Deck 11: Decentralization, Performance Evaluation, and the Balanced Scorecard

Question 1

The manager of a revenue center has control over:

A) profit and investment decisions.
B) revenues and costs.
C) revenues only.
D) revenues and profit

Answer 1

C

Question 2

Which of the following is an advantage of decentralization?

A) It allows top-level management who normally work at corporate headquarters to get involved with the day-to-day decisions that need to be made at lower levels.
B) It allows managers to focus on their own area of responsibility rather than what is best for the company as a whole.
C) It allows decisions to be made in a more timely manner.
D) It requires very little as far as manager training costs.

Answer 2

C

Question 3

When a few individuals at the top of an organization retain decision-making authority, the organization is referred to as a(n):

A) investment center.
B) decentralized organization.
C) profit center.
D) centralized organization.

Answer 3

D

Question 4

The manager of a cost center has control over:

A) revenues and costs.
B) costs only.
C) costs and investment decisions.
D) pricing decisions.

Question 5

Which of the following statements about responsibility accounting is true?

A) Managers should be held responsible for all price variances that occur within their department.
B) Managers should be held responsible for all revenues and costs that occur within their department.
C) Managers should be responsible for all investment decisions that occur within their department.
D) Managers should be held responsible for only those things under their control.

Question 6

A manager of a cost center would most likely be held responsible for which of the following variances?

A) Flexible budget variance
B) Sales volume variance
C) Sales price variance
D) Direct materials price variance

Question 7

Which type of manager would most likely be held responsible for the return on investment (ROI) of his segment?

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

Question 8

A local chain department store grants each of its store managers the authority to make buying decisions for their stores. Granting managers this kind of authority is found in which type of organization?

A) Segmented
B) Centralized
C) Desegmented
D) Decentralized

Question 9

The manager of a profit center should not be responsible for which of the following types of decisions?

A) Deciding which supplier should be used for the purchase of direct materials.
B) Establishing the number of employees that will need to work each day.
C) Deciding whether or not their segment should purchase additional machinery.
D) Deciding whether or not to accept a special order from a customer.

Question 10

Which of the following is a disadvantage of decentralization?

A) Less timely decisions are able to be made on a day-to-day basis.
B) Decreased job satisfaction for lower-level managers.
C) Lack of coordination and communication between segments.
D) Lower training costs for lower-level managers.

Question 11

Which type of manager would be allowed to decide whether or not new manufacturing equipment should be purchased?

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

Question 12

A local chain electronics store does not allow its store or district managers to make important decisions about their stores. The main role of store managers is to supervise employees and make sure day-to-day transactions run smoothly while district managers supervise store managers and report profitability data back to top-level management. Not allowing store or district managers decision-making authority is most likely to be found in which type of organization?

A) Segmented
B) Centralized
C) Desegmented
D) Decentralized

Question 13

Which of the following reports provides key financial and nonfinancial measures of performance?

A) Flexible budget variance report
B) Performance report
C) Production report
D) Common costs report

Question 14

Hillary Todd, a manager for BEO Inc., has been told that her bonus this year will be based on the segment margin of her department. Hillary is most likely a:

A) revenue center manager.
B) profit center manager.
C) production manager.
D) cost center manager.

Question 15

Which of the following would be the best measure of performance for a profit center?

A) Residual income
B) Return on investment (ROI)
C) Segment margin
D) Economic value added (EVA)

Question 16

Which of the following is often not a disadvantage of decentralization?

A) Decreased job satisfaction for lower-level managers.
B) Lack of coordination and communication between segments.
C) Lack of company focus as lower-level managers may make decisions that benefit their own particular segment.
D) Higher training costs for lower-level managers.

Question 17

A decentralized organization is one in which:

A) each employee in the organization is given permission to make decisions about their company.
B) only top-level management is given decision-making authority.
C) managers at various levels throughout the organization are given decision-making authority.
D) each stockholder is given decision-making authority.

Question 18

Which of the following statements regarding the structure of organizations is false?

A) When decision-making authority is spread among too many managers, managers may become so concerned with their own area of responsibility that they lose sight of the company's overall focus.
B) In a decentralized organization, decision-making authority is confined to top-level management.
C) In a decentralized organization, there may be a lack of coordination and communication between segments.
D) Decentralization may make it difficult for managers to share unique and innovative ideas.

Question 19

"Responsibility accounting" is the concept that says:

A) managers should be held entirely responsible for all investment decisions that impact the particular segment in which they are in charge.
B) managers should be held responsible for only those things under their control.
C) managers should never be held entirely responsible for things that happen within the particular segment in which they are in charge.
D) managers should be responsible for both revenues and costs of their particular segment.

