Question 1

Designers of executive compensation plans emphasize which of the following factors?

Accepted Answer

A) achievement of organizational goals 
B) administrative ease 
C) the probability that the executives affected by the plan will perceive the plan as fair 
D) All of these answers are correct. 
A) achievement of organizational goals 
B) administrative ease 
C) the probability that the executives affected by the plan will perceive the plan as fair 
D) All of these answers are correct.

Question 2

Kase Tractor Company allows its divisions to operate as autonomous units. The operating data for 20X5 follow:
   Required:
a. Compute the investment turnover for each division.
b. Compute the return on sales for each division.
c. Compute the return on investment for each division.
d. Which division manager is doing best? Why?
e. What other factors should be included when evaluating the managers?
For parts (b)and (c)income is defined as operating income.

Accepted Answer

a. Investment turnover:
 @#IMG-DLM& b. Return on S

Question 3

Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springfield 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.

Accepted Answer

A) ($283,200) 
B) ($82,560) 
C) $196,800 
D) $397,440 
A) ($283,200) 
B) ($82,560) 
C) $196,800 
D) $397,440

Question 4

The after-tax average cost of all the long-term funds used by a corporation equals:

Accepted Answer

A) economic value added 
B) return on investment 
C) return on equity 
D) weighted-average cost of capital 
A) economic value added 
B) return on investment 
C) return on equity 
D) weighted-average cost of capital

Question 5

Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year:   What is Economic Value Added (EVA®)for the Blue Division?

Accepted Answer

A) -$233,400 
B) $21,960 
C) $188,600 
D) $433,960 
A) -$233,400 
B) $21,960 
C) $188,600 
D) $433,960

Question 6

Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). 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 25%.
  
-What is the EVA® for Cedar Rapids?

Accepted Answer

A) $67,790 
B) $110,000 
C) $117,000 
D) $152,500 
A) $67,790 
B) $110,000 
C) $117,000 
D) $152,500

Question 7

Another name for return on investment is the:

Accepted Answer

A) net present value 
B) accounting rate of return 
C) residual income 
D) internal rate of return 
A) net present value 
B) accounting rate of return 
C) residual income 
D) internal rate of return

Question 8

If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to:

Accepted Answer

A) restate the results of operations using the cash basis method of accounting 
B) use GAAP for all reporting and calculations 
C) restate the results of all operations in dollars 
D) All of these answers are correct. 
A) restate the results of operations using the cash basis method of accounting 
B) use GAAP for all reporting and calculations 
C) restate the results of all operations in dollars 
D) All of these answers are correct.

Question 9

Batman Abstract Company has three divisions that operate autonomously. Their results for 20X5 are as follows:
   The company's desired rate of return is 20%.
Required:
a. Compute each division's ROI.
b. Compute each division's residual income.
c. Rank each division by both ROI and residual income.
d. Which division had the best performance in 20X5? Why?

Accepted Answer

@#IMG-DLM& b.
 @#IMG-DLM& c. ROI Rank:
 @#IMG-DLM& @#IMG-DLM& d. As to which div

Question 10

A part of a control system that describes standards of behavior and codes of conduct expected of all employees, especially actions that are off-limits, is known as a(n):

Accepted Answer

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

Question 11

A problem with rewarding managers only on the basis of residual income is that:

Accepted Answer

A) residual income is difficult to measure 
B) on occasion the items in the residual income calculation are not quantifiable 
C) residual income can depend on items over which the manager has little control 
D) All of these answers are correct. 
A) residual income is difficult to measure 
B) on occasion the items in the residual income calculation are not quantifiable 
C) residual income can depend on items over which the manager has little control 
D) All of these answers are correct.

Question 12

The executive vice president of Wicker Pen Company wants to establish an accounting-based performance measurement system for the company's new plant. The company has an accounting information system sufficient to support a fairly sophisticated performance measurement system. The new plant is going to be considered an investment center since its products will be markedly different from others the company currently sells. The new plant will have no internal dealings with other plants within the company.
Required:
What are some of the key steps that should be undertaken in the establishment of an accounting-based performance measurement system?

