Question 1

In a profit center, the manager is accountable for investments, revenues, and costs.

Accepted Answer

In an investment center, the manager is accountable for investments, revenues, and costs.

Question 2

Transfer prices should be judged by whether they promote:

Accepted Answer

Transfer prices should promote goal congruence, which means aligning the goals and objectives of different divisions or units of an organization. This can be achieved by setting transfer prices that encourage cooperation and collaboration among different units rather than competition or conflict. Additionally, transfer prices should allow for a high level of subunit autonomy in decision making so that each unit can make decisions that are in their best interest without negatively impacting other units. Therefore, both options A and C are correct. The balanced scorecard method is not directly related to transfer pricing and is therefore not a relevant factor in judging transfer prices.

Question 3

A DISADVANTAGE of decentralization is that it:

Accepted Answer

Decentralization can lead to suboptimal decision making because individual units may prioritize their own interests over the organization as a whole. This can lead to duplication of efforts, inefficiencies, and inconsistencies in decision making.

Question 4

The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers. However, she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority.
Required:
Explain how a centralized organization might allow for responsibility centers.

Accepted Answer

The answer of The president of Silicon Company has just...

Question 5

Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture.

Accepted Answer

These decisions are made at a decentralized level.

Question 6

Autonomy is the freedom for managers at lower levels of the organization to make decisions.

Accepted Answer

The answer of Autonomy is the freedom for managers at...

Question 7

Decentralizaion can sometimes lead to suboptimal decisions.

Accepted Answer

Decentralization of decision-making can lead to suboptimal decisions because the decisions are being made by individuals or groups who may not have access to all the relevant information or the necessary expertise to make the best decision. Additionally, decentralized decision-making can sometimes lead to conflicting decisions or inefficient use of resources.

Question 8

The benefits of a decentralized organization are greater when a company:

Accepted Answer

A decentralized organization can provide benefits in terms of adaptability and responsiveness to changes, reduced bureaucracy and faster decision-making. These benefits are especially valuable for larger companies that face regulations, uncertain environments or have few interdependencies among divisions. Therefore, all of the given choices are correct.

Question 9

Area(s)which is/are usually appropriate for decentralized decision making is(are):

Accepted Answer

Decentralized decision making is typically suitable for areas like sourcing supplies and product advertising, where local managers can make decisions based on specific market conditions and needs.

Question 10

For each of the following activities, characteristics, and applications, identify whether they can be found in a centralized organization, a decentralized organization, or both types of organizations.

Accepted Answer

The answer of For each of the following activities, characteristics,...

Question 11

An advantage of decentralization is that it:

Accepted Answer

Decentralization allows decision-making to be pushed down to lower levels of the organization, closer to where local needs and issues can be more easily identified and addressed. This results in greater responsiveness to local needs, making it the correct answer. B is incorrect because decentralization can actually lead managers to focus more on their own individual units rather than the organization as a whole. C is incorrect because decentralization can result in a duplication of activities if there is not enough coordination and communication between the different decentralized units. D is incorrect because decentralization can actually increase the cost of gathering information due to the need for more communication and coordination between the different units.

Question 12

Suboptimal decision making is also called congruent decision making.

Accepted Answer

Suboptimal decision making refers to decision making that is less than ideal or not the best possible option. Congruent decision making, on the other hand, refers to decision making that takes into account all relevant factors and leads to the best possible outcome. These terms are not synonymous, but rather define different types of decision making.

Question 13

A transfer-pricing method leads to goal congruence when managers:

Accepted Answer

Goal congruence is achieved when managers' actions align with the overall objectives of the company. This occurs when managers act in their own best interest and the decision also benefits the long-term interests of the company.

Question 14

What is the term used to describe the situation when a manager's decision, which benefits one subunit, is more than offset by the costs to the organization as a whole?

Accepted Answer

Suboptimal decision making and dysfunctional decision making both describe situations where decisions benefit a subunit but harm the organization overall.

Question 15

All of the following are benefits of decentralization EXCEPT that it:

Accepted Answer

Decentralization typically increases management and worker morale by giving them more autonomy and control over decision making. Therefore, B is the exception to the benefits of decentralization.

Question 16

A product may be passed from one subunit to another subunit in the same organization. The product is known as a(n):

Accepted Answer

An intermediate product is a product that is passed from one subunit to another subunit within the same organization. It is also referred to as an "interdepartmental" product or a "transfer" product. Therefore, option B is the best choice. Option A and C are not commonly used terms to describe this type of product transfer. Option D is too general and does not specifically refer to a product that is passed between subunits within an organization.

Question 17

An important advantage of decentralized operations is that it improves corporate control.

Accepted Answer

Decentralized operations imply delegating decision-making and resource allocation to lower levels of the organization. This can lead to less corporate control over operations and potentially increased risk of conflicting goals or inconsistent practices across business units. However, decentralization can also foster innovation, agility, and responsiveness by empowering employees and local leaders to adapt to market conditions and customer needs. The trade-off between control and flexibility is an important consideration for companies when designing their organizational structure and strategic management approach.

Question 18

A benefit of decentralization is that it creates better responsiveness to local needs.

Accepted Answer

Decentralization allows decisions to be made at the local level, closer to the communities that will be affected by them. This can result in policies and programs that are more tailored to the specific needs and preferences of local populations.

Question 19

Which of the following statements is FALSE?

Accepted Answer

Decentralization actually allows decision making to be more responsive to local needs as it empowers lower level managers to make decisions.

Question 20

________ means minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions and to take actions.

Accepted Answer

Total decentralization refers to giving managers at the lowest levels of an organization the maximum freedom to make decisions and take actions. This means that there are minimal constraints placed on these managers, which allows them to be more responsive to local conditions and make quicker decisions without having to consult with higher levels of management. This can result in greater efficiency and effectiveness in the organization, as well as increased motivation and job satisfaction for employees.

Quiz 22: Management Control Systems, Transfer Pricing, and Multinational Considerations