Question 1

It is important to not consider an organization's compensation and reward system when designing its performance evaluation system.It is important to consider the system.

Accepted Answer

False

Question 2

Properly developed and implemented management control systems influence subordinates to act in the organization's best interest.A properly designed system will promote goal congruence.

Accepted Answer

Management control systems are designed to ensure that subordinates are working towards the organization's goals and objectives. When implemented effectively, these systems should influence subordinates to act in the best interest of the organization, promoting goal congruence. Therefore, the statement is true.

Question 3

It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior.Systems do not guarantee ethical behavior.

Accepted Answer

While performance evaluation systems and management control systems can be useful tools for promoting ethical behavior within an organization, they are not foolproof and can be manipulated or abused. In some cases, employees or managers may feel pressure to achieve certain goals or targets, leading them to engage in unethical or fraudulent behavior. Additionally, if the metrics used in these systems are not carefully chosen or monitored, they may incentivize behavior that is not aligned with the organization's values or goals. Therefore, it is important for organizations to carefully design and implement these systems with a focus on ethical considerations.

Question 4

In general,profit centers are found at higher levels in an organization than investment centers.Investment centers are found at higher levels.

Accepted Answer

Investment centers are found at higher levels in an organization than profit centers. Investment centers are responsible for generating revenue as well as making investment decisions, while profit centers are only responsible for generating revenue.

Question 5

Rational managers will always make decisions that are in the best interest of the organization employing them.Rational managers will often make decisions that are in their best personal interest.

Accepted Answer

The answer of Rational managers will always make decisions that...

Question 6

In general,organizations are more centralized in the early stages of their existence and more decentralized as they grow.Decentralization normally is the result of growth.

Accepted Answer

This statement is generally true as organizations tend to start out with a smaller, more focused group of leaders making decisions and as they grow, they delegate decision-making and responsibilities to lower-level employees or departments, resulting in a more decentralized structure. However, there may be exceptions to this trend depending on the specific industry, culture, or leadership style of the organization.

Question 7

One advantage of centralization is better use of top management's time on strategic decisions.In a centralized system,top management is required to make many operating decisions,so there is less time for strategic decision making.

Accepted Answer

In a centralized system, lower level managers make the operating decisions, freeing up top management's time for strategic decisions.

Question 8

Managers in a cost center are held responsible for both the costs and volumes of inputs used to produce a product or provide a service.The manager does not have control over the price of the output,or authority over it.

Accepted Answer

Managers in a cost center are responsible for controlling and minimizing costs while maintaining the same level of output, but they do not have control over the pricing or revenue generation side of the business.

Question 9

The primary reason to use a dual rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control.The allocation reflects the cost behavior.

Accepted Answer

A dual rate allocation system separates fixed costs from variable costs and allocates them accordingly. This allows managers to be evaluated on factors they can directly control, such as variable costs, while fixed costs are not attributed to their performance. Thus, it helps in focusing and assessing the manager's performance more accurately.

Question 10

One advantage of decentralization is faster response time to changes in the organization's environment by local managers.Local managers have the authority to make decisions,so the response time is faster.

Accepted Answer

Decentralization allows local managers to have decision-making authority, which enables them to respond quicker to changes in the organization's environment.

Question 11

Decentralization is the delegation of the authority to make decisions in the organization's name to subordinates.This is the definition of decentralization.

Accepted Answer

Decentralization refers to the distribution of decision-making power and authority away from a central authority to various functional or departmental levels within the organization. This allows for more flexibility, faster decision-making and increased employee participation in decision-making processes.

Question 12

In general,there is a direct relationship between the quality of the information provided to managers and the quality of decisions made using that information.Normally,the better the information,the higher the quality of the decision.

Accepted Answer

This statement is generally true as higher quality information provides managers with a more accurate understanding of the situation, which leads to better decision making. However, there may be other factors that can influence the quality of decision making, such as the decision maker's experience, biases, and external factors.

Question 13

Delegated decision authority is the specification of what decisions a subordinate can make in the organization.Authority defines what a person can and cannot do.

Accepted Answer

Delegated decision authority specifies the limits of what a subordinate can decide upon in an organization, which is an example of defining their authority. Therefore, authority does indeed determine what a person can and cannot do within their role.

Question 14

Properly designed management control systems have both fixed compensation and contingent compensation.If contingent is too small there is not enough incentive,if the proportion of contingent is too high there is too much risk.

Accepted Answer

This statement is true. Properly designed management control systems will have a balance between fixed compensation and contingent compensation. If the proportion of contingent compensation is too small, then there is not enough incentive for managers to work towards achieving the company's goals. On the other hand, if the proportion of contingent compensation is too high, then there is too much risk involved for the managers. Therefore, a balance must be struck between the two types of compensation.

Question 15

Properly designed management control systems can totally eliminate the inherent conflict between individual behavior and organizational goals.Conflict cannot be totally eliminated.

Accepted Answer

It is impossible to completely eliminate conflict as it arises from differences in personalities, goals, and perspectives, which are all inherent in individuals and organizations. While management control systems may mitigate or reduce conflicts, they cannot eliminate them entirely.

Question 16

Cost allocations based on dual rates assume that a common cost can be separated into a fixed and variable component.The dual refers to fixed and variable.

Accepted Answer

Dual rates involve separating a common cost into fixed and variable components, hence the term "dual" referring to the two components.

Question 17

Properly designed management control systems will eliminate fraudulent behavior by maximizing goal congruence within the organization.Fraud cannot be eliminated by control systems,it can only be reduced.

Accepted Answer

While properly designed management control systems can help to reduce the likelihood of fraudulent behavior by promoting goal congruence, it is impossible to completely eliminate the risk of fraud. Fraud can still occur even in organizations with strong control systems, as there will always be individuals who are willing to engage in deceptive or illegal behavior. However, effective control systems can help to mitigate this risk and make it more difficult for fraud to occur.

Question 18

The design and use of management control systems affects how an individual makes and implements decisions.Control systems influence behavior.

Accepted Answer

Management control systems provide information and feedback to individuals within an organization, which can influence their decisions and behavior. The design and use of these systems can encourage certain behaviors and discourage others, ultimately shaping the overall culture and success of the organization.

Question 19

There is no single accounting measure that can fully measure the performance of a profit or investment center.There is no one single perfect measure.

Accepted Answer

Different accounting measures such as return on investment (ROI), net income, and gross profit margin provide different insights into the performance of a profit or investment center. Therefore, it is important to consider multiple measures and not rely solely on one measure to evaluate performance.

Question 20

Fixed compensation is generally not linked to measured performance;i.e. ,it is independent of measured performance.Contingent compensation is linked with performance.

Accepted Answer

Fixed compensation refers to a salary or wage that is predetermined and does not vary based on an individual's performance or output. On the other hand, contingent compensation, such as bonuses or commissions, is directly linked to an individual's performance and/or the performance of the organization.

Quiz 12: Fundamentals of Management Control Systems