Chapter 12 Fall Final 2012

In general, profit centers are found at higher levels in an organization than investment centers.

False

It is important to not consider an organization's compensation and reward system when designing its performance evaluation system.

False

One disadvantage of decentralization is slower response time to changes in the organization's environment by local managers.

False

Properly designed management control systems can totally eliminate the inherent agency problem between principal and agent.

False

Rational managers will always make decisions that are in the best interest of the organization employing them.

False

Which of the following statements is false?

The U.S. military is a good example of an organization that is highly decentralized.

Decentralization is the delegation of the authority to make decisions in the organization's name to subordinates.

True

In general, organizations are more centralized in the early stages of their existence and more decentralized as they grow.

True

In general, there is a direct relationship between the quality of the information provided to managers and the quality of decisions made using that information.

True

It is possible for performance evaluation systems and/or management control systems to contribute to unethical or fraudulent behavior.

True

Managers in a cost center should be held responsible for both the costs and quality of their products or services.

True

Properly designed management control systems have both fixed compensation and performance based rewards or punishment.

True

The design and use of management control systems affects how an individual makes and implements decisions.

True

The three pillars of organizational architecture are assignment of decision rights, measuring performance, and rewarding and punishing.

True

An operating unit of an organization is called an investment center if it is responsible

for investments in assets.

Which of the following is not a characteristic of a decentralized organization?

more decisions made by relatively few individuals

Decentralization refers to the delegation of decision-making authority to

subordinates.