Question 1

The manager of a revenue center has control over:
A) profit and investment decisions.
B) revenues and costs.
C) revenues only.
D) revenues and profit

Accepted Answer

The manager of a revenue center has control over revenues only, not costs, profit, or investment decisions. This is because the primary responsibility of a revenue center is to generate income through sales or other income-generating activities, without direct responsibility for costs or investments.

Question 2

Which of the following is an advantage of decentralization?
A) It allows top-level management who normally work at corporate headquarters to get involved with the day-to-day decisions that need to be made at lower levels.
B) It allows managers to focus on their own area of responsibility rather than what is best for the company as a whole.
C) It allows decisions to be made in a more timely manner.
D) It requires very little as far as manager training costs.

Accepted Answer

Decentralization allows decisions to be made at lower levels, which often leads to a faster decision-making process. This is because there are fewer levels of bureaucracy involved in the decision-making process.

Question 3

When a few individuals at the top of an organization retain decision-making authority, the organization is referred to as a(n):
A) investment center.
B) decentralized organization.
C) profit center.
D) centralized organization.

Accepted Answer

A centralized organization is one where decision-making authority is concentrated at the top of the organization with only a few individuals retaining decision-making authority. The opposite of a centralized organization is a decentralized organization where decision-making authority is distributed among different levels and individuals within the organization. Investment centers and profit centers refer to different ways of measuring financial performance within an organization and are not directly related to decision-making authority.

Question 4

The manager of a cost center has control over:
A) revenues and costs.
B) costs only.
C) costs and investment decisions.
D) pricing decisions.

Accepted Answer

The manager of a cost center is responsible for managing costs and ensuring they stay within the allocated budget. They do not have control over revenues, investment decisions, or pricing decisions.

Question 5

Which of the following statements about responsibility accounting is true?
A) Managers should be held responsible for all price variances that occur within their department.
B) Managers should be held responsible for all revenues and costs that occur within their department.
C) Managers should be responsible for all investment decisions that occur within their department.
D) Managers should be held responsible for only those things under their control.

Accepted Answer

Responsibility accounting holds managers accountable for only those things that are under their control, such as costs, revenues, and performance measures. Holding managers responsible for things outside of their control, such as investment decisions, would not be appropriate. Managers should only be responsible for aspects of the business that they can affect and improve. Therefore, option D is the correct answer.

Question 6

A manager of a cost center would most likely be held responsible for which of the following variances?
A) Flexible budget variance
B) Sales volume variance
C) Sales price variance
D) Direct materials price variance

Accepted Answer

Direct materials price variance is a cost variance that is typically the responsibility of a cost center manager.

Question 7

Which type of manager would most likely be held responsible for the return on investment (ROI) of his segment?
A) Investment center manager
B) Profit center manager
C) Cost center manager
D) Revenue center manager

Accepted Answer

An investment center manager is responsible for generating revenues and controlling costs as well as managing the investments made in their segment. Therefore, they are the ones held responsible for the return on investment (ROI) of their segment. Profit center managers are responsible for generating profits, cost center managers are responsible for controlling costs, and revenue center managers are responsible for generating revenues, but none of these managers are directly responsible for ROI.

Question 8

A local chain department store grants each of its store managers the authority to make buying decisions for their stores. Granting managers this kind of authority is found in which type of organization?
A) Segmented
B) Centralized
C) Desegmented
D) Decentralized

Accepted Answer

Decentralized organizations grant decision-making authority to lower levels of management, such as store managers in this case. The fact that each store manager has the authority to make buying decisions indicates a decentralized organizational structure.

Question 9

The manager of a profit center should not be responsible for which of the following types of decisions?
A) Deciding which supplier should be used for the purchase of direct materials.
B) Establishing the number of employees that will need to work each day.
C) Deciding whether or not their segment should purchase additional machinery.
D) Deciding whether or not to accept a special order from a customer.

