Which of the following is not a characteristic of a good management control system?

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Which of the following is not a characteristic of a good control system?
What are the characteristics of a good management control?
Which of the following is a characteristic of a management control system?
Which of the following is not included in the characteristics of management?

Controls at every level focus on inputs, processes and outputs. It is very important to have effective controls at each of these three stages.

Effective control systems tend to have certain common characteristics. The importance of these characteristics varies with the situation, but in general effective control systems have following characteristics.

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1. Accuracy:

Effective controls generate accurate data and information. Accurate information is essential for effective managerial decisions. Inaccurate controls would divert management efforts and energies on problems that do not exist or have a low priority and would fail to alert managers to serious problems that do require attention.

2. Timeliness:

There are many problems that require immediate attention. If information about such problems does not reach management in a timely manner, then such information may become useless and damage may occur. Accordingly controls must ensure that information reaches the decision makers when they need it so that a meaningful response can follow.

3. Flexibility:

The business and economic environment is highly dynamic in nature. Technological changes occur very fast. A rigid control system would not be suitable for a changing environment. These changes highlight the need for flexibility in planning as well as in control.

Strategic planning must allow for adjustments for unanticipated threats and opportunities. Similarly, managers must make modifications in controlling methods, techniques and systems as they become necessary. An effective control system is one that can be updated quickly as the need arises.

4. Acceptability:

Controls should be such that all people who are affected by it are able to understand them fully and accept them. A control system that is difficult to understand can cause unnecessary mistakes and frustration and may be resented by workers.

Accordingly, employees must agree that such controls are necessary and appropriate and will not have any negative effects on their efforts to achieve their personal as well as organizational goals.

5. Integration:

When the controls are consistent with corporate values and culture, they work in harmony with organizational policies and hence are easier to enforce. These controls become an integrated part of the organizational environment and thus become effective.

6. Economic feasibility:

The cost of a control system must be balanced against its benefits. The system must be economically feasible and reasonable to operate. For example, a high security system to safeguard nuclear secrets may be justified but the same system to safeguard office supplies in a store would not be economically justified. Accordingly the benefits received must outweigh the cost of implementing a control system.

7. Strategic placement:

Effective controls should be placed and emphasized at such critical and strategic control points where failures cannot be tolerated and where time and money costs of failures are greatest.

The objective is to apply controls to the essential aspect of a business where a deviation from the expected standards will do the greatest harm. These control areas include production, sales, finance and customer service.

8. Corrective action:

An effective control system not only checks for and identifies deviation but also is programmed to suggest solutions to correct such a deviation. For example, a computer keeping a record of inventories can be programmed to establish “if-then” guidelines. For example, if inventory of a particular item drops below five percent of maximum inventory at hand, then the computer will signal for replenishment for such items.

9. Emphasis on exception:

A good system of control should work on the exception principle, so that only important deviations are brought to the attention of management, In other words, management does not have to bother with activities that are running smoothly. This will ensure that managerial attention is directed towards error and not towards conformity. This would eliminate unnecessary and uneconomic supervision, marginally beneficial reporting and a waste of managerial time.

Cost Accounting, 14e, Global Edition (Horngren/Datar/Rajan) Chapter 22 Management Control Systems, Transfer Pricing, and Multinational Considerations

Objective 22.

Which of the following is NOT a characteristic of a management control system? A) It aids and coordinates the process of making decisions. B) It encourages short-term profitability. C) It motivates individuals throughout the organization to act in concert. D) It coordinates forecasting sales and cost-driver activities, budgeting, and measuring and evaluating performance. Answer: B Diff: 2 Terms: management control system Objective: 1 AACSB: Reflective thinking
The formal management control system includes: A) performance measures B) mutual commitments C) incentive plans D) Both A and C are correct. Answer: D Diff: 1 Terms: management control system Objective: 1 AACSB: Reflective thinking
Exertion towards a goal is: A) motivation B) effort C) goal congruence D) incentive Answer: B Diff: 1 Terms: effort Objective: 1 AACSB: Reflective thinking
The degree of freedom to make decisions is: A) decentralization B) autonomy C) centralization D) motivation Answer: B Diff: 1 Terms: autonomy Objective: 1 AACSB: Reflective thinking

