OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
Multiple Choice
1. LO 9.1 Which of the following is not a common goal of an organization?
A. operational efficiency
B. being acquired by another business
C. achieving strategic goals
D. measuring financial performance
Solution
B
2. LO 9.1 Which of the following does not describe a management control system?
A. establishes a company’s strategic goals
B. implements a company’s strategic goals
C. monitors a company’s strategic goals
D. a system that only measures profitability
Solution
D
3. LO 9.1 In centralized organizations, primary decisions are made by ________.
A. an individual at the top of the organization
B. various managers throughout the organization
C. outside consultants
D. low-level management
Solution
A
4. LO 9.1 A key advantage of a decentralized organization is ________.
A. increased administrative costs
B. quicker decisions and response time
C. the ease of aligning segment and company goals
D. duplication of efforts
Solution
B
5. LO 9.1 Strategic decisions occur ________.
A. frequently and involve immediate decisions
B. frequently and involve long-term decisions
C. infrequently and involve long-term decisions
D. infrequently and involve immediate decisions
Solution
C
6. LO 9.2 Segments are uniquely identifiable components of the business and can be categorized
by all of the following except ________.
A. products produced
B. services provided
C. geographical location
D. number of employees
Page 1 of 43
,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
Solution
D
7. LO 9.2 Organizational charts ________.
A. list the salaries of all employees
B. outline the strategic goals of the organization
C. show the structure of an organization
D. help management measure financial performance
Solution
C
8. LO 9.2 In a centralized organization, where are goals established?
A. at the lower level of the organization and promoted upward
B. outside the organization based on best practices in the industry
C. by each segment of the organization
D. at the highest level of the organization and promoted downward
Solution
D
9. LO 9.2 Managers in decentralized organizations make decisions relating to all of the
following except ________.
A. the company’s stock price
B. equipment purchases
C. personnel
D. prices to charge customers
Solution
A
10. LO 9.3 Which of the following is not a type of responsibility center?
A. concentrated cost center
B. investment center
C. profit center
D. cost center
Solution
A
11. LO 9.3 A system that establishes financial accountability for operating segments within an
organization is called ________.
A. a financial statement
B. an internal control system
C. responsibility accounting
D. centralization
Solution
C
12. LO 9.3 A responsibility center in which managers are held accountable for both revenues
and expenses is called a ________.
A. discretionary cost center
B. revenue center
C. cost center
D. profit center
Solution
Page 2 of 43
,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
D
13. LO 9.3 A responsibility center structure that considers investments made by the operating
segments by using a common cost of capital percentage is called ________.
A. return on investment
B. residual income
C. a profit center
D. a discretionary cost center
Solution
B
14. LO 9.3 An important goal of a responsibility accounting framework is to help ensure which
of the following?
A. decision-making is made by the top executives.
B. investments made by each segment are minimized.
C. identification of operating segments that should be closed.
D. segment and company financial goals are congruent.
Solution
D
15. LO 9.4 Costs that a company or manager can influence are called ________.
A. discretionary costs
B. fixed costs
C. variable costs
D. controllable costs
Solution
D
16. LO 9.4 An example of an uncontrollable cost would include all of the following except
________.
A. real estate taxes charged by the county in which the business operates
B. per-gallon cost of fuel for the company’s delivery trucks
C. hourly rate of pay for the company’s purchasing manager
D. federal income tax rate paid by the company
Solution
C
17. LO 9.4 Internal costs that are charged to the segments of a business are called ________.
A. controllable costs
B. variable costs
C. fixed costs
D. allocated costs
Solution
D
18. LO 9.4 A transfer pricing arrangement that uses the price that would be charged to an
external customer is a ________.
A. market-based approach
B. negotiated approach
C. cost approach
D. decentralized approach
Solution
Page 3 of 43
, OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
A
19. LO 9.4 A transfer pricing structure that considers the opportunity costs of selling to internal
rather than external customers uses ________.
