Question 1

Separation of businesses into more manageable operating units is termed centralization.

Accepted Answer

Separation of businesses into more manageable operating units is termed decentralization, not centralization.

Question 2

Budget performance reports prepared for the vice-president of production would generally contain less detail than the reports prepared for the various plant managers.

Accepted Answer

This is because the vice-president of production is responsible for overseeing the performance of all the plants and therefore would require a higher-level overview of their budgets, while the plant managers need more detailed information specific to their plants.

Question 3

A decentralized business organization is one in which all major planning and operating decisions are made by top management.

Accepted Answer

A decentralized business organization is one in which some decision-making is delegated to lower levels of management or even individual employees.

Question 4

Personnel administration expense for a department in a store is an indirect expense.

Accepted Answer

Personnel administration expense is an indirect expense as it cannot be directly traced to a particular product or service in the store. It is an overhead expense that is incurred for the overall functioning and management of the department.

Question 5

The three common types of responsibility centers are referred to as asset centers,liabilities centers,and equity centers.

Accepted Answer

The three common types of responsibility centers are cost centers, profit centers, and investment centers.

Question 6

The underlying principle of allocating operating expenses to departments is to assign each department an amount of expense proportional to the revenues of that department.

Accepted Answer

The underlying principle of allocating operating expenses to departments is to assign each department an amount of expense proportional to the usage or consumption of resources by that department, not just the revenues.

Question 7

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed indirect expenses.

Accepted Answer

Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed direct expenses. Indirect expenses refer to expenses that cannot be directly attributed to a specific department or product.

Question 8

A responsibility center in which the authority and responsibility for costs and revenues is vested on the department manager is termed an investment center.

Accepted Answer

An investment center is a responsibility center in which the manager has control and responsibility over costs, revenues, and investments in assets.

Question 9

Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.

Accepted Answer

Indirect expenses are not allocated to a specific department or cost center and are incurred for the entire business as a unit. They are not subject to the control of individual department managers. Examples include rent, utilities, and insurance.

Question 10

The process of measuring and reporting operating data by areas of responsibility is termed responsibility accounting.

Accepted Answer

Responsibility accounting is a system of measuring and reporting operating data by areas of responsibility, such as departments or product lines, in order to hold managers accountable for the performance of their specific areas.

Question 11

A responsibility center in which the department manager has responsibility for and authority over costs in the department is termed a cost center.

Accepted Answer

A cost center is a responsibility center in which the manager is responsible for and has control over costs, but not revenue or investments.

Question 12

The profit center income statement should include only controllable revenues and expenses.

Accepted Answer

The profit center income statement is used to evaluate the performance of a particular unit or division within a larger organization. It should only include controllable revenues and expenses to ensure that the unit’s manager has control over the results being reported. Uncontrollable items, such as corporate overhead or interest expenses, should be excluded from the profit center income statement.

Question 13

Controllable expenses are those that can be influenced by the decisions of the profit center management.

Accepted Answer

Controllable expenses are those expenses that are within the control of the profit center management. They can be influenced by their decisions and actions, such as the level of production, materials usage, and labor costs.

Question 14

The amount of details presented in a budget performance report for a cost center depends upon the level of management to which the report is directed.

Accepted Answer

The level of management to which the report is directed will determine the level of detail included in the budget performance report for a cost center. Senior management may require more detailed information than middle or lower-level managers.

Question 15

The primary accounting tool for controlling and reporting for cost centers is a budget performance report.

Accepted Answer

A budget performance report provides a detailed comparison of budgeted costs and actual costs for a particular cost center. It allows managers to identify any variances and take corrective actions to control costs and improve performance. Therefore, it is a primary accounting tool for controlling and reporting for cost centers.

Question 16

Sales commissions expense for a department store is an example of a direct expense.

Accepted Answer

Sales commissions expense is directly related to the revenue generated by the department store, making it a direct expense.

Question 17

A centralized business organization is one in which all major planning and operating decisions are made by top management.

Accepted Answer

In a centralized business organization, all major decisions are made by top management rather than being delegated throughout the organization.

Question 18

The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer.

Accepted Answer

Decentralized operations give more autonomy to individual managers, but this can lead to a lack of coordination and communication between different parts of the company. As a result, decisions made by one manager may have unintended consequences for other managers and departments. This can lead to inefficiencies and decreased profitability for the entire company.

Question 19

The service department will determine its service department charge rate and charge the company's divisions or departments based on the usage of the service by each department.

Accepted Answer

This statement is true. The service department will calculate and charge each department based on the amount of service they use.

Question 20

Property tax expense for a department store's store equipment is an example of a direct expense.

Accepted Answer

The answer of Property tax expense for a department store's...

Quiz 14: Performance Evaluation for Decentralized Operations