Question 1

In designing accounting control systems, top managers must consider the system's impact on behavior desired by the organization.

Accepted Answer

Accounting control systems can affect the behavior of employees within an organization, so it is essential for top managers to consider how the system will shape the desired behavior. For example, if the control system emphasizes cost-cutting, employees may be incentivized to reduce costs at the expense of quality or innovation. However, if the control system prioritizes quality or innovation, employees may focus their efforts on these areas to meet organizational goals.

Question 2

Decentralization is more popular in nonprofit organizations than it is in profit-seeking organizations.

Accepted Answer

Decentralization is not inherently more popular in nonprofit organizations; both nonprofit and profit-seeking organizations can adopt decentralized structures depending on their goals and operational needs.

Question 3

Performance-based rewards can be informal.

Accepted Answer

Performance-based rewards do not necessarily have to be formal or part of an official incentive program. They can also be informal and based on individual or team achievements. Examples of informal rewards include verbal recognition, a handwritten note of appreciation, or a manager taking an employee out for lunch to celebrate their success.

Question 4

Managers tend to focus their efforts in areas where performance is measured and where their performance affects rewards.

Accepted Answer

This is a commonly observed behavior among managers as they are motivated to perform well in areas that are quantitatively measured and have direct impact on their rewards and recognition.

Question 5

The more subjective the measures of performance, the more likely managers will exert effort.

Accepted Answer

Subjective measures of performance can lead to ambiguity and inconsistency, potentially demotivating managers due to perceived unfairness or lack of clear targets. Objective measures are more likely to motivate effort by providing clear, measurable goals.

Question 6

The increasing sophistication of telecommunications aids decentralization.

Accepted Answer

With the advancement of telecommunications technology, there is an increase in the ability to communicate and share information across distances, which aids in remote work and decentralized decision making.

Question 7

Some level of decentralization creates benefits for most organizations.

Accepted Answer

Decentralization can lead to improved decision-making, increased motivation and engagement among employees, better problem-solving, and increased agility and responsiveness to changes in the market or industry. However, complete decentralization can also create challenges in coordination and communication.

Question 8

There are really no advantages to a centralized company.

Accepted Answer

While there may be some disadvantages to a centralized company, such as slower decision-making and a lack of innovation, there are also some advantages, such as increased control and easier coordination of activities.

Question 9

Profit centers can exist only in a decentralized organization.

Accepted Answer

Profit centers can exist in both decentralized and centralized organizations, as they are units within an organization responsible for their own revenue and expenses, contributing to the overall profitability regardless of the organizational structure.

Question 10

If segments do much buying from the same outside suppliers, they are candidates for heavier decentralization.

Accepted Answer

When segments buy from the same outside suppliers, it suggests potential for centralized purchasing to leverage volume for better terms, indicating a move towards centralization rather than decentralization.

Question 11

According to agency theory, employment contracts will trade off the following three factors: risk, incentive, and the cost of measuring performance.

Accepted Answer

Agency theory posits that employment contracts aim to strike a balance between risk, incentives, and the cost of monitoring and measuring employee performance.

Question 12

The lower in the organization that the freedom to make decisions exists, the greater the centralization.

Accepted Answer

Centralization refers to the concentration of decision-making authority at the top levels of the organization. Therefore, if the freedom to make decisions exists lower in the organization, it indicates greater decentralization, not centralization.

Question 13

Decentralization is the delegation of freedom to make decisions.

Accepted Answer

Decentralization involves giving decision-making power to lower levels of an organization or community, allowing for more autonomy and flexibility in decision-making.

Question 14

Managers in decentralized units may waste time negotiating with other units about goods or services one unit provides to the other.

Accepted Answer

Decentralized units may have their own budgets and decision-making authority, but they still need to coordinate and collaborate with other units within the organization. This may involve negotiations and discussions about goods or services one unit provides to another, which can sometimes result in time being wasted.

Question 15

Incentives do not enhance managerial effort toward goal congruence.

Accepted Answer

Incentives can enhance managerial effort toward goal congruence by aligning their personal goals with the organization's goals. When managers are incentivized to achieve the same goals as the organization, they are more motivated to work toward achieving those goals. Therefore, incentives can be a useful tool for promoting goal congruence among managers.

Question 16

Accounting measures provide relatively subjective evaluations of performance.

Accepted Answer

Accounting measures are generally considered objective because they are based on historical transactions and standardized accounting principles, providing quantifiable and verifiable data.

Question 17

The costs of accumulating and processing information frequently decline under centralization.

Accepted Answer

Centralization allows for the consolidation of information and resources, which often leads to economies of scale and decreased costs in information accumulation and processing.

Question 18

Higher-level managers have the best information concerning local conditions.

Accepted Answer

Lower-level managers and employees are typically the ones with first-hand knowledge of local conditions since they are the ones working on the ground. Higher-level managers may have access to more comprehensive data and insights, but this information may be less nuanced and less accurate without input from those directly involved in day-to-day operations.

Question 19

Decentralization is most successful when an organization's segments are relatively independent of one another.

Accepted Answer

Decentralization is most effective when each segment of an organization has control over its own decisions and operations, allowing for quicker decision-making and more agile responses to changes in the market or industry. When segments are too closely interdependent, it can lead to conflicts and slower decision-making processes. Therefore, independence among segments is crucial for the success of decentralization.

Question 20

All control systems are imperfect.

Accepted Answer

All control systems, whether in machines or human behavior, are prone to errors or limitations, hence they are imperfect.

Quiz 10: Management Control in Decentralized Organizations