Chapter 11 Questions with answers.
how is performance measurement done in decentralized organizations? ANS -through responsibility
accounting systems, return on investment (ROI), residual income, operating performance measures, and
the balanced scorecard
decentralized organization ANS -decision making authority is spread throughout the organization rather
than confining decision-making authority to a few top executives
-to manage diverse and complex acticivities
-ex. Walmart
advantages of decentralization ANS --it enables top management to concentrate on strategy, higher-
level decision making, and coordinating activities
-it acknowledges that lower-level managers have more detailed info abt local conditions that enable
them to make better operational decisions
-enables lower-level managers to respond quickly to customers
-provides lower-level managers with the decision-making experience they will need when promoted to
higher level positions
-often increases motivation, resulting in increased job satisfaction and retention, as well as improved
performance
disadvantages of decentralization ANS --lower-level managers may make decisions without seeing the
"big picture"
-there may be a lack of coordination among autonomous managers (the balanced scorecard can help
reduce this by communicating a company's strategy throughout the organization)
-lower-level managers may have objectives that differ from those of the entire organization (this can be
reduced by designing performance evaluation systems that motivate managers to make decisions that
are in the best interests of the company)
-may be difficult to effectively spread innovative ideas in a strongly decentralized organization
responsibility centers ANS -a segment of the business whose manager is accoutnable for a specified set
of activities
-decentralized units
, -cost center, profit center, investment center
-responsibility acct
responsibility accounting ANS -a system that measures the performance of the responsibility center
based only on items under the manager's control (like segmented income stmts, shouldn't have big
common expenses taken out because out of their control)
performance measurement ANS -comparing actual performance with planned performance
three types of responsibility centers ANS -cost center, profit center, investment center
cost center ANS -manager is only responsible for controlling costs
-service departments such as acct, gen. admin, legal, and personnel, and manufacturing facilities
-standard cost variances and flexible budget variances are used to evaluate the financial performance of
cost centers
-should probs use quality/other issues as an evaluation in addition
how are responsibility centers evaluated? ANS --cost: standard cost variances and flexible budget
variances
-profit: cost, revenue, and profit variances
-investment: roi and ri
profit center ANS -manager is responsible for both revenues and costs (hence profits)
-held accountable for the attainment of budgeted profits
-cost, revenue, and profit variances are used to evaluate the financial performance
investment center ANS -has control over profits and the authority to make investment decisions (i.e.
invest in long-term assets like equipment)
-divisions are an example
-when measuring performance need to consider how profitable the center was given the level of assets
used to generate profit (how big an investment base was used to generate the profit)
how is performance measurement done in decentralized organizations? ANS -through responsibility
accounting systems, return on investment (ROI), residual income, operating performance measures, and
the balanced scorecard
decentralized organization ANS -decision making authority is spread throughout the organization rather
than confining decision-making authority to a few top executives
-to manage diverse and complex acticivities
-ex. Walmart
advantages of decentralization ANS --it enables top management to concentrate on strategy, higher-
level decision making, and coordinating activities
-it acknowledges that lower-level managers have more detailed info abt local conditions that enable
them to make better operational decisions
-enables lower-level managers to respond quickly to customers
-provides lower-level managers with the decision-making experience they will need when promoted to
higher level positions
-often increases motivation, resulting in increased job satisfaction and retention, as well as improved
performance
disadvantages of decentralization ANS --lower-level managers may make decisions without seeing the
"big picture"
-there may be a lack of coordination among autonomous managers (the balanced scorecard can help
reduce this by communicating a company's strategy throughout the organization)
-lower-level managers may have objectives that differ from those of the entire organization (this can be
reduced by designing performance evaluation systems that motivate managers to make decisions that
are in the best interests of the company)
-may be difficult to effectively spread innovative ideas in a strongly decentralized organization
responsibility centers ANS -a segment of the business whose manager is accoutnable for a specified set
of activities
-decentralized units
, -cost center, profit center, investment center
-responsibility acct
responsibility accounting ANS -a system that measures the performance of the responsibility center
based only on items under the manager's control (like segmented income stmts, shouldn't have big
common expenses taken out because out of their control)
performance measurement ANS -comparing actual performance with planned performance
three types of responsibility centers ANS -cost center, profit center, investment center
cost center ANS -manager is only responsible for controlling costs
-service departments such as acct, gen. admin, legal, and personnel, and manufacturing facilities
-standard cost variances and flexible budget variances are used to evaluate the financial performance of
cost centers
-should probs use quality/other issues as an evaluation in addition
how are responsibility centers evaluated? ANS --cost: standard cost variances and flexible budget
variances
-profit: cost, revenue, and profit variances
-investment: roi and ri
profit center ANS -manager is responsible for both revenues and costs (hence profits)
-held accountable for the attainment of budgeted profits
-cost, revenue, and profit variances are used to evaluate the financial performance
investment center ANS -has control over profits and the authority to make investment decisions (i.e.
invest in long-term assets like equipment)
-divisions are an example
-when measuring performance need to consider how profitable the center was given the level of assets
used to generate profit (how big an investment base was used to generate the profit)
