Exam 23: Performance Measurement, Compensation, and Multinational Considerations

Make a list of steps of designing an accounting based performance measure. Give an example of decisions taken under each step.

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Question 1

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1.Choose performance measures that align with top management's goals.
Does operating income, return on assets, or revenues best measure a subunit's financial goals?
2.Choose the Details of Each Performance Measure.
Once a firm has chosen a specific performance measure, it must make a variety of decisions about the precise way in which various components of the measure are to be calculated. For example, if the chosen performance measure is return on assets, should it be calculated for one year or for a multiyear period? Should assets be defined as total assets or net assets (total assets
minus total liabilities)? Should assets be measured at historical cost or current cost?
3.Choose a Target Level of Performance and Feedback Mechanism for Each Performance Measure
For example, should all subunits have identical targets, such as the same required rate of return on assets? Should performance reports be sent to top managers daily, weekly, or monthly?

Which of the following describes boundary control systems?

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Question 2

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"Cooking the books" means reporting of understated assets and overstated liabilities.

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Question 3

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False

An important element in designing accounting-based performance measures is choosing the time horizon of the performance measures. Discuss.

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Question 4

The more owners have access to sensitive performance measures, the more they can rely on incentive compensation for their managers.

(True/False)

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Question 5

The net present value of all cash flows over the life of an investment equals the net present value of the operating incomes.

(True/False)

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Question 6

Team incentives encourage cooperation by ________.

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Question 7

The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: What is the value of the operating assets belonging to the Beta Division (c)?

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Question 8

Stonex Corp, whose tax rate is 35%, has two sources of funds: long-term debt with a market value of $6,200,000 and an interest rate of 9%, and equity capital with a market value of $14,000,000 and a cost of equity of 13%. Stonex has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year: Calculate EVA for the Gold Division. (Round intermediary calculations to four decimal places.)

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Question 9

Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?

(Multiple Choice)

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Question 10

Inflation and fluctuations in foreign-currency exchange rates affect performance measurement.

(True/False)

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Question 11

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/False)

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Question 12

The balanced scorecard in most organizations is broken down into the following categories: commercial perspective, supplier perspective, external business-process perspective, and productivity perspective.

(True/False)

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Question 13

Interactive control systems are informal information systems managers use to focus the company's attention and learning on key strategic issues.

(True/False)

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Question 14

All other things held constant, increase in assets such as receivables or decrease in operating income results in an increase in return on investment.

(True/False)

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Question 15

The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: What is the Digger Division's return on investment?

(Multiple Choice)

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Question 16

An example of a performance measure with a long time horizon is ________.

(Multiple Choice)

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Question 17

"Levers of control," in addition to a diagnostic control system, are needed in an organization because ________.

(Multiple Choice)

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Question 18

Inflation clouds the real economic returns on an asset and ________.

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Question 19

Which of the following is true about designing an accounting-based performance measure?

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Question 20

Showing 1 - 20 of 150

Make a list of steps of designing an accounting based performance measure. Give an example of decisions taken under each step.

Which of the following describes boundary control systems?

"Cooking the books" means reporting of understated assets and overstated liabilities.

An important element in designing accounting-based performance measures is choosing the time horizon of the performance measures. Discuss.

The more owners have access to sensitive performance measures, the more they can rely on incentive compensation for their managers.

The net present value of all cash flows over the life of an investment equals the net present value of the operating incomes.

Team incentives encourage cooperation by ________.

Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?

Inflation and fluctuations in foreign-currency exchange rates affect performance measurement.

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.

The balanced scorecard in most organizations is broken down into the following categories: commercial perspective, supplier perspective, external business-process perspective, and productivity perspective.

Interactive control systems are informal information systems managers use to focus the company's attention and learning on key strategic issues.

All other things held constant, increase in assets such as receivables or decrease in operating income results in an increase in return on investment.

An example of a performance measure with a long time horizon is ________.

"Levers of control," in addition to a diagnostic control system, are needed in an organization because ________.

Inflation clouds the real economic returns on an asset and ________.

Which of the following is true about designing an accounting-based performance measure?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

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