Question 20

Which of the following is not an advantage of decentralization?

A) It often creates higher job satisfaction for managers.
B) It allows top-level managers more time to devote to long-range strategic planning.
C) It allows lower-level managers to focus on their own particular goals and objectives without having to consider the overall company's goals and objectives.
D) It permits lower-level managers to gain valuable on-the-job training in order to become better managers.

Question 21

Fun-Town Amusement Center Fun-Town Amusement Center offers a variety of family entertainment. The amusement center consists of three separate divisions: miniature golf, arcade, and laser tag. The following information in available regarding each of these divisions for the year just ended:
Common fixed costs of $60,000 are divided equally among the divisions.
Refer to the Fun-Town Amusement Center information above. The segment margin for the arcade division is:

A) $300,000
B) $400,000
C) $360,000
D) $340,000

Question 22

WSR Inc. WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented income statements for these two products are as follows:
WSR's management is considering a special advertising campaign that will run during a major sporting event. The advertising campaign is expected to cost $30,000 and only one product can be featured. In-house marketing studies show that the campaign could increase sales of the soda division by $200,000 or increase sales of the chips division by $275,000.
Refer to the WSR Inc. information above. What will be the overall net effect on the company's total profits if the advertising focuses on chips?

A) Increase of $148,750
B) Increase of $275,000
C) Increase of $178,750
D) Increase of $245,000

Question 23

Costs that can not be traced or reasonably allocated to a particular segment are called:

A) variable costs.
B) common costs.
C) segment costs.
D) fixed costs.

Question 24

Return on investment (ROI) is calculated by:

A) multiplying the margin by the turnover.
B) dividing the margin by the turnover.
C) dividing the turnover by the margin.
D) adding the margin and the turnover.

Question 25

Which of the following items is not part of the calculation for segment margin?

A) Contribution margin
B) Traceable fixed expenses
C) Common costs
D) Variable costs

Question 26

WSR Inc. WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented income statements for these two products are as follows:
WSR's management is considering a special advertising campaign that will run during a major sporting event. The advertising campaign is expected to cost $30,000 and only one product can be featured. In-house marketing studies show that the campaign could increase sales of the soda division by $200,000 or increase sales of the chips division by $275,000.
Refer to the WSR Inc. information above. Which of the following statements is true regarding which product the advertising campaign should feature?

A) Overall company profits will be higher by $45,000 if the campaign features chips rather than soda.
B) Overall company profits will be higher by $28,750 if the campaign features chips rather than soda.
C) Overall company profits will be higher by $13,750 if the campaign features chips rather than soda.
D) Overall company profits will be higher by $26,250 if the campaign features soda rather than chips.

Question 27

Pennington Products Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each of the product lines are as follows:
Pennington has common fixed expenses of $380,000 per year. Last year, the company produced and sold 35,000 units of R-100 and 25,000 units of R-200.
Refer to the Pennington Products information above. What is the company's overall net income?

A) $1,260,000
B) $ 775,000
C) $1,300,000
D) $ 920,000

Question 28

Pennington Products Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each of the product lines are as follows:
Pennington has common fixed expenses of $380,000 per year. Last year, the company produced and sold 35,000 units of R-100 and 25,000 units of R-200.
Refer to the Pennington Products information above. What is the segment margin ratio of the R-200 product line?

A) 50%
B) 30%
C) 60%
D) 20%

Question 29

Which of the following items is often mostdifficult to allocate to a particular segment?

A) Traceable fixed costs
B) Sales revenue
C) Common fixed costs
D) Variable costs

Question 30

A company has computed that their "margin" is .18. Which of the following statements is the best interpretation of these results?

A) $.18 of every $1 invested in assets is net profit.
B) $.18 of every $1 made in sales is profit.
C) Every $1 invested in assets generates $.18 in sales revenue.
D) Every $1 invested in assets generates $.18 of segment margin.

Question 31

Finley Company has its company headquarters based in Raleigh, North Carolina, and has six individual retail stores spread throughout North Carolina and Virginia. Which of the following costs would most likely be treated as a common cost for segmented reporting purposes?

A) Lease costs for the company headquarters.
B) Property tax costs for the Virginia stores.
C) Direct labor costs for the North Carolina stores.
D) Utilities costs for the both the Virginia and North Carolina stores.

Question 32

The rate of return generated by an investment center's assets is called:

A) residual income.
B) economic value added.
C) return on investment.
D) segment margin ratio.

