Deck 24: Responsibility Accounting and Performance Evaluation

Question 1

Centralized companies split their operations into different divisions or operating units and top management delegates decision-making to the division/unit managers.

Answer 1

False

Question 2

The term goal congruence refers to the ________.

A)matching of financial goals of the company with its nonfinancial goals
B)aligning the goals of business segment managers with the goals of top management
C)achievement of the goals set by the management by utilizing the resources available
D)duplication of costs as a result of decentralization

Answer 2

B

Question 3

A system of evaluating the performance of each responsibility center and its manager is known as a responsibility accounting system.

Answer 3

True

Question 4

The manager of a profit center is responsible for generating revenues and managing the center's invested capital.

Question 5

The product line of a manufacturing company is most likely to be considered as a(n)________.

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

Question 6

Brad Turret,one of the managers of a multi-national company,is responsible for generating revenues and controlling costs in order to increase the operating income of his division.However,he is not concerned about investment-related decisions.Brad is most likely to be the manager of a(n)________.

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

Question 7

A company in which the major planning and controlling decisions are made by top management is considered as a centralized company

Question 8

Centralized operations are better for small companies due to the smaller scope of their operations.

Question 9

The manager of a revenue center is responsible for generating profits.

Question 10

The responsibility of the manager of an investment center is to generate profits and to manage the center's invested capital.

Question 11

The manager of a cost center is responsible for controlling costs and generating revenues of the company.

Question 12

In a ________,the manager is responsible for generating revenues and controlling costs.

A)cost center
B)profit center
C)revenue center
D)transfer pricing center

Question 13

Responsibility reports for a profit center include ________.

A)revenues only
B)invested capital
C)both revenues and costs
D)returns on investments

Question 14

Which of the following would most likely be evaluated using residual income?

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

Question 15

The responsibility report of Keith Parker,the manager of one of the divisions of an auto parts manufacturing company,includes profits as well as return on investment and residual income.Keith is most likely the manager of a(n)________.

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

Question 16

One of the advantages of decentralization is that it allows top management to concentrate on long-term strategic planning.

Question 17

Long-term investments are made by the manager of an investment division for the purpose of ________.

A)increasing profits
B)decreasing profits
C)increasing interest liability
D)decreasing debt liability

Question 18

The payroll department of a manufacturing company is most likely to be a(n)________.

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

Question 19

Which of the following is a disadvantage of decentralization?

A)It results in increased customer response time.
B)It allows only the top management to make decisions.
C)It demotivates employees as the decision making powers are not delegated.
D)It results in problems in achieving goal congruence.

Question 20

In a decentralized company,all the planning and controlling decisions are made by top management.

Question 21

Which of the following managers is likely to have the most different responsibilities for a company?

A)the manager of a cost center
B)the manager of a profit center
C)the manager of an investment center
D)the manager of a revenue center

Question 22

Which of the following internal business perspective key performance indicators (KPIs)is commonly used to assess the innovation process?

A)number of new products developed
B)number of warranty claims
C)employee turnover rate
D)rate of on-time deliveries

Question 23

Which of the following four perspectives of the balanced scorecard enables the management to answer the question,"How can we continue to improve and create value?"

A)financial perspective
B)customer perspective
C)internal business perspective
D)learning and growth perspective

Question 24

Which of the following is a responsibility that is common to the managers of cost,profit,and investment centers?

A)generating revenues
B)generating profits
C)managing the invested capital
D)controlling costs

Question 25

Which of the following best describes the manager of a profit center?

A)The manager is only responsible for controlling costs.
B)The manager is responsible for generating profits and efficiently managing the center's invested capital.
C)The manager is only responsible for generating revenues.
D)The manager is responsible for generating revenues and controlling costs.

Question 26

One part of the balanced scorecard helps management answer the question,"How do we look to shareholders?" Which of the four perspectives is being described here?

A)financial perspective
B)customer perspective
C)internal business perspective
D)learning and growth perspective

Question 27

Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.

Question 28

Qvoware Inc.sells cosmetic products in the United States.Which one of the following is most likely to be a revenue center for Qvoware?

