Deck 10: Management Accounting Issues in Multinational Corporations

Question 1

Which capital budgeting technique is preferred in all major industrialized countries?

A) Net present value
B) Internal rate of return
C) Payback period
D) There is no particular preferred capital budgeting technique across countries

Answer 1

D

Question 2

What is the role of accounting in formulating strategy?

A) Quantifying opportunities and threats
B) Preparing budgets
C) Making estimates of costs and benefits of various alternatives
D) All of the above

Answer 2

D

Question 3

Which of the following is a major limitation of using the internal rate of return as a tool in capital budgeting?

A) Ignores the time value of money
B) Does not consider cash flows
C) Does not use accounting numbers
D) Assumes unrealistic reinvestment rate

Answer 3

D

Question 4

Estimating the expected cash inflows and outflows from proposed projects is performed in what step of the capital budgeting process?

A) Project identification
B) Project evaluation
C) Project monitoring
D) Project review

Question 5

What is the limitation of using the net present value for evaluating capital investment alternatives?

A) Ignores the time value of money
B) Does not consider cash flows
C) Cannot be used to compare projects of different size
D) All of the above are limitations of the net present value method.

Question 6

The process of management control by which managers influence others members of the organization to achieve organization's goals is known as:

A) performance evaluation.
B) operational planning.
C) strategy implementation.
D) capital budgeting.

Question 7

Which of the following factors is generally considered in performing the environmental analysis phase of strategy formulation?

A) Competitors
B) Government regulations
C) Customer demand
D) All of the above

Question 8

Where would a divisional manager look to find the targets she is expected to reach in the next fiscal year?

A) Strategic plan
B) Capital budget
C) Operating budget
D) Strategic formulation

Question 9

Influencing subordinates to behave in accordance with the goals and objectives of the organization is referred to as:

A) performance evaluation.
B) management control.
C) strategic planning.
D) goal congruence.

Question 10

What term is used to describe the process involving revising existing goals and adopting new goals?

A) Strategy formulation
B) Strategic planning
C) Strategy implementation
D) Capital budgeting

Question 11

The process of identifying, evaluating, and selecting projects that require substantial amounts of resources and are expected to generate benefits for many years into the future is called:

A) strategy formulation.
B) short-term planning.
C) capital budgeting.
D) operational budgeting.

Question 12

How is the payback period used in capital budgeting?

A) As a measure of a project's risk
B) To determine the amount of funds that will be required in the future
C) To measure the relationship between the project's return and the company's cost of capital
D) None of the above

Question 13

A plan for next year expressed in quantitative terms is referred to as:

A) strategy.
B) capital budget.
C) operating budget.
D) management control system.

Question 14

Why is it believed that Japanese companies prefer the payback period over the discounted cash flow methods for evaluating capital investment alternatives?

A) It is consistent with their corporate strategy of investing in new technology.
B) Japanese companies compete using very short product life cycles.
C) Cash flows over a long period of time are difficult to predict with much accuracy.
D) All of the above

Question 15

What is the major limitation of using the payback period as a tool in capital budgeting?

A) It is difficult to calculate without a computer.
B) It favors large investments.
C) It ignores the time value of money.
D) It does not consider cash flows.

Question 16

What discount rate should be used for calculating net present values of capital investment alternatives?

A) Corporate borrowing rate
B) Desired rate of return
C) Internal rate of return
D) Corporation's return on investment

Question 17

Which capital budgeting technique recognizes the time value of money?

A) Payback period
B) Internal rate of return
C) Book rate of return
D) Return on investment

Question 18

What is a capital investment?

A) Using money to buy goods or services
B) Issuing shares of stock of the corporation
C) Authorizing and issuing shares of common stock by a multinational corporation
D) Committing resources to projects that have long period costs and benefits

Question 19

Conceptually, what is the internal rate of return?

A) Number of years required for a project to return the cash invested in it
B) Discount rate that equates the present value of cash inflows to present value of cash outflows
C) Interest rate a company can generate on its corporate bonds and preferred stock
D) Average annual net income divided by initial investment in a project

Question 20

Which of the following is NOT part of the capital budgeting process?

A) Project identification
B) Project evaluation
C) Project monitoring
D) All of the above are parts of the capital budgeting process.