Question 33

Fun-Town Amusement Center Fun-Town Amusement Center offers a variety of family entertainment. The amusement center consists of three separate divisions: miniature golf, arcade, and laser tag. The following information in available regarding each of these divisions for the year just ended:
Common fixed costs of $60,000 are divided equally among the divisions.
Refer to the Fun-Town Amusement Center information above. The segment margin ratio for the laser tag division is:

A) 63.33%
B) 56.67%
C) 75.00%
D) 84.44%

Question 34

WSR Inc. WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented income statements for these two products are as follows:
WSR's management is considering a special advertising campaign that will run during a major sporting event. The advertising campaign is expected to cost $30,000 and only one product can be featured. In-house marketing studies show that the campaign could increase sales of the soda division by $200,000 or increase sales of the chips division by $275,000.
Refer to the WSR Inc. information above. What will be the overall net effect on the company's total profits if the advertising focuses on sodas?

A) Increase of $170,000
B) Increase of $150,000
C) Increase of $120,000
D) Increase of $200,000

Question 35

In the decision-making process, which of the following situations would be best addressed by managers using a segmented income statement rather than a contribution margin format income statement?

A) The decision on whether or not a one-time special order for a customer should be accepted.
B) The calculation of the break-even point for the upcoming month.
C) The decision on whether or not an entire product line should be discontinued.
D) The decision on whether or not to process a product further or sell "as is."

Question 36

Fun-Town Amusement Center Fun-Town Amusement Center offers a variety of family entertainment. The amusement center consists of three separate divisions: miniature golf, arcade, and laser tag. The following information in available regarding each of these divisions for the year just ended:
Common fixed costs of $60,000 are divided equally among the divisions.
Refer to the Fun-Town Amusement Center information above. The segment margin for the miniature golf division is:

A) $175,000
B) $145,000
C) $125,000
D) $ 85,000

Question 37

Which of the following statements is true regarding a company's segment margin?

A) It is primarily used to make short-term decisions such as cost-volume-profit (CVP) analysis and special order decisions.
B) It ignores all fixed costs.
C) It is primarily a measure of long-term profitability.
D) It should not be used to make decisions on whether or not to drop a product line.

Question 38

Pennington Products Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each of the product lines are as follows:
Pennington has common fixed expenses of $380,000 per year. Last year, the company produced and sold 35,000 units of R-100 and 25,000 units of R-200.
Refer to the Pennington Products information above. What is the segment margin of the R-100 product line?

A) $775,000
B) $690,000
C) $525,000
D) $400,000

Question 39

The term "strategic business unit" is often used to describe a(n):

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

Question 40

Which of the following statements is true regarding the allocation of a company's indirect fixed costs?

A) Indirect fixed costs should always be traced to a particular segment.
B) If the indirect fixed cost would go away should a particular segment be eliminated, then the indirect fixed cost should be traced to that particular segment.
C) Indirect fixed costs should never be allocated to a particular segment.
D) Indirect fixed costs should not benefit more than one particular segment.

Question 41

When defining net operating income for return on investment (ROI) purposes, which of the following items should not be included?

A) Sales revenue
B) Cost of goods sold
C) Interest expense
D) Salaries expense

Question 42

Astin Ltd. requires all of its divisions to maintain a return on investment (ROI) of at least 25%. Over the past several years, one of Astin's divisions has consistently had the following information: In order to achieve the company's ROI goals, this division should do which of the following?

A) Maintain average operating assets of $2,000,000 or more.
B) Maintain average operating assets of $2,000,000 or less.
C) Maintain average operating assets of $125,000 or more.
D) Maintain average operating assets of $125,000 or less.

Question 43

A company has computed that their "asset turnover" is 3. Which of the following statements is the best interpretation of these results?

A) For every $3 of sales, $1 of net profit is generated.
B) For every $3 invested in assets, $1 in net profit is generated.
C) For every $1 invested in assets, $3 in sales are generated.
D) For every $3 invested in assets, $1 in sales are generated.

Question 44

Carson Inc. Carson Inc. had the following information available at the end of its current year:
Refer to the Carson Inc. information above. What was Carson's margin for the year?

A) 2.4%
B) 41.7%
C) 25.0%
D) 166.7%

Question 45

Hardcastle Ltd. had sales of $3,600,000 and net operating income of $900,000. Operating assets during the year averaged $1,500,000. The manager of Hardcastle is considering the purchase of a new machine which is expected to increase average operating assets by 20%. If the new machine is purchased, the company's new return on investment (ROI) would be:

A) 190.5%
B) 60.0%
C) 200.0%
D) 50.0%

Question 46

Residual income:

A) is an alternative to ROI for manager performance evaluation..
B) is the amount of income earned in excess of a predetermined minimum level of return on assets.
C) is equal to ROI - (Average operating assets ´ Minimum required rate of return)
D) both A and B.

