Question 1

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

Accepted Answer

Separation of businesses into more manageable operating units is actually decentralization, not centralization. Centralization is when decision-making authority is concentrated at the top of the organization.

Question 2

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

Accepted Answer

The profit center income statement only includes controllable revenues and expenses because those are the items that the manager of the profit center can directly influence and control. Uncontrollable items, such as certain overhead costs, are not included in the income statement because the manager of the profit center cannot control or influence them.

Question 3

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

Accepted Answer

Personnel administration expense is not directly related to the production or sale of a specific product or service, making it an indirect expense.

Question 4

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

Budget performance reports prepared for higher-level executives typically contain less detail than reports prepared for lower-level managers who are directly responsible for specific operations or departments. This is because executives generally require an overview of overall performance and trends, while managers need more granular information to monitor and manage their specific areas of responsibility.

Question 5

The service department will determine its service department charge rate and charge the company's divisions or departments according to their use of that particular service department.

Accepted Answer

This is the correct method of allocating service department costs in a company. The service department determines its charge rate based on its costs and then charges the other departments or divisions for their use of that service department.

Question 6

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 where the manager is responsible for and has authority over the cost incurred in the department.

Question 7

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 spread out among multiple levels and individuals, rather than being solely controlled by top management.

Question 8

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

Accepted Answer

Controllable expenses refer to those expenses that can be managed or influenced by the profit center management through their decisions and actions. Examples include advertising and marketing expenses, salaries and bonuses, and supplies and equipment purchases. In contrast, non-controllable expenses are those that are not influenced by the profit center management, such as rent, insurance, and taxes.

Question 9

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

Accepted Answer

The underlying principle of allocating operating expenses to departments can vary depending on the organization's specific methods and goals. Some organizations may allocate expenses based on usage or consumption by each department, while others may use a fixed or equal allocation method. Revenue is not always the primary factor in determining how expenses are allocated.

Question 10

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 decision-making power to individual managers, which can lead to inconsistent decision-making and a lack of coordination. This can result in decisions made by one manager negatively impacting other managers and ultimately hurting the profitability of the company as a whole.

Question 11

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

Accepted Answer

A budget performance report is a primary accounting tool used to control and report for cost centers. It compares actual results to budgeted amounts and identifies any significant variances.

Question 12

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...

Question 13

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

Accepted Answer

The three common types of responsibility centers are cost centers, profit centers, and investment centers, not segment centers.

Question 14

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

Accepted Answer

Responsibility accounting involves measuring and reporting operating data by areas of responsibility, so the statement is true.

Question 15

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 makes all major decisions regarding planning and operations.

Question 16

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 those expenses that cannot be directly attributed to a specific department or cost center and are incurred for the overall operations of the business. They are controlled and managed by top management and are not subject to the control of individual department managers. Examples of indirect expenses include rent, insurance, taxes, utilities, and general administrative expenses.

Question 17

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

Accepted Answer

An investment center is a responsibility center where the manager has control over costs, revenues, and investments in assets, not just costs and revenues.

Question 18

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

Accepted Answer

Sales commissions expense is directly related to the sales being made by the department store, and therefore is considered a direct expense.

Question 19

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 may include more or less detail depending on the level of management receiving the report. A higher level of management may require more summary information, while a lower level of management may require more detailed information.

Question 20

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

Indirect expenses are expenses that cannot be traced to or are not incurred for the sole benefit of a specific department. They are usually shared among multiple departments or allocated to departments based on a predetermined formula. Direct expenses, on the other hand, are expenses that can be directly traced to or are incurred for the sole benefit of a specific department.

Quiz 14: Performance Evaluation for Decentralized Operations