Question 1

The balanced scorecard approach, which includes a broad set of financial and non-financial performance indicators is not compatible with sustainability accounting

Accepted Answer

The balanced scorecard approach can be compatible with sustainability accounting as it can include non-financial indicators related to sustainability such as environmental impact, social responsibility, and ethical conduct. In fact, many organizations use the balanced scorecard approach to track and report their sustainability performance.

Question 2

The hurdle rate is also called economic value added

Accepted Answer

The hurdle rate is the minimum rate of return that a company expects to earn when investing in a project. Economic value added (EVA) is a measure of a company's financial performance that calculates the difference between the return on assets and the cost of capital. While both concepts are related to measuring profitability and performance, they are not the same thing.

Question 3

Segment margin and profit margin are identical terms

Accepted Answer

Segment margin refers to the profit earned by a specific segment or product line, while profit margin refers to the overall profitability of the company or business. They are not identical terms, although they are both related to profitability.

Question 4

Residual income is a leading indicator of financial performance

Accepted Answer

Residual income is considered a lagging indicator because it reflects past decisions and actions, showing the income generated after accounting for the cost of capital, rather than predicting future financial performance.

Question 5

Residual income can mitigate the problems of goal incongruence

Accepted Answer

Residual income is a performance measure that takes into account both the operating income and the invested capital. It incentivizes managers to make decisions that maximize the income generated from the invested capital instead of just focusing on maximizing operating income. This helps align the goals of the managers with the goals of the company's shareholders and can mitigate the problems of goal incongruence.

Question 6

The DuPont method breaks residual income into profit margin and investment turnover

Accepted Answer

The DuPont method breaks return on equity into three parts: profit margin, asset turnover, and financial leverage, not residual income.

Question 7

A profit center manager often also supervises revenue and cost center managers

Accepted Answer

As a profit center manager is responsible for generating revenues and also managing costs, they often supervise revenue and cost center managers. This ensures that all departments are working together towards the common goal of achieving profitability.

Question 8

The controllability principle holds that managers should be held responsible for what they can control and for allocated costs

Accepted Answer

The controllability principle holds that managers should be held responsible only for what they can control, which typically does not include allocated costs since these are often determined by decisions made at higher levels of the organization.

Question 9

Profit margin is defined as the ratio of sales revenue to operating income

Accepted Answer

Profit margin is defined as the ratio of operating income to sales revenue.

Question 10

One of the most important concepts in responsibility accounting is the:
A) balanced scorecard.
B) controllability principle.
C) related-party transactions.
D) transfer price.

Accepted Answer

The controllability principle states that a manager should only be held responsible for items that are under their control. This is a key concept in responsibility accounting as it helps to ensure that managers are not held accountable for factors that they cannot influence or change.

Question 11

Which of the following is a disadvantage of decentralization?
A) Develops managerial expertise
B) Managers have specialized knowledge
C) Potential duplication of resources
D) Allows top managers to focus on strategic issues

Accepted Answer

Decentralization can lead to duplication of resources as each department or unit may have its own resources and functions, which can result in unnecessary costs and inefficiencies. The other options A, B, and D are advantages of decentralization.

Question 12

In a decentralized organization, lower-level managers are given a great deal of autonomy in decision-making

Accepted Answer

In a decentralized organization, decision-making authority is delegated to lower-level managers, giving them greater autonomy in decision-making.

Question 13

In transfer pricing, the manager of the buying division is motivated to pay the highest price possible, while the manager of the selling division is motivated to sell at the lowest price possible

Accepted Answer

In transfer pricing, the manager of the selling division is motivated to sell at the highest price possible, while the manager of the buying division is motivated to pay at the lowest price possible.

Question 14

In what type of organization is decision-making authority spread throughout the organization?
A) Centralized organization
B) Decentralized organization
C) Participative organization
D) Top-down organization

Accepted Answer

In a decentralized organization, decision-making authority is spread throughout the organization, allowing for more input and involvement from lower-level employees. Centralized organizations are the opposite, with decision-making power held by only a few individuals at the top. Participative organizations emphasize collaboration and involvement of all employees in decision-making, but the authority may not necessarily be spread throughout the organization. Top-down organizations prioritize the authority and input of those at the top, with little input from lower-level employees.

Question 15

The balanced scorecard attempts to focus managers' attention on more than just financial measures

Accepted Answer

The balanced scorecard is a management tool that includes financial and non-financial measures, such as customer satisfaction, internal business processes, and employee learning and growth, to provide a more comprehensive view of organizational performance.

Question 16

A legal services department would be an example of a cost center

Accepted Answer

A legal services department would be considered a cost center because it consumes resources and does not generate revenue directly. Its function would be to provide legal services to other departments within the organization, which would be considered revenue-generating centers.

Question 17

Which of the following is considered a disadvantage of decentralization?
A) Upper-level managers with more knowledge about lower-level managers' areas of responsibility are further away from the day-to-day decisions.
B) Decentralization does not foster managerial expertise since upper level managers manage less.
C) Decentralization does not empower upper-level managers to focus on strategy because they are too busy managing lower-level managers.
D) Lower-level managers may have an opportunity to make decisions in their own best interest without considering the overall health of the company.

Accepted Answer

One disadvantage of decentralization is that lower-level managers may have the opportunity to make decisions in their own best interest without considering the overall health of the company. This can lead to a lack of coordination and alignment with the company's overall goals and objectives.

Question 18

Return on investment is calculated as the return on the segment's assets divided by the value of those assets

Accepted Answer

Return on investment is calculated by dividing the earnings generated by a project or investment by the amount of money invested or the value of the assets. Therefore, the statement is true.

Question 19

Investment center managers have control over the investment of assets

Accepted Answer

Investment center managers have authority and control over the investment of assets within their center. They are responsible for making decisions related to capital budgeting, asset allocation, and risk management, among others.

Question 20

Which of the following is not an advantage of decentralization?
A) Allows top managers to focus on strategic issues
B) Potential duplication of resources
C) Allows for development of managerial expertise
D) Managers can react quickly to local information

Accepted Answer

Decentralization can lead to potential duplication of resources as each unit or department may procure their own resources, leading to financial inefficiencies. The other options are advantages of decentralization. A allows top managers to focus on strategic issues as they delegate operational decisions to lower-level managers. C allows for development of managerial expertise among lower-level managers as they are given more autonomy and decision-making power. D allows managers at the local level to use and act on the information available to them to make better decisions.

Quiz 10: Decentralized Performance Evaluation