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Questions and Answers
Organizations often use three hierarchical, sequential planning cycles, i.e.:
Organizations often use three hierarchical, sequential planning cycles, i.e.:
- strategic planning, capital budgeting or programming, and (operational) budgeting (correct)
- ROE, Profit, and Cash Flow planning
- issuing planning guidelines, validating guidelines with the Board of Directors, and communicating them to the Shareholders
Strengthening managerial motivation is one explicit purpose of
Strengthening managerial motivation is one explicit purpose of
- variance analysis
- planning and budgeting systems
- responsibility accounting (correct)
When preparing the profit plan, managers try to answer the following question
When preparing the profit plan, managers try to answer the following question
- Does the organization's strategy create economic value? Does the organization create enough value to attract the financial resources it needs to fund long-term investments? Does the organization have enough cash to fund the strategy and remain solvent? (correct)
- Does the organization create enough value to attract the financial resources it needs to fund long-term investments?
- Does the organization's strategy create economic value?
- Does the organization have enough cash to fund the strategy and remain solvent?
Organizations can eliminate the possibility that the control problems will occur by:
Organizations can eliminate the possibility that the control problems will occur by:
Conditions determining the effectiveness of results control are mainly related to:
Conditions determining the effectiveness of results control are mainly related to:
The main rationale behind the controllability principle is that
The main rationale behind the controllability principle is that
Examples of results controls include:
Examples of results controls include:
Examples of cultural controls include:
Examples of cultural controls include:
Full cost transfer prices, strictly interpreted, do not provide an incentive for the selling profit center to transfer internally since full cost transfer prices include no profit margin. In case of sizeable underutilization of capacity in the selling profit center (that is to say, the utilization of capacity of the selling profit center is well below the theoretical volume), full cost transfer pricing
Full cost transfer prices, strictly interpreted, do not provide an incentive for the selling profit center to transfer internally since full cost transfer prices include no profit margin. In case of sizeable underutilization of capacity in the selling profit center (that is to say, the utilization of capacity of the selling profit center is well below the theoretical volume), full cost transfer pricing
Among the advantages of dual rate transfer price, we could list the following:
Among the advantages of dual rate transfer price, we could list the following:
When intermediate products and services are exchanged internally at marginal cost,
When intermediate products and services are exchanged internally at marginal cost,
When business models change
When business models change
As a measure of performance, profit is
As a measure of performance, profit is
Transfer prices directly affect the revenues of the selling (supplying) profit center, the costs of the buying (receiving) profit center and consequently the profits of both entities. Failure to set the "right" transfer price may have significant effect on:
Transfer prices directly affect the revenues of the selling (supplying) profit center, the costs of the buying (receiving) profit center and consequently the profits of both entities. Failure to set the "right" transfer price may have significant effect on:
In case of uncontrollable factors, variance analysis and flexible performance targets can be used to adjust performance
In case of uncontrollable factors, variance analysis and flexible performance targets can be used to adjust performance
Transfers at full costs plus markup provide
Transfers at full costs plus markup provide
Examples of actions controls include:
Examples of actions controls include:
The separation of duties is an example of:
The separation of duties is an example of:
In the financial target setting process, when increased management commitment is desired, the financial targets should be:
In the financial target setting process, when increased management commitment is desired, the financial targets should be:
In a pseudo profit center:
In a pseudo profit center:
The profit center manager has significant influence over:
The profit center manager has significant influence over:
A profit center manager has a broader span of accountability than an investment center manager
A profit center manager has a broader span of accountability than an investment center manager
Revenue center managers are held responsible of:
Revenue center managers are held responsible of:
If transfer prices are set at market price, managers of both the selling and the buying profit centers are likely to make decisions that are:
If transfer prices are set at market price, managers of both the selling and the buying profit centers are likely to make decisions that are:
The output of a complete, formal strategic plan process leads:
The output of a complete, formal strategic plan process leads:
Conditions determining the effectiveness of actions control are mainly related to:
Conditions determining the effectiveness of actions control are mainly related to:
Performance targets can be made flexible in terms of relative performance, that is, relative to the performance of others facing similar conditions:
Performance targets can be made flexible in terms of relative performance, that is, relative to the performance of others facing similar conditions:
_____ controls specify how something is to be done through policies, rules, standard operating procedures and orders from a superior.