If an oil refinery used refinery down-time as a Balanced Scorecard control measure, it would represent the ________ perspective. A) financial B) customer C) internal business process D) learning and growth Answer: C Diff: 2 Terms: management control system Objective: 1 AACSB: Reflective thinking
If a computer manufacturer used its common stock price as a Balanced Scorecard control measure, it would represent the ________ perspective. A) financial B) customer C) internal business process D) learning and growth Answer: A Diff: 2 Terms: management control system Objective: 1 AACSB: Reflective thinking
The goal of a management control system is to improve the collective decisions in an organization in an economically feasible way. Answer: TRUE Diff: 1 Terms: management control system Objective: 1 AACSB: Communication
Management control systems reflect only financial data. Answer: FALSE Explanation: Management control systems also reflect nonfinancial data. Diff: 1 Terms: management control system Objective: 1 AACSB: Reflective thinking

Number of processes with real time feedback would be an example of a Balanced Scorecard control measure from a customer perspective. Answer: FALSE Explanation: Number of processes with real time feedback would be an example of a Balanced Scorecard control measure from a learning and growth perspective. Diff: 2 Terms: management control system Objective: 1 AACSB: Reflective thinking
Goal congruence exists when individuals work toward achieving one goal, and groups work toward achieving a different goal. Answer: FALSE Explanation: Goal congruence exists when individuals and groups work toward achieving the same goal. Diff: 2 Terms: goal congruence Objective: 1 AACSB: Reflective thinking
Effort is defined as achievement of a goal. Answer: FALSE Explanation: Effort is the extent to which managers strive or endeavor in order to achieve a goal. Diff: 2 Terms: effort Objective: 1 AACSB: Reflective thinking
Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate. Answer: FALSE Explanation: Effort goes beyond physical exertion and includes both physical and mental actions. Diff: 2 Terms: effort Objective: 1 AACSB: Reflective thinking
Management control systems motivate managers and other employees to exert effort through a variety of rewards tied to the achievement of goals. Answer: TRUE Diff: 2 Terms: effort Objective: 1 AACSB: Communication

For each of the following Balanced Scorecard measures, identify which of the four perspectives (Financial, Customer, Internal Business Process, or Learning and Growth) the measure best represents.

________________ a. On-time delivery of gasoline from refineries to retail stations ________________ b. Customer satisfaction ________________ c. Common stock price ________________ d. Return on investment ________________ e. Market share ________________ f. Number of days lost to accidents ________________ g. Employee satisfaction ________________ h. Friendliness of employees ________________ i. Repeat purchases ________________ j. Cash flow from operations Answer: a. Internal business process b. Customer c. Financial d. Financial e. Customer f. Internal business process g. Learning and growth h. Internal business process i. Customer j. Financial Diff: 3 Terms: transfer price Objective: 1 AACSB: Analytical skills

Discuss the possible problems a corporation might have if its operations are totally decentralized. Answer: (Answers may vary.) Senior management has the ultimate responsibility for the business. In a totally decentralized operation, senior executive management has little say about the conduct of the business. Another problem could be caused by the appointment of managers who are not capable of running their business. The lack of senior management control might result in problems developing and resulting in even bigger problems before anyone was aware of the incompetent managers.

Certain types of activities belong centralized such as gathering information and certain human resource functions. Diff: 2 Terms: decentralization Objective: 1 AACSB: Reflective thinking

What is the term used to describe the situation when a manager's decision, which benefits one subunit, is more than offset by the costs to the organization as a whole? A) suboptimal decision making B) dysfunctional decision making C) congruent decision making D) Both A and B are correct. Answer: D Diff: 2 Terms: suboptimal decision making, dysfunctional decision making Objective: 2 AACSB: Ethical reasoning
Which of the following statements is FALSE? A) A centralized structure does not empower employees to handle customer complaints directly. B) A decentralized structure forces top management to lose some control over the organization. C) Decentralization slows responsiveness to local needs for decision making. D) The extent to which decisions are pushed downward, and the types of decisions that are pushed down, provide a measure of the level of centralization/decentralization in an organization. Answer: C Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking
Area(s) which is/are usually appropriate for decentralized decision making is(are): A) sources of supplies and materials B) long-term financing C) product advertising D) Both A and C are correct. Answer: D Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking
The benefits of a decentralized organization are greater when a company: A) is large and unregulated B) is facing great uncertainties in their environment C) has few interdependencies among division D) All of these answers are correct. Answer: D Diff: 1 Terms: decentralization Objective: 2 AACSB: Reflective thinking

