Question 1

The most popular approach to incorporating the investment base into a performance measure is

Accepted Answer

A)  income on return. 
B)  opportunity cost. 
C)  return on investment. 
D)  residual income. 
E)  economic value added. 
A)  income on return. 
B)  opportunity cost. 
C)  return on investment. 
D)  residual income. 
E)  economic value added.

Question 2

The economic value added concept has attracted considerable attention in recent years. Explain the attractiveness of this number as a measure of performance.

Accepted Answer

The attractiveness of economic value add

Question 3

A part of a control system that describes standards of behaviour 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. 
E)  isolated system. 
A)  diagnostic control system. 
B)  boundary system. 
C)  belief system. 
D)  interactive control system. 
E)  isolated system.

Question 4

Use the information below to answer the following question(s).
The top management at Munchie Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The following information was salvaged:
  
-What is the value of the total assets belonging to the Alpha Division?

Accepted Answer

A)  $4,333,333 
B)  $6,000,000 
C)  $6,500,000 
D)  $7,151,800 
E)  $6,434,434 
A)  $4,333,333 
B)  $6,000,000 
C)  $6,500,000 
D)  $7,151,800 
E)  $6,434,434

Question 5

Use the information below to answer the following question(s).
Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent; and, equity capital that has a market value of $6 million (book value of $2 million). The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandorf Company has profit centres in the following locations with the following data:
  
-What is EVA for Regina?

Accepted Answer

A)  $685,200 
B)  $342,000 
C)  $379,200 
D)  $648,000 
E)  $218,200 
A)  $685,200 
B)  $342,000 
C)  $379,200 
D)  $648,000 
E)  $218,200

Question 6

Museum Corporation uses the investment centre concept for the museums that it manages. Select operating data for three of its museums for 2011 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

a. Montreal = $25,500/$150,000 = 0.170

Question 7

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)  identify the rate of inflation in the most inflationary division and restate the other divisions' results using that rate. 
E)  do nothing, the ROIs are comparable without adjustments. 
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)  identify the rate of inflation in the most inflationary division and restate the other divisions' results using that rate. 
E)  do nothing, the ROIs are comparable without adjustments.

Question 8

Good performance measures do not change significantly with the manager's performance but change with factors that are beyond the manager's control.

Accepted Answer

A) True 
 B)False

Question 9

The three alternatives for increasing return on investment include increasing assets such as receivables, increasing revenues, and decreasing costs. (In all cases assume that all other items stay the same.)

Accepted Answer

A) True 
 B)False

Question 10

Use the information below to answer the following question(s).
Ruth Cleaning Products manufactures home cleaning products. The company has two divisions, Bleach and Bleach-2. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for the year just ended:
   The company is currently using a required rate of return of 15 percent.
-What are Bleach's and Bleach-2's residual incomes, based on current values, respectively?

Accepted Answer

A)  $116,250; $37,500 
B)  $110,000; $67,500 
C)  $67,500; $110,000 
D)  $37,500; $116,250 
E)  $115,340; $80,000 
A)  $116,250; $37,500 
B)  $110,000; $67,500 
C)  $67,500; $110,000 
D)  $37,500; $116,250 
E)  $115,340; $80,000

Question 11

What the first step in selecting appropriate performance measures?

Accepted Answer

A)  Decide on the level of relevance and urgency of feedback. 
B)  Decide on measurement alternatives for each performance measure. 
C)  Decide on components n each performance measure. 
D)  Decide on criteria targets against which to measure performance. 
E)  Identify and align accounting performance measures with financial goals. 
A)  Decide on the level of relevance and urgency of feedback. 
B)  Decide on measurement alternatives for each performance measure. 
C)  Decide on components n each performance measure. 
D)  Decide on criteria targets against which to measure performance. 
E)  Identify and align accounting performance measures with financial goals.

Question 12

Ethical behaviour on the part of managers, while important for its own sake, is not paramount in importance.

Accepted Answer

A) True 
 B)False

Question 13

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 2011 are budgeted as follows:
   Total assets for the division are currently $3,600,000. For 2011 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 percent of 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 percent, 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.
New investment:
 @#IMG-DLM& Current ROI = $700,

Question 14

Answer the following question(s) using the information below:
Carriage Ltd. manufactures baby 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 the year just ended:
   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)  $74,000; $28,500 
B)  $61,800; $70,000 
C)  $63,500; $59.500 
D)  $28,500; $74,000 
E)  $101,800; $70,000 
A)  $74,000; $28,500 
B)  $61,800; $70,000 
C)  $63,500; $59.500 
D)  $28,500; $74,000 
E)  $101,800; $70,000

Question 15

How should environmental and ethical issues affect managers' performance evaluations?

Accepted Answer

A)  Socially responsible companies set aggressive targets for income and ROI, which must be met before environmental and ethical issues become relevant. 
B)  Environmental responsibilities are met by adhering to the law of the land (e.g., pollution laws). 
C)  Issues that may be ethical concerns in Canada (e.g., bribery) may not be illegal in other countries, and multi-national companies must adhere to local custom. 
D)  Socially responsible companies include environmental and ethical targets in managers' performance evaluations. 
E)  Illegal behaviour is not part of management's concern, unless it affects the bottom line. 
A)  Socially responsible companies set aggressive targets for income and ROI, which must be met before environmental and ethical issues become relevant. 
B)  Environmental responsibilities are met by adhering to the law of the land (e.g., pollution laws). 
C)  Issues that may be ethical concerns in Canada (e.g., bribery) may not be illegal in other countries, and multi-national companies must adhere to local custom. 
D)  Socially responsible companies include environmental and ethical targets in managers' performance evaluations. 
E)  Illegal behaviour is not part of management's concern, unless it affects the bottom line.

Question 16

Answer the following question(s) using the information below:
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 
E)  -$63,800 
A)  -$233,400 
B)  $21,960 
C)  $188,600 
D)  $433,960 
E)  -$63,800

Question 17

Which two ratios are used in the DuPont system to create return on assets?

Accepted Answer

A)  Profit margin and asset turnover 
B)  Asset turnover and return on investment 
C)  Profit margin and operating leverage 
D)  Profit margin and return on sales 
E)  Return on sales and return on assets 
A)  Profit margin and asset turnover 
B)  Asset turnover and return on investment 
C)  Profit margin and operating leverage 
D)  Profit margin and return on sales 
E)  Return on sales and return on assets

Question 18

Briefly explain each of the four levers 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 19

Miller Medical Services provided the following information for its operations in the Hospital Bed Division.   What is the Hospital Bed's residual income?

Accepted Answer

A)  $30,000 
B)  $85,000 
C)   
D)  $1,285,000 
E)   
A)  $30,000 
B)  $85,000 
C)   
D)  $1,285,000 
E)

The most popular approach to incorporating the investment base into a performance measure is

The economic value added concept has attracted considerable attention in recent years. Explain the attractiveness of this number as a measure of performance.

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

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

Good performance measures do not change significantly with the manager's performance but change with factors that are beyond the manager's control.

The three alternatives for increasing return on investment include increasing assets such as receivables, increasing revenues, and decreasing costs. (In all cases assume that all other items stay the same.)

What the first step in selecting appropriate performance measures?

Ethical behaviour on the part of managers, while important for its own sake, is not paramount in importance.

How should environmental and ethical issues affect managers' performance evaluations?

Which two ratios are used in the DuPont system to create return on assets?

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

Miller Medical Services provided the following information for its operations in the Hospital Bed Division. What is the Hospital Bed's residual income?

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Filters

Exam 24: Multinational Performance Measurement and Compensation

The most popular approach to incorporating the investment base into a performance measure is

The economic value added concept has attracted considerable attention in recent years. Explain the attractiveness of this number as a measure of performance.

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

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

Good performance measures do not change significantly with the manager's performance but change with factors that are beyond the manager's control.

The three alternatives for increasing return on investment include increasing assets such as receivables, increasing revenues, and decreasing costs. (In all cases assume that all other items stay the same.)

What the first step in selecting appropriate performance measures?

Ethical behaviour on the part of managers, while important for its own sake, is not paramount in importance.

How should environmental and ethical issues affect managers' performance evaluations?

Which two ratios are used in the DuPont system to create return on assets?

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

Miller Medical Services provided the following information for its operations in the Hospital Bed Division. What is the Hospital Bed's residual income?

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Filters