Question 1

Decentralized firms can delegate authority by structuring an organization into responsibility centers. Which of the following organizational segments is most like a totally independent, standalone business where managers are expected to "make it on their own"?
A) Cost center.
B) Revenue center.
C) Profit center.
D) Investment center.
E) Contribution center.

Accepted Answer

Investment centers are treated like independent businesses within a firm, with managers responsible for both profits and the invested capital. This autonomy includes decisions on investments, expenses, and revenues, closely mirroring the operations of a standalone business.

Question 2

A cost center manager does not have the ability to produce revenue.

Accepted Answer

A cost center is a department or team within a company that incurs expenses. The role of a cost center manager is to manage expenses and control costs, but they typically do not have the ability to generate revenue directly.

Question 3

Performance reports help managers use management by exception and effectively control operations.

Accepted Answer

Performance reports provide information on actual results in comparison to expected or desired results, allowing managers to identify and address areas of concern through management by exception. This helps them to effectively control operations by focusing their attention on areas that require improvement or corrective action.

Question 4

A profit center manager:
A) does not have the ability to produce revenue.
B) may be involved with the sale of new marketing programs to clients.
C) would normally be held accountable for producing an adequate return on invested capital.
D) often oversees divisional operations.
E) may be the manager who oversees the operations of a retail store.

Accepted Answer

The answer of A profit center manager:
A) does not have...

Question 5

An allocation base for a cost pool should ideally be a cost object.

Accepted Answer

An allocation base for a cost pool should ideally be a driver that has a strong causal relationship with the costs in the pool, not a cost object. Cost objects are items for which costs are measured and assigned (e.g., products, services), whereas allocation bases are used to distribute costs among those objects.

Question 6

An investment center manager:
A) does not have the ability to produce revenue.
B) may be involved with the sale of new marketing programs to clients.
C) would normally be held accountable for producing an adequate return on invested capital.
D) often oversees divisional operations.
E) may be the manager who oversees the operations of a retail store.

Accepted Answer

The answer of An investment center manager:
A) does not have...

Question 7

When managers of subunits throughout an organization strive to achieve the goals set by top management, the result is:
A) goal congruence.
B) planning and control.
C) responsibility accounting.
D) delegation of decision making.
E) strategic control.

Accepted Answer

Goal congruence is the state where the objectives of subunits across different levels of an organization align with the overall goals of the organization. This alignment ensures that everyone is working towards a common purpose and that decisions made at the lower levels support the achievement of the organization's goals.

Question 8

The concepts and tools used to measure the performance of people and departments are known as:
A) goal congruence.
B) planning and control.
C) responsibility accounting.
D) delegation of decision making.
E) strategic control.

Accepted Answer

Responsibility accounting refers to the concepts and tools used to measure the performance of people and departments. It involves identifying and assigning responsibility to individual managers for the outcomes of the activities under their control, and measuring their performance against predetermined goals and benchmarks. Planning and control, delegation of decision making, and strategic control are all related concepts, but they do not directly refer to measuring performance. Goal congruence is a concept related to aligning individual and organizational goals, but it is not specifically focused on performance measurement.

Question 9

A manufacturer's raw-material purchasing department would likely be classified as a:
A) cost center.
B) revenue center.
C) profit center.
D) investment center.
E) contribution center.

Accepted Answer

A cost center is responsible for controlling and reducing costs, which would be the primary objective of a raw-material purchasing department. They may not generate revenue or profit directly, but their efficient purchasing decisions can contribute to the overall profitability of the company.

Question 10

The Asian Division of a multinational manufacturing organization would likely be classified as a:
A) cost center.
B) revenue center.
C) profit center.
D) investment center.
E) contribution center.

Accepted Answer

An investment center is a business unit that is responsible for both generating revenues and controlling costs, as well as making investment decisions. The Asian Division of a multinational manufacturing organization would likely fit this definition, as it would be responsible for generating revenues and controlling costs within its operating region, while also making investment decisions related to capital expenditures, acquisitions, and other strategic investments.

Question 11

The typical balanced scorecard is best described as containing both financial and nonfinancial performance measures.

Accepted Answer

The balanced scorecard includes financial and nonfinancial measures to provide a more comprehensive view of an organization's performance. This approach recognizes that financial metrics alone do not provide a complete picture of a company's health and success. Nonfinancial measures, such as customer satisfaction, employee engagement, and process efficiency, are also included in the balanced scorecard to provide a more holistic assessment of an organization's performance.

Question 12

Higgins Corporation is in the process of overhauling the performance evaluation system for its Los Angeles manufacturing division, which produces and sells parts that are popular in the aerospace industry. Which of the following is least likely to be chosen to evaluate the overall operations of the Los Angeles division?
A) Cost center.
B) Responsibility center.
C) Profit center.
D) Investment center.
E) The profit center and investment center are equally unlikely to be chosen.