A benefit of decentralization is that it creates better responsiveness to local needs. Answer: TRUE Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking
Decentralizaion can sometimes lead to suboptimal decisions. Answer: TRUE Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking
In a profit center, the manager is accountable for investments, revenues, and costs. Answer: FALSE Explanation: In an investment center, the manager is accountable for investments, revenues, and costs. Diff: 2 Terms: decentralization Objective: 2 AACSB: Reflective thinking
Suboptimal decision making is also called congruent decision making. Answer: FALSE Explanation: It's also called incongruent decision making. Diff: 2 Terms: incongruent decision making, suboptimal decision making Objective: 2 AACSB: Ethical reasoning
Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture. Answer: FALSE Explanation: These decisions are made at a decentralized level. Diff: 2 Terms: decentralization Objective: 2 AACSB: Ethical reasoning
An important advantage of decentralized operations is that it improves corporate control. Answer: FALSE Explanation: Decentralized operations weaken controls. Diff: 1 Terms: decentralization Objective: 2 AACSB: Reflective thinking

The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers. However, she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority.

Required: Explain how a centralized organization might allow for responsibility centers. Answer: It does not make any difference what type of organizational structure exists when it comes to defining responsibility centers. If a centralized organization desires to hold its managers responsible for their actions, it can design a reporting system that assigns all costs and revenues to their controllable managers. It's just that, in a centralized organization, each manager may have more items to control than are reasonably possible. Diff: 2 Terms: management control system, decentralization Objective: 2 AACSB: Reflective thinking

Objective 22.

A product may be passed from one subunit to another subunit in the same organization. The product is known as a(n): A) interdepartmental product B) intermediate product C) subunit product D) transfer product Answer: B Diff: 1 Terms: intermediate product Objective: 3 AACSB: Reflective thinking
Transfer prices should be judged by whether they promote: A) goal congruence. B) the balanced scorecard method. C) a high level of subunit autonomy in decision making. D) Both A and C are correct. Answer: D Diff: 2 Terms: transfer price, goal congruence, autonomy Objective: 3 AACSB: Reflective thinking

A transfer-pricing method leads to goal congruence when managers: A) always act in their own best interest B) act in their own best interest and the decision is in the long-term best interest of the manager's subunit C) act in their own best interest and the decision is in the long-term best interest of the company D) act in their own best interest and the decision is in the short-term best interest of the company Answer: C Diff: 3 Terms: transfer price, goal congruence Objective: 3 AACSB: Ethical reasoning
Negotiated transfer prices are often employed when: A) market prices are stable B) market prices are volatile C) market prices change by a regular percentage each year D) goal congruence is not a major objective Answer: B Diff: 2 Terms: transfer price Objective: 3 AACSB: Reflective thinking
The costs used in cost-based transfer prices: A) are actual costs B) are budgeted costs C) can either be actual or budgeted costs D) are lower than the market-based transfer prices Answer: C Diff: 2 Terms: transfer price Objective: 3 AACSB: Reflective thinking

Answer the following questions using the information below:

Penn Oil Corporation has two divisions, Refining and Production. The company's primary product is Luboil Oil. Each division's costs are provided below:

Production :Variable costs per barrel of oil $ 9 Fixed costs per barrel of oil $ 6 Refining : Variable costs per barrel of oil $ Fixed costs per barrel of oil $

The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Production Division and 15,000 barrels from other suppliers at $60 per barrel.

Answer the following questions using the information below:

Greenlawn Corporation has two divisions, Distribution and Production. The company's primary product is fertilizer. Each division's costs are provided below:

Production : Variable costs per pound $0. Fixed costs per pound $0. Distribution : Variable costs per pound $0. Fixed costs per pound $0.

The Distribution Division has been operating at a capacity of 4,000,000 pounds a week and usually purchases 2,000,000 pounds from the Production Division and 2,000,000 pounds from other suppliers at $0 per pound.

What is the transfer price per barrel from the Production Division to the Distribution Division, assuming the method used to place a value on each pound of fertilizer is 160% of variable costs? A) $0. B) $0. C) $0. D) $0. Answer: C Explanation: C) 1 × $0 = $0. Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills
What is the transfer price per barrel from the Production Division to the Distribution Division, assuming the method used to place a value on each pound of fertilizer is 120% of full costs? A) $0. B) $0. C) $0. D) $1. Answer: B Explanation: B) 1 × ($0 + $0) = $0. Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills

Assume 100,000 pounds are transferred from the Production Division to the Distribution Division for a transfer price of $0 per pound. The Distribution Division sells the 100,000 pounds at a price of $1 each to customers. What is the operating income of both divisions together? A) $20, B) $30, C) $40, D) $50, Answer: C Explanation: C) Revenues = ($1 × 100,000) = $110, Cost = ($0 + $0 + $0 + $0) ×100,0000 = (70,000) Operating income $40, Diff: 3 Terms: transfer price Objective: 3 AACSB: Analytical skills

