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BSA 24C > [Chapter 6] Decentralization > Flashcards

[Chapter 6] Decentralization Flashcards

1
Q

Responsibility accounting is a system that measures the results of each responsibility center and compares those results with some expected or budgeted outcome.

A

TRUE

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2
Q

A responsibility center is a part of a business whose workers are accountable for specified activities.

A

FALSE

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3
Q

In an investment responsibility center, the manager is only responsible for costs.

A

FALSE. Manager is responsible for revenues, costs, and investments.

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4
Q

In centralized organizations, lower-level managers are responsible only for implementing decisions.

A

TRUE

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5
Q

Decentralization is the practice of delegating decision-making
authority to the lower levels of management.

A

TRUE

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6
Q

Local managers can make better decisions using distant information and outside managers can provide more timely responses to changing conditions.

A

FALSE

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7
Q

Cognitive limitations mean it is difficult for central managers to be fully knowledgeable about all products and markets.

A

TRUE

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8
Q

Decentralization stimulates competition among the divisions of a firm.

A

TRUE

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9
Q

Return on investment (ROI) refers to earnings before interest and income taxes.

A

TRUE

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10
Q

Margin is the ratio of operating income to sales.

A

TRUE

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11
Q

One disadvantage of ROI in evaluating performance is that it encourages managers to slack off.

A

FALSE

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12
Q

Economic value added (EVA) is after-tax operating income minus the total annual cost of capital.

A

TRUE

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13
Q

Goal congruence means that the goals of managers are aligned with the goals of the company.

A

TRUE

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14
Q

Firms encourage goal congruence by constructing management early retirement programs.

A

FALSE

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15
Q

It is important for the multinational firm to separate the evaluation of a division manager from the division.

A

TRUE

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16
Q

Transfer pricing exists when one division of a company produces a product that can be used in the production by a different division.

A

TRUE

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17
Q

A transfer price is the price charged by one division of a company to another company.

A

FALSE. A transfer price is the price charged by one division of a company to another division.

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18
Q

The transfer price is revenue to the selling division and cost to the buying division.

A

TRUE

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19
Q

The transfer pricing problem concerns finding a system that simultaneously satisfies the three objectives of the transfer pricing system.

A

TRUE

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20
Q

The minimum transfer price is the absolute maximum price that can be accepted.

A

FALSE

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21
Q

Investments are not controlled by managers of a __________ center.

A

PROFIT/REVENUE/COST.

Managers of a cost center control costs
Managers of a revenue center control revenues.
Managers of a profit center control both revenues and costs.

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22
Q

The delegation of decision-making authority to successively lower management levels is called __________.

A

DECENTRALIZATION

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23
Q

When the major functions of a company are controlled by top management, it is called __________ .

A

CENTRALIZATION

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24
Q

__________ managers can make better decisions using __________ information.

A

LOCAL, LOCAL

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25
Q

__________ limitations make it difficult for any central manager to know everything about all products and markets.

A

COGNITIVE

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26
Q

__________ is after-tax operating profit minus the total annual cost of capital.

A

ECONOMIC VALUATION ADDED

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27
Q

__________ are a noncash benefit received over and above salary.

A

PERQUISITES

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28
Q

In a multinational firm, it is important to separate the evaluation of a division manager from the __________.

A

DIVISION

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29
Q

The __________ transfer price is the minimum price acceptable when transferring a product.

A

MINIMUM

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30
Q

The price charged for goods produced in one division to another division within the company is called the
__________ price.

A

TRANSFER

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31
Q

Responsibility accounting is defined as a system that

A. defines responsibility by function only.
B. measures actual results against a flexible budget.
C. measures the results of a manager responsible for revenues and costs.
D. measures the results of each responsibility center and compares those results with some measure of expected or budgeted outcome.

A

measures the results of each responsibility center and compares those results with some measure of expected or budgeted outcome.

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32
Q

A manufacturing division of a company would most likely be evaluated as a(n)

A. cost center.
B. investment center.
C. revenue center.
D. asset center

A

cost center.

