Question 1

Sensitive performance measures ________.

Accepted Answer

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 providing incentives. 
D)  increases the exposure of credit 
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 providing incentives. 
D)  increases the exposure of credit

Question 2

Craylon Corp has three divisions, which operate autonomously. Their results for 2015 were as follows:
   
The company's desired rate of return is 15%.
Required:
a.Compute each division's ROI. Round to three decimal places.
b.Compute each division's residual income.

Accepted Answer

a.East ROI= $4,500,000 / $30,0

Question 3

Briefly explain each of the four levels of control. Why does a company need to implement more than a diagnostic control system?

Accepted Answer

The four levers of control are diagnosti

Question 4

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 Alpha Division's return on sales (e)?

Accepted Answer

A)  38.5% 
B)  160.0% 
C)  62.5% 
D)  37.5% 
A)  38.5% 
B)  160.0% 
C)  62.5% 
D)  37.5%

Question 5

Historical costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures.

Accepted Answer

A) True 
 B)False

Question 6

LaserLife Printer Cartridge Company is a decentralized organization with several autonomous divisions. The division managers are evaluated, in part, on the basis of the change in their return on invested assets. Operating results for the Packer Division for 2018 are budgeted as follows:
   
Operating assets for the division are currently $3,600,000. For 2018, the division can add a new product line for an investment of $600,000. The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually. Variable costs of the new product will average 60% of the selling price.
Required:
a.What is the effect on ROI of accepting the new product line?
b.If the company's required rate of return is 6% and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations.

Accepted Answer

a.
 @#IMG-DLM& 
Current ROI = $700,000/$3,600,000

Question 7

An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks.

Accepted Answer

A) True 
 B)False

Question 8

Antique Corp uses the investment center concept for the museums that it manages. Selected operating data for three of its museums for 2015 are as follows:
   
Required:
a.Compute the return on investment for each division.
b.Which museum manager is doing best based only on ROI? Why?
c.What other factors should be included when evaluating the managers?

Accepted Answer

@#IMG-DLM& 
b.Dallas is doing the best because the

Question 9

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.

Accepted Answer

A)  diagnostic control systems 
B)  boundary systems 
C)  belief systems 
D)  interactive control systems 
A)  diagnostic control systems 
B)  boundary systems 
C)  belief systems 
D)  interactive control systems

Question 10

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 Alpha Division (b)?

Accepted Answer

A)  $12,500,000 
B)  $21,153,846 
C)  $26,923,077 
D)  $1,820,000 
A)  $12,500,000 
B)  $21,153,846 
C)  $26,923,077 
D)  $1,820,000

Question 11

Which of the following is true of an executive compensation plan?

Accepted Answer

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 help balancing risk with short-run and long-run incentives. 
D)  It includes salary, annual incentive compensation, and benefits such as medical benefits, pension plans, and life insurance. 
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 help balancing risk with short-run and long-run incentives. 
D)  It includes salary, annual incentive compensation, and benefits such as medical benefits, pension plans, and life insurance.

Question 12

A company which favors the residual income approach to financial performance evaluation wants managers to ________.

Accepted Answer

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)  concentrate on maximizing a percentage return in excess of the cost of capital 
C)  maximize the investment turnover ratio 
D)  maximize return on sales 
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)  concentrate on maximizing a percentage return in excess of the cost of capital 
C)  maximize the investment turnover ratio 
D)  maximize return on sales

Question 13

Bouvous Corp has two regional offices. The data for each are as follows:
 
What is the return on investment for the New Jersey Division?

Accepted Answer

A)  6.3% 
B)  25.5% 
C)  41.4% 
D)  19.2% 
A)  6.3% 
B)  25.5% 
C)  41.4% 
D)  19.2%

Question 14

To evaluate overall performance, return on investment and residual income measures are more appropriate than return on sales.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is true of rewarding managers on the basis of residual income?

