage of decentralized organizations.

Question 5

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

Question 6

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

Question 7

Most companies consider divisions to be investment centers.

Question 8

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

Question 9

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

Question 10

There are two types of responsibility centers.

Question 11

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

Question 12

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

Question 13

The accounting department for a convenience store chain 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

Question 15

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

Question 16

All of the following are responsibility centers except

A)cost center.
B)profit center.
C)investment center.
D)equity center.

Question 17

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

Question 18

Goal incongruence frequently exists in decentralized organizations.

Question 19

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

Question 20

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

Question 21

Management by ________ is the practice of directing executive attention to important deviations from budgeted amounts.

A)control
B)objective
C)exception
D)analysis

Question 22

The security department for a department store chain is likely to be classified as a(n)

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

Question 23

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

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

Question 24

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 the unfavorable ones.

Question 25

The reservations department for a car rental chain is likely to be classified as a(n)

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

Question 26

The maintenance department at Continental Airlines is likely to be classified as a(n)

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

Question 27

The convenience store owned by a national convenience store chain is likely to be classified as a(n)

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

Question 28

Pizza Hut, a division of Yum! Brands, is most likely treated as a(n)

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

Question 29

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

Question 30

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

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

Question 31

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

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

Question 32

The Crest division of Procter & Gamble is most likely treated as a(n)

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

Question 33

Which of the following is a disadvantage of decentralization?

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.

Question 34

A potential advantage of decentralization is which of the following?

A)Benchmarking
B)Promotes goal congruence and coordination
C)Provides training
D)Provides feedback

Question 35

The human resources department for a steel manufacturer is likely to be classified as a(n)

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

Question 36

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

Question 37

The success of a(n)________ is measured not only by its income, but also by relating that income to its invested capital.

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

Question 38

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

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

Question 39

A potential disadvantage of decentralization is which of the following?

A)Benchmarking
B)Provides training
C)Provides feedback
D)Duplication of costs

Question 40

The production line at Morningstar Farms is most likely treated as a(n)

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

Question 41

The difference between actual results and budgeted amounts is called decentralization.

Question 42

The manager of the corporate division of Anthropologie (a retail clothing chain)would be in charge of a(n)

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

Question 43

The manager of a local CVS drugstore would be in charge of a(n)

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

Question 44

Responsibility accounting performance reports capture the financial performance of cost, revenue and profit centers.

Question 45

List and describe reasons why a company might choose to decentralize.

Question 46

Describe the four types of responsibility centers. Give a specific example of each of the four types of responsibility centers.

Question 47

The manager of the truck maintenance department at FedEx would be in charge of a(n)

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

Question 48

The CEO of Banana Republic, a division of The Gap, Inc. would be in charge of a(n)

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

Question 49

The store manager for the Dick's Sporting Goods location in Columbus, Ohio, is in charge of a(n)

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

Question 50

Honda's East Liberty Auto Plant where Honda cars are built is most likely treated as a(n)

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

Question 51

A product line at PepsiCo (such as the Pepsi Max product line)is most likely treated as a(n)

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

Question 52

The subscription sales manager for The New York Times would be in charge of a(n)

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

Question 53

The Corn Flakes product line at Kellogg is most likely treated as a(n)

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

Question 54

The manager of the Northeast sales region at General Mills would be in charge of a(n)

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

Question 55

The manager of the Walt Disney World Studios (a corporate division)would be in charge of a(n)

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

Question 56

The manager of the accounting department at Adidas would be in charge of a(n)

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

Question 57

Discuss potential problems associated with decentralization.

Question 58

A performance report compares expected revenues and expenses against budgeted figures for each responsibility center.

Question 59

The central reservation office at MegaBus is most likely treated as a(n)

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

Question 60

The regional sales department for Xerox copiers is most likely treated as a(n)

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

Question 61

Corbin Company had the following financial results for last month. What type of responsibility center do these financial results reflect?

A)Revenue center
B)Investment center
C)Profit center
D)Cost

Question 62

Management by exception would dictate that the manager investigate which of the following variances?

A)Variances which are less than a certain dollar amount or percentage
B)Variances which are greater than a certain dollar amount or percentage
C)All unfavorable variances
D)All favorable and unfavorable variances

Question 63

Rider Company had the following financial results for last month. Which type of responsibility center do these financial results reflect?

A)Cost center
B)Profit center
C)Investment center
D)Revenue center

Question 64

A performance report for a ________ compares only actual revenues and budgeted revenues.

A)revenue center
B)cost center
C)investment center
D)All of the above

Question 65

The ________ is the difference in dollars between amounts in the static budget and the flexible budget.

A)flexible budget variance
B)static budget variance
C)sales volume variance
D)actual variance

Question 66

All favorable variances are investigated when using management by exception.

Question 67

The duties of an investment center manager are similar to those of a CFO.

Question 68

Cost center performance reports typically focus on the static budget variance.

Question 69

Favorable sales volume variance for revenues is caused by which of the following?

A)Actual net income for the subunit is greater than budgeted net income.
B)Actual sales in dollars are greater than the master budget sales in dollars.
C)The flexible budget sales in dollars are greater than the static budget sales in dollars.
D)Actual sales in dollars are less than the static budget sales in dollars.

Question 70

Which type of variance causes operating income to be lower than budgeted?

A)Favorable variance
B)Neutral variance
C)Unfavorable variance
D)Reverse variance

Question 71

Management by exception saves management time by dictating that managers pay attention to only unfavorable variances.

Question 72

The performance evaluation of cost centers is typically based on which of the following?

A)Sales volume variance
B)Flexible budget variance
C)Return on investment (ROI)
D)Return on assets (ROA)

Question 73

A profit center will show revenues and costs.

Question 74

Revenue center performance reports are reports that list variances.

Question 75

Elaina Company had the following financial results for last month. What type of responsibility center do these results reflect?

A)Profit center
B)Revenue center
C)Investment center
D)Cost center

Question 76

The performance evaluation of a profit center is typically based on its

A)flexible budget variance.
B)static budget variance.
C)return on investment.
D)return on assets.

Question 77

The performance report for a ________ would typically include revenues and costs.

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

Question 78

With ________, managers look at the size of the variances between actual results and budgeted amounts in order to determine which variances should be investigated.

A)management by variance
B)management by budget
C)management by decision
D)management by exception

Question 79

Which of the following causes the difference between amounts in the static budget and the flexible budget for a revenue center?

A)The cost of sales
B)The number of units sold differs from planned sales levels
C)The selling price per unit
D)Both the selling price and the number of units sold

Question 80

Management by exception is used to determine which variances to investigate.