A)a Qvoware retail store in Dallas
B)the Qvoware HR department
C)a Qvoware kiosk at a mall for selling its products
D)the Qvoware product lines

Question 29

Which of the following is most likely a key performance indicator of the internal business perspective of the balanced scorecard?

A)number of units produced per hour
B)employee turnover
C)cash flow
D)number of cross-trained employees

Question 30

Communicating the expectations of top management to segment managers improves goal congruence.

Question 31

Qvoware Inc.sells cosmetic products in the United States.Which one of the following is most likely to be a cost center for Qvoware?

A)a Qvoware retail store in Dallas
B)the Qvoware HR department
C)a Qvoware kiosk at a mall for selling its products
D)the Qvoware product lines

Question 32

Which of the following managers is likely to have the least amount of responsibilities for a company?

A)the manager of a cost center
B)the manager of a profit center
C)the manager of an investment center
D)the manager of a transfer pricing center

Question 33

The performance measurement system should provide incentives to segment managers for coordinating the activities of the subunits and focusing them toward the overall company objectives.Which of the following performance measurement goals has been described by this statement?

A)motivating segment managers
B)promoting goal congruence
C)providing feedback
D)benchmarking

Question 34

A company that uses a balanced scorecard has established a KPI for product quality.If the actual warranty claims are higher than expected it indicates that the quality standards have been met.

Question 35

The balanced scorecard is a performance evaluation system that requires management to consider financial measures of performance,but not nonfinancial measures.

Question 36

The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.

Question 37

The level of employee satisfaction is a key performance indicator of the ________.

A)financial perspective of a balanced scorecard
B)learning and growth perspective of a balanced scorecard
C)internal business perspective of a balanced scorecard
D)customer perspective of a balanced scorecard

Question 38

A good balanced scorecard focuses only on lead indicators,because lag indicators are not important for the scorecard.

Question 39

Key performance indicators (KPIs)are summary performance measures that help managers assess whether the company is achieving its goals.

Question 40

A lag indicator is a performance measure that forecasts future performance.

Question 41

Which of the following is a key performance indicator of the customer perspective in a balanced scorecard?

A)defect rate
B)employee satisfaction
C)gross margin growth
D)number of repeat customers

Question 42

Regardless of the type of responsibility center,responsibility reports should focus on information,not blame.

Question 43

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

Question 44

Uncontrollable costs are the costs that can be influenced by the decisions of a manager.

Question 45

The goal of the balanced scorecard is to ________.

A)maximize profits
B)maximize operational efficiency
C)develop a set of organizational performance measures
D)increase the market share and maximize shareholders' wealth

Question 46

Which of the following is a key performance indicator of the internal business perspective in a balanced scorecard?

A)hours of employee training
B)number of warranty claims
C)percentage of market share
D)return on investment

Question 47

Percentage of market share and rate of on-time deliveries are indicators of the ________ perspective.

A)quality management
B)internal business
C)customer
D)learning and growth

Question 48

Sales revenue growth,gross margin growth,and return on investment are the key performance indicators (KPIs)for the ________.

A)financial perspective
B)customer perspective
C)internal business perspective
D)learning and growth perspective

Question 49

Smaller variances signal that operations are close to the target and do not require management's immediate attention.

Question 50

Cost center responsibility reports generally focus on the static budget variance.

Question 51

Uniox Inc.intends to increase its profits by 50% in the next financial year.Which of the following is most likely to be a lag indicator in Uniox's performance report?

A)return on investment
B)number of repeat customers
C)rate of on-time deliveries
D)defect rate

Question 52

Uniox Inc.intends to increase its profits by 50% in the next financial year.Which of the following is most likely to be a lead indicator in Uniox's performance report?

A)return on investment
B)number of repeat customers
C)net profit margin
D)sales revenue growth

Question 53

Which of the following is a key performance indicator of the financial perspective in a balanced scorecard?

A)hours of employee training
B)number of warranty claims
C)percentage of market share
D)return on investment

Question 54

Which of the following perspectives of the balanced scorecard focuses on revenue growth and productivity?

A)financial perspective
B)customer perspective
C)internal business perspective
D)learning and growth perspective

Question 55

Flexible budgets use budgeted costs at the actual level of activity.