What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs? A) $ B) $ C) $ D) $ Answer: B Explanation: B) $20 × 1 = $ Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills
Calculate and compare the difference in overall corporate net income between Scenario A and Scenario B if the Assembly Division sells 100,000 pairs of shoes for $120 per pair to customers. Scenario A: Negotiated transfer price of $30 per pair of soles Scenario B: Market-based transfer price A) $1,000,000 more net income under Scenario A B) $1,000,000 of net income using Scenario B C) $200,000 of net income using Scenario A. D) None of these answers is correct. Answer: D Explanation: D) The net income would be the same under both scenarios. Diff: 3 Terms: transfer price Objective: 3 AACSB: Analytical skills
Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division. The Sole Division's operating income is: A) $640, B) $720, C) $800, D) $880, Answer: A Explanation: A) Revenue ((1 × $20) × 40,000) = $1,440, Costs ($20 x 40,000) = (800,000) Operating income $640, Diff: 3 Terms: transfer price Objective: 3 AACSB: Analytical skills

If the Assembly Division sells 100,000 pairs of shoes at a price of $120 a pair to customers, what is the operating income of both divisions together? A) $8,800, B) $6,800, C) $6,000, D) $5,200, Answer: B Explanation: B) Revenues = ($120 × 100,000) = $12,000, Cost = ($52 × 100,000) = 5,200, Operating income = $6,800, Diff: 3 Terms: transfer price Objective: 3 AACSB: Analytical skills

What is the transfer price per compressor from the Compressor Division to the Assembly Division if the transfer price per compressor is 110% of full costs? A) $42. B) $40. C) $38. D) none of the items Answer: C Explanation: C) $(17 + 7 + 3 + 7) × 1 = $38. Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills
Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Assembly Division. The Compressor Division's operating income is: A) $15, B) $16, C) $17, D) $18, Answer: C Explanation: C) Revenue ((1 × ($17 + $7 + $3 + $7) × 1,000) = $52, Costs ($34 x 1,000) = (34,750) Operating income $17, Diff: 3 Terms: transfer price Objective: 3 AACSB: Analytical skills
If the Assembly Division sells 1,000 air conditioners at a price of $375 per air conditioner to customers, what is the operating income of both divisions together? A) $100, B) $103, C) $97, D) $82, Answer: A Explanation: A) Revenues = ($375 × 1,000) = $ 375,, Cost = ($34 + $240) × 1,000) = 274, Operating income = $ 100, Diff: 3 Terms: transfer price Objective: 3 AACSB: Analytical skills

Answer the following questions using the information below:

Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1 per pound while Division B incurs additional costs of $5 per pound.

What is Division A's operating income per pound, assuming the transfer price of the ground veal is set at $2 per pound? A) $1. B) $1. C) $2. D) $3. Answer: A Explanation: A) $2 - $1 = $1. Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills
Which of the following formulas correctly reflects the company's operating income per pound? A) $10 - ($1 + $5) = $3. B) $10 - ($2 + $5) = $2. C) $10 - ($1 + $7) = $1. D) $10 - ($0 + $2 + $7) = 0 Answer: A Explanation: A) $10 - ($1 + $5) = $3. Diff: 2 Terms: transfer price Objective: 3 AACSB: Analytical skills
A transfer price is the price one subunit charges for a product or service supplied to another subunit of the same organization. Answer: TRUE Diff: 1 Terms: transfer price Objective: 3 AACSB: Analytical skills
The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions. Answer: FALSE Explanation: The choice of a transfer-pricing method has a large effect. Diff: 2 Terms: transfer price Objective: 3 AACSB: Reflective thinking

Which of the following is not a characteristic of a good control system?

Which of the following is not the feature of modern control system? Explanation: For a good control system the speed of response and stability must be high and for the slow and sluggish response is not used and undesirable.

What are the characteristics of a good management control?

9 Characteristics of an Effective Control Systems – Explained!.

Accuracy:.

Timeliness:.

Flexibility:.

Acceptability:.

Integration:.

Economic feasibility:.

Strategic placement:.

Corrective action:.

Which of the following is a characteristic of a management control system?

Which of the following is a characteristic of a management control system? It aids and coordinates the process of making decisions.

Which of the following is not included in the characteristics of management?

Management briefly refers to the process of dealing with or controlling people or things. Planning, staffing, controlling are covered under this definition. Hence, co-operating is not a function as such, of management.