Question 1

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 2

The following information is available for Nettie Ltd:
The company tax rate is 30 per cent.WACC is:

Accepted Answer

A)  11.2% 
B)  10% 
C)  7.8% 
D)  9.5% 
A)  11.2% 
B)  10% 
C)  7.8% 
D)  9.5%

Question 3

Value-based management refers to:

Accepted Answer

A)  A framework for applying EVA to all business decisions 
B)  A framework for making key business decisions that add economic value to the business 
C)  A philosophy that management should focus on creating customer value 
D)  A valuation technique that uses discounted cash flows to estimate imputed cost of capital 
A)  A framework for applying EVA to all business decisions 
B)  A framework for making key business decisions that add economic value to the business 
C)  A philosophy that management should focus on creating customer value 
D)  A valuation technique that uses discounted cash flows to estimate imputed cost of capital

Question 4

Which of the following strategies may increase economic value added?

Accepted Answer

A)  Increase profit as a percentage of capital employed. 
B)  Borrow additional funds and invest in assets that earn more than the weighted average cost of capital. 
C)  Sell off assets that earn more than the weighted average cost of capital. 
D)  Increase profit as a percentage of capital employed AND borrow additional funds and invest in assets that earn more than the weighted average cost of capital. 
A)  Increase profit as a percentage of capital employed. 
B)  Borrow additional funds and invest in assets that earn more than the weighted average cost of capital. 
C)  Sell off assets that earn more than the weighted average cost of capital. 
D)  Increase profit as a percentage of capital employed AND borrow additional funds and invest in assets that earn more than the weighted average cost of capital.

Question 5

The following information relates to Black's Mount Ltd:
What is its economic value added?

Accepted Answer

A)  $120 000 
B)  $180 000 
C)  $240 000 
D)  $292 000 
A)  $120 000 
B)  $180 000 
C)  $240 000 
D)  $292 000

Question 6

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 7

Gainsharing is one system companies can use to distribute cash bonuses to employees when the performance of their segment outperforms the set target.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

Managers' performance in an investment centre can best be evaluated by:

Accepted Answer

A)  the total revenue under their control 
B)  the total capital invested in the organisation and the sizeable amount of return 
C)  the profit earned during a period less all revenues 
D)  those revenues,costs and investments that they can control 
A)  the total revenue under their control 
B)  the total capital invested in the organisation and the sizeable amount of return 
C)  the profit earned during a period less all revenues 
D)  those revenues,costs and investments that they can control

Question 11

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 12

Bricker Fabrics reported a profit margin during the year of 20 per cent and an investment turnover of 40 per cent.What was its return on investment for the year?

Accepted Answer

A)  50% 
B)  20% 
C)  8% 
D)  2% 
A)  50% 
B)  20% 
C)  8% 
D)  2%

Question 13

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 14

For which of the following reasons are group reward systems often preferred to individual schemes?
i.They encourage teamwork
ii.They reduce dysfunctional competition between employees.
iii.They promote equity between employees.

Accepted Answer

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

Question 15

Which of the following is/are,according to Herzberg,hygiene factors?

Accepted Answer

A)  Recognition 
B)  Working conditions 
C)  Relationships with colleagues 
D)  Working conditions AND relationships with colleagues 
A)  Recognition 
B)  Working conditions 
C)  Relationships with colleagues 
D)  Working conditions AND relationships with colleagues

Question 16

Which of the following is a key difference between EVA and residual income?

Accepted Answer

A)  The weighted average cost of capital is used to calculate EVA,but not necessarily for residual income 
B)  Net profit is used to calculate residual income but is irrelevant for EVA 
C)  EVA has a long term focus,but residual income has a short term focus 
D)  There is no difference between EVA and residual income 
A)  The weighted average cost of capital is used to calculate EVA,but not necessarily for residual income 
B)  Net profit is used to calculate residual income but is irrelevant for EVA 
C)  EVA has a long term focus,but residual income has a short term focus 
D)  There is no difference between EVA and residual income

Question 17

Holt Company Ltd determined residual income for the year of $22 000.The company's cost of capital was 12 per cent,the investment turnover was 2.0,and capital invested was $400 000.What was Holt Company's profit during the year?

Accepted Answer

A)  $26 000 
B)  $48 000 
C)  $74 000 
D)  $70 000 
A)  $26 000 
B)  $48 000 
C)  $74 000 
D)  $70 000

Question 18

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 19

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 20

Given that return on investment measures performance over time,the invested capital would most appropriately be calculated by using:

Accepted Answer

A)  beginning of year assets 
B)  average assets 
C)  total assets 
D)  current assets 
A)  beginning of year assets 
B)  average assets 
C)  total assets 
D)  current assets

Exam 13: Financial Performance Measures and Incentive Schemes

Return on investment may be improved by increasing:

The following information is available for Nettie Ltd: The company tax rate is 30 per cent.WACC is:

Value-based management refers to:

Which of the following strategies may increase economic value added?

The following information relates to Black's Mount Ltd: What is its economic value added?

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

Gainsharing is one system companies can use to distribute cash bonuses to employees when the performance of their segment outperforms the set target.

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

One of the disadvantages of return on investment is that:

Managers' performance in an investment centre can best be evaluated by:

Which of the following statements is false?

Bricker Fabrics reported a profit margin during the year of 20 per cent and an investment turnover of 40 per cent.What was its return on investment for the year?

Shareholder value added may be defined as:

For which of the following reasons are group reward systems often preferred to individual schemes? i.They encourage teamwork ii.They reduce dysfunctional competition between employees. iii.They promote equity between employees.

Which of the following is/are,according to Herzberg,hygiene factors?

Which of the following is a key difference between EVA and residual income?

Holt Company Ltd determined residual income for the year of $22 000.The company's cost of capital was 12 per cent,the investment turnover was 2.0,and capital invested was $400 000.What was Holt Company's profit during the year?

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?

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

Given that return on investment measures performance over time,the invested capital would most appropriately be calculated by using:

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

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