A. the cost approach
B. the general transfer pricing approach
C. the market-based approach
D. the opportunity cost approach
Solution
B
Questions
1. LO 9.1 What is a management control system? What are its components and how does the
system help the business?
Solution
A management control system allows management to establish, implement, and monitor the
organization’s achievement of strategic goals. Once the goals are developed, goals must be
communicated throughout the organization, and activities of the organization should align to
achieve the strategic goals. The control system must also provide feedback and allow for
alterations, as necessary, to the organization’s strategic goals.
2. LO 9.1 Identify and describe the levels of management, including the various types of
decisions managers at each level make.
Solution
There are primarily three levels of management: lower-level, mid-level, and upper-level. Upper-
level managers establish, communicate, and monitor the organization’s goals, relying on mid-
level managers to achieve the goals. Mid-level managers work to achieve the goals established
by upper management by directing lower-level managers, who are focused on day-to-day
operating decisions.
3. LO 9.1 Discuss the difference between centralized and decentralized organizations. Does the
size of the organization influence whether the organization has a centralized or decentralized
structure? Explain.
Solution
Centralized organizations reserve decision-making authority for top management. Decentralized
organizations disperse decision-making throughout the organization. Companies of all sizes may
exhibit tendencies for both centralized and decentralized decision-making. For example, while
Apple might give its stores great latitude to meet customer needs, the company will reserve
research and development activities for the highest levels of the organization.
4. LO 9.1 Identify a company where you recently shopped. Assume the company operates with a
decentralized structure. Describe how customers might benefit from the decentralized structure.
Solution
Answers will vary. Sample answer: Best Buy is an electronics store. Assuming Best Buy
operates under a decentralized structure, the manager of a particular store or region may
incentivize departmental managers to develop an expertise and specialize in the products sold in
their department at the store. Computer shopping, for example, can be an intimidating experience
for many customers. Having well-trained employees provide guidance to customers will provide
Best Buy with a competitive advantage.
Page 4 of 43
Chapter 9: Responsibility Accounting and Decentralization
Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
Multiple Choice
1. LO 9.1 Which of the following is not a common goal of an organization?
A. operational efficiency
B. being acquired by another business
C. achieving strategic goals
D. measuring financial performance
Solution
B
2. LO 9.1 Which of the following does not describe a management control system?
A. establishes a company’s strategic goals
B. implements a company’s strategic goals
C. monitors a company’s strategic goals
D. a system that only measures profitability
Solution
D
3. LO 9.1 In centralized organizations, primary decisions are made by ________.
A. an individual at the top of the organization
B. various managers throughout the organization
C. outside consultants
D. low-level management
Solution
A
4. LO 9.1 A key advantage of a decentralized organization is ________.
A. increased administrative costs
B. quicker decisions and response time
C. the ease of aligning segment and company goals
D. duplication of efforts
Solution
B
5. LO 9.1 Strategic decisions occur ________.
A. frequently and involve immediate decisions
B. frequently and involve long-term decisions
C. infrequently and involve long-term decisions
D. infrequently and involve immediate decisions
Solution
C
6. LO 9.2 Segments are uniquely identifiable components of the business and can be categorized
by all of the following except ________.
A. products produced
B. services provided
C. geographical location
D. number of employees
Page 1 of 43
,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
Solution
D
7. LO 9.2 Organizational charts ________.
A. list the salaries of all employees
B. outline the strategic goals of the organization
C. show the structure of an organization
D. help management measure financial performance
Solution
C
8. LO 9.2 In a centralized organization, where are goals established?
A. at the lower level of the organization and promoted upward
B. outside the organization based on best practices in the industry
C. by each segment of the organization
D. at the highest level of the organization and promoted downward
Solution
D
9. LO 9.2 Managers in decentralized organizations make decisions relating to all of the
following except ________.
A. the company’s stock price
B. equipment purchases
C. personnel
D. prices to charge customers
Solution
A
10. LO 9.3 Which of the following is not a type of responsibility center?
A. concentrated cost center
B. investment center
C. profit center
D. cost center
Solution
A
11. LO 9.3 A system that establishes financial accountability for operating segments within an
organization is called ________.
