Deck 10: Decentralizing and Performance Evaluation

Question 1

Return on investment measures the rate of return generated by an investment in assets.

Answer 1

True

Question 2

Net income after interest and taxes is a common income measurement choice used to calculate ROI for an entire organization,because all expenses are under the CEO's control at the corporate level.

Answer 2

False

Question 3

A profit center manager's performance is measured using methods such as return on investment or residual income.

Answer 3

False

Question 4

An investment center manager’s performance is typically measured based on the unit’s overall profit compared to the flexible budget.

Question 5

In preparing a segment margin income statement,instead of looking for a certain phrase that describes the cost,look for the reason the cost was incurred.

Question 6

Generally accepted accounting principles require companies to report selected information about operating segments in the annual report.

Question 7

You $\textbf{ can not }$ classify a unit as a cost, profit, or investment center by looking at its name or its location on the organizational chart.

Question 8

A disadvantage of decentralization is that the process does not give lower-level managers practice in developing their decision-making skills.

Question 9

The goal of the cost center manager is to minimize total costs and to maximize profit.

Question 10

A segment margin income statement includes all allocated costs in the calculation of the segment margin.

Question 11

Although a profit center is expected to generate profits,not just revenues or costs,the manager $\textbf{ cannot }$ commit funds to invest in assets.

Question 12

A segment of an organization is any part of the organization that management wishes to evaluate.

Question 13

A manager who is responsible for both the revenue and the cost incurred in generating a product is managing an investment center.

Question 14

If a cost is a traceable fixed cost at one level,it will remain a traceable cost at a lower level.

Question 15

A disadvantage of decentralized decision making is that two or more operational managers may evaluate and make the same decision,duplicating their efforts.

Question 16

An organizational structure in which decision-making authority for the entire organization rests in the hands of one person or a small group of people in a single location is called centralization.

Question 17

If a cost was incurred to support the company as a whole,then it is a common cost.

Question 18

After an organization implements a certain level of decentralization,it is committed to maintaining that level for the life of the organization.

Question 19

An organizational structure in which decision-making authority for the entire organization rests in the hands of one person or a small group of people in a single location is called decentralization.

Question 20

A cost center manager's performance is measured largely by comparing the actual costs incurred to the flexible budget.

Question 21

The most common measure used as the denominator in the ROI calculation is a simple average of the assets used during the year.

Question 22

Although managers' actions may improve ROI in the short run,they may do so at the expense of the company's long-term financial health.

Question 23

Which of the following would $\textbf{ not }$ be an advantage of decentralization?

A)Duplication of effort is minimized.
B)Companies can develop their own managers internally by giving lower-level managers practice in developing their decision-making skills.
C)Top management is free to focus on the long-term strategies of the organization.
D)All of these ans choices are advantages of decentralization.

Question 24

Which of the following would $\textbf{ not }$ be a focus of top managers in a decentralized organizational structure?

A)Long-range projections
B)Corporate goals
C)Day-to-day operational issues
D)All of these ans choices would be focuses of top management.

Question 25

In calculating EVA,invested capital is the company's total assets minus its total liabilities.

Question 26

The organizational structure in which decision-making authority is dispersed throughout the organization is called

A)Centralized.
B)Decentralized.
C)Divisional stability.
D)Segmented decision making.

Question 27

Return on investment is based on the fair market value of operating assets.

Question 28

ABC Corporation has three divisions,a service division with two locations,a retail division with four locations,and a home office,each of which is evaluated individually.This is an example of which type of organization?

A)Segmented decision making
B)Decentralized
C)Divisional instability
D)None of these ans choices are correct.

Question 29

ROI is a relative measure of return,in other words,the result is a dollar amount of return.

Question 30

Which of the following is an advantage of decentralization?

A)Managers at the operational level of the organization have the authority to identify problems,recognize situational changes,and respond quickly.
B)Companies can develop their own managers internally by giving lower-level managers practice in developing their decision-making skills.
C)Top management is free to focus on the long-term strategies of the organization.
D)All of these ans choices are correct.

Question 31

Just because a project's residual income is positive,that does not mean that it is earning a return in excess of the corporate minimum.

Question 32

The DuPont Model decomposes the original ROI formula into two components: margin and asset turnover.

Question 33

For a small business producing a single product,having one location and few employees,the organizational structure that is most appropriate is

A)Centralized.
B)Decentralized.
C)Divisional stability.
D)Segmented decision making.

Question 34

Which of the following is an advantage of decentralization?

A)Duplication of effort is minimized.
B)The potential for sharing ideas throughout the organization is enhanced.
C)Lower-level managers understand the company's strategies and goals,and thus make decisions that are in the best interest of the organization as a whole.
D)Top management is free to focus on the long-term strategies of the organization.