Question 47

Which of the following is the correct formula to compute residual income?

A) Average operating assets - Net operating income
B) Average operating assets - (Net operating income ´ Minimum required rate of return)
C) Net operating income ´ Minimum required rate of return
D) Net operating income - (Average operating assets ´ Minimum required rate of return)

Question 48

Carson Inc. Carson Inc. had the following information available at the end of its current year:
Refer to the Carson Inc. information above. What was Carson's asset turnover for the year?

A) 2.400
B) 0.417
C) 0.250
D) 1.667

Question 49

Duncan Ltd. has the following information available for one its divisions in the current year: Duncan requires each of its divisions to generate a minimum return of 20%. What is this division's residual income?

A) $200,000
B) $450,000
C) $700,000
D) $1,250,000

Question 50

Residual income:

A) is most useful as a way to compare individual divisions of different sizes.
B) is the amount of income earned in excess of a predetermined minimum rate of return on assets.
C) should not be used as a way to evaluate the manager of an investment center.
D) is often called economic value added (EVA).

Question 51

ABC Inc. has the following information available for one of its divisions: If ABC requires a minimum return on its investments of 20%, what is their residual income?

A) $1,500,000
B) $6,000,000
C) $1,750,000
D) $350,000

Question 52

For the current year, Winston Inc. reported sales of $800,000 and an asset turnover of 2. The rate of return on average invested assets was 20%. The company's margin for the year was:

A) 10%
B) 40%
C) 25%
D) 50%

Question 53

Bryan Manufacturing had sales of $4,000,000 and net operating income of $700,000. Operating assets during the year averaged $600,000. The manager of Bryan is considering the purchase of a new machine which is expected to increase average operating assets by 8%. If the new machine is purchased, the company's new return on investment (ROI) would be:

A) 126.0%
B) 16.2%
C) 108.0%
D) 92.6%

Question 54

When comparing two different investment alternatives of different sizes, which of the following measures for each alternative would be the best to use?

A) Return on investment
B) Residual income
C) Net income
D) Contribution margin ratio

Question 55

Which of the following statements comparing ROI and residual income is correct?

A) ROI is more useful as a performance measure for a single investment center.
B) Residual income is a better comparative measure than ROI.
C) ROI and residual income are equally good performance measures for a single investment center.
D) Residual income is more useful as a performance measure for a single investment center.

Question 56

Which of the following statements about the balanced scorecard approach is true?

A) The four perspectives of the balanced scorecard revolve around measures of quality, productivity, efficiency and timeliness, and marketing success.
B) The balanced scorecard approach requires looking at performance from four different but related perspectives: financial, customer, internal business, and learning and growth.
C) The balanced scorecard approach integrates financial and nonfinancial performance measures.
D) All of these are true.

Question 57

Shannon Pharmaceuticals has the following information available for one of its divisions in the current year: The company requires each of its divisions to generate a minimum return of 30%. What is this division's residual income?

A) $1,500,000
B) $4,300,000
C) $2,350,000
D) $8,800,000

Question 58

Carson Inc. Carson Inc. had the following information available at the end of its current year:
Refer to the Carson Inc. information above. What was Carson's return on investment (ROI) for the year?

A) 2.4%
B) 41.7%
C) 25.0%
D) 166.7%

Question 59

All else being equal, which of the following items would increase a company's return on investment (ROI)?

A) A decrease in net income.
B) An increase in fixed costs.
C) A decrease in average operating assets.
D) A decrease in sales volume.

Question 60

Which of the following statements regarding ROI computations istrue?

A) Net income after interest and taxes is most frequently used as the measure of income in the ROI formula.
B) The fair market value of assets without regard to depreciation is used as a measure of operating assets in the ROI formula.
C) Assets used in the ROI formula are generally measured as an average of beginning and end of period numbers.
D) All assets, including those that are idle or held for resale, are included in the ROI formula.

Question 61

Which of the following statements about the balanced scorecard approach is false?

A) It requires managers to focus on financial measures more than nonfinancial measures.
B) It looks at performance from the following perspectives: financial, customer, internal business, and learning and growth.
C) It helps balance short-term operating performance with long-term strategies.
D) It recognizes that traditional measures of performance are often not adequate to fully assess a company's performance.

Question 62

Throughput would be a measure of performance under which perspective of the balanced scorecard?

