Deck 4: Organizational Architecture

Question 1

When activities are performed inside firms,which of the following is true?

A)Centralized firms delegate decision rights to the lowest operational level
B)The best performance measurement systems use only financial data because it is objective
C)Individuals strive to manipulate the performance evaluation system to maximize their own benefits
D)For efficiency,a manager should have both decision rights and decision control
E)None of the choices are correct

Answer 1

E

Question 2

Printing Press (PP)is operating close to capacity.The sales department earns commissions of 8% on sales.Setup charges amount to $60 per item,plus variable costs of $1 per copy.When capacity is reached,PP can still meet the order,but incurs overtime charges and other variable overhead of 25 cents per copy.The production manager complains that the sales staff promise delivery within very tight deadlines in order to secure orders,which means that overtime and other variable overhead has to be paid.A recent rush order for 100 engraved wedding invitations was secured at the normal price of $200.Which is true?

A)The present arrangements maximize profits for PP
B)Sales staff would coordinate rush orders with production if the excess charges were to be charged against their sales commission
C)Sales will increase if sales commission arrangements are changed
D)Sales staff are not rewarded for maximizing sales at any cost
E)None of the choices are correct

Answer 2

B

Question 3

Which of the following is necessary in order for accounting numbers to be effective in decision monitoring?

A)The controller reports to the audit committee of the board of directors.
B)The CEO and senior management use the accounting system to check on the performance of the board of directors.
C)Financial measures used at the corporate level are used to make operating decisions.
D)Accounting reports are subjective and available on an as-needed basis.
E)All of the choices.

Answer 3

A

Question 4

Which of the following is true?

A)People in firms have equal knowledge
B)Employee empowerment increases when firms centralize key functions
C)Decision rights and knowledge must be separated to minimize agency costs
D)Theft by employees is an example of an agency cost
E)None of the choices are correct

Question 5

Which of the following is true?

A)Successful firms have lower transactions costs than markets do
B)A legal system that protects ownership rights is critical to the efficient functioning of firms and markets
C)Markets measure and reward performance
D)Markets allocate resources to their highest value use
E)All of the choices

Question 6

Fundamental tenets of economics include all of the following,except:

A)all market participants are rational
B)individuals seek to maximize utility
C)people strive to maximize benefits to their community
D)people value status,job title,love,free time
E)None of the choices are correct

Question 7

When activities are performed inside firms,which of the following is true about organizational architecture?

A)Decision initiation is a feature of decision control
B)The party who ratifies a decision must implement it
C)Rewards should be distributed equally to keep everyone happy
D)It is cost-ineffective to ratify all decisions
E)None of the choices are correct

Question 8

Which of the following is true?

A)A free rider contributes to teamwork but does not receive pay
B)Mitigating the agency problem requires alignment of the interests of principal and agent
C)The horizon problem describes agents who focus on the long-term
D)Agency costs are an advertising expense
E)None of the choices are correct

Question 9

Which advantage accrues when teams,or firms,are formed?

A)Positive synergies
B)Each participant perceives an advantage to joining
C)Increase in economies of scale
D)Contracting efficiencies
E)All of the choices are correct

Question 10

Which of the following statements is correct?

A)Agency costs can be minimized by separating decision management from decision control.
B)Specific internal accounting procedures,such as standard costs,aid in decision management.
C)For decision management,most managers prefer accounting numbers.
D)Departments and companies with lower stock turns are using their capital more efficiently by limiting the number of times inventory is replaced during the period.
E)All of the choices are correct.

Question 11

The university computer lab is having difficulty controlling its costs.Analysis showed that a key issue is the cost of printer supplies (ink,paper,and machine repair).Which strategy is likely to reduce costs the most,if typical student use is 200 copies per month?

A)Plan A: requiring students to pay 12 cents per copy
B)Plan B: charging a fee of $20 for the first 100 copies per month,then 10 cents per copy thereafter
C)Plan C: charging a fee of $10 for the first 50 copies per month,then 15 cents per copy thereafter
D)Plan D: adding a flat lab fee of $30 per academic term
E)All of the choices are correct