Question 1

Which of the following is NOT a potential advantage of decentralization?
A) Top management can use their time to concentrate on long-term strategic planning rather than daily operations.
B) Customer relations are generally improved.
C) It improves the motivation and retention of division managers.
D) Decentralization promotes goal congruence and coordination.

Accepted Answer

Decentralization promotes goal congruence and coordination, which makes this a potential advantage of decentralization. Therefore, the answer is the option that is NOT a potential advantage of decentralization, which is D.

Question 2

Companies that are centralized split their operations into different divisions or operating units and top management delegates decision-making to the division/unit managers.

Accepted Answer

Centralized companies keep decision-making authority at the top level, and do not typically delegate significant decision-making power to division or unit managers.

Question 3

Which of the following is an advantage of decentralization?
A) May create disparities in alignment of goals between different business units
B) May cause inconsistencies in the way various business units operate
C) May duplicate costs and functions across multiple business units
D) Helps prepare and train managers at lower levels for higher positions later on

Accepted Answer

Decentralization helps prepare and train managers at lower levels for higher positions later on.

Question 4

Which of the following would most likely be evaluated using return on investment?
A) Cost center
B) Profit center
C) Revenue center
D) Investment center

Accepted Answer

Return on investment (ROI) is a metric used to evaluate the efficiency of an investment. Investment centers are responsible for making strategic decisions and investing in assets, so ROI is the most appropriate metric to evaluate their performance. Cost centers are evaluated based on their ability to control costs, revenue centers by their ability to generate revenue, and profit centers by their ability to generate profit.

Question 5

In a decentralized business, a typical cost center is responsible for not only the profit and loss of its business, but also for the evaluation and return on capital investment projects.

Accepted Answer

In a decentralized business, a cost center is typically responsible for controlling costs and does not handle profit and loss or capital investment evaluations, which are usually managed by profit centers or investment centers.

Question 6

A product line at Coca-Cola is most likely treated as a(n):
A) cost center.
B) revenue center.
C) profit center.
D) investment center.

Accepted Answer

A product line at Coca-Cola would likely be treated as a profit center because it generates revenue and incurs costs, and the profitability of the product line is a key performance indicator for the company. Profit centers are responsible for both generating revenue and controlling costs, and they are evaluated based on their ability to generate profit.

Question 7

Performance evaluation systems provide top management with a framework for maintaining control over the organization.

Accepted Answer

Performance evaluation systems allow managers to set goals, monitor progress, and make necessary changes to ensure that the organization is meeting its objectives. This helps top management maintain control over the organization and ensure that it is operating efficiently and effectively.

Question 8

The Frito-Lay division of PepsiCo is most likely treated as a(n):
A) cost center.
B) revenue center.
C) profit center.
D) investment center.

Accepted Answer

The Frito-Lay division of PepsiCo is likely treated as an investment center because it is responsible for generating profits and managing its own assets, allowing it to make decisions on investments and returns.

Question 9

When a small company grows to a large size, it may decide to decentralize because it is difficult for one owner (or manager) to manage an entire, large business.

Accepted Answer

Decentralization involves delegating power and decision-making to different departments or branches within a company. This is often done when a company becomes too large for one person or a small group of people to effectively manage all aspects of the business. Therefore, it is true that a small company may decide to decentralize as it grows larger.

Question 10

The central reservations office at American Airlines is most likely treated as a(n):
A) cost center.
B) revenue center.
C) profit center.
D) investment center.

Accepted Answer

The central reservations office at American Airlines is likely treated as a revenue center, as it is responsible for generating sales revenue through the booking of flights and other related services.

Question 11

Which of the following would be considered a profit center?
A) A company's accounting department
B) A company's sales department
C) A company's product line
D) A company's operating divisions

Accepted Answer

A profit center is a specific department, product line or operating division within a company that generates revenue and profit. While accounting and sales departments may contribute to overall profitability, they are not typically considered profit centers on their own. Operating divisions, on the other hand, may be considered profit centers if they have a level of financial autonomy and responsibility for generating revenue and profit. However, the best answer in this case is choice C, a company's product line, as this is a specific area of the business that is focused on generating revenue and profit through the sale of specific products or services.

Question 12

The manager of a cost center has control of:
A) revenues.
B) investment decisions.
C) expenses.
D) investment funds.

