Chapter 11: Budgetary Controls Flashcards
F. ___ are a type of organization in which daily operations and decision-making responsibilities are delegated to middle and lower-level mangers within the organization, allowing top management to focus more on major decisions.
Decentralized organizations
F. ___, ___, ___, and ___ are advantages of decentralized organizations.
- Increased expertise at each division
- Quicker decisions
- Better use of time at top management levels
- Increased motivation of division managers
F. Disadvantages of decentralization include ___, such as accounting and computer support, ___, and ___.
- Duplication of services
- Potential increase in conflicts between division manager goals and company-wide goals
- Loss of control at the top management level on things such as quality
What are the three responsibility centers?
- Cost centers
- Profit centers
- Investment centers
F. A ___ is an organizational segment that is responsible for costs.
I.e., service departments such as accounting, marketing, IT, and HR
Cost center
A ___ is an organizational segment that is responsible for costs and revenues (and therefore, profit)
I.e., retail stores for companies such as Macy’s, KMart, KFC, etc.
Profit center
An ___ is an organizational segment that is responsible for costs, revenues, and investments in assets.
I.e., the Chevrolet division of GM or the printer division of Hewlett Packard
Investment center
___are categorized depending on the level of control over revenues, costs, or investments.
Responsibility centers
F. Performance measures used to evaluate managers depend on ___.
The type of responsibility center being managed
F. ___ is the measure which provides an assessment of how efficiently each division is using operating assets to produce operating income.
ROI (return on investment)
F. ___ is the dollar amount of division operating profit in excess of the division’s cost of acquiring capital to purchase its operating assets.
RI (residual income)
F. The goal of each division manager is to ___ RI over time.
Increase
___ is an estimate of a firm’s economic profit, or the value created in excess of the required return of the company’s shareholders
EVA (economic value added)
F. ___ is the price used to value the transfer of foods or services between divisions within the same company.
Transfer price
The goal of transfer price is to ___.
F. Establish a transfer pricing policy that encourages managers to do what is in the best interest of the company while also doing what is in the best interest of the division manager.