33
Q

Which of the following departments is likely to be an investment center?

A. machining department
B. food products division
C. personnel department
D. accounting department

A

food products division

34
Q

Both revenue center and profit center managers are responsible for achieving

A. budgeted revenues.
B. budgeted net income.
C. budgeted costs.
D. budgeted contribution margin.

A

budgeted revenues.

35
Q

Which of the following departments would NOT be classified as a profit center?

A. hardware department
B. men’s shoes department
C. accounting department
D. automotive department

A

accounting department

36
Q

Which of the following responsibility centers would have a manager responsible for revenues, costs, and investments?

A. cost center
B. investment center
C. profit center
D. expense center

A

investment center

37
Q

A manager of a profit center does not control:

A. Revenues
B. Costs
C. Profits
D. Investments

A

Investments

38
Q

The manager of a profit center is responsible for

A. delivering a quality product or service at reasonable but minimal cost.
B. decisions to invest in capital equipment.
C. decisions regarding revenue generation.
D. both a and c.

A

both a and c

A. delivering a quality product or service at reasonable but minimal cost.
C. decisions regarding revenue generation.

39
Q

The manager of a profit center is responsible for

A. delivering a quality product or service at reasonable but minimal cost.
B. decisions to invest in capital equipment.
C. decisions regarding revenue generation.
D. both a and c.

A

both a and c

A. delivering a quality product or service at reasonable but minimal cost.
C. decisions regarding revenue generation.

39
Q

The manager of a profit center is responsible for

A. delivering a quality product or service at reasonable but minimal cost.
B. decisions to invest in capital equipment.
C. decisions regarding revenue generation.
D. both a and c.

A

both a and c

A. delivering a quality product or service at reasonable but minimal cost.
C. decisions regarding revenue generation.

40
Q

The manager of an investment center is responsible for

A. decisions regarding costs.
B. decisions regarding revenues.
C. decisions to invest in assets.
D. all of these.

A

All of these:
A. decisions regarding costs.
B. decisions regarding revenues.
C. decisions to invest in assets.

41
Q

The manager of a cost center is responsible for

A. decisions regarding costs.
B. decisions regarding revenues.
C. decisions to invest in assets.
D. both a and b.

A

decisions regarding costs.

42
Q

Which of the following departments would NOT be a cost center?

A. advertising department
B. city police department
C. building and grounds department
D. sales department

A

sales department

43
Q

An example of an investment center is a

A. production department.
B. company.
C. marketing department.
D. credit department.

A

company.

44
Q

Responsibility accounting is a system that does NOT consider

A. responsibility.
B. accountability.
C. performance evaluation.
D. static budgeting.

A

static budgeting.

45
Q

The delegation of decision-making authority to successively lower management levels in an organization is called:

A. Centralization
B. Decentralization
C. Optimization
D. An unfavorable overhead variance

A

Decentralization

46
Q

When top management controls the major functions of an organization it is called:

A. Centralization
B. Decentralization
C. Optimization
D. An unfavorable overhead variance

A

Centralization

47
Q

Which of the following would NOT be a reason for decentralization?

A. Managers will make decisions for their own benefit, rather than the organization’s benefit.
B. Lower level managers have better access to information.
C. Upper management can spend more time focusing on strategic planning and decision making.
D. Lower level managers with decision-making ability are more motivated.

A

Managers will make decisions for their own benefit, rather than the organization’s benefit.

48
Q

One of the reasons for decentralization is more timely response. This means

A. lower-level managers being more in contact with immediate operating conditions.
B. central management can be free to focus on strategic planning.
C. allowing an organization to determine each division’s contribution to profit and expose each division to market forces.
D. local management both makes and implements decisions.

A

local management both makes and implements decisions.

49
Q

The return on investment is computed as

A. operating income divided by sales.
B. operating income divided by average operating assets.
C. sales divided by average operating assets.
D. operating asset turnover divided by the operating income margin.

A

operating income divided by average operating assets.