A) Internal business
B) Customer
C) Financial
D) Learning and growth

Question 63

Which of the following statements is true regarding more traditional measures of financial performance?

A) They often look at a company's performance from four different but related perspectives: financial, customer, internal business, and learning and growth.
B) They are often superior to measuring a company's performance than the balanced scorecard approach.
C) Performance problems are often not captured in as timely a fashion as with the balanced scorecard approach.
D) They tend to focus on nonfinancial rather than financial measures of performance.

Question 64

Which of the following questions would the customer perspective of the balanced scorecard attempt to answer?

A) How does the company continue to improve and learn?
B) How do customers view the company?
C) Which business processes must the company excel in?
D) How does the company create value for its stakeholders?

Question 65

Which perspective links the critical success factors of the other perspectives and ensures an environment that supports and allows the objectives of the other perspectives to be achieved?

A) Financial perspective
B) Learning and growth perspective
C) Internal business perspective
D) Customer perspective

Question 66

Which of the following statements about the balanced scorecard approach is true?

A) It helps management focus on only nonfinancial measures of performance.
B) It helps management focus on critical success factors which may be financial and nonfinancial in nature.
C) It helps management ignore short-term operating performance in favor of long-term operating performance.
D) It helps management focus on only financial measures of performance.

Question 67

Return on investment (ROI) is a measure of performance under which perspective of the balanced scorecard?

A) Internal business
B) Customer
C) Financial
D) Learning and growth

Question 68

Which of the following questions would the learning and growth perspective of the balanced scorecard attempt to answer?

A) How does the company continue to improve and learn?
B) How do customers view the company?
C) Which business processes must the company excel in?
D) How does the company create value for its stakeholders?

Question 69

Which of the following will least likely be an indicator of success within the internal business perspective of the balanced scorecard?

A) Increasing throughput
B) Increasing productivity
C) Increasing non-value-added time
D) Increasing manufacturing cycle efficiency (MCE)

Question 70

Determining the market share for a company's product would be a measure of performance under which perspective of the balanced scorecard?

A) Internal business
B) Customer
C) Financial
D) Learning and growth

Question 71

Which of the following statements regarding the balanced scorecard approach is false?

A) Because of changing technology, global competition, and an increased awareness of the need to focus on customer needs, nonfinancial and qualitative performance measures have become an integral component of effective managerial decision making.
B) The balance scorecard approach integrates both financial and nonfinancial performance measures.
C) The balanced scorecard approach requires looking at performance from four different but related perspectives: financial, customer, internal business, and learning and growth.
D) The balance scorecard approach is not as useful for performance measurement as traditional accounting measures.

Question 72

Which of the following questions would the internal business perspective of the balanced scorecard attempt to answer?

A) How does the company continue to improve, learn, and grow?
B) How do customers view the company?
C) Which business processes must the company excel in?
D) How does the company create value for its stakeholders?

Question 73

The balanced scorecard approach looks at a company's performance from four perspectives. Those perspectives are:

A) prevention, appraisal, internal, and external.
B) customer, creditor, stockholder, and manager.
C) financial, customer, internal business, and learning and growth.
D) manufacturing cycle time, throughput, appraisal, and environmental.

Question 74

Which of the following questions would the financial perspective of the balanced scorecard attempt to answer?

A) How does the company continue to improve, learn, and grow?
B) How do customers view the company?
C) Which business processes must the company excel in?
D) How does the company create value for its stakeholders?

Question 75

Which of the following will least likely be an indicator of success within the financial perspective of the balanced scorecard?

A) Increasing ROI
B) Decreasing operating costs
C) Decreasing residual income
D) Increasing segment margin

Question 76

Determining customer loyalty would be a measure of performance under which perspective of the balanced scorecard?

A) Internal business
B) Customer
C) Financial
D) Learning and growth

Question 77

Which of the following is not one of the perspectives that is usually examined under the balanced scorecard approach?

A) Learning and growth perspective
B) Internal business perspective
C) Creditor perspective
D) Customer perspective

Question 78

Which of the following items used to measure customer response time would not be used to measure manufacturing cycle time?

A) Time it takes to process raw materials into a completed product.
B) Time spent waiting for a machine's availability.
C) Time spent inspecting the materials for quality control.
D) Time spent delivering the product to the customer.

Question 79

Residual income would be a measure of performance under which perspective of the balanced scorecard?

A) Internal business
B) Customer
C) Financial
D) Learning and growth

Question 80

Increasing information systems capabilities would be a critical success factor found in which perspective of the balanced scorecard?

A) Internal business
B) Customer
C) Financial
D) Learning and growth