Page 219 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes 10.8 Review Questions

1. Can responsibility be delegated? Why?

2. Analyse the concept of revenue centers. How are they evaluated in traditional responsibility
accounting?
3. How would you evaluate cost centers in traditional responsibility accounting?
4. How does an investment center differ from a profit center?

5. How are investment centers evaluated in traditional responsibility accounting?
6. Examine the key elements of the responsibility accounting controversy.
7. Put arguments to support traditional responsibility accounting.
8. Present arguments against traditional responsibility accounting.

9. Examine the controllability concept related to responsibility accounting.
10. An issue closely related to responsibility accounting is the controversy over budgeting and
how budgets are used. For example, Jensen describes a problem with typical executive
compensation plans where bonuses are based on budget targets. He argues that corporate
budgeting is a joke because it encourages managers to lie, cheat, lowball targets and inflate
results. Explain Jensen’s argument and proposed solution.
11. Identify the relative advantages and disadvantages of basing transfer prices on total costs,
variable costs, and market prices.

Answers: Self Assessment

1. financial accounting 2. revenue center

3. cost center 4. Investment center
5. diversified 6. delegated
7. time, labour, cost 8. control
9. depreciation 10. secret reserve
11. motivate 12. responsibility

13. compete, own 14. accounting report
15. top down 16. Transfer prices
17. negotiated transfer price

10.9 Further Readings

Books David W. Young, Techniques of Management Accounting, McGraw Hill.

McNair, C. J. and L. P. Carr, Responsibility Redefined: Changing Concepts of
Accounting-based Control.

Online links www.allbusiness.com

www.internalaccounting.com

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