A. a financial statement
B. an internal control system
C. responsibility accounting
D. centralization
Solution
C
12. LO 9.3 A responsibility center in which managers are held accountable for both revenues
and expenses is called a ________.
A. discretionary cost center
B. revenue center
C. cost center
D. profit center
Solution
Page 2 of 43
,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
D
13. LO 9.3 A responsibility center structure that considers investments made by the operating
segments by using a common cost of capital percentage is called ________.
A. return on investment
B. residual income
C. a profit center
D. a discretionary cost center
Solution
B
14. LO 9.3 An important goal of a responsibility accounting framework is to help ensure which
of the following?
A. decision-making is made by the top executives.
B. investments made by each segment are minimized.
C. identification of operating segments that should be closed.
D. segment and company financial goals are congruent.
Solution
D
15. LO 9.4 Costs that a company or manager can influence are called ________.
A. discretionary costs
B. fixed costs
C. variable costs
D. controllable costs
Solution
D
16. LO 9.4 An example of an uncontrollable cost would include all of the following except
________.
A. real estate taxes charged by the county in which the business operates
B. per-gallon cost of fuel for the company’s delivery trucks
C. hourly rate of pay for the company’s purchasing manager
D. federal income tax rate paid by the company
Solution
C
17. LO 9.4 Internal costs that are charged to the segments of a business are called ________.
A. controllable costs
B. variable costs
C. fixed costs
D. allocated costs
Solution
D
18. LO 9.4 A transfer pricing arrangement that uses the price that would be charged to an
external customer is a ________.
A. market-based approach
B. negotiated approach
C. cost approach
D. decentralized approach
Solution
Page 3 of 43
, OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 9: Responsibility Accounting and Decentralization
A
19. LO 9.4 A transfer pricing structure that considers the opportunity costs of selling to internal
rather than external customers uses ________.
A. the cost approach
B. the general transfer pricing approach
C. the market-based approach
D. the opportunity cost approach
Solution
B
Questions
1. LO 9.1 What is a management control system? What are its components and how does the
system help the business?
Solution
A management control system allows management to establish, implement, and monitor the
organization’s achievement of strategic goals. Once the goals are developed, goals must be
communicated throughout the organization, and activities of the organization should align to
achieve the strategic goals. The control system must also provide feedback and allow for
alterations, as necessary, to the organization’s strategic goals.
2. LO 9.1 Identify and describe the levels of management, including the various types of
decisions managers at each level make.
Solution
There are primarily three levels of management: lower-level, mid-level, and upper-level. Upper-
level managers establish, communicate, and monitor the organization’s goals, relying on mid-
level managers to achieve the goals. Mid-level managers work to achieve the goals established
by upper management by directing lower-level managers, who are focused on day-to-day
operating decisions.
3. LO 9.1 Discuss the difference between centralized and decentralized organizations. Does the
size of the organization influence whether the organization has a centralized or decentralized
structure? Explain.
Solution
Centralized organizations reserve decision-making authority for top management. Decentralized
organizations disperse decision-making throughout the organization. Companies of all sizes may
exhibit tendencies for both centralized and decentralized decision-making. For example, while
Apple might give its stores great latitude to meet customer needs, the company will reserve
research and development activities for the highest levels of the organization.
4. LO 9.1 Identify a company where you recently shopped. Assume the company operates with a
decentralized structure. Describe how customers might benefit from the decentralized structure.
Solution
Answers will vary. Sample answer: Best Buy is an electronics store. Assuming Best Buy
operates under a decentralized structure, the manager of a particular store or region may
incentivize departmental managers to develop an expertise and specialize in the products sold in
their department at the store. Computer shopping, for example, can be an intimidating experience
for many customers. Having well-trained employees provide guidance to customers will provide
Best Buy with a competitive advantage.
Page 4 of 43
