 Show Responsibility Accounting and Transfer Pricing (A.Decentralization and Performance Evaluation) 367 MODULE 7 RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING A. DECENTRALIZATION AND PERFORMANCE EVALUATION THEORIES: Centralization vs. decentralization Centralization 3. In a company with a centralized approach to responsibility accounting, upper-level managers typically A. make key decisions only B. implement key decisions only C. both make and implement key decisions D. review the outcomes of key decisions only Decentralization 1. Why would a company decentralize? A. to train and motivate division managers B. to focus top management’s attention to operating decisions C. to allow division managers to concentrate on strategic planning D. all of the above 2. Advantages of decentralization include all of the following except A. divisional management is able to react to changing market conditions more rapidly than top management B. divisional management is a source of personnel for promotion to top management positions C. decentralization can motivate divisional managers D. decentralization permits divisional management to concentrate on company-wide problems and long-range planning 4. In a company with a decentralized approach to responsibility accounting, lower-level managers typically A. make key decisions only B. implement key decisions only C. both make and implement key decisions D. review the outcomes of key decisions only 7. Decentralization occurs when A. the firm’s operations are located over a large geographic area to reduce risk B. authority for important decisions is delegated to lower segments of the organization C. important decisions are made at the upper levels and the lower levels of the organization are responsible for implementing the decisions D. none of the above Goal congruence, Suboptimization & management by objectives Goal congruence 8. Consistency between goals of the firm and the goals of its employees is: A. goal optimization C. goal congruence B. goal conformance D. goal compensation 16. Goal congruence is most likely to result when A. reports to managers include all costs B. managers’ behavior is affected by the criteria used to judge their performance C. performance evaluation criteria encourage behavior in the company’s best interests as well as in the manager’s best interests D. a manager knows the criteria used to judge his or her performance 35. When a manager takes an action that benefits his or her responsibility center, but not the company as a whole, A. it is a non-controllable action B. there is a lack of goal congruence C. the center must be an artificial profit center D. the manager should be fired Suboptimization 19. A management decision may be beneficial for a given profit center, but not for the entire company. From the overall company viewpoint, this decision would lead to A. goal congruence C. centralization B. suboptimization D. maximization Management by objectives 17. An emphasis on obtaining goal congruence is consistent with a broad managerial approach Which responsibility center is most commonly evaluated using ROI?Managers of investment centers are accountable for assets and liabilities as well as earnings. The performance of investment center managers is evaluated using ROI or residual income. Management center.
What are the common measures used to evaluate an investment center?Three common measures used to evaluate the performance of investment centers are return on investment (ROI), residual income (RI), and extra value added (EVA). Operating income is income produced from daily activities and excludes items such as taxes, interest, and unusual gains and losses.
In which of the following centers are managers responsible for costs revenues and investment decisions?Answer: An investment centerA segment of an organization responsible for costs, revenues, and investments in assets. is an organizational segment that is responsible for costs, revenues, and investments in assets. Investment center managers have control over asset investment decisions.
On what is a manager of a profit center evaluated?Managers of profit centers are evaluated on their ability to control costs as well as their ability to generate revenue and profits in their departments.
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Which type of responsibility center manager is commonly evaluated using return on investment?
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