Chapter 8

Question 1

What is decentralisation of a department?

Answer 1

There more decrentralised a department the mor authority the managers of that department have to make decisions.

Question 2

1. What is a cost centre?
2. What is a revenue centre?
3. What is a profit centre?

Answer 2

1. A department where cost are incurred.
2. Part of an organisation that earns sales revenue
3. A department where cost are incurred and revenue is earned.

Question 3

1. What is a shared service centre?
2. Give the advantages and disadvantages of this.

Answer 3

1. Common processes withi a business carried out by a shared centre to reduce costs (e.g the cloud)

Question 4

What are the avanatges and disadvantages of ROI?

Answer 4

Avanatages

• Enables comparision of divisions of different sizes
• Used externally
• Primary ratio splits into secondary ratio for more detail
• Forces manages to make good use of existing capital resources.
• Encourages reduction in assets (obsolete equipment)

Disadvantages

• Disincentive to invest → a divisional manager may not wish make an investment which provides return for the overal company if it reduces the devisions current ROI.
• Depreciation results in ROI improving → managers may chose to hold onto assets.

Question 5

What are the benefits of RI over ROI?

Answer 5

Question 6

What are the disadvantages of both RI and ROI?

Answer 6

• Calculation of profit → variation in treatment of depreciation, cutting of costs such as training / advertising
• Asset measurement → comparision can be difficult if some companies keep and others sell assets.
• Conflict with investment decisions

Question 7

1. What is a fixed budget.
2. What is an adverse variance.
3. What is a Favourable variance.

Answer 7

1. A budget report comparing the original budget to actual results for a signal activity
2. A variance that would decrease profit
3. A variance that would increase profit

Question 8

What is a flexed / flexible budget?

Answer 8

A budget that recognises different cost behaviour patterns and is designed to change as the volume of activity changes.

Question 9

Give advantages of the cloud

Answer 9

Advantages

• Allows multiple user access.
• Less expensive than accounting software → usually rented & maintance /updates are paid by supplier.
• Data can be accessed from anywhere with internet
• Allows business to stay up to date with technology