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Chapter 24: Q5SE (page 1357)

Management by exception is a term often used in performance evaluation. Describe management by exception and how it is used in the evaluation of cost, revenue, and profit centers.

Short Answer

Expert verified

The management exception is to ignore smaller problems and focus on solving bigger problems.

Step by step solution

01

 Management by exception

Management by exceptions refers to the practice which is followed in the offices, in which the financial and operational results of a business and the management will focus on issues that need the attention of the management of the company.

02

Its usage in the evaluation of cost, revenue, and profit centers

Performance reports for costs, revenue, and profit centers generally show all the amounts whether it is actual or budgeted amounts along with the dollar and percentage variances computed.

The practice of management by exception helps the management to focus only on variances that exceed some dollar amount. Management does not have to investigate smaller variances.

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Most popular questions from this chapter

What is a responsibility center?

What is the biggest disadvantage of using ROI to evaluate investment centers?

Question: How is RI calculated?

List the advantages of decentralization.

One subunit of Harris Sports Company had the following financial results last month:

Harris—Subunit X Actual Results Flexible Budget Flexible Budget Variance (F or U) % Variance (F or U)

Direct Materials \( 28,000 \) 25,900

Direct Labor 13,000 13,800

Indirect Labor 26,400 23,100

Utilities 12,300 11,300

Depreciation 25,000 25,000

Repairs and Maintenance 4,600 5,600

Total \( 109,300 \) 104,700

Requirements

1. Complete the performance evaluation report for this subunit. Enter the variance percent as a percentage of the budgeted amount rounded to two decimal places.

2. Based on the data presented, what type of responsibility center is this subunit?

3. Which items should be investigated if part of management’s decision criteria is to investigate all variances exceeding $2,500 or 10%?

4. Should only unfavorable variances be investigated? Explain.
See all solutions

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