Question 21

Which of the following calculations will yield return on investment (ROI)?

A) Annual net income/book value of investment
B) Average annual net income/book value of investment
C) Average annual net income/present value of investment
D) Book value of investment/annual net income

Question 22

When a unit of a multinational corporation creates knowledge in specific areas that can be used by other units within the organization, that unit is called a(n):

A) implementer.
B) global innovator.
C) local innovator.
D) integrated player.

Question 23

Johnson Ltd. determined that the net present value of an investment in technological improvements at its plant in France would be €10,000,000 if pending litigation was resolved in the company's favor and would be €2,000,000 if the courts ruled against the company. Johnson's attorneys in France assessed the probability of a favorable ruling at 70%. What is the expected net present value of the project?

A) €10,000,000
B) €2,000,000
C) €6,000,000
D) €7,600,000

Question 24

How can a multinational enterprise incorporate its perception of high level of risk into its capital budgeting process?

A) Conservative estimates of cash inflows
B) Liberal estimates of expected cash outflows
C) High discount rate
D) All of the above

Question 25

Why is depreciation added to net income to determine cash flow from operations?

A) To compensate for financial risk.
B) Depreciation is an expense but not a cash outflow.
C) It is standard procedure when capital budgeting for a multinational corporation.
D) Net income is understated due to excessive depreciation.

Question 26

Senior management of Bina Confections Ltd., a multinational corporation, has taken a polycentric approach to manufacturing, marketing, and distributing its candies. What would be evidence of this perspective?

A) Explicit policy and procedures manuals for managing foreign operations
B) High degree of decentralization of decision-making authority
C) Standard product branding and packaging throughout the organization
D) Implementing strategies perfected by managers at the home office

Question 27

Cash flows related to a proposed capital investment project are subject to what kind of risk?

A) Economic risk
B) Financial risk
C) Political risk
D) All of the above

Question 28

Why is management control particularly complex in decentralized multinational organizations?

A) Managers abroad are not as well-trained as managers of domestic operations.
B) Decision-making authority is not delegated to the local managers of foreign operations.
C) Managers of foreign operations may be motivated by local goals rather than parent's goals.
D) Financial risks are always higher for the local managers of foreign operations than for managers of domestic operations.

Question 29

Which of the following is a true statement about the use of the payback period technique in capital budgeting?

A) It is simple to use and understand.
B) It considers the time value of money.
C) It is not possible to appraise risk with this technique.
D) It is mainly used to measure profitability of a project.

Question 30

What is cultural proximity?

A) The extent to which the host cultural ethos permits adoption of the parent company's organizational culture.
B) Countries located on the same continent.
C) Relative importance of individual differences among units of a multinational corporation.
D) A short geographic distance between the host country of one subsidiary and the host country of another subsidiary.

Question 31

Assume that an initial investment is $100,000 and that the estimated annual cash flows for the next 5 years are $25,000. What is the internal rate of return (IRR) for this investment?

A) 5.56%
B) 18%
C) 1%
D) 8%

Question 32

A company that recognizes and adapts its business practices to differences across cultures in which it operates is referred to as being:

A) geocentric.
B) ethnocentric.
C) polycentric.
D) egocentric.

Question 33

A unit of a multinational corporation that creates little or no knowledge but rather uses the ideas and processes developed by other units is referred to as a(n):

A) implementer.
B) local innovator.
C) integrated player.
D) team player.

Question 34

Schlamp & Co. is considering building a manufacturing facility in Country Z, which has changed it labor laws frequently and dramatically in the past decade. What kind of risk is created by these legislative actions?

A) Physical risk
B) Political risk
C) Financial risk
D) Economic risk

Question 35

The possibility of loss due to unexpected changes in currency values or interest rates is called:

A) economic risk.
B) business risk.
C) financial risk.
D) political risk.

Question 36

Why is the multinational capital budgeting process more complex than capital budgeting in a domestic environment?

A) Cash flows must be predicted.
B) An appropriate discount rate must be selected.
C) Involvement of additional risks affecting future cash flows.
D) The payback period is shorter.

Question 37

Hyperinflation causes what kind of risk for a multinational corporation?

