521. The managers in charge of production would usually be responsible for control of the labor efficiency variance.522. The interpretation of the variable overhead variances is not as clear as the direct materials and direct labor variances.523. My plan for overcoming the problem is to pair up each of the new guys with one of our old-timers and have them work together for a while.524. Too much emphasis on meeting the standards may overshadow other important objectives such as maintaining and improving quality, on-time delivery, and customer satisfaction.525. It is particularly important that managers go out of their way to focus on the positive, rather than just on the negative, and to be aware of possible unintended consequences.526. Traditional standard cost variance reports are often supplemented with other performance measures to ensure that overemphasis on standard cost variances does not lead to problems in other critical areas such as product quality, inventory levels, and on-time delivery.527. When properly implemented, management control systems provide incentives and feedback mechanisms to help ensure that all of a company’s employees pursue goals that align with its interests.528. In strongly decentralized organizations, even the lowest-level managers are empowered to make as many decisions as possible.529. The term responsibility center is used for any part of an organization whose manager has control over and is accountable for cost, profit, or investments.530. Service departments such as accounting, finance, general administration, legal, and personnel are usually classified as cost centers.531. The managers of cost centers are expected to minimize costs while providing the level of products and services needed by other parts of the organization.532. Once General Motors’ top-level managers and board of directors approve the vice president’s investment proposals, he is held responsible for making them pay off.533. Net operating income is income before interest and taxes and is sometimes referred to as EBIT (earnings before interest and taxes).534. Operating assets include cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes.535. A balanced scorecard can provide concrete guidance to managers, making it more likely that their actions are consistent with the company’s strategy and reducing the likelihood that they will boost short-run performance at the expense of long-term performance.536. As discussed in the next section, a manager who is evaluated based on ROI may reject investment opportunities that are profitable for the whole company but would have a negative impact on the manager’s performance evaluation.537. If the objective were to maximize ROI, then every company should divest all of its products except the single product with the highest ROI.538. The residual income approach encourages managers to make investments that are profitable for the entire company but that would be rejected by managers who are evaluated using the ROI formula.539. Therefore, the new diagnostic machine would decrease the division’s ROI even though it would be a good investment from the standpoint of the company as a whole.540. In contrast, managers who are evaluated using residual income will pursue any project whose rate of return is above the minimum required rate of return because it will increase their residual income.