50
Q

Which of the following changes would NOT change return on investment (ROI)?

A. Decrease sales and expenses by the same percentage.
B. Increase total assets.
C. Increase sales dollars by the same amount as total assets.
D. Decrease sales and expenses by the same dollar amount.

A

Decrease sales and expenses by the same dollar amount.

51
Q

Which of the following changes would INCREASE return on investment (ROI)?

A. Decrease sales and expenses by the same percentage.
B. Increase total assets.
C. Increase sales and expenses by the same percentage.
D. Decrease sales and expenses by the same dollar amount.

A

Increase sales and expenses by the same percentage.

52
Q

Which of the following is NOT an advantage of ROI?

A. It encourages managers of departments with high ROIs to invest in average ROI projects.
B. It encourages managers to pay careful attention to the relationships among sales, expenses, and investment.
C. It encourages cost efficiency.
D. It discourages excessive investment in operating assets.

A

It encourages managers of departments with high ROIs to invest in average ROI projects.

53
Q

Which of the following is NOT a disadvantage of the ROI performance measure?
A. It encourages managers to focus on the long run rather than the short run.
B. It discourages managers from investing in projects that would decrease divisional ROI but increase the profitability of the company as a whole.
C. It encourages myopic behavior.
D. All are disadvantages of the ROI measure.

A

It encourages managers to focus on the long run rather than the short run.

54
Q

The emphasis on shortrun results at the expense of the long run is
A. efficient behavior.
B. effective behavior.
C. optimal behavior.
D. myopic behavior.

A

myopic behavior.

55
Q

Which of the following is a disadvantage of both residual income and ROI?

A. They are both absolute measures of return.
B. They are both difficult to calculate.
C. They both do not discourage myopic behavior.
D. All of these are disadvantages of both ROI and residual income.

A

They both do not discourage myopic behavior.

56
Q

The aftertax operating profit minus the total annual cost of capital equals the:

A. Residual income
B. EVA
C. ROI
D. Net income

A

EVA

57
Q

Return on investment can be divided into two separate components

A. margin and profit.
B. margin and turnover.
C. value and turnover.
D. liquidity and margin.

A

margin and turnover.

58
Q

Economic value added is calculated by which of the following formulas?

A. EVA = Aftertax operating income + (Weighted average cost of capital ´ Total capital employed)
B. EVA = Aftertax operating income * Weighted average cost of capital
C. EVA = Aftertax operating income - (Weighted average cost of capital ´ Total capital employed)
D. EVA = Total capital employed (Weighted average cost of capital ´ Aftertax
operating income)

A

EVA = Aftertax operating income -( Weighted average cost of capital ´ Total capital employed)

59
Q

EVA encourages the right kind of behavior from divisions because of its emphasis on

A. after-tax net income.
B. total capital employed.
C. true cost of capital.
D. before-tax operating income.

A

true cost of capital.

60
Q

Multiple measures of performance are beneficial if they

A. are all financial measures.
B. include non-financial operating measures.
C. focus only on shortrun factors.
D. all of these statements are true.

A

include non-financial operating measures.

61
Q

A type of fringe benefit received over and above salary is(are) called:

A. Bonus based on net income
B. Cash compensation
C. Perquisites
D. EVA

A

Perquisites

62
Q

Which of the following is NOT an environmental factor affecting performance evaluation in the multinational firm?

A. sociological factors
B. economic factors
C. political or legal factors
D. All of these are environmental factors affecting performance evaluation in the multinational firm.

A

All of these are environmental factors affecting performance evaluation in the multinational firm

A. sociological factors
B. economic factors
C. political or legal factors

63
Q

Which of the following would be a reason why managers would NOT provide good service?

A. They may have low ability.
B. They may not prefer to work hard.
C. They may prefer to spend company resources on perquisites.
D. All of these are reasons.

A

All of these are reasons.

A. They may have low ability.
B. They may not prefer to work hard.
C. They may prefer to spend company resources on perquisites.