Accepted Answer

The manager of a profit center is typically responsible for decisions that affect the revenue and costs directly related to their segment's operations. Decisions about capital investments, such as purchasing additional machinery, usually fall under the purview of higher management levels because they involve long-term financial commitments and strategic planning beyond the scope of day-to-day operations and profit generation.

Question 10

Which of the following is a disadvantage of decentralization?
A) Less timely decisions are able to be made on a day-to-day basis.
B) Decreased job satisfaction for lower-level managers.
C) Lack of coordination and communication between segments.
D) Lower training costs for lower-level managers.

Accepted Answer

Decentralization can lead to each segment operating independently and not communicating effectively with other segments, resulting in fragmented decision-making and a lack of coordination. This can create inefficiencies and hinder the organization's overall effectiveness. Options A and B are incorrect because decentralization can lead to quicker decision-making and increased job satisfaction for lower-level managers who have more autonomy and responsibility. Option D is incorrect because decentralization may actually result in higher training costs as each segment may require specialized training programs.

Question 11

Which type of manager would be allowed to decide whether or not new manufacturing equipment should be purchased?
A) Production manager
B) Cost center manager
C) Profit center manager
D) Investment center manager

Accepted Answer

The Investment center manager is responsible for making long-term investment decisions, such as whether or not to purchase new manufacturing equipment. They are accountable for the profits and losses resulting from these investments, making them the most appropriate choice for this decision.

Question 12

A local chain electronics store does not allow its store or district managers to make important decisions about their stores. The main role of store managers is to supervise employees and make sure day-to-day transactions run smoothly while district managers supervise store managers and report profitability data back to top-level management. Not allowing store or district managers decision-making authority is most likely to be found in which type of organization?
A) Segmented
B) Centralized
C) Desegmented
D) Decentralized

Accepted Answer

The fact that top-level management retains decision-making authority indicates that this organization is centralized. In a centralized organization, important decisions are made at the top of the hierarchy, and lower-level managers or employees have limited decision-making power.

Question 13

Which of the following reports provides key financial and nonfinancial measures of performance?
A) Flexible budget variance report
B) Performance report
C) Production report
D) Common costs report

Accepted Answer

The performance report provides key financial and nonfinancial measures of performance such as actual vs. budgeted revenues and expenses, profitability ratios, customer satisfaction ratings, and employee productivity metrics. Flexible budget variance reports only compare actual costs to flexible budget costs, production reports focus on physical output measures, and common cost reports detail shared costs among departments.

Question 14

Hillary Todd, a manager for BEO Inc., has been told that her bonus this year will be based on the segment margin of her department. Hillary is most likely a:
A) revenue center manager.
B) profit center manager.
C) production manager.
D) cost center manager.

Accepted Answer

A profit center manager is responsible for both revenue and cost management, with the goal of maximizing profits. In this case, Hillary's bonus is tied to the segment margin, which is a measure of profitability for a particular business segment. This indicates that she is a profit center manager.

Question 15

Which of the following would be the best measure of performance for a profit center?
A) Residual income
B) Return on investment (ROI)
C) Segment margin
D) Economic value added (EVA)

Accepted Answer

Segment margin is the best measure of performance for a profit center because it directly reflects the profitability of the center by considering only the revenues and expenses directly attributable to it, which is crucial for evaluating its performance independently of the rest of the company.

Question 16

Which of the following is often not a disadvantage of decentralization?
A) Decreased job satisfaction for lower-level managers.
B) Lack of coordination and communication between segments.
C) Lack of company focus as lower-level managers may make decisions that benefit their own particular segment.
D) Higher training costs for lower-level managers.

Accepted Answer

Decentralization often leads to increased job satisfaction for lower-level managers because it gives them more autonomy and responsibility in decision-making, which can lead to a greater sense of ownership and motivation.