A) Economic risk
B) Physical risk
C) Financial risk
D) Political risk

Question 38

Novo Limited uses the same management control system in all of its 100 facilities throughout the world on the assumption that the culture at the home office is applicable to all other locations. What principle underlies Novo's control system?

A) Polycentrism
B) Ethnocentrism
C) Geocentrism
D) Egocentrism

Question 39

What term is used to describe a unit of a multinational corporation that takes a leading role in a particular area?

A) Implementer
B) Global innovator
C) Local innovator
D) Integrated player

Question 40

What is the effect of conducting a sensitivity analysis in capital budgeting?

A) It helps analysts to determine if results are particularly affected by specific estimates.
B) It complicates the process of making a decision when there are conflicting signals.
C) Preferences for one capital investment alternative over another will change.
D) All of the above

Question 41

How should multinational corporations reduce economic exposure?

A) Hedging foreign currency using a call option
B) Hedging foreign currency using put options
C) Competitive strategic and operational decisions
D) Forward contracts on the foreign currency

Question 42

SSM Corporation, a multinational healthcare system, measures the number of minutes between a patient's arrival at the emergency room and the time he/she is seen by a physician. This measure focuses on what aspect of the balanced scorecard?

A) Financial perspective
B) Customer perspective
C) Internal business processes perspective
D) Innovation and learning perspective

Question 43

Under what condition should the gain or loss from translating foreign currency profit of subsidiary into the parent's home currency be included in the subsidiary's measure of performance?

A) If the subsidiary manager is authorized to hedge the translation exposure
B) If there is a translation gain, but not if there is a translation loss
C) If the multinational corporation is using the same method of translation for performance evaluation as it does for financial reporting
D) If the impact on cash flows from foreign exchange is minimal

Question 44

The Squeaky Division of Household Products Corporation showed a net loss of £5,000,000 last year, but Squeaky's manager received a bonus for outstanding performance. Why would Household Products' management control system appropriately allow for this apparent inconsistency?

A) Economic factors outside the manager's control caused the loss.
B) Household Products' management control system is ineffective.
C) The bonus represents a payoff to Squeaky's manager to keep her quiet about the loss.
D) The loss was due to controllable factors.

Question 45

Assume that the Chinese government allowed the yuan to float relative to the U.S. dollar. Appreciation in the yuan could have an adverse affect on sales of Chinese goods to the U.S. This possible impact on Chinese exports is referred to as:

A) translation exposure.
B) transaction exposure.
C) economic exposure.
D) accounting exposure.

Question 46

In designing an effective management control system for a multinational corporation, the accountant should measure factors appropriate for each unit's level of responsibility. Which of the following measures would be appropriate for evaluating the performance of a cost center?

A) Return on investment
B) EBIT
C) Output volume
D) Residual income

Question 47

Which of the following is the role of a performance evaluation system in a multinational corporation?

A) Monitor organizational effectiveness
B) Identify areas that need improvement
C) Assess how well division managers are doing
D) All of the above

Question 48

According to surveys in the U.S. and the United Kingdom, what are the most frequently used financial measures to evaluate subsidiary performance by MNCs?

A) Stock price, return on investment, profit
B) Budgeted profit vs. actual profit, stock price, sales
C) Budgeted profit vs. actual profit, return on investment, profit
D) Internal rate of return, profit, return on investment

Question 49

The balanced scorecard includes non-financial measures of performance with the financial measures of performance traditionally used. Which of the following are included in the balanced scorecard?

A) Customer satisfaction
B) Internal business processes
C) Innovation and learning
D) All of the above

Question 50

Which of the following is a non-financial measure of performance?

A) Return on investment
B) Market share
C) Earnings per share
D) Return on equity

Question 51

MSM Ltd. has a strategy of being the first to market with new products and so it measures the number of new products introduced each year. Where does this measure fit in the balanced scorecard?

A) Financial perspective
B) Customer perspective
C) Internal business process perspective
D) Innovation and learning perspective

Question 52

If only one currency is used for evaluating subsidiary performance in a multinational corporation, what currency is it most likely to be?

A) Euros
B) Local currency of the subsidiary
C) Currency of the parent company's home country
D) None of the above

Question 53

Which of the following statements is true about performance evaluation in a multinational organization?

A) A division that is performing poorly indicates that the manager of that division has performed poorly.
B) Good performance by a division indicates that its manager has been performing to expectations.
C) Divisional performance is the same as managerial performance.
D) None of the above is true.

