Question 1

The performance measurement system should provide incentives for coordinating activities of the subunits and focusing them toward the overall company objectives. This statement reflects which of the following performance measurement goals?

Accepted Answer

A)  Motivating unit managers 
B)  Promoting goal congruence 
C)  Providing feedback 
D)  Benchmarking

Question 2

Huntswell Corporation has two major divisions Agricultural Products and Industrial Products. Data for the year just finished is as follows:
$\begin{array}{|l|r|r|} 
\hline& \text { Agriculture Division } & \text { Industrial Division } \
\hline \text { Sales revenue } & \$ 140,000 & \$ 1,040,000 \
\hline \text { Operating income } & \$ 16,400 & \$ 220,000 \
\hline \text { Average assets } & \$ 300,000 & \$ 5,540,000 \
\hline \text { Target rate of return } & 4.0 \% & 4.0 \% \
\hline
\end{array}$
-
For the Agricultural Division, how much is the residual income?

Accepted Answer

A)  $4,400 
B)  $2,650 
C)  $1,200 
D)  ($3,200)

Question 3

Marcia Consumer Products has several divisions, including the Education Division and the Recreation Division. Data on the two divisions are shown here:
$\begin{array}{|l|r|r|} 
\hline & \text { Education Division } & \text { Recreation Division } \
\hline \text { Current ROI } & 9.2 \% & 10.0 \% \
\hline \text { Current WACC } & 8.0 \% & 8.0 \% \
\hline \text { Operating income } & \$ 110,000 & \$ 200,000 \
\hline \text { Effective tax rate } & 20.0 \% & 20.0 \% \
\hline \text { Average total assets } & \$ 1,200,00 & \$ 2,000,000 \
\hline \text { Current liabilities } & \$ 30,000 & \$ 30,000\\hline 
\end{array}$
How much is the EVA for the Recreation Division?

Accepted Answer

A)  $1,890 
B)  $2,400 
C)  ($1,300) 
D)  ($2,950)

Question 4

Which of the following is NOT a potential advantage of decentralization?

Accepted Answer

A)  Top management can use their time to concentrate on long-term strategic planning rather than daily operations. 
B)  Customer relations are generally improved. 
C)  It improves the motivation and retention of division managers. 
D)  Decentralization promotes goal congruence and coordination.

Question 5

Waycross Construction Company has a pipeyard operation which is run as a cost center. They are preparing a performance report for the month of March and have provided the data below:
$\begin{array}{|l|r|r|r|r|r|r|}
\hline \text { Cost Center } & & \text { Flexible } & \text { Flexible Budget } \
\hline \text { Performance Report } & \text { Actual } & \text { Budget } & \text { Variance } & \text { U/F } & \% \text { variance } & \text { U/F } \
\hline \text { Wages \& benefits } & \$ 81,200 & \$ 80,000 \
\hline \text { Office lease expense } & 42,060 & 45,000 \
\hline \text { Depreciation expense } & 39,600 & 42,000 \
\hline \text { Insurance expense } & 33,490 & 30,000 \
\hline \text { Other expense } & 7,120 & 8,000 \
\hline & \$ 203,470 & \$ 205,000 \
\hline
\end{array}$ 
-
Waycross uses management by exception. On which variance will Waycross focus first?

Accepted Answer

A)  Wages & benefits 
B)  Insurance expense 
C)  Office lease expense 
D)  Depreciation expense

Question 6

Which of the following statements is TRUE about performance reporting?

Accepted Answer

A)  Reports should focus on whom to blame for unfavorable variances. 
B)  Managers should not be held accountable for uncontrollable variances. 
C)  Only unfavorable variances need to be explained. 
D)  Every variance, regardless of magnitude, must be investigated.

Question 7

Which of the following goals of a performance evaluation system is accomplished when the company's actual results are compared to industry standards?

Accepted Answer

A)  Motivation of unit managers 
B)  Promotion of goal congruence 
C)  External benchmarking 
D)  Communicating expectations

Question 8

If a large diversified company has many different divisions, each competing for capital expenditure funds, which of the following statements would be MOST relevant?

Accepted Answer

A)  The division with the lowest assets should have priority for investment funds to allow that division to grow to the scale of the other divisions. 
B)  The division with the highest operating income should take priority, because it will likely continue to earn the highest operating income for the company. 
C)  The division with the highest ROI should take priority because it shows that it can produce the highest return per invested dollar. 
D)  The division with the highest growth rate in assets should be given additional funding.

Question 9

Based on the variances shown on responsibility performance reports, management must take corrective action on all variances, including favorable, unfavorable, controllable, and uncontrollable variances.

Accepted Answer

A) True 
 B)False

Question 10

An investment center is responsible for new investments. Which of the following is a good example of the kind of investments for which an investment center is responsible?

Accepted Answer

A)  Purchasing raw materials for production 
B)  Creating a new product line with separate manufacturing facilities 
C)  Replacing worn-out manufacturing equipment 
D)  Performing maintenance work on facilities

Question 11

Manufacturing cycle time is a measure pertaining to the balanced scorecard's:

Accepted Answer

A)  learning and growth perspective. 
B)  internal business perspective. 
C)  financial perspective. 
D)  customer perspective.

Question 12

Marcia Consumer Products has several divisions, including the Education Division and the Recreation Division. Data on the two divisions are shown here:
 $\begin{array}{|l|r|r|} 
\hline& \text { Education Division } & \text { Recreation Division } \
\hline \text { Current ROI } & 9.2 \% & 10.0 \% \
\hline \text { Current WACC } & 8.0 \% & 8.0 \% \
\hline \text { Operating income } & \$ 110,009 & \$ 200,000 \
\hline \text { Effective tax rate } & 20.0 \% & 20.0 \% \
\hline \text { Average total assets } & \$ 1,200,009 & \$ 2,000,000 \
\hline \text { Current liabilities } & \$ 30,000 & \$ 30,000\\hline
\end{array}$ 
These data show that the Recreation Division has generated returns in excess of those expected by the investors and creditors, but the Education Division has not.