Accepted Answer

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 rewarded more since more risk can lead to huge losses. 
D)  Managers' rewards are dependent on their own efforts and other local economic factors. 
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 rewarded more since more risk can lead to huge losses. 
D)  Managers' rewards are dependent on their own efforts and other local economic factors.

Question 16

The Cybertronics Corporation reported the following information for its Cyclotron Division:
 
Income is defined as operating income.
What is the Cyclotron Division's investment turnover ratio?

Accepted Answer

A)  1.92 
B)  1.56 
C)  0.81 
D)  1.23 
A)  1.92 
B)  1.56 
C)  0.81 
D)  1.23

Question 17

Carriage Incorporated manufactures horse carriages. The company has two divisions, Wheels and Assembly. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2018:
ASSETSINCOME
 
The company is currently using a 12% required rate of return.
What are Wheels's and Assembly's residual incomes based on book values, respectively?

Accepted Answer

A)  $71,400; $81,800 
B)  $81,800; $71,400 
C)  $68,000; $51,000 
D)  $51,000; $68,000 
A)  $71,400; $81,800 
B)  $81,800; $71,400 
C)  $68,000; $51,000 
D)  $51,000; $68,000

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

Home Decor Inc., manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2018:
ASSETSINCOME
 
The company is currently using a 15% required rate of return.
What are Bleach's and Cleanser's return on investment based on book values, respectively?

Accepted Answer

A)  29%; 40 % 
B)  58%; 36 % 
C)  36%; 58% 
D)  40%; 29% 
A)  29%; 40 % 
B)  58%; 36 % 
C)  36%; 58% 
D)  40%; 29%

Question 20

Waldorf Company has two sources of funds: long-term debt with a market and book value of $5,400,000 issued at an interest rate of 12%, and equity capital that has a market value of $4,300,000 (book value of $2,100,000). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 35%.
 
What is the EVA® for Wichita? (Round intermediary calculations to four decimal places.)

Accepted Answer

A)  $975,000 
B)  $959,040 
C)  $434,040 
D)  $356,760 
A)  $975,000 
B)  $959,040 
C)  $434,040 
D)  $356,760

Sensitive performance measures ________.

Craylon Corp has three divisions, which operate autonomously. Their results for 2015 were as follows: The company's desired rate of return is 15%. Required: a.Compute each division's ROI. Round to three decimal places. b.Compute each division's residual income.

Briefly explain each of the four levels of control. Why does a company need to implement more than a diagnostic control system?

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 Alpha Division's return on sales (e)?

Historical costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures.

An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks.

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.

Which of the following is true of an executive compensation plan?

A company which favors the residual income approach to financial performance evaluation wants managers to ________.

Bouvous Corp has two regional offices. The data for each are as follows: What is the return on investment for the New Jersey Division?

To evaluate overall performance, return on investment and residual income measures are more appropriate than return on sales.

Which of the following is true of rewarding managers on the basis of residual income?

The Cybertronics Corporation reported the following information for its Cyclotron Division: Income is defined as operating income. What is the Cyclotron Division's investment turnover ratio?

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.

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

Filters

Exam 23: Performance Measurement, Compensation, and Multinational Considerations

Sensitive performance measures ________.

Craylon Corp has three divisions, which operate autonomously. Their results for 2015 were as follows: The company's desired rate of return is 15%. Required: a.Compute each division's ROI. Round to three decimal places. b.Compute each division's residual income.

Briefly explain each of the four levels of control. Why does a company need to implement more than a diagnostic control system?

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 Alpha Division's return on sales (e)?

Historical costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures.

An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks.

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.

Which of the following is true of an executive compensation plan?

A company which favors the residual income approach to financial performance evaluation wants managers to ________.

Bouvous Corp has two regional offices. The data for each are as follows: What is the return on investment for the New Jersey Division?

To evaluate overall performance, return on investment and residual income measures are more appropriate than return on sales.

Which of the following is true of rewarding managers on the basis of residual income?

The Cybertronics Corporation reported the following information for its Cyclotron Division: Income is defined as operating income. What is the Cyclotron Division's investment turnover ratio?

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.

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

Filters