Question 17

A decentralized organization is one in which:
A) each employee in the organization is given permission to make decisions about their company.
B) only top-level management is given decision-making authority.
C) managers at various levels throughout the organization are given decision-making authority.
D) each stockholder is given decision-making authority.

Accepted Answer

A decentralized organization distributes decision-making authority to managers at various levels throughout the organization. This allows for quicker decision-making, as those closest to the issue can make decisions without having to wait for approval from higher-ups. It can also lead to more employee empowerment and engagement, as they have a say in the direction of the company. Option A is too broad and unrealistic, as not every employee can make decisions about the company. Option B is too centralized, as it places all decision-making power in the hands of top-level management. Option D is incorrect, as stockholders typically have very limited decision-making authority.

Question 18

Which of the following statements regarding the structure of organizations is false?
A) When decision-making authority is spread among too many managers, managers may become so concerned with their own area of responsibility that they lose sight of the company's overall focus.
B) In a decentralized organization, decision-making authority is confined to top-level management.
C) In a decentralized organization, there may be a lack of coordination and communication between segments.
D) Decentralization may make it difficult for managers to share unique and innovative ideas.

Accepted Answer

In a decentralized organization, decision-making authority is spread across different levels of management and not just confined to top-level management. Therefore, statement B is false.

Question 19

"Responsibility accounting" is the concept that says:
A) managers should be held entirely responsible for all investment decisions that impact the particular segment in which they are in charge.
B) managers should be held responsible for only those things under their control.
C) managers should never be held entirely responsible for things that happen within the particular segment in which they are in charge.
D) managers should be responsible for both revenues and costs of their particular segment.

Accepted Answer

Responsibility accounting is the system of measuring performance and assigning responsibility to managers for their areas of control. It suggests that managers should be held responsible only for those things that are under their control, such as cost, revenue, and assets. This way, managers are held accountable for their actions and are motivated to work towards achieving the objectives of their segment. Therefore, option B is the most appropriate answer.

Question 20

Which of the following is not an advantage of decentralization?
A) It often creates higher job satisfaction for managers.
B) It allows top-level managers more time to devote to long-range strategic planning.
C) It allows lower-level managers to focus on their own particular goals and objectives without having to consider the overall company's goals and objectives.
D) It permits lower-level managers to gain valuable on-the-job training in order to become better managers.

Accepted Answer

Decentralization allows lower-level managers to have more autonomy and decision-making power, which can increase their job satisfaction and provide valuable training opportunities. It also allows top-level managers to focus on strategic planning rather than day-to-day operations. However, one disadvantage of decentralization is that it can lead to a lack of coordination and alignment with overall company goals if lower-level managers only focus on their own goals and objectives without considering the bigger picture.

Quiz 11: Decentralization, Performance Evaluation, and the Balanced Scorecard

The manager of a revenue center has control over:

Which of the following is an advantage of decentralization?

When a few individuals at the top of an organization retain decision-making authority, the organization is referred to as a(n) :

The manager of a cost center has control over:

Which of the following statements about responsibility accounting is true?

A manager of a cost center would most likely be held responsible for which of the following variances?

Which type of manager would most likely be held responsible for the return on investment (ROI) of his segment?

A local chain department store grants each of its store managers the authority to make buying decisions for their stores. Granting managers this kind of authority is found in which type of organization?

The manager of a profit center should not be responsible for which of the following types of decisions?

Which of the following is a disadvantage of decentralization?

Which type of manager would be allowed to decide whether or not new manufacturing equipment should be purchased?

Which of the following reports provides key financial and nonfinancial measures of performance?

Hillary Todd, a manager for BEO Inc., has been told that her bonus this year will be based on the segment margin of her department. Hillary is most likely a:

Which of the following would be the best measure of performance for a profit center?

Which of the following is often not a disadvantage of decentralization?

A decentralized organization is one in which:

Which of the following statements regarding the structure of organizations is false?

"Responsibility accounting" is the concept that says:

Which of the following is not an advantage of decentralization?