Performance Measurement and Responsibility Centres
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Questions and Answers

Which of the following is not a type of responsibility centre?

  • Revenue Centre
  • Profit Centre
  • Market Centre (correct)
  • Cost Centre

    • The first step in the performance measurement process is to analyze the results.

    False

    What is the main responsibility of a profit centre?

    Maximizing profit

    A __________ Centre has control over revenues only and is responsible for maximizing those revenues.

    <p>Revenue</p> Signup and view all the answers

    Match the following performance measurement steps with their descriptions:

    <p>Plan = Identify objectives and measures Action = Revise measures and implement changes Analyze = Compile and review results Evaluate = Assess effectiveness of actions taken</p> Signup and view all the answers

    Which type of responsibility centre only has control over costs?

    <p>Cost Centres</p> Signup and view all the answers

    Profit centres can only control revenues, not costs.

    <p>False</p> Signup and view all the answers

    What evaluation measures are commonly used for investment centres?

    <p>ROI and residual income</p> Signup and view all the answers

    A ________ centre has control over the revenues generated but not the costs incurred.

    <p>Revenue</p> Signup and view all the answers

    Match the responsibility centre type to its main characteristic:

    <p>Cost Centre = Controls only costs Revenue Centre = Controls only revenue Profit Centre = Controls both revenues and costs Investment Centre = Controls profits and level of investment</p> Signup and view all the answers

    One challenge of establishing responsibility centres is:

    <p>Clear distinction of responsibilities can be difficult</p> Signup and view all the answers

    Management by Objectives (MBO) allows only managers to set goals and objectives.

    <p>False</p> Signup and view all the answers

    What is the primary benefit of responsibility accounting?

    <p>Linking organizational goals with departmental goals</p> Signup and view all the answers

    What is the formula for calculating Return on Investment (ROI)?

    <p>$ROI = rac{Operating Income}{Average Operating Assets}$</p> Signup and view all the answers

    What is one of the benefits of having a well-structured set of performance measures?

    <p>Helps communicate direction to employees</p> Signup and view all the answers

    Residual Income takes into account the required rate of return on investment.

    <p>True</p> Signup and view all the answers

    Lead measures focus solely on past performance.

    <p>False</p> Signup and view all the answers

    Name one financial performance measure.

    <p>Return on Investment or Residual Income</p> Signup and view all the answers

    What must be established clearly between the employee and employer in an individual performance measurement system?

    <p>Performance expectations and standards.</p> Signup and view all the answers

    In a ______ organization, major decisions are made at the top of the hierarchy.

    <p>centralized</p> Signup and view all the answers

    Responsibility accounting focuses on the key deliverables or activities of a __________.

    <p>responsibility centre</p> Signup and view all the answers

    Which of the following is an example of a customer performance measure?

    <p>Customer survey on brand awareness</p> Signup and view all the answers

    Match the following components of performance measurement with their descriptions:

    <p>Link to strategic objectives = Measures employee contributions Accountability and controllability = Ensures employees can control outcomes Standardization = Promotes accuracy and fairness Communication of direction = Guides employee duties based on performance measures</p> Signup and view all the answers

    Match the performance measure types with their examples:

    <p>Financial = Total revenues Customer = Number of high-value customers Internal Business Process = Cost per unit of output Learning and Growth = Number of patents</p> Signup and view all the answers

    Which of the following is a necessary step before implementing performance measures?

    <p>Determining which measures to implement</p> Signup and view all the answers

    Data mining from existing information is frequently used to gather data for performance measures.

    <p>True</p> Signup and view all the answers

    The first step in the performance measurement process is ______ and setting goals.

    <p>planning</p> Signup and view all the answers

    Decentralized organizations have inefficient decision-making processes due to multiple layers of management.

    <p>False</p> Signup and view all the answers

    What is the primary focus of responsibility accounting?

    <p>Guiding decision-making and control within an organization.</p> Signup and view all the answers

    What is one of the primary benefits of Management by Objectives (MBO)?

    <p>It fosters greater commitment to organizational goals.</p> Signup and view all the answers

    MBO can solve every management problem effectively.

    <p>False</p> Signup and view all the answers

    What role does the management accountant play after the planning stage in MBO?

    <p>Gathers and analyzes data.</p> Signup and view all the answers

    MBO assumes that a culture of ______ exists in the organization.

    <p>co-operation</p> Signup and view all the answers

    Match the challenges of MBO with their descriptions:

    <p>Assumes a culture of cooperation = Lack of collaboration may hinder effectiveness Requires significant time and effort = Involves extensive goal-setting processes Focus on individual objectives = May neglect coordinated group work Dependence on interpersonal skills = Sessions can lead to criticism without proper skills</p> Signup and view all the answers

    Which of the following could be a reason for unfavorable results in performance appraisal?

    <p>Change in market conditions</p> Signup and view all the answers

    Analyzing both favorable and unfavorable results is unnecessary in MBO.

    <p>False</p> Signup and view all the answers

    What should be done if the standard set for performance in MBO is too achievable?

    <p>Make it more difficult in the future.</p> Signup and view all the answers

    What is ROI a measure of?

    <p>Return on investment</p> Signup and view all the answers

    Residual income may encourage managers to focus on long-term performance.

    <p>False</p> Signup and view all the answers

    What does revising measures in performance management involve?

    <p>Reviewing and reassessing measures to see if they fit the position or responsibility centre.</p> Signup and view all the answers

    _______ are related directly to performing the job and include feelings of accomplishment.

    <p>Intrinsic rewards</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>ROI = A measure of profit relative to investment Residual Income = Income exceeding required rate of return Intrinsic Rewards = Internal motivators linked to job performance Extrinsic Rewards = External rewards such as salaries and promotions</p> Signup and view all the answers

    Which of the following best describes the use of standards in performance measurement?

    <p>They can include industry standards and budgets</p> Signup and view all the answers

    The human resources department does not play a role in performance measurement rewards programs.

    <p>False</p> Signup and view all the answers

    What is the primary focus of not-for-profit organizations regarding performance management?

    <p>They do not have a single overriding profit maximization goal.</p> Signup and view all the answers

    Study Notes

    Chapter 22: Performance Measures

    • This chapter describes the performance measurement process, including responsibility accounting, methods to measure performance, and identifying performance measures for for-profit and not-for-profit organizations.
    • Lessons cover how performance is measured, individual performance measurement methods, analyzing performance and action, unique characteristics of NPOs and the public sector, and a summary problem.

    Performance Measurement Steps

    • Plan: Define the objective, identify who is responsible, and choose suitable measures.
    • Action: Revise measures and adjust performance as needed.
    • Analyze: Gather data, compile results, and regularly review results.

    Responsibility Centres

    • Revenue Centre: Controls revenues, maximizing revenue is the primary responsibility. Examples: Sales departments, internet/phone service providers.
    • Cost Centre: Controls costs, providing services efficiently at the lowest cost. Examples: Manufacturing facilities, IT departments.
    • Profit Centre: Controls both revenues and costs, maximizing profits is the goal. Examples: Retail locations, with product selection, pricing, and operating costs.
    • Investment Centre: Controls revenues, costs, and investments, maximizing profit relative to investment. Examples: Retail locations with investment decisions like asset acquisitions and leasehold improvements.

    Performance Measures

    • Financial Measures: Total revenues, profit margin and return on investment.

    • Customer Measures: Customer satisfaction, survey results, brand awareness and number of high-value customers.

    • Internal Business Process Measures: On-time delivery percentages, cost per unit output, defect rates, and lead times from order to delivery.

    • Learning and Growth Measures: Number of new products, key staff turnover, and the number and/or cost of system outages.

    • Regulatory Measures: Environmental compliance, number of fines imposed, lawsuits, and certifications.

    • Social Impact Measures: Number of volunteer days, environmental incidents, corporate social responsibility, green initiatives and community engagement metrics.

    Individual Performance Measures

    • Examples: Profit per employee, percentage of high-customer value-related products sold.
    • Objectives are aligned with organizational goals.
    • Employee behaviour is influenced by the incentive scheme.
    • Performance measures for specific roles should align with the goals and are fairly measurable.

    Key Performance Indicators (KPIs)

    • KPIs help monitor progress against strategic goals.
    • KPIs are detailed, for example, for the financial aspect, they may include the organizations ROI, or profit margins.
    • For NPOs, KPIs may focus on service quality, volunteer hours and customer satisfaction.

    Organization-Wide and Individual Performance Measures

    • Organizations should consider both organization-wide and individual measures.
    • Individual measures need to be directly related to the organization's objectives.
    • Metrics should be linked to compensation to motivate employees.

    Performance Measurement Process

    • The process involves setting targets, analyzing outcomes (results), and monitoring progress to evaluate organizational efficiency and effectiveness.
    • It factors in the strategic objectives of the organization.

    Challenges Using MBO

    • Requires a collaborative environment.
    • Can lead to misalignment between individual and organizational goals..
    • Requires significant time commitment.
    • Could be misused by some managers to address every problem using MBO instead of using appropriate solutions.

    Chapter 23: Balanced Scorecard Overview

    • This chapter introduces the concept of the balanced scorecard in performance measurement.
    • It relates balanced scorecards to an organization's strategic mapping.
    • Lessons cover the introduction to strategic mapping, balanced scorecards, and executive dashboards, along with a summary problem.

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    Chapter 22 - Performance Measures PDF

    Description

    Test your knowledge on responsibility centres and performance measurement concepts. This quiz covers types of responsibility centres, their characteristics, and the evaluation measures used. Perfect for students studying accounting or management.

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