Question 56

Cost center responsibility reports typically focus on the flexible budget variance.

Question 57

Which of the following affects the company's ability to make on-time deliveries?

A)return on investment
B)product's price
C)warranty claims
D)production cycle time

Question 58

A high rate of employee turnover indicates that ________.

A)employees of the organization leave their jobs frequently
B)pay packages of employees are at par with that of the industry
C)the employee retention ratio is also high
D)employees also participate in the decision making process

Question 59

Which of the following statements most accurately describes the company's "climate for action?"

A)a corporate culture that encourages communication,change,and growth
B)a corporate culture that is focused on strong,top-down command and control
C)a corporate culture which is aimed exclusively at period earnings
D)a corporate culture that discourages physical activity,sports and recreation to improve employee health and morale

Question 60

A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.

Question 61

The performance report of a profit center includes both revenues and expenses.

Question 62

Milliken Inc.provides the following information: Calculate the sales volume variance.

A)$31,500 F
B)$31,500 U
C)$75,000 U
D)$106,500 F

Question 63

Johnson Construction Materials Company has a sales office which sells concrete culvert pipes to property developers.The sales office is a revenue center and must prepare a monthly performance report.It has provided the following information.

- What is the flexible budget variance for the 40 inch pipe?

A)$1,850 U
B)$3,000 F
C)$10,000 U
D)$1,500 F

Question 64

Which of the following statements is true of performance reporting?

A)Responsibility reports should focus on the person responsible for unfavorable variances,rather than information.
B)Managers should not be held accountable for uncontrollable variances.
C)Only unfavorable variances should be explained in the reports.
D)Every variance,regardless of magnitude,must be investigated by the managers.

Question 65

Huang Consumer Products has a small car division that operates as a profit center.Below is a partially completed performance report for the first quarter.

- How much is the percentage variance for the flexible budget variance for traceable fixed expenses?

A)0.8 % F
B)0.8 % U
C)0.3 % U
D)0.3 % F

Question 66

To adequately evaluate an investment center's financial performance,summary performance measures that include both the division's operating income and its assets are required.

Question 67

Operating income alone does not indicate how efficiently a segment is using its assets.

Question 68

Return on Investment (ROI)measures the profitability of an investment center,not efficiency.

Question 69

The Return on Investment (ROI)formula focuses on the amount of operating income earned before other revenue/expense items such as interest expense.

Question 70

Huang Consumer Products has a small car division that operates as a profit center.Below is a partially completed performance report for the first quarter.

- How much is the percentage variance for the flexible budget variance for sales revenue?

A)1.7 % F
B)1.7 % U
C)3.4 % U
D)3.4 % F

Question 71

Return on investment focuses on net income in the numerator of the ratio.

Question 72

Johnson Construction Materials Company has a sales office which sells concrete culvert pipes to property developers.The sales office is a revenue center and must prepare a monthly performance report.It has provided the following information.

- What is the sales volume variance for the 36 inch long pipe?

A)$1,850 U
B)$9,000 F
C)$10,000 U
D)$1,500 F

Question 73

Both the sales volume variance and the flexible budget variance help revenue center managers understand why they have exceeded or fallen short of budgeted revenue.

Question 74

Responsibility report for revenue centers shows all costs incurred by the department and is useful when management needs to know the total cost of operating the department.

Question 75

Companies evaluate investment centers using the same measures as the profit centers.

Question 76

Residual Income (RI)considers both the division's operating income and its average total assets.In addition,it also incorporates another piece of information known as top management's target rate of return.

Question 77

Managers of investment centers are responsible not only for generating profits but also to ensure the efficient use of assets of the investment centers.

Question 78

Residual Income (RI)compares the division's actual operating income with the minimum operating income expected for the given size of the division's average total assets.

Question 79

Johnson Construction Materials Company has a sales office which sells concrete culvert pipes to property developers.The sales office is a revenue center and must prepare a monthly performance report.Below is the partially completed performance report.

- The company uses management by exception to address flexible budget variances.On which product type would the company focus first?

A)40 inch
B)36 inch long
C)36 inch short
D)32 inch

Question 80

The return on investment of a company is a measure of profitability and efficiency.