Responsibility Acctg and Segment Evaluation

Question 1

An accounting information system and a managerial control device.

Answer 1

Responsibility Accounting

Question 2

A sub unit of an organization, such as a department, division, plant, business process or any segment whose manager has authority over and is responsible and accountable for a specific or defined group of activities.

Answer 2

Responsibility Centers

Question 3

A manager has control over the incurrence of costs but not over revenues or investments. Ex. Maintenance Department

Answer 3

Cost Center

Question 4

Manager has control over revenues. ex. Sales Dept

Answer 4

Revenue center

Question 5

The manager has control over both cost and revenue. Ex. Branch

Answer 5

Profit Center

Question 6

the manager has control over both cost and revenues, as well as over investment in plant and equipment, receivables, inventory and other assets.

Answer 6

Investment Center

Question 7

usually operated as a cost center; it exists primarily and sometimes solely to provide specialized support to the other segments or sub-units of the organization

Answer 7

Service Center

Question 8

top management makes most of the decisions and controls most activities of the organizational segments from the firms central office.

Answer 8

Centralized Organization

Question 9

there is employee empowerment; top management grants subordinate managers a significant degree of autonomy and independence in operating and making decisions relating to their sphere of responsibility.

Answer 9

Decentralized Organization

Question 10

one purpose of a responsibility accounting system is to provide a condition where employees working on their own personal interests or the interest of their responsibility center make decisions that help meet the overall goals of the firm.

Answer 10

Goal Congruence

Question 11

the exertion of effort by the decision makers to reach a common goal or objective; this includes all conscious actions such as planning and supervising (controlling).

Answer 11

Managerial Effort

Question 12

To achieve goal congruence and managerial effort, employees must be properly

Answer 12

MOTIVATED

Question 13

the power to direct and exact performance from others, particularly the subordinates, including the right to prescribe the means and methods by which work must be done.

Answer 13

Authority

Question 14

the obligation to perform.

Answer 14

Responsibility

Question 15

the duty to report performance to one’s superior and the physical means for reporting or being able to substantiate performance.

Answer 15

Accountability

Question 16

AUTHORITY = ?

Answer 16

RESPONSIBILITY

Question 17

RESPONSIBILITY=?

Answer 17

ACCOUNTABILITY

Question 18

a behavioral communications oriented responsibility approach where a manager and his subordinates agree upon objectives and the means on how such objectives can be attained.

Answer 18

Management by Objectives

Question 19

the extent to which a manager can influence activities, cost, revenues or capital; a manager should be evaluated only on matters that he controls.

Answer 19

Controllability

Question 20

The performance report should separate the controllable from the non-controllable cost and should highlight the variances between the actual and the budgeted costs.

Answer 20

Cost Center
Cost Variance Analysis

Question 21

The manager has control in generating revenue but not of costs. The performance report should show the variances between actual and budgeted revenue. The variance can either be favorable or unfavorable.

Answer 21

Revenue Center
Revenue Variance Analysis

Question 22

The manager has control over both revenues and cost. His evaluation is based on controllable margin while for the center, it’s based on segment or direct margin.

Answer 22

Profit Center
Segment Margin Analysis

Question 23

Performance is evaluated based on the results of investment.
Basis for Evaluating Responsibility Centers

Answer 23

Investment Center
ROI, Residual Income Model, EVA, Equity Spread

Question 24

a more specific version of Residual Income. It represents the segment’s or company’s true economic profit as it measures the benefits obtained by using the resources in a particular way

Answer 24

Economic Value Added (EVA)

Question 25

the minimum income that must be earned taking into account the cost of capital obtained from borrowings.

Answer 25

Shareholders’ expectation

Question 26

the value created by the equity base of a business.

Answer 26

Equity spread

Question 27

the excess over the shareholders’ expectations.

Answer 27

true economic profit

Question 28

equal to profit divided by the average shareholders’ equity.

Answer 28

Return on equity

Question 29

the change in the stock price plus dividends per share divided by the initial stock price.

Answer 29

Total shareholders’ return

Question 30

the difference between the market value of the equity and the equity supplied by the shareholders.

Answer 30

Market value added