Accepted Answer

A) True 
 B)False

Question 13

In a balanced scorecard system, the key performance indicators (KPIs) are ways to measure whether the company is meeting its goals.

Accepted Answer

A) True 
 B)False

Question 14

Bardot Company reported operating income of $16,400. Assets at the beginning of the year totaled $440,000. Assets at the end of the year totaled $450,000. How much is the ROI?

Accepted Answer

A)  4.2% 
B)  3.9% 
C)  2.7% 
D)  3.7%

Question 15

Johnson Construction Materials Company has a sales office which sells concrete culvert pipe to property developers. The sales office is a revenue center and must prepare a monthly performance report. Please view the partially completed performance report below: $$\begin{array}{l}
\text { Revenue Center Performance Report }\
\begin{array} { | l | r | c | c | c | c | c | c | } 
\hline & \text { Actual } & \text { Flexible Budget } & & \text { Flexible } & \text { Sales Volume } & \text { Static } \
\hline \text { Product type: } & \text { Sales Revenue } & \text { Variance } & \text { U/F } & \text { Budget } & \text { Variance } & \text { U/F } & \text { Budget } \
\hline 40 \text { inch } & \$ 31,500 & & & \$ 30,000 & & & \$ 40,000 \
\hline 36 \text { inch long } & \$ 40,150 & & & \$ 42,000 & && \$ 33,000 \
\hline 36 \text { inch short } & \$ 36,200 & & & \$ 33,000 & && \$ 30,000 \
\hline 32 \text { inch } & \$ 19,000 & & & \$ 20,000 & & & \$ 28,000 \
\hline
\end{array}
\end{array}$$ 
-A company uses management by exception to address flexible budget variances. On which variance would the company focus first?

Accepted Answer

A)  40 inch 
B)  26 inch long 
C)  36 inch short 
D)  32 inch

Question 16

One part of the balanced scorecard helps management answer the question: "How can we continue to improve and create value?" Which of the four perspectives is being described here?

Accepted Answer

A)  Financial perspective 
B)  Customer perspective 
C)  Internal business perspective 
D)  Learning and growth perspective

Question 17

Which one of the following is NOT a goal of a performance evaluation system?

Accepted Answer

A)  Communicating expectations 
B)  Benchmarking 
C)  Motivating unit managers 
D)  Issuing stock to investors

Question 18

In a balanced scorecard system, which of the following KPIs would relate to the learning and growth perspective?

Accepted Answer

A)  Defect rate 
B)  Employee satisfaction 
C)  Gross margin growth 
D)  Number of repeat customers

Question 19

Many companies use a balanced scorecard for performance evaluation. The balanced scorecard has four business perspectives, and utilizes KPIs to evaluate performance in various areas. Which of the following KPIs would relate to the customer perspective?

Accepted Answer

A)  Hours of employee training 
B)  Number of warranty claims 
C)  Percentage of market share 
D)  Return on investment

Question 20

Huntswell Corporation has two major divisions Agricultural Products and Industrial Products. Data for the year just finished is as follows:
$\begin{array}{|l|r|r|} 
\hline& \text { Agriculture Division } & \text { Industrial Division } \
\hline \text { Sales revenue } & \$ 140,000 & \$ 1,040,000 \
\hline \text { Operating income } & \$ 16,400 & \$ 220,000 \
\hline \text { Average assets } & \$ 300,000 & \$ 5,540,000 \
\hline \text { Target rate of return } & 4.0 \% & 4.0 \% \
\hline
\end{array}$
-
For the Industrial Division, how much is the asset turnover?

Accepted Answer

A)  11.1% 
B)  16.7% 
C)  18.8% 
D)  21.2%

Exam 24: Performance Evaluation and the Balanced Scorecard

The performance measurement system should provide incentives for coordinating activities of the subunits and focusing them toward the overall company objectives. This statement reflects which of the following performance measurement goals?

Which of the following is NOT a potential advantage of decentralization?

Which of the following statements is TRUE about performance reporting?

Which of the following goals of a performance evaluation system is accomplished when the company's actual results are compared to industry standards?

If a large diversified company has many different divisions, each competing for capital expenditure funds, which of the following statements would be MOST relevant?

Based on the variances shown on responsibility performance reports, management must take corrective action on all variances, including favorable, unfavorable, controllable, and uncontrollable variances.

An investment center is responsible for new investments. Which of the following is a good example of the kind of investments for which an investment center is responsible?

Manufacturing cycle time is a measure pertaining to the balanced scorecard's:

In a balanced scorecard system, the key performance indicators (KPIs) are ways to measure whether the company is meeting its goals.

Bardot Company reported operating income of $16,400. Assets at the beginning of the year totaled $440,000. Assets at the end of the year totaled $450,000. How much is the ROI?

One part of the balanced scorecard helps management answer the question: "How can we continue to improve and create value?" Which of the four perspectives is being described here?

Which one of the following is NOT a goal of a performance evaluation system?

In a balanced scorecard system, which of the following KPIs would relate to the learning and growth perspective?

Many companies use a balanced scorecard for performance evaluation. The balanced scorecard has four business perspectives, and utilizes KPIs to evaluate performance in various areas. Which of the following KPIs would relate to the customer perspective?