81.

When managers and employees are involved in the formulation and operation of performance measures, this is known
as:
A. participation and controllability.
B. benchmarking.
C. strategy and empowerment.
D. participation and empowerment.

AACSB: Reflective
Difficulty: Medium
Learning Objective: 12.02 Describe the characteristics of effective performance measurement systems

82. Companies believe that when performance measures are linked to incentives, they are more:
A. motivating.
B. congruent.
C. strategic.
D. positive.

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AACSB: Reflective

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Difficulty: Easy

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Learning Objective: 12.02 Describe the characteristics of effective performance measurement systems

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83. Management's ability to close the accounting books at any time is termed:
A. real-time reporting.
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B. virtual close.
C. flash reporting.
D. shut-down reporting.
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AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.09 Understand how real-time reporting can enhance management decision making
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84. Daily online reporting of critical information is known as:

A. real-time reporting.
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B. virtual close.
C. flash reporting.
D. shut-down reporting.
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AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.09 Understand how real-time reporting can enhance management decision making

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 85. Performance reports
The performance reports generated by a responsibility accounting system form a hierarchy of 'performance reports'.
Explain what is meant by this term.

The performance reports are tied to the organisational chart. The performance report at each level reflects the aggregate
performance of the subordinates that report to the manager at that particular level. Thus, each manager receives reports
that reflect their area of responsibility.

AACSB: Communication
Difficulty: Easy
Learning Objective: 12.08 Complete financial performance reports for responsibility centres, taking into account allocated costs, common costs and
variances

86. Identify and briefly describe the four ways performance measures can be used within a planning and control system.

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Performance measures can be used to communicate the strategy and plans of the business and align employees' goals with those of the

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organisation. Thus, a wisely designed performance measurement system can encourage goal congruence.
■ Managers use performance measures to track their own performance against targets. This feedback allows managers at all levels of

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the business to assess progress in achieving targets and to take corrective actions if necessary. It may also indicate the need to amend

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plans and targets when there have been changes in the internal or external environment of the business.
■ Senior managers may use performance measures to evaluate subordinates' performance and as the basis for rewards. Enterprises

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need a range of performance measures that reflect their competitive environment and strategies, to ensure that managers are motivated

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and rewarded for achieving the 'things that matter'.
■ Performance measures may be used by senior managers to guide them in developing future strategies and operations. Performance
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measures should not just inform managers of the outcomes of past decisions and operations; they should give an indication of the
capability of the firm to compete effectively in the future and point to areas for future growth.
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AACSB: Communication
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AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.01 Describe the purposes of performance measurement systems
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87. Define goal congruence and explain how management can change the behaviour of managers through a decentralised
organisation.
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The biggest challenge in making a decentralised organisation function effectively is to ensure goal congruence among the
organisation's autonomous managers. This is an important aspect of control. However, goal congruence is difficult to
achieve. Managers are often unaware of the effects of their decisions on the other parts of the organisation. Also, it is only
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natural for people to be more concerned with the performance of their own unit than with the effectiveness of the entire
organisation.
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To achieve goal congruence, the behaviour of managers throughout a decentralised organisation must be directed towards
achieving organisational goals. One way of doing this is to develop performance targets and reward systems. Performance
targets provide direction for managers of decentralised units, and are used by corporate management to evaluate the
performance of a unit and its manager. Reward systems are often tied to a manager's achievement of targets and provide
further incentives for managers to strive towards organisational goals. However, if the responsibility accounting system is
not designed wisely, and the performance measures selected are inappropriate, undesirable behaviour can result.

AACSB: Communication
AACSB: Reflective
Difficulty: Medium
Learning Objective: 12.03 Explain the benefits and costs of decentralisation

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 88.

Distinguish between shared service units and centralised service units.

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AACSB: Analytical
AACSB: Communication
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Difficulty: Medium
Learning Objective: 12.05 Understand how shared services operations and self-managed work teams can help improve organisational performance
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 89. Discuss why transfer prices are effectively internal selling prices in medium to large organisations and why
organisations have adopted this approach.

In decentralised organisations goods and services are often transferred between investment centres and profit centres. The amount
charged when one business unit sells goods or services to another business unit is called a transfer price.
Transfer prices are effectively internal selling prices used within a decentralised organisation. However, the level of transfer price that
is used is important—the transfer price is revenue for the supplying unit and a cost of the buying unit.
Why do organisations use transfer prices? The financial performance of an investment centre or profit centre is evaluated using some
measure of profit. When goods and services are transferred between business units, a transfer price will allow the selling unit to record
revenue to earn a profit on the transfer, to reflect the effort that it has expended in producing that product. The transfer price will allow the
buying unit to record the cost of the transfer of the product, which will be matched against the revenue when it eventually sells the
product to the external market.
In situations where there is a series of transfers of product between units, transfer prices will allow each unit to show profits for their
efforts— not just the unit that sells the completed product to the external market.
The use of transfer prices encourages each unit to generate profits, and should encourage managers of units to manage their own unit
as if it were a stand-alone business. Therefore, the transfer pricing system should operate in a way that does not undermine goal
congruence or the decentralised managers' autonomy. Thus, a transfer pricing system should
result in unit profits that are a reliable and accurate measure of unit performance;
preserve and encourage autonomy within business units; and

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encourage goal-congruent behaviour.

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AACSB: Communication
AACSB: Reflective

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Difficulty: Medium

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Learning Objective: 12.10 Understand why organisations use transfer pricing
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90. If a manager were responsible for a division's performance and activities, the division would have to be classified as a
cost centre.
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FALSE
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AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.04 Define responsibility centres and provide examples: cost centres, revenue centres, profit centres and investment centres
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91. Although shared service units are generally established as profit centres it is often acceptable if a zero profit is
achieved.
TRUE
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AACSB: Reflective
Difficulty: Medium
Learning Objective: 12.05 Understand how shared services operations and self-managed work teams can help improve organisational performance

92. When a contribution margin format is used for reporting, expenses are grouped according to the functions (e.g. sales
and distribution, financial) carried out by the organisation.
FALSE

AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.06 Prepare reports that highlight the financial performance of a range of responsibility centres

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