_____ controls specify how something is to be done through policies, rules, standard operating procedures and orders from a superior.
The causes of the needs for control can be classified into three main categories:
The causes of the needs for control can be classified into three main categories:
A company that applies in a single transaction different transfer price to each division adopted:
A company that applies in a single transaction different transfer price to each division adopted:
A company that uses a separate transfer price for each division as a single transaction a ...:
A company that uses a separate transfer price for each division as a single transaction a ...:
If the planned volumes are 1,000 and the actual volumes are 900 and the planned selling price is 10€ while the actual selling price is 11€, the price is favorable:
If the planned volumes are 1,000 and the actual volumes are 900 and the planned selling price is 10€ while the actual selling price is 11€, the price is favorable:
"Market share" is an indicator commonly found in the internal business processes perspective of the balanced scorecard
"Market share" is an indicator commonly found in the internal business processes perspective of the balanced scorecard
"Cycle time” is an indicator commonly found in the internal business processes perspective of the balanced scorecard
"Cycle time” is an indicator commonly found in the internal business processes perspective of the balanced scorecard
An adverse labor efficiency variance together with a favorable labor rate variance may mean that:
An adverse labor efficiency variance together with a favorable labor rate variance may mean that:
Managers act myopically when
Managers act myopically when
Interdependences are listed among the uncontrollable factors for which adjustments are made:
Interdependences are listed among the uncontrollable factors for which adjustments are made:
Challenging, but achievable budget targets are used mainly:
Challenging, but achievable budget targets are used mainly:
Profit center managers are held responsible of:
Profit center managers are held responsible of:
With reference to expense centers, in discretionary or managed expense centers... (complete)
With reference to expense centers, in discretionary or managed expense centers... (complete)
For a result measure to be cost-efficient means:
For a result measure to be cost-efficient means:
Flashcards
Planning Cycles
Planning Cycles
Organizations often use these three hierarchical, sequential planning cycles: strategic planning, capital budgeting or programming, and operational budgeting.
Planning and Budgeting Systems
Planning and Budgeting Systems
Managerial motivation is strengthened by these systems.
Preparing a Profit Plan
Preparing a Profit Plan
Does the organization's strategy create economic value? Does the organization create enough value to attract the financial resources it needs to fund long-term investments? Does the organization have enough cash to fund the strategy and remain solvent?
Eliminating Control Problems
Eliminating Control Problems
Subcontracting, licensing, or divesting can help eliminate control problems in organizations.
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Effectiveness of Results Control
Effectiveness of Results Control
Conditions determining the effectiveness of results control are mainly related to the ability to determine results in the areas being controlled.
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Controllability Principle
Controllability Principle
The main rationale behind the controllability principle is that results measures are useful only if they provide information about actions taken.
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Results Controls Examples
Results Controls Examples
The examples of results controls include things such as planning and budgeting.
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Cultural Controls
Cultural Controls
The examples of cultural controls include codes of conduct, group-based rewards, inter-organizational transfers, physical arrangements, tone at the top
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Pseudo Profit Centers
Pseudo Profit Centers
Managers do not have significant influence on the revenues assigned.
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Action Controls
Action Controls
Controllers specify how something is to be done through policies, rules, standard operating procedures and orders from a superior
Signup and view all the flashcardsStudy Notes
- Strategic planning, capital budgeting/programming, and operational budgeting often form a hierarchical, sequential planning cycle.
Managerial Motivation
- Strengthening managerial motivation is an explicit purpose of planning and budgeting systems.
Profit Plan Preparation
- When preparing a profit plan, managers try to determine if the organization's strategy creates economic value and attracts necessary financial resources to fund strategy and remain solvent.
Control Problems
- Organizations can reduce the possibility of control issues by subcontracting, licensing, or divesting.
Effectiveness of Results Control
- The effectiveness depends on whether results can be determined, if employees significantly influence the results they are accountable for, and if these results can be measured effectively.
Controllability Principle
- The rationale is that results measures are useful only insofar as they provide insight into the desirability of actions.
Results Controls
- Planning and budgeting serve as examples of results controls.
