Question 1

A strategic business unit (SBU) consists of a well-defined set of controllable operating activities over/about which the SBU manager is:

Accepted Answer

A strategic business unit (SBU) manager is typically responsible for not only setting the strategy of the SBU, but also for executing that strategy and delivering strong performance. Therefore, choice D is the best answer.

Question 2

The process by which managers at all levels in the firm gain information about the performance of tasks within the firm and judge that performance against pre-established criteria is:

Accepted Answer

Performance measurement involves the process of collecting, analyzing, and interpreting data about the performance of tasks within the firm. This process helps managers at all levels to judge the performance of employees and the firm as a whole against pre-established criteria. Therefore, performance measurement is the most appropriate answer to the given question. Employee inspection, goal congruence, managerial evaluation, and management control are related concepts, but they do not fully capture the process of gaining information about performance and judging it against pre-established criteria.

Question 3

The benefits of decentralized management in a firm include all the following except:

Accepted Answer

Decentralized management can lead to improved coordination among divisional managers, but not the other benefits listed (effective use of local knowledge, more timely decisions, and motivation from freedom and responsibility).

Question 4

The contribution by profit center (CPU) expands the contribution margin income statement by distinguishing:

Accepted Answer

The main concept of the balanced scorecard is that an organization must use both financial and non-financial measures, measures of customer satisfaction, and multiple measures for a comprehensive evaluation. However, value chain analysis is not explicitly mentioned as a requirement for evaluating an SBU's progress to strategic success.

Question 5

Cost allocation of service department costs to production departments make the evaluation and control processes in the production departments:

Accepted Answer

Profit centers provide incentive for coordination among managers of different functional units, as each unit is responsible for generating its own profits. This encourages managers to work together to maximize overall profits for the entire organization. While profit centers do focus on cost control, they also must generate revenue in order to achieve profits. Rush orders may be important in some profit centers, but this is not a defining characteristic. Freedom from concerns about markets is not necessarily true, as profit centers still operate within the larger market environment. Therefore, option C is the best choice.

Question 6

Among the benefits of centralized management in a firm is (are):

Accepted Answer

Utilizing top management expertise is a significant benefit of centralized management. Centralization allows for top management to oversee and manage operations across divisions, provide guidance, and utilize their expertise to make informed decisions that benefit the entire organization. Effective goal congruence, effective participation by all levels of management, and higher motivation for divisional managers are not necessarily guaranteed benefits of centralized management.

Question 7

In properly developing formal systems at the team level that will have the desired impact on employees' performance, the management accountant should recognize any existing informal systems and:

Accepted Answer

It is important for the management accountant to recognize any existing informal systems and try to capture their valued aspects in the formal system being developed. This will ensure that the new system is accepted and adopted by the employees, leading to the desired impact on their performance. Simply formalizing existing informal systems may not be effective, as they may not align with the organization's goals or values. Eliminating informal systems without considering their benefits could also lead to resistance and low adoption of the new system.

Question 8

From a strategic standpoint, profit centers tend to:

Accepted Answer

Profit centers provide incentive for coordination among managers of different units. This is because the success of the profit center is dependent on the profitability of the entire unit, rather than just one aspect like cost control or revenue generation. This encourages managers to work together and make decisions that benefit the organization as a whole. Option A is incorrect because center managers are still concerned with markets as they need to understand the customer needs to generate revenue. Option B is incorrect because a profit center's focus is not just on fulfilling orders but also on overall profitability. Option D is incorrect because profit centers focus on both revenue generation and cost control. Therefore, option C is the best choice.

Question 9

Operational control has a management-by-exception approach in contrast to management control, which is more consistent with:

Accepted Answer

Management control is more consistent with the management-by-objectives approach, where specific goals and objectives are set, and performance is measured against them. This is in contrast to operational control, which focuses on monitoring day-to-day activities and intervening only when there are exceptions or deviations from normal operations. The other answer choices are not directly related to the comparison between operational control and management control.

Question 10

Risk aversion is by:

Accepted Answer

Risk aversion is the tendency of a manager to choose less risky options over more risky options, even if the potential payoff is bigger for the latter option. This behavior is often influenced by the presence of uncertainty in a manager's environment. Managers who strive to reduce their exposure to risk may prefer to stick to safe, well-tested strategies and avoid innovation or experimentation that might carry a higher level of risk. Therefore, the presence of uncertainty in a manager's environment is the most likely cause of risk aversion.

Question 11

Performance evaluation in most firms is applied at:

Accepted Answer

Performance evaluation is applied at many different levels in a firm, from top management down to individual production and sales employees. It is important to evaluate and provide feedback on the performance of all levels of employees in order to ensure that they are meeting the goals and objectives of the organization.

Question 12

The need for coordination between the production and the selling function will impact the choice of:

Accepted Answer

The need for coordination between the production and selling function would require the choice of a profit center, as this type of center is responsible for both revenue generation and cost control, and would be best suited to manage the coordination of these two functions. A cost or revenue center may not have the same level of authority or responsibility to manage both aspects of the business.

Question 13

"Outsourcing" a cost center is often done to:

Accepted Answer

Outsourcing a cost center can help reduce costs for the company, allowing them to focus on their core competencies and strategic goals. It can also provide access to specialized expertise and technology that may not be available in-house. By outsourcing non-core functions, the company can streamline operations and improve efficiency.

Question 14

As a strategic issue, "budget slack" could represent a:

Accepted Answer

Outsourcing a cost center is typically done to reduce cost and improve focus by allowing the company to focus on its core competencies and leave non-core activities to outside experts who can provide them at a lower cost. This can also free up resources and capital for investment in more strategic areas.

Question 15

The main concept of the balanced scorecard is that, to evaluate the SBU's progress to strategic success, an organization must use all of the following except:

Accepted Answer

The balanced scorecard includes both financial and non-financial measures, measures of customer satisfaction, and multiple measures for a comprehensive evaluation. However, it does not specifically require the use of value chain analysis to evaluate strategic success.

Question 16

The objectives of management control of the manager include:

Accepted Answer

The answer of The objectives of management control of the...

Question 17

By not distinguishing between direct and indirect costs in their performance reporting, many companies:

Accepted Answer

Not distinguishing between direct and indirect costs can lead to poor decision-making because indirect costs can mask the true profitability of a product or service. Indirect costs should be carefully allocated to the appropriate products or services in order to make more informed decisions.

Question 18

The "risk-averse" manager will be improperly biased to:

Accepted Answer

A risk-averse manager will be improperly biased to avoid decisions with uncertain outcomes. This is because they prioritize avoiding potential losses over gaining potential gains, and uncertainty increases the risk of losses. They may prefer to stick with tried and true methods rather than attempting something new or risky, even if it could potentially lead to greater success in the long run.

Question 19

The common factor among control systems in hiring practices, promotion policies, and strategic performance measurement is:

Accepted Answer

The common factor among control systems in hiring practices, promotion policies, and strategic performance measurement is that management sets expectations for desired employee performance. In the case of hiring practices, management sets expectations for the skills and qualifications required for potential hires. In promotion policies, management sets expectations for the performance and skills needed for career advancement. In performance measurement, management sets the expectations for key performance indicators and goals to be met.

Question 20

The principal-agent economic model applied to employment contracts deals primarily with the two management performance aspects of:

Accepted Answer

A risk-averse manager is someone who prefers certainty over uncertainty when making decisions. Therefore, they will tend to avoid decisions with uncertain outcomes, as those decisions involve more risk.

Quiz 18: Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard