Podcast
Questions and Answers
Which of the following represents the typical sequence of planning cycles used by organizations?
Which of the following represents the typical sequence of planning cycles used by organizations?
- Issuing planning guidelines, validating guidelines with the Board of Directors, and communicating them to the Shareholders
- Validating guidelines, issuing planning guidelines, and communicating them to the shareholders
- Strategic planning, capital budgeting/programming, and operational budgeting (correct)
- Cash flow planning, ROE, and Profit
Strengthening managerial motivation is a purpose that is explicitly supported by what?
Strengthening managerial motivation is a purpose that is explicitly supported by what?
- Responsibility accounting
- Capital budgeting systems
- Planning and budgeting systems (correct)
- Variance analysis
When designing a profit plan, managers must assess whether the organization's strategy not only generates economic value but also:
When designing a profit plan, managers must assess whether the organization's strategy not only generates economic value but also:
- Attracts the financial resources it needs to fund long-term investments and remain solvent. (correct)
- Attracts the human resources needed to maintain daily activities.
- Attracts the operational resources needed to maintain daily activities.
- Attracts the technological resources it needs to innovate long-term investments
An organization attempts to minimize control problems. Which approach is most likely to reduce, but not eliminate, the possibility of these problems?
An organization attempts to minimize control problems. Which approach is most likely to reduce, but not eliminate, the possibility of these problems?
For results controls to be effective, what condition must be present?
For results controls to be effective, what condition must be present?
What is the primary rationale behind the controllability principle in performance evaluation?
What is the primary rationale behind the controllability principle in performance evaluation?
Which of the following is an example of results control?
Which of the following is an example of results control?
Which of the following is an example of cultural control?
Which of the following is an example of cultural control?
When a selling profit center has significant underutilization of capacity, a full cost transfer pricing policy typically:
When a selling profit center has significant underutilization of capacity, a full cost transfer pricing policy typically:
What is a key advantage of using dual-rate transfer prices?
What is a key advantage of using dual-rate transfer prices?
Flashcards
Planning Cycles
Planning Cycles
Organizations use strategic planning, capital budgeting, and operational budgeting in sequential planning cycles.
Responsibility Accounting
Responsibility Accounting
Motivates managers by assigning accountability for revenues and costs.
Profit Plan Focus
Profit Plan Focus
Does the strategy create value, attract funds, and ensure solvency?
Subcontracting/Divesting
Subcontracting/Divesting
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Effective Results Control
Effective Results Control
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Controllability Principle
Controllability Principle
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Results Controls
Results Controls
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Cultural controls
Cultural controls
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Full Cost Transfer Price
Full Cost Transfer Price
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Myopically
Myopically
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Study Notes
- Organizations use strategic planning, capital budgeting/programming, and operational budgeting in a hierarchical, sequential manner.
- Strengthening managerial motivation is a purpose of responsibility accounting.
- When preparing a profit plan, managers consider if the organization's strategy creates economic value, attracts financial resources for long-term investments, and ensures solvency.
- Organizations reduce control problems by subcontracting, licensing, or divesting.
- Effective results control requires determinable results, employee influence on those results, and measurable outcomes.
- The controllability principle emphasizes that results measures are useful when they inform about the desirability of actions or decisions.
- Planning and budgeting exemplifies results controls.
- Codes of conduct, group-based rewards, inter-organizational transfers, physical arrangements, and tone at the top are examples of cultural controls.
- Full cost transfer prices don't incentivize the selling profit center for internal transfers due to the absence of profit margin.
- In cases of significant underutilization of capacity, full cost transfer pricing represents a worse deal for the buying profit center compared to external sourcing.
- Dual rate transfer prices ensure managers of both selling and buying profit centers receive proper economic signals for decision-making.
- When intermediate products/services are exchanged internally at marginal cost, the selling profit center typically records losses because it bears the full cost but receives only marginal revenue.
- When business models change, responsibility centers also change.
- Profit is a comprehensive and unobtrusive performance measure.
- Transfer prices impact the revenues, costs, and profits of both selling and buying profit centers; incorrect pricing affects sourcing, production, and managerial performance.
- Variance analysis and flexible performance targets adjust performance for uncontrollable factors.
- Transfers at full costs plus markup approximate market price in the absence of a competitive external market price.
- Behavioral constraints, pre-action reviews, action accountability, and redundancy are examples of actions controls.
- Separation of duties is an example of action controls.
- Desired management commitment dictates financial targets should be challenging but achievable.
- Planning and budgeting systems serve to strengthen managerial motivation.
- Pseudo profit center managers lack significant influence over revenues.
- A profit center manager influences costs and revenues considerably.
- A profit center manager typically has broader accountability than an investment center manager.
- Revenue center managers are accountable for trade-offs between costs and revenues.
- At market price, transfer prices encourage managers to make firm-optimal decisions with good information for evaluation.
- Complete strategic planning processes lead to establishing the organization-wide strategy and specific strategies.
- Action control effectiveness depends on knowledge of desired actions and the ability to ensure their execution.
- Performance targets can be flexible based on relative performance compared to others in similar conditions.
- Action controls specify processes through policies, rules, standard procedures, and orders.
- Needs for control arise from lack of direction, motivational problems, and personal limitations.
- A company using different transfer prices for each division in a transaction adopts dual pricing.
- A company that uses a separate transfer price for each division as a single transaction is dual pricing.
- If planned volumes are 1,000, actual volumes are 900, planned selling price is 10€, price is 11€ then the price is favorable.
- "Cycle time" is an indicator commonly found in the internal business processes perspective of the balanced scorecard.
- An adverse labor efficiency variance alongside a favorable labor rate variance might suggest the use of less skilled staff in production.
- Managers act myopically when making either investment and operating decisions.
- Interdependencies are uncontrollable factors needing adjustments.
- Both minimizing dysfunctional actions and increasing commitment justify challenging yet achievable budget targets.
- Profit is a comprehensive and unobtrusive metric for performance.
- Profit center managers handle trade-offs between costs and revenues.
- In discretionary expense centers, the relationship between inputs and outputs is not very well known.
- Planning and budgeting are examples of results controls.
- Result measures should be cost-efficient, meaning related costs should not exceed utilization benefits.
- Codes of conduct, groups-based rewards, inter-organizational transfer, physical arrangements, tone at the top are examples of cultural controls.
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