Question 1

The profitability of an investment centre can best be evaluated by:

Accepted Answer

A)  the revenues, costs and investment the manager can control. 
B)  the total capital invested in the organisation and the sizeable amount of return. 
C)  the profit margin and the investment capital traceable to the investment centre. 
D)  the divisional contribution margin. 
A)  the revenues, costs and investment the manager can control. 
B)  the total capital invested in the organisation and the sizeable amount of return. 
C)  the profit margin and the investment capital traceable to the investment centre. 
D)  the divisional contribution margin.

Question 2

Which of the following information is required to compute SVA (shareholder value added)?
i. PV of cash flows from operations for a certain time period
Ii Residual value of the business
Iii EVA (economic value added)

Accepted Answer

A)  i and ii 
B)  i and iii 
C)  i, ii and iii 
D)  i 
A)  i and ii 
B)  i and iii 
C)  i, ii and iii 
D)  i

Question 3

Which of the following statements is false?

Accepted Answer

A)  Group reward schemes help people identify with the group. 
B)  Group reward schemes discriminate between good and bad performers. 
C)  Group reward schemes avoid excessive competition between employees. 
D)  Group reward schemes may encourage 'freeloaders'. 
A)  Group reward schemes help people identify with the group. 
B)  Group reward schemes discriminate between good and bad performers. 
C)  Group reward schemes avoid excessive competition between employees. 
D)  Group reward schemes may encourage 'freeloaders'.

Question 4

Value drivers are the activities or actions that decrease value for a business.

Accepted Answer

A) True 
 B)False

Question 5

Return on investment may be improved by increasing:

Accepted Answer

A)  cost of goods sold and expenses. 
B)  sales margin and cost of capital. 
C)  sales revenue and cost of capital. 
D)  capital turnover or sales margin. 
A)  cost of goods sold and expenses. 
B)  sales margin and cost of capital. 
C)  sales revenue and cost of capital. 
D)  capital turnover or sales margin.

Question 6

Net book value produces a misleading increase in return on investment because:

Accepted Answer

A)  investment centres with old assets will show a higher return on investment than centres with new assets. 
B)  investment centres with old assets will show a lower return on investment than investment centres with new assets. 
C)  investment centres with old assets will show an equal return on investment centres with new assets. 
D)  book value reflects changing market values. 
A)  investment centres with old assets will show a higher return on investment than centres with new assets. 
B)  investment centres with old assets will show a lower return on investment than investment centres with new assets. 
C)  investment centres with old assets will show an equal return on investment centres with new assets. 
D)  book value reflects changing market values.

Question 7

Shareholder value added may be defined as:

Accepted Answer

A)  corporate value - market value of the company. 
B)  corporate value - market value of debt. 
C)  corporate value - present value of liabilities. 
D)  corporate value - current liabilities. 
A)  corporate value - market value of the company. 
B)  corporate value - market value of debt. 
C)  corporate value - present value of liabilities. 
D)  corporate value - current liabilities.

Question 8

The Extan division of World Corporation reported a residual income of $200 000. The division had $8 million of invested capital and a profit of $1 million. What is the imputed interest rate?

Accepted Answer

A)  7.5% 
B)  10.0% 
C)  12.5% 
D)  20% 
A)  7.5% 
B)  10.0% 
C)  12.5% 
D)  20%

Question 9

A division of a firm has a net profit of $640 000 before imputed interest and a residual income of $240 000. If a rate of 10 per cent is used to compute imputed interest, calculate the division's return on investment (rounded to a whole number).

Accepted Answer

A)  4% 
B)  10% 
C)  16% 
D)  35% 
A)  4% 
B)  10% 
C)  16% 
D)  35%

Question 10

Sunrise Dairies has a return on investment of 15 per cent. A Sunrise division, which currently has a return on investment of 13 per cent and $750 000 of residual income, is contemplating a large investment that will (1) reduce divisional return on investment and (2) produce residual income of $120 000. If Sunrise strives for goal congruence, the investment:

Accepted Answer

A)  should not be approved because it reduces divisional return on investment. 
B)  should not be approved because the division's return on investment is less than the corporate return on investment before the investment is considered. 
C)  should be approved because it produces $120 000 residual income for the division. 
D)  should be approved because, after acquisition, the division's return on investment and residual income are both positive numbers. 
A)  should not be approved because it reduces divisional return on investment. 
B)  should not be approved because the division's return on investment is less than the corporate return on investment before the investment is considered. 
C)  should be approved because it produces $120 000 residual income for the division. 
D)  should be approved because, after acquisition, the division's return on investment and residual income are both positive numbers.

