Acct Ch 19 - CHAPTER 19 DISCUSSION QUESTIONS 1. A large...

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CHAPTER 19 DISCUSSION QUESTIONS 1. A large company employing numerous people in different geographic areas with various product lines could not remain com- pletely centralized; top management would be too far removed from daily operations to make effective decisions. Top management would not have as much information as local management about costs, various alternat- ives, and other factors that need to be con- sidered in decision making. 2. As businesses grow, different activities, such as production, sales, engineering, per- sonnel, and accounting, and different geo- graphic areas or product lines are usually handled by different individuals. A respons- ibility accounting system is necessary to en- sure that managers are held accountable for the costs, revenues, and assets over which they have control. A responsibility account- ing system also helps ensure that segment managers perform in ways that benefit the entire organization, not just their units. 3. Two of the most important behavioral con- siderations in assigning responsibilities are (1) involving responsible managers in the development of the plans and standards for the unit over which they have control and (2) holding managers accountable for only those costs, revenues, or assets over which they have substantial control. 4. Most performance reports are called excep- tion reports because they highlight vari- ances from or exceptions to the standards or budgeted amounts. 5. In a cost center, the manager has control over only costs, whereas in a profit center the manager has control over both costs and revenues. In an investment center, the manager not only has control over costs and revenues, but also has control over determ- ining the amount of funds that will be used to acquire operating assets for the unit, as well as determining which assets will be acquired or retired. 6. A standard cost is a systematically determ- ined benchmark or target that is established to help judge whether the related actual cost incurred is within acceptable limits. 7. The purpose of a standard cost system is to provide data that can be used to control costs and measure the performance of man- agers through the process of comparing ac- tual costs with standard costs, and then re- cording the differences as variances in the accounting system. 8. Accountants, engineers, production super- visors, and other key employees are re- sponsible to work together to develop the standards. The accountants are then in charge of maintaining these data and using the data to track and report performance variances. 9. When actual costs or usage are compared with standard costs or usage, the differ- ences are called variances. A variance is fa- vorable if the actual is less than standard, and it is unfavorable if actual is more than standard. 10.
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This note was uploaded on 04/28/2008 for the course ACCT 2301 taught by Professor Conn during the Spring '08 term at St. Edwards.

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Acct Ch 19 - CHAPTER 19 DISCUSSION QUESTIONS 1. A large...

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