Question 1

Which of the following statements is incorrect?

Accepted Answer

The answer of Which of the following statements is incorrect?
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Question 2

The concept says that managers should be evaluated on the basis of revenues and/or expenses they can control is known as the:

Accepted Answer

The concept of evaluating managers based on the revenues and expenses they can control is known as the controllability concept. This concept holds that managers should only be held accountable for the aspects of the business they can control, and performance metrics should reflect this. It is different from the responsibility concept, which holds managers responsible for all aspects of their department or business unit, regardless of whether they are within their control. The management by exception concept is the idea that managers should only intervene and take action when deviations from the norm occur, rather than trying to control every aspect of the business.

Question 3

Decentralization encourages upper level management to concentrate on short-term decisions.

Accepted Answer

Decentralization encourages lower-level managers to make decisions, giving upper-level management more time to focus on long-term planning and strategy.

Question 4

The manager of Pearless Company's Toy Division is not satisfied with the level of return on investment that the division achieved this year. What can be done to improve return on investment?

Accepted Answer

The best way to improve return on investment is to either decrease the investment in assets or increase sales. Decreasing the investment in assets would mean finding ways to decrease the cost of producing the toys or finding more efficient ways to use the current assets. Increasing sales would mean finding new markets or customers, launching new products or marketing campaigns, and improving the current sales process. A combination of these strategies would be the most effective in improving return on investment. Therefore, choice D is the best option.

Question 5

Which of the following statements regarding profit centers is correct?

Accepted Answer

A profit center manager is responsible for both controlling costs and generating revenues, leading to the profitability of the center. They are evaluated based on these factors and are held accountable for the assets, liabilities, and earnings of the center. The manager of an investment center has additional responsibilities related to capital budgeting and making investment decisions, which are not applicable to profit center managers.

Question 6

Which of the following statements about residual income is true?

Accepted Answer

Residual income is calculated as the income generated above a specified target return on investment, making option C the correct statement.

Question 7

An important disadvantage of decentralization is that managers may engage in suboptimal behavior.

Accepted Answer

When managers have decentralized decision-making authority, they may focus solely on achieving their own goals instead of those of the organization as a whole. This can lead to suboptimal behavior such as short-term thinking, unethical actions, and inefficient resource allocation.

Question 8

Clear lines of authority and responsibility are essential to establishing a responsibility accounting system.

Accepted Answer

Clear lines of authority and responsibility are necessary for a responsibility accounting system as they help define the roles and duties of each employee or department in the organization. Without clear lines of authority and responsibility, it can become difficult to allocate tasks effectively and attribute costs to the appropriate individuals or departments.

Question 9

Vanessa Grant is responsible for controlling expenses, but is not responsible for generating revenues. Vanessa Grant is a manager of a(n):

Accepted Answer

Vanessa Grant's responsibility for controlling expenses indicates that she is managing a cost center, where the focus is on managing costs rather than generating revenues.

Question 10

The cellular phone division of Stegall Company had budgeted sales of $950,000 and actual sales of $900,000. Budgeted expenses were $600,000 while actual expenses were $550,000. Based on this information, the responsibility report for the manager of this profit center would show:

Accepted Answer

Revenue variance = Actual sales - Budgeted sales
Revenue variance = $900,000 - $950,000 = $50,000 unfavorable (since actual sales were less than budgeted sales)
Cost variance = Actual costs - Budgeted costs
Cost variance = $550,000 - $600,000 -= $50,000 favorable (since actual costs were less than budgeted costs)

Question 11

Which of the following is a characteristic that is needed for decentralization to work well in an organization?

Accepted Answer

All of these characteristics are necessary for decentralization to work well in an organization. Clear lines of authority ensure that everyone knows their role and who they report to. Responsibility ensures that each person knows their specific duties and is held accountable for them. Good communication is essential for coordinating activities among decentralized units and ensuring that everyone is on the same page.

Question 12

A reporting unit of a decentralized business that controls identifiable revenue and/or expense items is known as a(n):

Accepted Answer

A responsibility center is a reporting unit within a decentralized business that is accountable for specific revenue and/or expense items. It can be further classified into cost centers, profit centers, and investment centers. Management center and accounting center are not commonly used terms in this context, and performance center could refer to a broader concept of measuring overall business performance rather than a specific reporting unit.

Question 13

Organization charts are drawn in a hierarchical fashion with low level managers shown at the bottom of the chart, middle level managers in the middle of the chart, and senior level managers shown at the top of the chart.

Accepted Answer

This is a typical way of drawing organization charts, with lower level employees at the bottom and higher level employees at the top.

Question 14

Suboptimization refers to actions taken by a manager that are in the best interest of the firm as a whole but not in his/her own best interest.

Accepted Answer

Suboptimization refers to actions taken by a manager that are in their own best interest but not in the best interest of the firm as a whole.

Question 15

An organizational unit of a business that incurs costs and generates revenues is known as a(n):

Accepted Answer

A profit center is an organizational unit of a business that incurs costs and generates revenues, with the primary objective of earning profits. Cost centers only incur costs, sales centers only generate revenues, and investment centers are responsible for both generating revenues and making investments. Therefore, the best answer is C) Profit center.

Question 16

Delegating authority and responsibility throughout an organization is known as:

Accepted Answer

Decentralization involves distributing decision-making power and authority throughout an organization, giving lower-level employees more responsibility and autonomy. This can lead to enhanced motivation, job satisfaction, and efficiency, as well as more responsive and adaptive problem-solving. Centralization, on the other hand, emphasizes top-down control and hierarchical structures, potentially stifling innovation and creativity. Management by exception is a strategy for focusing attention on significant deviations from expected or desired outcomes, rather than micromanaging every detail. Suboptimization is the potential pitfall of optimizing one part or aspect of a system at the expense of others, leading to decreased overall effectiveness or efficiency.

Question 17

Which of the following statements regarding cost centers is incorrect?

Accepted Answer

Cost centers can be at any level in a company's organization chart and are not limited to upper levels.

Question 18

Which of the following statements regarding a balanced scorecard is correct?

Accepted Answer

A balanced scorecard includes several different performance measures that can be used to assess how well a business is accomplishing their mission, including financial performance measures such as ROI and non-financial measures such as defect rates or on-time deliveries. Therefore, all of the statements are correct.

Question 19

Which of the following statements regarding investment centers is incorrect?

Accepted Answer

A manager of an investment center is responsible for both the investment of capital and the generation of revenues and control of expenses. Therefore, statement A is incorrect.

Question 20

The term that describes what occurs when a manager does what is in his/her best interests and not what is in the best interests of the company as a whole is known as:

Accepted Answer

Suboptimization occurs when a manager focuses solely on their own department or goals at the expense of the larger company goals. This can lead to conflicts between departments and negatively impact overall company performance. Strategic planning and goal alignment, on the other hand, involve considering the overall organization's objectives and creating plans to achieve them. Lowballing refers to intentionally underestimating costs or timelines in order to win a contract.

Quiz 9: Responsibility Accounting