Deck 10: Performance Evalulation

Question 1

A product line is generally considered a profit center.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

Potential duplication of costs is a disadvantage of decentralized organizations.

Question 6

There are two types of responsibility centers.

Question 7

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

Question 8

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

Question 9

Companies that decentralize split their operations into different operating segments.

Question 10

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

Question 11

Small companies tend to use decentralized decision making.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

All of the following are responsibility centers except

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

Question 19

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

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

Question 20

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

Question 21

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 22

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 23

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 24

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 25

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 26

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

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

Question 27

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 28

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 29

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 30

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 31

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 32

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 33

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

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

Question 34

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 35

A potential disadvantage of decentralization is which of the following?

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

Question 36

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 37

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 38

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 39

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 40

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 41

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 42

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 43

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 44

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

Question 45

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 46

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

Question 47

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

Question 48

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

Question 49

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 50

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 51

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

Question 52

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 53

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 54

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 55

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

Question 56

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 57

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 58

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

Question 59

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 60

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 61

Return on Investment (ROI)is defined as operating income divided by current assets.

Question 62

All favorable variances are investigated when using management by exception.

Question 63

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 64

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 65

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

Question 66

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

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

Question 67

An unfavorable variances causes operating income to be higher than budgeted.

Question 68

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

Question 69

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 70

Companies evaluate investment center performance the way they evaluate profit center performance.

Question 71

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 72

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

Question 73

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

Question 74

An unfavorable variance causes operating income to be _______________ the budgeted operating income?

A)lower than
B)equal to
C)greater than
D)half as much as

Question 75

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

Question 76

A favorable variances causes operating income to be higher than budgeted.

Question 77

A performance report compares actual revenue and expenses with _____________ revenues and expenses.

A)budgeted
B)last year's
C)next year's
D)another company's

Question 78

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 79

A favorable variance causes operating income to be _______________ the budgeted operating income?

A)lower than
B)equal to
C)greater than
D)half as much as

Question 80

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.