Question 1

Responsibility accounting reports that are given to lower level managers are usually very detailed, in turn, higher level managers will be given a summary report.

Accepted Answer

Lower level managers are usually responsible for the day-to-day operations of a specific area of the organization, and therefore need detailed information in order to make informed decisions. Higher level managers, on the other hand, are typically responsible for overseeing multiple areas and don't require as much detail, so they are given a summary report instead.

Question 2

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 operating expenses.

Accepted Answer

Direct operating expenses are those that are directly related to a specific department and are under the control of the department manager.

Question 3

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

Accepted Answer

A responsibility center where the manager has control over costs, revenues, and invested assets is known as an investment center, not a cost center. A cost center only involves responsibility for costs.

Question 4

Developing and retaining quality managers are advantages of decentralization.

Accepted Answer

Decentralization allows for greater autonomy and decision-making power to be given to lower-level managers, which in turn can lead to the development of strong leaders and retention of high-quality managers.

Question 5

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

Accepted Answer

A budget is a plan that outlines expected revenues and expenses for a specific time period. It is an important tool for controlling and reporting on costs for cost centers, as it sets spending limits and allows for tracking actual spending against those limits.

Question 6

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, top management has the authority to make all major decisions and control the operations of the business.

Question 7

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 incurred for the whole business and are not directly controllable by individual department managers. They include expenses like rent, utilities, insurance, and other overhead costs.

Question 8

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 decision-making is distributed among different levels of management or even among all employees. This allows for greater flexibility and agility in the face of changes and challenges.

Question 9

A manager in a cost center also has responsibility and authority over the revenues.

Accepted Answer

A cost center manager is responsible for controlling and minimizing costs within a given department, but typically does not have authority or responsibility over generating revenues. That typically falls under the purview of a revenue center manager.

Question 10

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

Accepted Answer

Responsibility accounting involves measuring and reporting operating data by responsibility centers, such as departments or individuals, to assess their performance and accountability.

Question 11

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

Accepted Answer

A profit center is a responsibility center in which the manager has authority over and responsibility for both costs and revenues.

Question 12

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

Accepted Answer

This statement is true. The three common types of responsibility centers are cost centers, profit centers, and investment centers.

Question 13

One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.

Accepted Answer

While decentralization can lead to more informed decisions by leveraging local knowledge, it does not always result in better decisions due to potential lack of overall perspective, expertise, or alignment with broader organizational goals.

Question 14

In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.

Accepted Answer

The investment center manager has control over all aspects of the center's performance, including the use of plant assets and the generation of revenue and cost. They are accountable for the financial results of the center and have the authority to make decisions that impact those results.

Question 15

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

In a decentralized system, each manager has a considerable degree of freedom and authority to make decisions that affect their specific operations. However, the downside of this freedom is that decisions made by one manager may have unintended consequences that negatively impact the profitability and operations of other managers or the company as a whole.

Question 16

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

Accepted Answer

This is because the vice president of production is more concerned with the overall performance of the production department as a whole, rather than individual plants. The plant managers would require more detailed reports as they are responsible for the performance of their specific plant.

Question 17

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

Accepted Answer

Decentralization involves delegating power and decision-making to multiple units within a business or organization, making it more manageable and efficient.

Question 18

The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.

Accepted Answer

Plant managers in a cost center are responsible for controlling costs and ensuring that actual costs stay within budgeted limits. Thus, they can be held responsible for major differences between budgeted and actual costs in their plants.

Question 19

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

Accepted Answer

Sales commission expense is directly related to the sales generated by the department, making it a direct expense.

Question 20

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

Accepted Answer

This statement is true. A budget performance report for a cost center will contain more detail if it is directed towards lower levels of management, while higher levels of management may only receive summarized information. The amount of detail included in the report will depend on the needs of the intended audience.

Quiz 8: Performance Evaluation for Decentralized Operations