Question 1

The first step in designing accounting based performance measures is to choose a target level of performance and feedback mechanism.

Accepted Answer

A) True 
 B)False

Question 2

Hargrave Products has three divisions, which operate autonomously. Their results for 20X5 were as follows:
  The company's desired rate of return is 15%.
Required:
a. Compute each division's ROI. Round to three decimal places.
b. Compute each division's residual income.

Accepted Answer

The answer of Hargrave Products has three divisions, which operate...

Question 3

Assume you are evaluating a manufacturing company. Match the various organizational activities and concepts with the performance measures listed. Some items may have more than one match.
Activities:
1. Change in revenues
2. Cycle time
3. Economic order quantity
4. Manufacturing defects
5. Market share
6. New products
7. On-time delivery
8. Operating income
9. Product reliability
10. Time-to-market
Performance measure:

Accepted Answer

The answer of Assume you are evaluating a manufacturing company....

Question 4

Measures which monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are collectively called diagnostic control systems.

Accepted Answer

A) True 
 B)False

Question 5

Many manufacturing, marketing, and design problems require employees with multiple skills; therefore, teams are used and the members have the added encouragement of:

Accepted Answer

A) individual incentives 
B) management incentives 
C) morale incentives 
D) team incentives

Question 6

Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%.
 
-What is the EVA® for Wichita?

Accepted Answer

A) $225,000 
B) $765,000 
C) $207,180 
D) $557,820

Question 7

________ and ________ would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

Accepted Answer

A) Manager's experience; currency stability 
B) Manager's compensation; political climate 
C) Required rate of return; legal requirements 
D) Custom duties; cultural environment

Question 8

In an Economic Value Added calculation, the measure of the invested capital for a division would be that division's assets minus that division's liabilities.

Accepted Answer

A) True 
 B)False

Question 9

________ describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort cannot be accurately monitored and enforced.

Accepted Answer

A) Goal congruence 
B) Moral hazard 
C) Management compensation 
D) Incentive compensation

Question 10

The "balanced scorecard" in most organizations is broken down into the following categories: financial perspective, customer perspective, internal business-process perspective, and productivity perspective.

Accepted Answer

A) True 
 B)False

Question 11

Economic value added, unlike residual income, charges managers for the costs of their investments in long-term assets and working capital.

Accepted Answer

A) True 
 B)False

Question 12

An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks.

Accepted Answer

A) True 
 B)False

Question 13

Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
 
-What is the EVA® for Bish Bash Falls?

Accepted Answer

A) $338,563 
B) $305,000 
C) $275,500 
D) $255,500

Question 14

Many common performance measures, such as customer satisfaction, rely on internal financial accounting information.

Accepted Answer

A) True 
 B)False

Question 15

Wacker Company has two regional offices. The data for each are as follows:  What is the Maryland Division's return on investment?

Accepted Answer

A) 0.42 
B) 0.54 
C) 0.96 
D) 4.12

Question 16

An example of a performance measure with a long-run time horizon is:

Accepted Answer

A) direct materials efficiency variances 
B) overhead spending variances 
C) number of new patents developed 
D) All of these answers are correct.

Question 17

Answer the following questions using the information below:
The top management at Munchie Company, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 
-What is the Gamma Division's return on investment?

Accepted Answer

A) 0.25 
B) 0.42 
C) 0.60 
D) 0.75

Question 18

Answer the following questions using the information below:
The Bandage Medical Supply Company has two divisions that operate independently of one another. The financial data for the year 2012 reported the following results:
  The company's desired rate of return is 10%. Income is defined as operating income.
-Which division has the best return on investment and which division has the best residual income figure, respectively?

Accepted Answer

A) North, North 
B) South, South 
C) North, South 
D) South, North

Question 19

Answer the following questions using the information below:
The Cybertronics Corporation reported the following information for its Cyclotron Division:
  Income is defined as operating income.
-What is the Cyclotron Division's return on sales?

Accepted Answer

A) 0.20 
B) 0.40 
C) 0.50 
D) 0.60

Question 20

Answer the following questions using the information below:
The top management at Munchie Company, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 
-What is the value of the operating assets belonging to the Alpha Division?

Accepted Answer

A) $8,666,667 
B) $12,000,000 
C) $13,000,000 
D) $14,303,600

Exam 23: Performance Measurement, Compensation, and Multinational Considerations

The first step in designing accounting based performance measures is to choose a target level of performance and feedback mechanism.

Hargrave Products has three divisions, which operate autonomously. Their results for 20X5 were as follows: The company's desired rate of return is 15%. Required: a. Compute each division's ROI. Round to three decimal places. b. Compute each division's residual income.

Measures which monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are collectively called diagnostic control systems.

Many manufacturing, marketing, and design problems require employees with multiple skills; therefore, teams are used and the members have the added encouragement of:

and would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

In an Economic Value Added calculation, the measure of the invested capital for a division would be that division's assets minus that division's liabilities.

________ describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort cannot be accurately monitored and enforced.

The "balanced scorecard" in most organizations is broken down into the following categories: financial perspective, customer perspective, internal business-process perspective, and productivity perspective.

Economic value added, unlike residual income, charges managers for the costs of their investments in long-term assets and working capital.

An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks.

Many common performance measures, such as customer satisfaction, rely on internal financial accounting information.

Wacker Company has two regional offices. The data for each are as follows: What is the Maryland Division's return on investment?

An example of a performance measure with a long-run time horizon is:

Answer the following questions using the information below: The Cybertronics Corporation reported the following information for its Cyclotron Division: Income is defined as operating income. -What is the Cyclotron Division's return on sales?