Cultural Controls
- Codes of conduct, group-based rewards, inter-organizational transfers, physical arrangements, and tone at the top exemplify cultural controls.
Full Cost Transfer Prices
- They do not provide an incentive for the selling profit center to transfer internally since they lack a profit margin.
- In cases of significant underutilization of capacity, full cost transfer pricing creates a worse deal for the buying profit center compared to external sourcing.
Dual Rate Transfer Price Advantages
- The managers of both the selling and buying profit centers receive appropriate economic signals for decision-making.
Internal Exchange at Marginal Cost
- The selling profit center typically records losses because it bears the full production cost but only receives marginal costs in revenue.
Business Model Changes
- When business models change, responsibility centers should also change.
Profit as a Performance Measure
- Profit serves as a comprehensive and unobtrusive measure of performance.
Transfer Prices
- Failure to set the "right" transfer price may significantly impact sourcing options, production quantities, and managerial performance evaluation
- They directly affect the revenues of the selling profit center, the costs of the buying profit center, and consequently the profits of both entities.
Variance Analysis and Flexible Performance Targets
- They can adjust performance in the case of uncontrollable factors.
Full Costs Plus Markup
- It usually provides a crude approximation of the market price that can be used in situations where no competitive external market price exists.
Actions Controls
- Behavioral constraints, pre-action reviews, action accountability, and redundancy are examples of actions controls.
Separation of Duties
- The separation of duties is an example of action controls.
Financial Target Setting
- In the financial target setting process, when increased management commitment is desired, the financial targets should be challenging but achievable
Pseudo Profit Center
- Managers do not have significant influence on the revenues assigned.
Profit Center Manager Influence
- They have significant influence over costs and revenues.
Profit Center Accountability
- A profit center manager has a broader span of accountability than an investment center manager.
Revenue Center Responsibility
- Revenue center managers are held responsible for making trade-offs between costs and revenues.
Transfer Prices at Market Price
- Managers of both the selling and buying profit centers are likely to make optimal decisions from the firm's perspective.
Strategic Plan Process Output
- The output leads to the establishment of the organization-wide strategy, and where applicable the strategies for various areas.
Effectiveness of Actions Control
- The conditions are related to Knowledge of the desired actions and the ability to ensure that the desired actions are taken
Performance Targets
- Performance targets can be made flexible in terms of relative performance, that is, relative to the performance of others.
Action Controls
- They specify how something is to be done through policies, rules, standard operating procedures and orders from a superior.
Needs for Control
- The causes include lack of direction, motivational problems, and personal limitations
Single Transaction Transfer Price
- A company that applies in a single transaction different transfer prices to each division adopted dual pricing.
Separate Transfer Price
- A company that uses a separate transfer price for each division as a single transaction a dual pricing.
Planned Volumes vs. Actual Volumes
- If the planned volumes are 1,000 and the actual volumes are 900 and the planned selling price is 10€ while the actual selling price is 11€, the price is favorable.
Key Performance Indicators
- "Cycle time” is an indicator commonly found in the internal business processes perspective of the balanced scorecard
Labor Variance
- An adverse labor efficiency variance together with a favorable labor rate variance may mean that less skilled staff are being used in production
Managerial Behavior
- Managers act myopically in making investment decisions
Uncontrollable Factors
- Interdependencies are listed among the uncontrollable factors for which adjustments are made:
Budget Targets
- Challenging, but achievable budget targets are used mainly : To increase manager's commitment to budget targets
Managerial Behavior
- Challenging, but achievable budget targets are used mainly to increase manager's commitment to budget targets and to minimize dysfunctional management actions Comprehensive and unobtrusive and are a measure of performance
Profit Center
- Profit center managers are held responsible of managing trade-offs between costs and revenues
Expense center
- With reference to expense centers, in discretionary or managed expense centers the relationship between inputs and outputs is not very well know
Result controls codes
- Examples of codes of conduct and planning and budgeting
Result measure
- For a result measure to be cost-efficient means that the costs associated with its development or use should not exceed the benefits of its utilization
Cultural Controls
- Examples of cultural controls include codes of conduct, group-based rewards, inter-organizatonal transfer, physical arrangements, tone at the top
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