Responsibility Accounting and Transfer Pricing
(A.Decentralization and Performance Evaluation)
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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