Question 11

A group-based reward system is appropriate when:
i. team work is important and employees need to work together to achieve organisational goals.
ii. it is easy to see individual's effort and performance.
Iii it is important to discriminate between good performers and bad performers.

Accepted Answer

A)  i 
B)  i and ii 
C)  i and iii 
D)  ii and iii 
A)  i 
B)  i and ii 
C)  i and iii 
D)  ii and iii

Question 12

Motivation of staff is a key factor in a company achieving their goals and ensuring goal congruence.

Accepted Answer

A) True 
 B)False

Question 13

Speedy Ltd has an imputed interest rate of 12 per cent. Division Z of Speedy Ltd has invested capital of $800 000 and a return on investment of 15 per cent. What is the residual income?

Accepted Answer

A)  ($24 000) 
B)  $24 000 
C)  $96 000 
D)  None of the given answers 
A)  ($24 000) 
B)  $24 000 
C)  $96 000 
D)  None of the given answers

Question 14

Companies using value-based management operate within a framework of making key decisions that add economic value to the business.

Accepted Answer

A) True 
 B)False

Question 15

Richard's Division of Richard and Sons has the following data related to a particular period:  
Calculate the return on investment for the period.

Accepted Answer

A)  11% 
B)  10% 
C)  4% 
D)  Always the same as the imputed interest rate 
A)  11% 
B)  10% 
C)  4% 
D)  Always the same as the imputed interest rate

Question 16

Which of the following is/are an extrinsic reward?

Accepted Answer

A)  Share options 
B)  Job satisfaction 
C)  Promotion 
D)  Share options AND promotion 
A)  Share options 
B)  Job satisfaction 
C)  Promotion 
D)  Share options AND promotion

Question 17

Which of the following are included in performance-related pay systems?
i. Share options
ii. Profit sharing
iii. Team-based bonuses

Accepted Answer

A)  i and ii 
B)  i and iii 
C)  ii and iii 
D)  All of the given answers 
A)  i and ii 
B)  i and iii 
C)  ii and iii 
D)  All of the given answers

Question 18

Jasmine Dimm is a call centre manager for Tostra, a mobile phone company. Call centre operators at her call centre are responsible for answering calls from Tostra customers. Some calls are very short, relating to simple enquiries. However, a majority of calls tend to be longer, coming from irate customers complaining about Tostra's services. In these calls, customers are often very emotional and sometimes even abusive. Call operators have no control over what types of calls they get.
Jasmine has developed a new incentive system for her call centre staff. Under the new system, call centre operators are rewarded if they achieve two performance targets: (1) the duration of 90 per cent of the calls is less than 4 minutes and (2) 80 per cent of customers rate Tostra's 'customer service quality' as 'excellent'. Achieving these two monthly performance targets will result in a bonus worth 20 per cent of the call operator's monthly salary.
Based on expectancy theory, the major limitation(s) of Jasmine's reward system is:

Accepted Answer

A)  the incentive system lacks valence and instrumentality. 
B)  the incentive system lacks expectancy. 
C)  the incentive system lacks instrumentality. 
D)  the incentive system lacks expectancy and instrumentality. 
A)  the incentive system lacks valence and instrumentality. 
B)  the incentive system lacks expectancy. 
C)  the incentive system lacks instrumentality. 
D)  the incentive system lacks expectancy and instrumentality.

Question 19

Which of the following is the correct mathematical expression for return on investment?

