Deck 10: Performance Evaluation

Question 1

Decentralization may duplicate a company's costs because each business unit can contain its own purchasing department.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

In a(n)________ center,managers are accountable to both revenues and costs.

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

Answer 3

B

Question 4

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

Question 5

Responsibility accounting performance reports compare plans (budgets)with actual results in each responsibility center.

Question 6

There are two types of responsibility centers.

Question 7

An example of management by exception occurs when a manager investigates a large variance in a performance report to assign responsibility.

Question 8

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

Question 9

All of the following are responsibility centers except

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

Question 10

A product line is generally considered a profit center.

Question 11

The accounting department in a convenience store chain is likely classified as a cost center.

Question 12

Management by exception directs management's attention to a large variance between an actual and budget amount in a performance report.

Question 13

The local Burger King restaurant is likely classified as a revenue center.

Question 14

Decentralized companies often struggle to achieve goal congruence in an organization.

Question 15

Small companies tend to use decentralized decision making.

Question 16

Goal congruence is a system that evaluates the performance of each responsibility center and its manager.

Question 17

An investment center is generally a large division of a corporation.

Question 18

A profit center is the responsibility center that is only responsible for costs.

Question 19

Potential duplication of costs is a disadvantage of decentralized organizations.

Question 20

Companies that decentralize split their operations into different operating segments.

Question 21

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.

Question 22

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.

Question 23

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.

Question 24

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 25

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.

Question 26

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.

Question 27

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.

Question 28

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.

Question 29

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.

Question 30

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.

Question 31

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 32

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.

Question 33

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

Question 34

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

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

Question 35

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

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

Question 36

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

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

Question 37

A potential disadvantage of decentralization is which of the following?

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

Question 38

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.

Question 39

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.

Question 40

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

Question 41

A performance report compares expected revenues and expenses against budgeted figures for each responsibility center that the manager evaluates in an organization.

Question 42

Discuss potential problems and disadvantages to an organization that decentralizes its operations.

Question 43

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

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

Question 44

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

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

Question 45

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

Question 46

The manager of the accounting department that may be evaluated on his or her ability to control expenses at Adidas may be in charge of a(n)

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

Question 47

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

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

Question 48

The difference between actual results and budget results is known as decentralization.

Question 49

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

Question 50

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

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

Question 51

The entire Corn Flakes product line at Kellogg is may be classified as a(n)

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

Question 52

Frito-Lay's Casa Grande plant that controls expenses using lean thinking to eliminate waste may be classified as a(n)

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

Question 53

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

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

Question 54

The performance reports of cost centers only include those costs incurred within each individual cost center.

Question 55

The manager of a local CVS drugstore that is in accountable to increase sales,revenue,and controlling costs may be in charge of a(n)

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

Question 56

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

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

Question 57

Sales territories,such as geographic areas within the country may be classified as a(n)

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

Question 58

The regional sales department for Xerox copiers may be classified as a(n)

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

Question 59

The entire product line at PepsiCo (such as the Pepsi Max product line)may be classified as a(n)

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

Question 60

The subscription sales manager at The New York Times may be in charge of a(n)

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

Question 61

With ________,managers look at the size of the variances between actual results and budgeted amounts to determine which variances a manager should investigate.

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

Question 62

Management by exception saves management time because managers in revenue centers only focus on unfavorable variances.

Question 63

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

Question 64

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 center

Question 65

Which of the following may cause a favorable sales volume variance of the revenues?

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 66

All favorable variances are investigated when using management by exception.

Question 67

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

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

Question 68

Which of the following is the operating income an investment center generates before subtracting common fixed costs that are allocated to the center?

A)Sales volume variance
B)Segment margin
C)Return on investment (ROI)
D)Return on assets (ROA)

Question 69

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 70

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

Question 71

Revenue center performance reports are reports that list the variances between actual sales and budgeted sales.

Question 72

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 73

The ________reveals whether or not additional sales revenue can offset an increase in costs in the flexible budget performance report.

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

Question 74

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

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

Question 75

The performance report that highlights the center's segment margin at a ________ may include direct fixed expenses and direct fixed costs.

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

Question 76

A segment margin is the operating income generated by a profit or investment center before subtracting common allocated fixed costs to the center.

Question 77

Which of the following causes the master budget variance between the amounts in the master budget and the flexible budget of 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 78

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

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

Question 79

A performance report of a ________ will only include revenues generated by the center.

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

Question 80

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