Accepted Answer

Key steps include:
1. Choose performance

Question 13

The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.

Accepted Answer

A) Balanced Scorecard 
B) Residual-Income 
C) Dupont 
D) Economic Value Added 
A) Balanced Scorecard 
B) Residual-Income 
C) Dupont 
D) Economic Value Added

Question 14

Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
  
-What is the EVA® for Brooksville?

Accepted Answer

A) $476,250 
B) $428,000 
C) $415,525 
D) $390,000 
A) $476,250 
B) $428,000 
C) $415,525 
D) $390,000

Question 15

Should assets be defined as total assets or net assets? This question is considered part of which step in designing an accounting-based performance measure?

Accepted Answer

A) Choose performance measures that align with top management's financial goals. 
B) Choose the time horizon of each performance measure. 
C) Choose a definition for each performance measure. 
D) Choose a measurement alternative for each performance measure. 
A) Choose performance measures that align with top management's financial goals. 
B) Choose the time horizon of each performance measure. 
C) Choose a definition for each performance measure. 
D) Choose a measurement alternative for each performance measure.

Question 16

A problem with using residual income is that a corporation with a:

Accepted Answer

A) high investment turnover ratio always has a higher residual income than a corporation with a smaller investment turnover ratio 
B) high return on sales always has a higher residual income than a corporation with a smaller return on sales 
C) larger dollar amount of assets is likely to have a higher residual income than a corporation with a smaller dollar amount of assets 
D) None of these answers is correct. 
A) high investment turnover ratio always has a higher residual income than a corporation with a smaller investment turnover ratio 
B) high return on sales always has a higher residual income than a corporation with a smaller return on sales 
C) larger dollar amount of assets is likely to have a higher residual income than a corporation with a smaller dollar amount of assets 
D) None of these answers is correct.

Question 17

Moral hazard describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort CANNOT be accurately monitored and enforced.

Accepted Answer

A) True 
 B)False

Question 18

Return on sales is calculated by dividing revenues by income.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Designing an accounting based performance measure requires six steps. List each step. For three of the steps, describe a question that must be resolved as part of the implementation process.

Accepted Answer

1. Choose performance measures that alig

Designers of executive compensation plans emphasize which of the following factors?

The after-tax average cost of all the long-term funds used by a corporation equals:

Another name for return on investment is the:

If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to:

A part of a control system that describes standards of behavior and codes of conduct expected of all employees, especially actions that are off-limits, is known as a(n):

A problem with rewarding managers only on the basis of residual income is that:

The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.

Should assets be defined as total assets or net assets? This question is considered part of which step in designing an accounting-based performance measure?

A problem with using residual income is that a corporation with a:

Moral hazard describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort CANNOT be accurately monitored and enforced.

Return on sales is calculated by dividing revenues by income.

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

Designing an accounting based performance measure requires six steps. List each step. For three of the steps, describe a question that must be resolved as part of the implementation process.

The Accountants Role in the Organization

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

Pricing Decisions and Cost Management

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

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, Time, and the Theory of Constraints

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

Designers of executive compensation plans emphasize which of the following factors?

The after-tax average cost of all the long-term funds used by a corporation equals:

Another name for return on investment is the:

If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to:

A part of a control system that describes standards of behavior and codes of conduct expected of all employees, especially actions that are off-limits, is known as a(n):

A problem with rewarding managers only on the basis of residual income is that:

The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.

Should assets be defined as total assets or net assets? This question is considered part of which step in designing an accounting-based performance measure?

A problem with using residual income is that a corporation with a:

Moral hazard describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort CANNOT be accurately monitored and enforced.

Return on sales is calculated by dividing revenues by income.

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

Designing an accounting based performance measure requires six steps. List each step. For three of the steps, describe a question that must be resolved as part of the implementation process.

The Accountants Role in the Organization

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

Pricing Decisions and Cost Management

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

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, Time, and the Theory of Constraints

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

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Filters