Question 35

Finance theory says that the rate of return required by creditors is the same as the return required by investors.

Question 36

As long as EVA is positive,the firm's managers have used the invested capital to create additional value for shareholders.

Question 37

If you think of an organization's structure as a continuum,on the centralized end of the continuum,operational managers

A)Are never evaluated.
B)Are evaluated on costs,revenue,and profit.
C)Have complete control over operational decisions.
D)Have no authority to make decisions.

Question 38

The organizational structure in which decision-making authority for the entire organization rests in the hands of one person or a small group of people in a single location is called

A)Responsibility centered.
B)Centralization.
C)Decentralization.
D)Segmentation .

Question 39

If you think of an organization's structure as a continuum,on the decentralized end of the continuum,operational managers

A)Are never evaluated.
B)Are evaluated on costs,revenue,and profit.
C)Have complete control over operational decisions.
D)Have no authority to make decisions.

Question 40

The ROI formula decomposed into two components,margin and asset turnover,is referred to as the Deaumon Model.

Question 41

An investment center manager's performance can be based on

A)The same methods as managers of cost centers.
B)The same methods as managers of profit centers.
C)Residual income.
D)All of these ans choices are correct.

Question 42

A manager of a profit center $\textbf{ cannot }$

A)Incur cost to operate the center.
B)Set the selling price of the center's product.
C)Commit funds to invest in assets.
D)None of these ans choices are correct.

Question 43

A disadvantage of decentralization is that

A)If lower-level managers do not understand the company's strategies and goals,they may make decisions that are not in the best interest of the organization as a whole.
B)Two or more operational managers may evaluate and make the same decision,duplicating their efforts.
C)Managers tend to focus on their own
D)All of these ans choices are correct.

Question 44

A disadvantage of decentralization is that decision making is spread throughout the organization.This is a disadvantage because

A)Managers tend to focus on their own
B)When communication is reduced,the potential for sharing ideas throughout the organization is reduced with it.
C)Lower-level managers may not fully understand the ramifications of their localized decisions on the organization as a whole.
D)All of these ans choices are correct.

Question 45

At Devoe Manufacturing,the vice-president of the Southern Division is responsible for the production and selling of products in fifteen states as well as securing the productive assets needed to create the product.This division is an example of which of the following responsibility centers?

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

Question 46

An organizational unit whose manager is responsible only for the costs incurred in the unit is referred to as a

A)Expense center.
B)Cost center.
C)Product center.
D)Manufacturing center.

Question 47

A profit center manager's performance is typically measured based on the

A)Direct material and direct labor variances only.
B)Overall profit compared to the flexible budget.
C)ROI.
D)None of these ans choices are correct.

Question 48

In a responsibility accounting environment,which of the following managers is considered to have the broadest responsibility?

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

Question 49

A manager who is responsible for both the revenue and the costs incurred in generating a product or service is managing a

A)Cost center.
B)Product center.
C)Profit center.
D)Investment center.

Question 50

The accounting department of a large corporation would be classified as a

A)Cost center.
B)Profit center.
C)Investment center.
D)Segment.

Question 51

In a responsibility accounting environment,which of the following is not a classification of organizational units?

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

Question 52

A cost center manager's performance might be measured by

A)The center's ROI.
B)Direct material variance.
C)Segment profit.
D)Any of these ans choices are correct.

Question 53

On an organizational chart,from bottom to top,which of the following is the order of responsibility centers?

A)Cost,profit,investment
B)Cost,investment,profit
C)Profit,cost,investment
D)Profit,investment,cost

Question 54

In a responsibility accounting environment, upper managers evaluate the performance of the unit managers based

A)On those items over which the
B)Not only on cost,but also on revenues.
C)On the overall profit of the organization.
D)None of these ans choices of correct.

Question 55

At Devoe Manufacturing,the Southern Division is responsible for the production and selling of products in fifteen states.This division is an example of which of the following responsibility centers?

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

Question 56

The manager of which of the following responsibility centers is expected to invest in assets that generate profit?

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

Question 57

Which of the following is a reason why top managers would decide to increase the level of decentralized decision-making authority in their company?

A)Managers at the operational level can respond to issues more quickly than top management.
B)Top managers want to give attention to grooming the next generation of top managers.
C)Managing an organization is a time-consuming function.
D)All of these ans choices are correct.

Question 58

An investment center manager's performance can be based on

A)The same methods as managers of cost centers.
B)The same methods as managers of profit centers.
C)Either the same methods as managers of cost centers or the same methods as managers of profit centers.
D)Neither the same methods as managers of cost centers nor the same methods as managers of profit centers.

Question 59

The packaging department in a large manufacturing company would be classified as a

A)Cost center.
B)Profit center.
C)Investment center.
D)Segment.