Question 54

Which of the following is NOT measured by the accounting system of a multinational corporation?

A) Translation exposure
B) Economic exposure
C) Transaction exposure
D) None of the above is measured by the accounting system.

Question 55

Which of the following statements is a reason for using operating income or EBIT as a measure of performance in a profit center of a multinational corporation?

A) It is much easier to calculate than other measures.
B) It is the only measure available to the senior management of the parent company.
C) It excludes interest and taxes, which are beyond the manager's control.
D) Divisional managers will maximize output if this measure is used for management control.

Question 56

What measures may be used in the performance evaluation system of a multinational corporation?

A) Financial measures such as profit, cost, and return on investment
B) Quality and customer satisfaction
C) Market share
D) All of the above

Question 57

Which of the following would be characteristic of a bureaucratic control system?

A) Goals are more likely to be achieved by local managers
B) Financial targets are more explicitly specified throughout an organization
C) Meetings between parent and subsidiary managers are scheduled when needed rather than on a specific schedule
D) Budgets play a minor role in the management control system

Question 58

What result can be expected if a management control system encourages managers to focus on inappropriate measures?

A) Managers may work extra hard to achieve the targets set in terms of those measures.
B) Managers may engage in dysfunctional behaviors.
C) Profits may go up for the foreign operation and for the corporation as a whole.
D) None of the above

Question 59

Holding managers accountable only for the factors over which they have control is called:

A) management control systems.
B) responsibility accounting.
C) decentralization.
D) centralization.

Question 60

In designing an effective management control system for a multinational corporation, the accountant should measure factors appropriate for each unit's level of responsibility. Which of the following measures would be appropriate for evaluating the performance of an investment center?

A) Output on costs of input
B) Residual income
C) EBIT
D) All of the above

Question 61

Which of the following is true of responsibility accounting?

A) It suggests that foreign subsidiaries should be held responsible for profitability of the parent companies.
B) Responsibility accounting suggests that local manager should be held responsible for the translation adjustment.
C) It suggests that costs, revenues, assets, and liabilities should be traced to the individual manager who is responsible for them.
D) It suggests that managers should be held accountable for items that are both controllable and uncontrollable.

Question 62

Which of the following is true of the performance evaluation measures adopted by Japanese and U.S. MNCs?

A) The performance evaluation measures adopted by Japanese and U.S. MNCs are very similar in nature.
B) Unlike U.S. MNCs that assign responsibilities to the individual, Japanese companies assign responsibility to the group.
C) Japanese companies use balanced scorecard for performance evaluations, whereas U.S. companies don't.
D) Budget variances are used for evaluating performance in Japanese MNCs, whereas U.S. managers view these variances as providing information that can be used to improve performance.

Question 63

Implementing multinational corporate strategy to influence human behavior in a positive way should include:

A) a target for managers that is possible under ideal conditions.
B) consideration of cultural differences across units.
C) all exchange rate gains and losses.
D) measures of profit, residual income, and return on investment for all units.

Question 64

Which of the following should NOT be included in implementing performance evaluation systems?

A) Feedback and review
B) Fair and achievable measures
C) Understandability
D) Changing systems annually

Question 65

Which of the following is NOT a perspective under the balanced scorecard approach?

A) Parent company perspective
B) Internal business perspective
C) Customer perspective
D) Financial perspective

Question 66

What is the likely outcome of using performance measures that subsidiary managers perceive to be unachievable?

A) Frustrated managers
B) Diligent attention to operational efficiency
C) Success
D) Optimal decision-making

Question 67

A ________ combines financial measures of past performance with nonfinancial measures of the drivers of future performance to provide management with a road map for creating shareholder value.

A) profit center
B) balanced scorecard
C) cost driver
D) operating budget

Question 68

Which of the following is NOT an influence affecting the operating environment of foreign subsidiaries?

A) Regulatory controls
B) Social norms and attitudes
C) Inflation rates
D) All of the above are influences.

Question 69

Which of the following items are controlled by the parent company?

A) Lost production due to labor strikes
B) Foreign exchange losses
C) Sales revenue determined by discretionary transfer pricing
D) Restrictions on foreign exchange spending