Question 1

Managers can reduce agency costs through the use of compensation contracts.

Accepted Answer

A) True 
 B)False

Question 2

Technical details about complex manufacturing processes are examples of specific knowledge.

Accepted Answer

A) True 
 B)False

Question 3

If a product has an external market and divisions are treated as profit centers, cost-based transfer prices can often lead to suboptimal decisions.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following performance measures can be used to compare the performance of business segments of varying sizes?

Accepted Answer

A)  Return on investment 
B)  Residual income 
C)  Economic value added 
D)  All of the above 
A)  Return on investment 
B)  Residual income 
C)  Economic value added 
D)  All of the above

Question 5

Under what circumstances could organizations eliminate agency costs, according to agency theory?

Accepted Answer

A)  If they are not publicly traded 
B)  If bonuses are based on financial performance 
C)  If they publish audited financial statements 
D)  Organizations cannot eliminate agency costs 
A)  If they are not publicly traded 
B)  If bonuses are based on financial performance 
C)  If they publish audited financial statements 
D)  Organizations cannot eliminate agency costs

Question 6

The price used to record exchanges of goods and services inside an organization is called a

Accepted Answer

A)  Transfer price 
B)  Exchange price 
C)  Full price 
D)  Suboptimal price 
A)  Transfer price 
B)  Exchange price 
C)  Full price 
D)  Suboptimal price

Question 7

An advantages of centralized decision making is

Accepted Answer

A)  More motivated employees 
B)  More rapid decision making in all contexts 
C)  Greater effectiveness in volatile environments 
D)  Less monitoring of decisions 
A)  More motivated employees 
B)  More rapid decision making in all contexts 
C)  Greater effectiveness in volatile environments 
D)  Less monitoring of decisions

Question 8

Agency theory is an analytical framework that tells managers how to solve potential conflicts with shareholders.

Accepted Answer

A) True 
 B)False

Question 9

To protect shareholders from excessive compensation practices, executive compensation packages are best set by

Accepted Answer

A)  The board of directors 
B)  A committee of primarily outside members of the board of directors 
C)  A committee of top management employees 
D)  The external auditors 
A)  The board of directors 
B)  A committee of primarily outside members of the board of directors 
C)  A committee of top management employees 
D)  The external auditors

Question 10

Which prices are recorded by departments under a dual-rate transfer pricing system?

Accepted Answer

The answer of Which prices are recorded by departments under...

Question 11

Agency costs include

Accepted Answer

A)  Losses from bad economic conditions 
B)  Losses because managers' interests sometimes conflict with owners 
C)  Losses from natural disasters 
D)  Losses from changes in customer preferences 
A)  Losses from bad economic conditions 
B)  Losses because managers' interests sometimes conflict with owners 
C)  Losses from natural disasters 
D)  Losses from changes in customer preferences

Question 12

Thurston, Inc. experienced a 14% rate of return on average investment of $1,000,000. If the required rate of return is 12%, then residual income is

Accepted Answer

A)  $20,000 
B)  $40,000 
C)  $120,000 
D)  $140,000 
A)  $20,000 
B)  $40,000 
C)  $120,000 
D)  $140,000

Question 13

What is the difference between the definition of investment for residual income and EVA?

Accepted Answer

A)  Residual income does not include long-term assets 
B)  EVA subtracts current liabilities from operating assets 
C)  EVA does not include current assets 
D)  EVA subtracts long-term debt from operating assets 
A)  Residual income does not include long-term assets 
B)  EVA subtracts current liabilities from operating assets 
C)  EVA does not include current assets 
D)  EVA subtracts long-term debt from operating assets

Question 14

Dual-rate transfer pricing systems are appropriate when the

Accepted Answer

A)  Market price is unknown 
B)  Selling department has excess capacity 
C)  Market price is higher than the variable cost 
D)  Market price is higher than the full cost 
A)  Market price is unknown 
B)  Selling department has excess capacity 
C)  Market price is higher than the variable cost 
D)  Market price is higher than the full cost

Question 15

Costs for producing and analyzing internal performance reports are examples of

Accepted Answer

A)  Goal alignment costs 
B)  Losses from poor decisions 
C)  Monitoring costs 
D)  Contracting costs 
A)  Goal alignment costs 
B)  Losses from poor decisions 
C)  Monitoring costs 
D)  Contracting costs

Question 16

The manager in a profit center is responsible for

Accepted Answer

A)  Investments 
B)  Only revenues 
C)  Only the costs of production or services 
D)  Both costs and revenues 
A)  Investments 
B)  Only revenues 
C)  Only the costs of production or services 
D)  Both costs and revenues

Question 17

Because agents may not set the same goals and objectives as principals, organizations may experience which of the following general agency costs? I. Goal alignment costs
II. Losses from a downturn in economic conditions
III. Monitoring costs

Accepted Answer

A)  I and III only 
B)  II and III only 
C)  III only 
D)  I, II, and III 
A)  I and III only 
B)  II and III only 
C)  III only 
D)  I, II, and III

Question 18

Use the following information for the next 5 questions.
Bellingham Division has a required rate of return by corporate headquarters of 20%. The weighted average cost of capital is 12%. You are given the following information for Bellingham's operations for a two-year period:  
-The residual income for 2005 was