Question 60

In a responsibility accounting environment, which of the following managers has his or her performance typically measured based on the unit’s overall profit compared to the flexible budget?

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

Question 61

Traceable fixed costs are the responsibility of

A)Top management only.
B)Managers who control them.
C)Investment center managers only.
D)None of these ans choices are correct.

Question 62

Kimble Industries production division reported a net operating loss of $500,000 in 2014.Included in that amount were common fixed corporate expenses of $720,000 that were allocated to divisions based on segment gross profit.The division's segment margin was

A) $220,000.
B) $500,000.
C) $222,000.
D) $550,000.

Question 63

Any part of an organization that management wishes to evaluate is referred to as a

A)Department.
B)Segment.
C)Factory.
D)Center.

Question 64

Which of the following activities might you find in retail product segment?

A)Selling
B)Importing
C)Delivering
D)All of these ans choices are correct.

Question 65

Which of the following terms are used in referring to common costs?

A)Allocated cost
B)Unavoidable costs
C)Both allocated cost and unavoidable costs.
D)Neither allocated cost nor unavoidable costs.

Question 66

Generally Accepted Accounting Principles GAAP require companies to

A)Report selected information about operating segments in the annual report.
B)Prepare financial statements using a cash basis.
C)Report information based on responsibility centers.
D)Report information in single-step format.

Question 67

An income statement presented in a functional format is $\textbf{ not }$ very helpful in managerial decision making because

A)It does not show which expenses are fixed and which are variable.
B)It does not show which expenses are direct and which are indirect.
C)It does not show which expenses are product costs and which are period costs.
D)It does not show which expenses are common and which are allocated.

Question 68

City Retail sells two products: Standard and Deluxe.The company had sales of $800,000 during the current year.The company's contribution margin ratio was 40% and total fixed costs totaled $300,000.Sales were $600,000 for Standard and $200,000 for Deluxe.Traceable fixed costs were $150,000 for Standard and $90,000 for Deluxe.Variable costs were $360,000 for Standard and $120,000 for Deluxe.What is the segment margin for the Standard product?

A) $20,000
B) $80,000
C) $90,000
D) $240,000

Question 69

If a cost is incurred specifically for a segment of an organization,it is referred to as a

A)Common cost.
B)Traceable cost.
C)Allocated cost.
D)Unavoidable cost.

Question 70

In a centralized organization,decision-making authority

A)Is spread throughout the organization.
B)Always rests with profit center managers.
C)Rests with a small group of people in a single location.
D)None of these ans choices are correct.

Question 71

When does a traceable fixed cost become a common cost?

A)When it is at a lower level than where it is incurred.
B)When it is at a higher level than where it is incurred.
C)A traceable fixed cost is always a common cost at another level.
D)A traceable fixed cost is never a common cost at another level.

Question 72

What is really needed to measure a segment's performance is an income statement that highlights

A)Variable versus fixed costs.
B)Product versus period costs.
C)All the elements under the segment manager's control.
D)None of these ans choices are correct.

Question 73

Segment margin income statements are most useful to managers when they are prepared

A)On a cash basis.
B)Using a segment contribution margin basis.
C)On a GAAP basis.
D)Using a function basis.

Question 74

One thing that is missing from GAAP-based segment reporting is a breakdown of

A)Product and period costs.
B)Cost of goods sold and operating costs.
C)Variable and fixed costs.
D)Gross margin and net income.

Question 75

Which of the following items would $\textbf{ not}$ appear on a segment margin income statement?

A)Direct material
B)Traceable fixed costs
C)Selling expense
D)Common fixed costs

Question 76

Which of the following terms is $\textbf{ not }$ used in referring to common costs?

A)Allocated cost
B)Unavoidable cost
C)Traceable cost
D)All of these ans choices are used in referring to common costs.

Question 77

If a cost is incurred to support the company as a whole,it is referred to as a

A)Common cost.
B)Traceable cost.
C)Direct cost.
D)None of these ans choices are correct.

Question 78

The segment margin income statement $\textbf{ excludes }$

A)All allocated costs in the calculation of the segment margin.
B)All fixed costs.
C)All period costs.
D)Manufacturing overhead.

Question 79

City Retail sells two products: Standard and Deluxe.The company had sales of $800,000 during the current year.The company's contribution margin ratio was 40% and total fixed costs totaled $300,000.Sales were $600,000 for Standard and $200,000 for Deluxe.Traceable fixed costs were $150,000 for Standard and $90,000 for Deluxe.Variable costs were $360,000 for Standard and $120,000 for Deluxe.What is the segment margin for the Deluxe product?

A) $10,000
B) $11,000
C) $20,000
D) $80,000

Question 80

Common fixed costs are most likely the responsibility of

A)Top management only.
B)Managers who have no control of them.
C)Investment center managers only.
D)Cost center managers only.