Question 1

One of the disadvantages of return on investment is that:

Accepted Answer

A)  it focuses on profit only and disregards the cost of the assets. 
B)  it may discourage managers from investing in profitable projects. 
C)  it does not enable comparison of investment centres of different sizes. 
D)  it focuses only on long-term performance. 
A)  it focuses on profit only and disregards the cost of the assets. 
B)  it may discourage managers from investing in profitable projects. 
C)  it does not enable comparison of investment centres of different sizes. 
D)  it focuses only on long-term performance.

Question 2

Braham Farms has a return on investment of 15 per cent. A Braham division, which currently has a return on investment of 13 per cent and $375 000 of residual income, is contemplating a large investment that will (1) reduce divisional return on investment and (2) produce residual income of $60 000. If Braham 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 $60 000 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 $60 000 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 3

The following information pertains to Bingo Concrete for the year 2008:
Sales are $1 500 000
Gross margin is $600 000
Profit is $90 000
What is the profit margin for the year?

Accepted Answer

A)  40% 
B)  30% 
C)  20% 
D)  6% 
A)  40% 
B)  30% 
C)  20% 
D)  6%

Question 4

Return on equity and investment turnover are the components of the expanded return on investment [ROI] formula that enables management to identify ways of improving the ROI.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following items will be most relevant in determining the imputed interest rate for the purposes of calculating residual income?

Accepted Answer

A)  Final net profit 
B)  Return on investment 
C)  Investment turnover 
D)  Riskiness of investments undertaken 
A)  Final net profit 
B)  Return on investment 
C)  Investment turnover 
D)  Riskiness of investments undertaken

Question 6

One of the advantages of using net book value to measure invested capital is that:

Accepted Answer

A)  it maintains consistency with the balance sheet prepared for external reporting purposes. 
B)  it allows comparison of return on investment with different companies. 
C)  the return on investment will increase steadily over time. 
D)  it maintains consistency with the balance sheet prepared for external reporting purposes AND it allows comparison of return on investment with different companies. 
A)  it maintains consistency with the balance sheet prepared for external reporting purposes. 
B)  it allows comparison of return on investment with different companies. 
C)  the return on investment will increase steadily over time. 
D)  it maintains consistency with the balance sheet prepared for external reporting purposes AND it allows comparison of return on investment with different companies.

Question 7

When using residual income, some companies prefer to use the weighted average cost of capital as a basis for determining the imputed interest charge.

Accepted Answer

A) True 
 B)False

Question 8

Designing incentive schemes systems is an easy process and is a definite way of ensuring goal congruence.

Accepted Answer

A) True 
 B)False

Question 9

When measuring profit and invested capital, managers have to decide how they will define what will be included in invested capital, then apply that definition consistently throughout the one organisation. Identify and explain with an example, the three definitions of invested capital that can be applied.

Accepted Answer

Exhibit 13.1 shows that the Smelting bus

Question 10

Which of the following are value drivers (i.e. create value for the business)?
i. Growth
ii. Sustainability
iii. Spread
iv. Cost of capital

Accepted Answer

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

Question 11

Precious Metals Pty Ltd earned residual income of $70 000 during the year. The net profit was $250 000 during the year and the required return was 15 per cent. What was the invested capital?

Accepted Answer

A)  $1 200 000 
B)  $1 500 000 
C)  $1 400 000 
D)  $1 300 000 
A)  $1 200 000 
B)  $1 500 000 
C)  $1 400 000 
D)  $1 300 000

Question 12

According to Herzberg's two-factor theory, the degree to which the outcome satisfies the individual's goals, and the attractiveness of the reward for the individual is known as valence.

Accepted Answer

A) True 
 B)False

Question 13

Calculate the return on investment of new equipment in the first year if:
Profit = $3 000 000
Invested capital = $45 000 000
Increase in divisional profits = $45 000
Purchase of new machine = $900 000

Accepted Answer

A)  5% 
B)  6.66% 
C)  1.5% 
D)  None of the given answers 
A)  5% 
B)  6.66% 
C)  1.5% 
D)  None of the given answers

One of the disadvantages of return on investment is that:

The following information pertains to Bingo Concrete for the year 2008: Sales are $1 500 000 Gross margin is $600 000 Profit is $90 000 What is the profit margin for the year?

Return on equity and investment turnover are the components of the expanded return on investment [ROI] formula that enables management to identify ways of improving the ROI.

Which of the following items will be most relevant in determining the imputed interest rate for the purposes of calculating residual income?

One of the advantages of using net book value to measure invested capital is that:

When using residual income, some companies prefer to use the weighted average cost of capital as a basis for determining the imputed interest charge.

Designing incentive schemes systems is an easy process and is a definite way of ensuring goal congruence.

Which of the following are value drivers (i.e. create value for the business)? i. Growth ii. Sustainability iii. Spread iv. Cost of capital

Precious Metals Pty Ltd earned residual income of $70 000 during the year. The net profit was $250 000 during the year and the required return was 15 per cent. What was the invested capital?

According to Herzberg's two-factor theory, the degree to which the outcome satisfies the individual's goals, and the attractiveness of the reward for the individual is known as valence.

Calculate the return on investment of new equipment in the first year if: Profit = $3 000 000 Invested capital = $45 000 000 Increase in divisional profits = $45 000 Purchase of new machine = $900 000

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

One of the disadvantages of return on investment is that:

The following information pertains to Bingo Concrete for the year 2008: Sales are $1 500 000 Gross margin is $600 000 Profit is $90 000 What is the profit margin for the year?

Return on equity and investment turnover are the components of the expanded return on investment [ROI] formula that enables management to identify ways of improving the ROI.

Which of the following items will be most relevant in determining the imputed interest rate for the purposes of calculating residual income?

One of the advantages of using net book value to measure invested capital is that:

When using residual income, some companies prefer to use the weighted average cost of capital as a basis for determining the imputed interest charge.

Designing incentive schemes systems is an easy process and is a definite way of ensuring goal congruence.

Which of the following are value drivers (i.e. create value for the business)? i. Growth ii. Sustainability iii. Spread iv. Cost of capital

Precious Metals Pty Ltd earned residual income of $70 000 during the year. The net profit was $250 000 during the year and the required return was 15 per cent. What was the invested capital?

According to Herzberg's two-factor theory, the degree to which the outcome satisfies the individual's goals, and the attractiveness of the reward for the individual is known as valence.

Calculate the return on investment of new equipment in the first year if: Profit = $3 000 000 Invested capital = $45 000 000 Increase in divisional profits = $45 000 Purchase of new machine = $900 000

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