64
Q

The right to buy a certain number of shares of a company’s stock at a particular price is(are) called:

A. Perquisites
B. Cash compensation
C. Stock-based compensation
D. Stock options

A

Stock options

65
Q

Which of the following managerial rewards is NOT a shortterm
reward?

A. stock ownership
B. cash bonuses
C. stock options
D. both a and b

A

stock ownership

66
Q

Goal congruence can be defined as

A. an incentive plan arranged so the managers’ goals are aligned with the shareholders’ goals.
B. managers operating the business in the best interest of the shareholders.
C. tying management rewards to shareholder results.
D. all of these are correct.

A

all of these are correct.

A. an incentive plan arranged so the managers’ goals are aligned with the shareholders’ goals.
B. managers operating the business in the best interest of the shareholders.
C. tying management rewards to shareholder results.

67
Q

It is important to separate the evaluation of the manager from the evaluation of the division in a multinational firm. A manager’s evaluation should NOT include

A. revenues.
B. income taxes.
C. operating costs.
D. cost of goods sold.

A

income taxes.

68
Q

Which of the following is an economic factor affecting performance evaluation in a multinational firm?

A. currency restrictions
B. economic stability
C. impact of foreign policy
D. both a and b

A

both a and b

A. currency restrictions
B. economic stability

69
Q

Which of the following is a political or legal factor affecting performance evaluation in a multinational firm?

A. social attitude toward industry and business
B. literacy rate
C. effect of defense policy
D. currency restrictions

A

effect of defense policy

70
Q

Comparison of an international division’s ROI can potentially be misleading because of

A. the absence of activity-based management.
B. differing production technologies.
C. the lack of good information.
D. differing environmental factors.

A

differing environmental factors.

71
Q

Division ‘A’ produces a component and wants to sell it to Division ‘B’. The transfer price is

A. revenue to Division ‘A’ and a cost to Division ‘B’
B. revenue to Division ‘B’ and a cost to Division ‘A’
C. revenue to Division ‘A’ and no effect on Division ‘B’
D. a cost to Division ‘B’ and no effect on Division ‘A’

A

revenue to Division ‘A’ and a cost to Division ‘B’

72
Q

Transfer prices are the prices charged

A. for distributing goods from one warehouse to another.
B. for the goods produced by one division to another division that needs these goods.
C. when delivering goods to the customer.
D. when transferring goods to international divisions.

A

for the goods produced by one division to another division that needs these goods.

73
Q

The transfer price that would leave the selling division no worse off if the good is sold to an internal division is(are) called:

A. The maximum transfer price
B. The negotiated transfer price
C. The minimum transfer price
D. Both a and c

A

The minimum transfer price

74
Q

The transfer price that would leave the buying division no worse off if an input is purchased from an internal division is(are) called:

A. The maximum transfer price
B. The minimum transfer price
C. The negotiated transfer price
D. Both a and c

A

The maximum transfer price

75
Q

When there is an outside market for an intermediate product that is perfectly competitive, the most equitable method of transfer pricing is

A. market price.
B. production cost pricing.
C. variable cost pricing.
D. cost plus markup pricing.

A

market price.

76
Q

Negotiated prices are transfer prices

A. determined between a division and corporate headquarters.
B. negotiated with external customers.
C. used when supplying and buying divisions independently agree on a price.
D. agreed to by division management and employees.

A

used when supplying and buying divisions independently agree on a price.

77
Q

When there is an outside market for an intermediate product that is perfectly competitive, the most equitable method of transfer pricing is

A. market price.
B. production cost pricing.
C. variable cost pricing.
D. cost plus markup pricing.

A

market price.

78
Q

The “floor” in transfer pricing is

A. the transfer price that would leave the buying division no worse off if an input is purchased from an internal division.
B. the transfer price that would leave the selling division no worse off if the good is sold to an internal division.
C. the transfer price that would leave the buying division worse off if an input is purchased from an internal division.
D. none of these.

A

the transfer price that would leave the selling division no worse off if the good is sold to an internal division.

BSA 24C (11 decks)

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