Chapter 9 Solutions - Answers to Questions 1 People not...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers to Questions 1. People, not budgets, control costs. Ms. Kelly needs to use the budget system to build a responsibility accounting program. The managers must be motivated to control costs. They should be trained to use the budgets as tools in helping them to gain and maintain the desired control. 2. The travel expenses do not appear to be reported in accordance with a responsibility accounting system. Under a responsibility accounting system, the travel costs would be reported directly to the managers who exercise predominant control over the expenditures. Responsibility accounting utilizes individual managers as the reporting focus. 3. Five potential advantages associated with decentralization include: (1) it encourages upper-level management to concentrate on strategic decisions; (2) it promotes improvements in decision making; (3) it motivates managers to improve productivity; (4) it trains lower-level managers to accept greater responsibilities; and, (5) it improves performance evaluation. 4. A responsibility report is prepared for each individual who controls revenue or expense items. The report includes a list of the items under that person’s control including the budgeted and actual amounts for each item, and the variances from the budgeted costs. 5. Managers seldom have absolute control over revenue and expense items. For example, a production supervisor’s labor costs will be affected by the quality of raw materials as well as his capacity to motivate employees. Since absolute control is not likely to exist in real-world situations, responsibility must be assigned to managers with predominant control. Variances in responsibility reports must be evaluated in light of the imperfections in assigning
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
control. Upper-level managers must exercise good judgment to assure the responsibility data is used in a fair manner. 6. Responsibility reports show variances from standard or expected amounts. Managers can focus attention on the larger variance (exception) items and ignore the items that are reported as expected. 7. A responsibility center is the point in an organization where the control over revenue or expense items is located. 8. The three types of responsibility centers are: (1) cost centers, (2) profit centers, and (3) investment centers. Cost centers exist where a business segment incurs costs but does not generate revenue. Profit centers consist of segments that control revenue items as well as expenses. Investment centers control investments of capital as well as revenue and expense items. 9. It is possible for a manager with a lower return on investment (ROI) to be outperforming a manager with a higher ROI. Many factors such as work stoppage, valuation bias, and asset age can affect the ROI even though they may be beyond the control of a manager. The proper use of ROI for performance evaluation requires the evaluation of qualitative as well as quantitative data.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 25

Chapter 9 Solutions - Answers to Questions 1 People not...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online