Accepted Answer

A cost center is least likely to be chosen because it focuses only on controlling costs and does not account for revenue generation or investment returns, which are crucial for evaluating the overall operations of a division involved in production and sales.

Question 13

The Telemarketing Department of a residential remodeling company would most likely be evaluated as a:
A) cost center.
B) revenue center.
C) profit center.
D) investment center.
E) contribution center.

Accepted Answer

The Telemarketing Department of a residential remodeling company would most likely be evaluated as a revenue center because its primary purpose is to generate sales and bring in revenue for the company. The success of the department is typically measured by the amount of sales it brings in.

Question 14

A cost center manager:
A) does not have the ability to produce revenue.
B) may be involved with the sale of new marketing programs to clients.
C) would normally be held accountable for producing an adequate return on invested capital.
D) often oversees divisional operations.
E) may be the manager who oversees the operations of a retail store.

Accepted Answer

A cost center manager is responsible for managing the costs of a specific department or area within a company, and is not involved in generating revenue.

Question 15

Which of the following is not an example of a responsibility center?
A) Cost center.
B) Revenue center.
C) Profit center.
D) Investment center.
E) Contribution center.

Accepted Answer

Cost center, revenue center, profit center, and investment center are all examples of responsibility centers. Contribution center is not typically considered a separate type of responsibility center.

Question 16

If the head of a hotel's food and beverage operation is held accountable for revenues and costs, the food and beverage operation would be considered a (n):
A) cost center.
B) revenue center.
C) profit center.
D) investment center.
E) contribution center.

Accepted Answer

A profit center is responsible for both revenues and costs and is held accountable for creating a profit. If the head of a hotel's food and beverage operation is responsible for both revenues and costs, they are essentially managing a profit center.

Question 17

A revenue center manager:
A) does not have the ability to produce revenue.
B) may be involved with the sale of new marketing programs to clients.
C) would normally be held accountable for producing an adequate return on invested capital.
D) often oversees divisional operations.
E) may be the manager who oversees the operations of a retail store.

Accepted Answer

The answer of A revenue center manager:
A) does not have...

Question 18

Common costs are charged to a company's operating segments when preparing a segmented income statement.

Accepted Answer

The answer of Common costs are charged to a company's...

Question 19

Which of the following would have a low likelihood of being organized as a profit center?
A) A movie theater of a company that operates a chain of theaters.
B) A maintenance department that charges users for its services.
C) The billing department of an Internet Services Provider (ISP).
D) The mayor's office in a large city.
E) Both the billing department of an Internet Services Provider (ISP) and the mayor's office in a large city.

Accepted Answer

Profit centers are parts of an organization that directly generate revenue and are responsible for their profitability. The billing department of an ISP and the mayor's office in a large city do not directly generate revenue through their operations and are more focused on administrative or governmental functions, making them less likely to be organized as profit centers.

Question 20

A responsibility center in which the manager is held accountable for the profitable use of assets and capital is commonly known as a (n):
A) cost center.
B) revenue center.
C) profit center.
D) investment center.
E) contribution center.

Accepted Answer

An investment center is a type of responsibility center where the manager is accountable not only for generating profits but also for the efficient use of assets and capital to achieve those profits. This contrasts with cost centers, revenue centers, and profit centers, which focus more narrowly on costs, revenues, and profits respectively, without directly considering the return on investment.

Quiz 12: Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Decentralized firms can delegate authority by structuring an organization into responsibility centers. Which of the following organizational segments is most like a totally independent, standalone business where managers are expected to "make it on their own"?

A cost center manager does not have the ability to produce revenue.

Performance reports help managers use management by exception and effectively control operations.

A profit center manager:

An allocation base for a cost pool should ideally be a cost object.

An investment center manager:

When managers of subunits throughout an organization strive to achieve the goals set by top management, the result is:

The concepts and tools used to measure the performance of people and departments are known as:

A manufacturer's raw-material purchasing department would likely be classified as a:

The Asian Division of a multinational manufacturing organization would likely be classified as a:

The typical balanced scorecard is best described as containing both financial and nonfinancial performance measures.

The Telemarketing Department of a residential remodeling company would most likely be evaluated as a:

A cost center manager:

Which of the following is not an example of a responsibility center?

If the head of a hotel's food and beverage operation is held accountable for revenues and costs, the food and beverage operation would be considered a (n) :

A revenue center manager:

Common costs are charged to a company's operating segments when preparing a segmented income statement.

Which of the following would have a low likelihood of being organized as a profit center?

A responsibility center in which the manager is held accountable for the profitable use of assets and capital is commonly known as a (n) :