Accepted Answer

A)  Sales margin $\div$ capital turnover 
B)  Sales margin - capital turnover 
C)  Sales margin $\times$ capital turnover 
D)  Capital turnover $\div$ sales margin 
A)  Sales margin $\div$ capital turnover 
B)  Sales margin - capital turnover 
C)  Sales margin $\times$ capital turnover 
D)  Capital turnover $\div$ sales margin

Question 20

The advantage of residual income as a measure of investment centre performance is:

Accepted Answer

A)  it can be used to compare investment centres of different sizes. 
B)  it focuses on long-term performance. 
C)  it includes the organisation's minimum required rate of return. 
D)  it can be used to compare investment centres of different sizes AND it includes the organisation's minimum required rate of return. 
A)  it can be used to compare investment centres of different sizes. 
B)  it focuses on long-term performance. 
C)  it includes the organisation's minimum required rate of return. 
D)  it can be used to compare investment centres of different sizes AND it includes the organisation's minimum required rate of return.

The profitability of an investment centre can best be evaluated by:

Which of the following information is required to compute SVA (shareholder value added)? i. PV of cash flows from operations for a certain time period Ii Residual value of the business Iii EVA (economic value added)

Which of the following statements is false?

Value drivers are the activities or actions that decrease value for a business.

Return on investment may be improved by increasing:

Net book value produces a misleading increase in return on investment because:

Shareholder value added may be defined as:

The Extan division of World Corporation reported a residual income of $200 000. The division had $8 million of invested capital and a profit of $1 million. What is the imputed interest rate?

A division of a firm has a net profit of $640 000 before imputed interest and a residual income of $240 000. If a rate of 10 per cent is used to compute imputed interest, calculate the division's return on investment (rounded to a whole number).

A group-based reward system is appropriate when: i. team work is important and employees need to work together to achieve organisational goals. ii. it is easy to see individual's effort and performance. Iii it is important to discriminate between good performers and bad performers.

Motivation of staff is a key factor in a company achieving their goals and ensuring goal congruence.

Speedy Ltd has an imputed interest rate of 12 per cent. Division Z of Speedy Ltd has invested capital of $800 000 and a return on investment of 15 per cent. What is the residual income?

Companies using value-based management operate within a framework of making key decisions that add economic value to the business.

Richard's Division of Richard and Sons has the following data related to a particular period: Calculate the return on investment for the period.

Which of the following is/are an extrinsic reward?

Which of the following are included in performance-related pay systems? i. Share options ii. Profit sharing iii. Team-based bonuses

Which of the following is the correct mathematical expression for return on investment?

The advantage of residual income as a measure of investment centre performance is:

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters

Exam 13: Financial Performance Measures and Incentive Schemes

The profitability of an investment centre can best be evaluated by:

Which of the following information is required to compute SVA (shareholder value added)? i. PV of cash flows from operations for a certain time period Ii Residual value of the business Iii EVA (economic value added)

Which of the following statements is false?

Value drivers are the activities or actions that decrease value for a business.

Return on investment may be improved by increasing:

Net book value produces a misleading increase in return on investment because:

Shareholder value added may be defined as:

The Extan division of World Corporation reported a residual income of $200 000. The division had $8 million of invested capital and a profit of $1 million. What is the imputed interest rate?

A division of a firm has a net profit of $640 000 before imputed interest and a residual income of $240 000. If a rate of 10 per cent is used to compute imputed interest, calculate the division's return on investment (rounded to a whole number).

A group-based reward system is appropriate when: i. team work is important and employees need to work together to achieve organisational goals. ii. it is easy to see individual's effort and performance. Iii it is important to discriminate between good performers and bad performers.

Motivation of staff is a key factor in a company achieving their goals and ensuring goal congruence.

Speedy Ltd has an imputed interest rate of 12 per cent. Division Z of Speedy Ltd has invested capital of $800 000 and a return on investment of 15 per cent. What is the residual income?

Companies using value-based management operate within a framework of making key decisions that add economic value to the business.

Richard's Division of Richard and Sons has the following data related to a particular period: Calculate the return on investment for the period.

Which of the following is/are an extrinsic reward?

Which of the following are included in performance-related pay systems? i. Share options ii. Profit sharing iii. Team-based bonuses

Which of the following is the correct mathematical expression for return on investment?

The advantage of residual income as a measure of investment centre performance is:

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters