Page 104 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 4: Responsibility Centers

7. Differentiate between engineered expense centers and discretionary expenses centers. Notes
Give examples.
8. What different approaches are required in budgeting with regard engineered expenses
and discretionary expense. How performance is measured in such cases?
9. Describe the merits and demerits of using profit centre and cost centre (a) as ways of
measuring management performances and (b) as an aid to planning and control at all
levels.
10. How do you describe the bench marking for evaluation of performance of responsibility
centre?
11. What do you understand by ROI analysis? What are the problems involved in ROI Analysis?
12. Why is ROI classified as a composite performance measures? Explain its significance.

13. Define residual profit/EVA. Discuss its suitability as a performance measure.
14. What kind of performance is measured in profit centers? What are the criteria for evaluating
that performance?

15. Explain why a decision centres should be treated as a profit centre rather than as a cost
centre.
16. Explain briefly the elements of profit centre performance.

17. Why must profit centers be evaluated and/or ranked? What problems arise when undue
emphasis is placed on the comparison of segment profit performance?
18. What are the alternatives investment base used for ROI and RI evaluation? Which is the
base normally used and why?
19. Why distinction should be made between the performance of the division manager and
the performance of the division as an investment by the corporate?
20. Analyse the concept of responsibility accounting. What are the prerequisites and limitations
of responsibility accounting?

21. “Exclusive reliance on a single financial measure may be inadequate and use of numerous
criteria may be confusing.” Discuss.
22. XYZ Company has three divisions X, Y and Z, for the current year, the following data were
reported:
X Y Z
Sales Revenue (`) 8,00,000 ? ?
Profit (`) 80,000 6,40,000 ?
Investment (`) 4,00,000 ? 20,00,000
Investment turnover ? 4 ?
Margin of profit on sales ? ? 0.15
ROI ? 0.2 ?
Residual income using 10% cost of capital (`) ? ? 2,02,000

Required:
(i) Complete the table
(ii) Rank the division in terms of their effective use of resource in capturing the market.

LOVELY PROFESSIONAL UNIVERSITY 99