Accepted Answer

The manager of a cost center is responsible for managing costs and ensuring that expenses stay within the budget. They do not have control over revenues or investment funds or making investment decisions.

Question 13

Which of the following is a cost center?
A) A company's legal department
B) A company's sales department
C) A product line of a particular company
D) A company's individual stores

Accepted Answer

A cost center is a department or area of a company that does not generate revenue but instead incurs costs, such as a legal department.

Question 14

The manager of a profit center has control of:
A) revenues and expenses.
B) investment decisions and operating income.
C) revenues and financing decisions.
D) investment funds.

Accepted Answer

The manager of a profit center is responsible for both generating revenues and controlling expenses, which ultimately determine the center's profitability. Investment decisions and financing decisions typically fall under the purview of higher-level corporate managers.

Question 15

A benefit of decentralization is that it allows top management to concentrate on long-term strategic planning.

Accepted Answer

Decentralization allows for decision-making to be delegated to lower levels of the organization, freeing up top management to focus on big-picture, long-term strategies.

Question 16

Which of the following BEST describes the term goal congruence?
A) The creation of a strategic plan that sets managers' goals
B) The alignment of unit managers' goals with those of upper management and shareholders
C) A set of incentives for managers to achieve performance targets
D) Making sure that compensation packages for managers at equivalent levels are equal

Accepted Answer

Goal congruence refers to the extent to which the goals and objectives of lower-level managers and employees align with the goals and objectives of upper-level managers and shareholders. This alignment is important for the effective execution of the company's overall strategy and achieving the desired outcomes. Options A, C, and D are not comprehensive enough to capture the meaning of goal congruence.

Question 17

Which of the following is a disadvantage of decentralization?
A) Promotes use of specialized skills and knowledge
B) Helps business keep closer relationships with customers
C) May duplicate costs and functions across multiple business units
D) Helps prepare and train managers at lower levels for higher positions later on

Accepted Answer

Decentralization may result in duplication of costs and functions across multiple business units, leading to inefficiency and higher costs for the company overall. The other options listed are advantages of decentralization.

Question 18

The human resources department would most likely be considered a(n):
A) cost center.
B) revenue center.
C) investment center.
D) profit center.

Accepted Answer

The human resources department is mostly focused on managing employee relations, recruitment, training, and compensation. These are important functions for supporting the growth and productivity of a company, but they do not directly generate revenue or profits. As such, the human resources department would typically be considered a cost center, meaning that its activities are necessary expenses for business operations.

Question 19

The production line at Gateway Computers is most likely treated as a(n):
A) cost center.
B) revenue center.
C) profit center.
D) investment center.

Accepted Answer

A cost center is a part of an organization that does not directly add to profit but still costs the organization money to operate. The production line at Gateway Computers is primarily concerned with manufacturing computers efficiently and at a certain quality, rather than generating revenue, making profits, or managing investments directly.

Question 20

Small companies tend to use centralized decision-making because of the smaller scope of their operations.

Accepted Answer

Small companies usually have a limited number of decision-makers, and the scope of their operations is relatively narrow. Therefore, centralized decision-making is a common approach for small businesses.

Quiz 24: Performance Evaluation and the Balanced Scorecard

Which of the following is NOT a potential advantage of decentralization?

Companies that are centralized split their operations into different divisions or operating units and top management delegates decision-making to the division/unit managers.

Which of the following is an advantage of decentralization?

Which of the following would most likely be evaluated using return on investment?

In a decentralized business, a typical cost center is responsible for not only the profit and loss of its business, but also for the evaluation and return on capital investment projects.

A product line at Coca-Cola is most likely treated as a(n) :

Performance evaluation systems provide top management with a framework for maintaining control over the organization.

The Frito-Lay division of PepsiCo is most likely treated as a(n) :

When a small company grows to a large size, it may decide to decentralize because it is difficult for one owner (or manager) to manage an entire, large business.

The central reservations office at American Airlines is most likely treated as a(n) :

Which of the following would be considered a profit center?

The manager of a cost center has control of:

Which of the following is a cost center?

The manager of a profit center has control of:

A benefit of decentralization is that it allows top management to concentrate on long-term strategic planning.

Which of the following BEST describes the term goal congruence?

Which of the following is a disadvantage of decentralization?

The human resources department would most likely be considered a(n) :

The production line at Gateway Computers is most likely treated as a(n) :

Small companies tend to use centralized decision-making because of the smaller scope of their operations.