Performance management Test
Questions and Complete Solutions
Graded A+
What are the main functions that management are involved with? - Answer: Planning
decision making
control
What is budget bias? - Answer: A deliberate over-estimation of expenditure and/or under estimation of
revenues in the budgeting process
What are the 3 distinct styles of budgetary information? - Answer: Budget-constrained style
Profit conscious style
Non-accounting style
What factors affect degrees of decentralisation? - Answer: Management style
size of the company
extent of diversification
communication
management's ability
technology
geographical location
extent of local knowledge needed
What is responsibility accounting? - Answer: A system of providing financial info to management, where
the structure of the reporting system is based on identifying individual parts of a business which are the
responsibility of a single manager
, What is a responsibility centre and what are the main ones? - Answer: An individual part of a business
whose manager has personal responsibility for its performance.
Cost centre
Profit centre
Investment centre
Revenue centre
What are cost centres? - Answer: A production or service location, function, activity of item of
equipment whose costs are identified and recorded for the purpose of providing MI.
What is required for cost centres and how is their performance measured? - Answer: Managers need to
have info about costs that are incurred and charged to their cost centres.
Performance of a manager is judged on the extent to which cost targets have been achieved
Care needs to be made to distinguish between controllable and uncontrollable costs
What is a profit centre? - Answer: A profit centre is a part of the business for which both the costs
incurred and the revenues earned are identified
What is required for profit centres and how is their performance measured? - Answer: Within each
profit centre, there could be several costs centres and revenue
centres.
The performance of a profit centre manager is measured in terms of the profit
made by the centre.
The manager must therefore be responsible for both costs and revenues and in
a position to plan and control both.
Data and information relating to both costs and revenues must be collected and
allocated to the relevant profit centres.
What is a investment centre? - Answer: An investment centre is a profit centre with additional
Questions and Complete Solutions
Graded A+
What are the main functions that management are involved with? - Answer: Planning
decision making
control
What is budget bias? - Answer: A deliberate over-estimation of expenditure and/or under estimation of
revenues in the budgeting process
What are the 3 distinct styles of budgetary information? - Answer: Budget-constrained style
Profit conscious style
Non-accounting style
What factors affect degrees of decentralisation? - Answer: Management style
size of the company
extent of diversification
communication
management's ability
technology
geographical location
extent of local knowledge needed
What is responsibility accounting? - Answer: A system of providing financial info to management, where
the structure of the reporting system is based on identifying individual parts of a business which are the
responsibility of a single manager
, What is a responsibility centre and what are the main ones? - Answer: An individual part of a business
whose manager has personal responsibility for its performance.
Cost centre
Profit centre
Investment centre
Revenue centre
What are cost centres? - Answer: A production or service location, function, activity of item of
equipment whose costs are identified and recorded for the purpose of providing MI.
What is required for cost centres and how is their performance measured? - Answer: Managers need to
have info about costs that are incurred and charged to their cost centres.
Performance of a manager is judged on the extent to which cost targets have been achieved
Care needs to be made to distinguish between controllable and uncontrollable costs
What is a profit centre? - Answer: A profit centre is a part of the business for which both the costs
incurred and the revenues earned are identified
What is required for profit centres and how is their performance measured? - Answer: Within each
profit centre, there could be several costs centres and revenue
centres.
The performance of a profit centre manager is measured in terms of the profit
made by the centre.
The manager must therefore be responsible for both costs and revenues and in
a position to plan and control both.
Data and information relating to both costs and revenues must be collected and
allocated to the relevant profit centres.
What is a investment centre? - Answer: An investment centre is a profit centre with additional
