A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n) ________.
A) balanced scorecard
B) financial report scorecard
C) goal-congruence report
D) investment success report
A
Customer-satisfaction measures are an example of the ________.
A) goal-congruence approach
B) balanced scorecard approach
C) financial report scorecard approach
D) investment success approach
B
An example of a performance measure with a long time horizon is ________.
A) direct materials efficiency variances
B) overhead spending variances
C) number of new patents developed
D) quality of room service
C
Average number of repeat visits in a spa unit is a ________ measure on a balanced scorecard.
A) customer perspective
B) financial perspective
C) learning-and-growth perspective
D) internal-business-process perspective
A
Which of the following steps in designing an accounting-based performance measure includes decisions such as defining assets as total assets or net assets in the calculation of return on assets?
A) choosing performance measures that align with top managem
C
Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?
A) choosing performance measures that align with the firm's financial goals
B) choosing the
A
Which of the following is true about designing an accounting-based performance measure?
A) The decisions made in steps are followed in a hierarchial order.
B) The issues considered in each step are independent.
C) Management's beliefs are not required dur
D
Many common performance measures, such as customer satisfaction, rely on internal financial accounting information.
False
Some companies present financial and nonfinancial performance measures for various organization units in a single report called the balanced scorecard.
True
The balanced scorecard in most organizations is broken down into the following categories: commercial perspective, supplier perspective, external business-process perspective, and productivity perspective.
False
The first step in designing accounting based performance measures is to choose a target level of performance and feedback mechanism.
False
The weighted-average cost of capital (WACC) equals ________.
A) the after-tax average cost of all the long-term and short-term sources of funds
B) the after-tax average cost of all the long-term source of funds
C) the pre-tax average cost of all the short
B
The required rate of return multiplied by the investment is the ________.
A) sunk cost of the investment
B) historical cost of the investment
C) imputed cost of the investment
D) return on sales
C
A company which favors the residual income approach to financial performance evaluation wants managers to ________.
A) concentrate on maximizing an absolute amount of dollars of residual income as opposed to a percentage yield as is the case with ROI
B) c
A
Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income ________.
A) places importance on the reduction of underperforming assets
B) calculates a percentage return rather than an
C
Which of the following is a performance measure?
A) retained earnings
B) market value
C) present value of cash flows
D) economic value added
D
Which of the following is the required rate of return used in the economic value added (EVA) calculation?
A) The ROI of the division or company being evaluated
B) After-tax weighted-average cost of capital
C) The residual income/total assets
D) The after-
B
Economic value added is equal to ________.
A) After-tax operating income - [Weighted-average cost of capital + (Total assets - Current liabilities)]
B) Pre-tax operating income - [Weighted-average cost of capital + (Total assets - Current liabilities)]
C)
C
Which of the following is the expression of the DuPont method of profitability analysis?
A) Income / Investment = Income / Total costs + Revenues / Equity
B) Income / Investment = Income / Revenues + Revenues / Investment
C) Income / Investment = Income /
C
A major weakness of comparing two companies using only operating incomes as the basis of comparison is that it ignores the differences in the size of the investment and therefore any concept of yield or return on investment.
True
Reducing the investment base to improve ROI involves decreasing idle cash, paying down debt, determining proper inventory levels, and spending carefully on long-term assets.
False
Return on sales can provide how effectively costs are managed and is part of the DuPont method of profitability analysis.
True
Return on investment can be calculated by multiplying return on assets by investment turnover.
False
All other things held constant, increase in assets such as receivables or decrease in operating income results in an increase in return on investment.
False
The DuPont method recognizes the two basic ingredients in profit making: increasing the income per dollar of revenues and using assets to generate more revenues.
True
To evaluate overall performance, return on investment and residual income measures are more appropriate than return on sales.
True
Required rate of return multiplied by the investment is the weighted average cost of the investment.
False
Historical costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures.
False
The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted.
True
Return on investment, Residual income, or Economic value added measures are more appropriate than return on sales because they consider only the investment to measure the performance.
False
Economic value added, unlike residual income, charges managers for the costs of their investments in long-term assets and working capital.
False
Companies that adopt the EVA concept define investment as total assets employed minus current liabilities.
True
In an EVA calculation, the corporate charge for a division's investment is based on a weighted average of the after-tax interest rate on the firm's debt and the cost of the firm's equity.
True
In an EVA calculation, the measure of the invested capital for a division would be that division's assets minus that division's long-term liabilities.
False
In an EVA calculation, the appropriate measure of a division's profit would be that division's pre-tax operating income.
False
Which of the following is the formula for investment assuming that total assets employed is the measure?
A) total assets available minus the sum of idle assets
B) total assets available minus the sum of idle assets and assets purchased for future expansio
B
The proponents of using net book value as an investment base maintain that it is less confusing because it is consistent with the amount of total assets shown in the conventional balance sheet.
True
Current cost return on investment is a better measure of the current economic returns from an investment than historical cost return on investment.
True
The net present value of all cash flows over the life of an investment equals the net present value of the operating incomes.
False
Total assets employed includes all assets, regardless of their intended purpose.
False
Using net book value as an investment base will result in a lower ROI than using gross book value as an investment base.
False
When managers set and measure target levels of performance and feedback, ________.
A) the historical-cost-based accounting measures are usually adequate for evaluating economic returns on new investments
B) the historical-cost ROIs cannot be used to evalu
D
Historical-cost-based accounting measures are usually inadequate for evaluating economic returns on new investments and, in some cases, create disincentives for expansion.
