Question

QUESTION 20

1. In doing control and/or performance evaluation, which of the following is a desirable device/idea?

   		Holding managers responsible for uncontrollable events for decentralized units
   		Use of static (planning or original)  budget in comparing actual cost and the budget
   		Determining compensation irrespective of performance evaluation
   		Investigation on significant variances only
   		Minimizing costs rather than maximizing profits

Answer 1

Option A: Holding managers responsible for events that are not controllable for decentralized units is not a desirable idea as managers should be evaluated only on those things over which they have significant influence. Hence, Option A is incorrect.

Option B: A budget is used to decide priorities, help setting targets, and control the expenditure of an organization. It is a useful tool to evaluate performance. Hence, Option B (Use of static budget to compare actual and the budget cost) is correct.

Option C: An organization should determine the compensation and pay hikes only after completing the performance evaluation. Hence, Option C is incorrect.

Option D: To measure performance, investigation of only the significant variances can result in incorrect results as a lot of other factors may be missed out.

Option E: An organization should consider both cost-cutting and profit maximization measures to succeed in the long run. Both measures must go hand in hand. Hence, Option D is incorrect.

To conclude, Option B is the correct answer.