Accepted Answer

A)  ($21,000) 
B)  ($22,000) 
C)  ($14,000) 
D)  $1,000 
A)  ($21,000) 
B)  ($22,000) 
C)  ($14,000) 
D)  $1,000

Question 19

Basing executive compensation on accounting earnings I. Is a popular practice in the United States
II. Is sharply criticized because of potential negative long-term effects
III. Leads to unbiased accounting practices

Accepted Answer

A)  I and II only 
B)  I and III only 
C)  II and III only 
D)  I, II, and III 
A)  I and II only 
B)  I and III only 
C)  II and III only 
D)  I, II, and III

Question 20

Setting transfer prices can be especially problematic when

Accepted Answer

A)  Managers are evaluated based on non-financial factors 
B)  Compensation is tied to the financial performance of responsibility centers 
C)  Centralized decision making is the organizational norm 
D)  Compensation is tied to the financial performance of the organization as a whole 
A)  Managers are evaluated based on non-financial factors 
B)  Compensation is tied to the financial performance of responsibility centers 
C)  Centralized decision making is the organizational norm 
D)  Compensation is tied to the financial performance of the organization as a whole

Managers can reduce agency costs through the use of compensation contracts.

Technical details about complex manufacturing processes are examples of specific knowledge.

If a product has an external market and divisions are treated as profit centers, cost-based transfer prices can often lead to suboptimal decisions.

Which of the following performance measures can be used to compare the performance of business segments of varying sizes?

Under what circumstances could organizations eliminate agency costs, according to agency theory?

The price used to record exchanges of goods and services inside an organization is called a

An advantages of centralized decision making is

Agency theory is an analytical framework that tells managers how to solve potential conflicts with shareholders.

To protect shareholders from excessive compensation practices, executive compensation packages are best set by

Which prices are recorded by departments under a dual-rate transfer pricing system?

Agency costs include

Thurston, Inc. experienced a 14% rate of return on average investment of $1,000,000. If the required rate of return is 12%, then residual income is

What is the difference between the definition of investment for residual income and EVA?

Dual-rate transfer pricing systems are appropriate when the

Costs for producing and analyzing internal performance reports are examples of

The manager in a profit center is responsible for

Because agents may not set the same goals and objectives as principals, organizations may experience which of the following general agency costs? I. Goal alignment costs II. Losses from a downturn in economic conditions III. Monitoring costs

Basing executive compensation on accounting earnings I. Is a popular practice in the United States II. Is sharply criticized because of potential negative long-term effects III. Leads to unbiased accounting practices

Setting transfer prices can be especially problematic when

The Role of Accounting Information in Management Decision Making

The Cost Function

Cost-Volume-Profit Analysis

Relevant Costs for Nonroutine Operating Decision

Job Costing

Process Costing

Activity-Based Costing and Management

Measuring and Assigning Support Department Costs

Joint Product and By-Product Costing

Static and Flexible Budgets

Standard Costs and Variance Analysis

Strategic Investment Decisions

Joint Management of Revenues and Costs

Measuring and Assigning Costs for Income Statements

Strategic Performance Measurement

Sustainability Accounting

Filters

Exam 15: Performance Evaluation and Compensation

Managers can reduce agency costs through the use of compensation contracts.

Technical details about complex manufacturing processes are examples of specific knowledge.

If a product has an external market and divisions are treated as profit centers, cost-based transfer prices can often lead to suboptimal decisions.

Which of the following performance measures can be used to compare the performance of business segments of varying sizes?

Under what circumstances could organizations eliminate agency costs, according to agency theory?

The price used to record exchanges of goods and services inside an organization is called a

An advantages of centralized decision making is

Agency theory is an analytical framework that tells managers how to solve potential conflicts with shareholders.

To protect shareholders from excessive compensation practices, executive compensation packages are best set by

Which prices are recorded by departments under a dual-rate transfer pricing system?

Agency costs include

Thurston, Inc. experienced a 14% rate of return on average investment of $1,000,000. If the required rate of return is 12%, then residual income is

What is the difference between the definition of investment for residual income and EVA?

Dual-rate transfer pricing systems are appropriate when the

Costs for producing and analyzing internal performance reports are examples of

The manager in a profit center is responsible for

Because agents may not set the same goals and objectives as principals, organizations may experience which of the following general agency costs? I. Goal alignment costs II. Losses from a downturn in economic conditions III. Monitoring costs

Basing executive compensation on accounting earnings I. Is a popular practice in the United States II. Is sharply criticized because of potential negative long-term effects III. Leads to unbiased accounting practices

Setting transfer prices can be especially problematic when

The Role of Accounting Information in Management Decision Making

The Cost Function

Cost-Volume-Profit Analysis

Relevant Costs for Nonroutine Operating Decision

Job Costing

Process Costing

Activity-Based Costing and Management

Measuring and Assigning Support Department Costs

Joint Product and By-Product Costing

Static and Flexible Budgets

Standard Costs and Variance Analysis

Strategic Investment Decisions

Joint Management of Revenues and Costs

Measuring and Assigning Costs for Income Statements

Strategic Performance Measurement

Sustainability Accounting

Filters