True
Inflation clouds the real economic returns on an asset and ________.
A) makes variable-cost-based ROI higher
B) makes historical-cost-based ROI lower.
C) makes historical-cost-based ROI higher
D) makes variable-cost-based ROI lower
C
Which of the following statements is true?
A) The economic, legal, political, social, and cultural environments differ across countries.
B) The import quotas and tariffs remain the same across all countries according to the standards set by United Nations
A
________ would be an uncontrollable factor that a firm would need to consider when evaluating the return on investment of an international division.
A) Manager's experience
B) Manager's compensation
C) Pricing decisions
D) Custom duties
D
In performance evaluations ________.
A) managers should use the swap exchange rate prevailing at the end of a financial period
B) managers should use the average exchange rate prevailing at the end of a financial period
C) managers should use the exchange
C
Inflation and fluctuations in foreign-currency exchange rates affect performance measurement.
True
Higher inflation will lead to higher prices for goods or services, which will increase a company's operating income and lead to a higher ROI.
True
To convert the operating income for an overseas branch into US dollars, the historical rate of exchange is used for its conversion into US dollars.
False
To calculate the value of fixed assets for an overseas branch, the historical rate of exchange is used for its conversion.
True
Which of the following is true of rewarding managers on the basis of residual income?
A) Managers are paid a fixed amount for his services regardless of the risk involved.
B) Managers' efforts are easily measured.
C) Managers taking less risk should be re
D
Which of the following describes a situation in which an employee prefers to exert less effort than the effort the owner desires because the employee's effort cannot be accurately monitored and enforced?
A) Goal incongruence
B) Moral hazard
C) Performance
B
Sensitive performance measures ________.
A) the salary component of the managers
B) are not affected by managers' performance and fail to induce them to improve
C) motivate the manager as well as limit the manager's exposure to risk, reducing the cost of
C
Which of the following is true of performance measurement?
A) Preferred performance measures do not change much with changes in factors that are beyond manager's control.
B) Sensitive performance measures increases the cost of providing incentives.
C) Les
A
Relative performance evaluation ________.
A) determines the effective intensity of incentives placed on each measure of performance
B) filters out the effect of common uncontrollable factors
C) results in managers helping each other who run similar operat
B
Team incentives encourage cooperation by ________.
A) identifying an efficient and a nonefficient employee
B) enhancing the incentives of individual employees leading to overall positive performance
C) letting individuals help one another as they strive t
C
Many manufacturing, marketing, and design problems require employees with multiple skills; therefore, teams are used and the members have the added encouragement of ________.
A) individual incentives
B) management incentives
C) morale incentives
D) team i
D
Which of the following is true of an executive compensation plan?
A) The compensation paid to the executives should be linked only to the financial performance of the company.
B) Most compensation plans are two parts: salary and health plan
C) It does not
D
Which of the following is true of benchmarking two managers against each other if they carry out similar operations?
A) It would lead to better cooperation among the managers.
B) It would reduce the managers' incentives to help one another.
C) It would en
B
An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks.
True
There should be strict congruence between the performance evaluation of a subunit and the performance evaluation of that subunit's manager.
False
A manager's job entails gathering information, interpreting that information and making judgments on that information and thus is less susceptible to moral hazards than jobs that require repetitive tasks and less subjective decision making.
False
The more owners have access to sensitive performance measures, the more they can rely on incentive compensation for their managers.
True
The credit rating agencies require detailed disclosures of the compensation arrangements of top-level executives.
False
The salary component of compensation dominates when performance measures that are sensitive to managers' actions are not available
True
An additional criticism of team-based compensation is that there can be problems managing team members who are not productive contributors to a team's success but who, nevertheless, share in the team's rewards
True
Stock options give executives the right to buy company stock at a specified price, called the exercise price, within a specified period.
True
Which of the following best describes interactive control systems?
A) it articulates the mission, purpose, and core values of a company
B) it articulates standards of behavior and codes of conduct expected of all employees and help in achieving the maximu
C
Which of the following best describes a belief control system?
A) it describes standards of behavior and codes of conduct expected of all executives and board of directors
B) it articulates the mission, purpose, and core values of a company
C) they are fo
B
Which of the following best describes an interactive control system?
A) ensures adherence to legal or ethical accounting policies and procedures
B) ensures prompt and severe reprimand of unethical conduct, regardless of the benefits that might accrue to t
D
Managers use ________ to ensure employees' intrinsic motivation, the desire to achieve self-satisfaction for performing well regardless of external rewards such as bonuses or promotion.
A) diagnostic control systems
B) boundary systems
C) belief systems
D
C
Levers of control," in addition to a diagnostic control system, are needed in an organization because ________.
A) diagnostic controls have been found to lead to poor financial performance
B) diagnostic controls have no place in a balanced scorecard syst
C
Cooking the books" means reporting of understated assets and overstated liabilities.
False
Intrinsic motivation comes from being given greater responsibility, doing interesting and creative work, and having pride in doing that work.
True
An excessive focus on diagnostic control systems and critical performance variables can cause an organization to ignore emerging threats and opportunities.
True
Some companies, make environmental performance a line item on every employee's salary appraisal report.
True
Interactive control systems are informal information systems managers use to focus the company's attention and learning on key strategic issues.
False
Measures which monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are collectively called diagnostic control systems.
True