Chapter 9

Question 1

What are five advantages of decentralilzation

Answer 1

1. Frees up top managements time
2. Supports use of expert knowledge
3. Improves customer relations
4. Provides training
5. Improves motivation and retention

Question 2

What are disadvantages of decentralization

Answer 2

Duplication of costs
Problems achieving goal congruence

Question 3

When segment managers’ goals align with top managements goals

Answer 3

goal congruence

Question 4

A part of the organization for which manger has decision-making authority and accountability for the results of thoses decisions

Answer 4

Responsibility centers

Question 5

A system for evaluating the performance of each responsibility center and its manager

Answer 5

responsibility accounting system

Question 6

What are the four types of responsibility centers

Answer 6

1. Cost center
2. Revenue center
3. Profit center
4. Investment center

Question 7

A responsibility center whose manager is only responsible for controlling cost

Answer 7

Cost center

Question 8

A responsibility center whose manager is only responsible for generating revenue

Answer 8

Revenue Center

Question 9

A responsibility center whos manger is responsible for generating revenue and controlling costs and, therefore, profits.

Answer 9

Profit center

Question 10

A responsibility center whose manager is responsible for generating profits and efficiently managing the center’s invested capital

Answer 10

Investment center

Question 11

A system that provides top management with a framework for maintaining control over the entire organization

Answer 11

Performance evaluation systems

Question 12

A system that provides top management with a framework for maintaining control over the entire organization

Answer 12

Performance evaluation systems

Question 13

A nonfinancial performance measure that evaluates effectiveness and efficiency to ensure all segments of the business are working together to achieve the company’s goals.

Answer 13

Operational Performance Measures

Question 14

The performance evaluation system that requires management to consider both financial performance measures and operational performance measures when judging the performance of a company and its subunits.

Answer 14

Balanced scorecard

Question 15

What are the four perspectives of a balanced scorecard

Answer 15

Financial
Customer
Internal business
Learning and Growth

Question 16

Performance report that captures the financial performance of cost, revenue, and profit centers with a focus on responsibility and controllability

Answer 16

Responsibility reports

Question 17

The typical focus of a cost centers responsibility report

Answer 17

Flexible budget variance

Question 18

Typical focus of a revenue centers responsibility report

Answer 18

Flexible budget variance and sales volume variance

Question 19

Typical focus of a profit centers performance report

Answer 19

Revenue and expense variances

Question 20

Two financial measurements of an investment center

Answer 20

Operating income and efficient use of assets

Question 21

A measure of profitability and efficiency.

Answer 21

ROI = Operating income/average total assets

Question 22

Ratio that shows how much operating income is earned on every dollar of net sales revenue

Answer 22

Profit margin ratio = Op income/nest sales reve

Question 23

Measures how efficiently a business uses its average total assets to generates sales.

Answer 23

Asset turnover ratio = net sales rev/average total assets

Question 24

A measure of profitability and efficiency computed as actual operating income less a specified minimum acceptable operating income

Answer 24

Residual income = OI - (target rate of return * average total assets)

Question 25

The transaction amount of one unit of goods when the transaction occurs between divisions within the same company

Answer 25

transfer price

Question 26

A transfer price based on the current market value of the goods

Answer 26

market-based transfer price

Question 27

The benefit given up by choosing an alternative course of action

Answer 27

opportunity cost

Question 28

A transfer price based on the cost of producing the goods

Answer 28

cost-based transfer price