This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Chapter 12 Financial Control QUESTIONS 12-1 Financial control is the formal evaluation of some financial facet of an organization or a responsibility center to assess organization and management performance. Financial control uses financial numbers, such as costs or expenses, as broad indices of performance or measures of the resources used by a process or organizational unit. Financial control may involve comparing actual financial numbers with targets from a standard or budget to derive variances. 12-2 Internal financial control is the application of financial control tools to evaluate organization units. The resulting information is used inside the organization and is not provided to outsiders. External financial control is the application of financial control tools by outside analysts to evaluate various aspects of organization performance. 12-3 Decentralization is the delegation of decision-making responsibility from people at higher levels in the organization to people at front line decision makers of the organization. 12-4 Control refers to the systems and tools that an organization uses to motivate decentralized decision makers to pursue the organizations goals. 12-5 A responsibility center is an organization group that has been delegated the responsibility to achieve some stated objective. 12-6 A cost center is a responsibility unit that is evaluated based on its ability to control costs relative to some standard. Revenues or investment level are not controlled. 9 Atkinson, Solutions Manual t/a Management Accounting, 5E 12-7 A revenue center is assigned the responsibility to achieve, within its own operating guidelines, a target level of revenues. Managers in a revenue center do not control costs or the level of investment. 12-8 Organizations use profit centers when profit center employees have the ability and responsibility to control significant levels of revenues and costs of the products or services they deliver. 12-9 An investment center is a responsibility unit that is evaluated based on its return on investment. The managers and other employees control revenues, costs, and the level of investment. 12-10 The controllability principle requires that people should only be held accountable for results that they can control. The manager of a responsibility center should be assigned responsibility for the revenues, costs, or investments controlled by responsibility center personnel. 12-11 Responsibility centers participate in developing the goods and services that the organization supplies to its customers, sharing the use of many common resources in this process. 12-12 A segment margin is the difference between the revenues and costs that are deemed to be directly controllable by a responsibility center. It is therefore an important summary performance measure for each responsibility center....
View Full Document