Deck 14: Performance Measurement

Question 1

Which of the following statements regarding the balanced scorecard approach is true?

A)The balanced scorecard uses only long-term performance measures.
B)The balanced scorecard is designed to encourage the use of a wide range of measures to gauge performance.
C)The balanced scorecard uses only short-term performance measures.
D)The balanced scorecard is used because there is a causal relationship between all of the measures and their economic impact.

Answer 1

B

Question 2

Which one of these perspectives is not used by the balanced scorecard?

A)financial
B)employee
C)internal operations
D)innovation and improvement activities

Answer 2

B

Question 3

From the list below the best financial performance measure for a cost centre would be:

A)return on investment
B)residual income
C)budgeted costs less actual costs
D)economic value added

Answer 3

C

Question 4

Which of these would not be a recommendation to follow to successfully implement the balanced scorecard?

A)strive for perfection in every aspect
B)implement a standardised version of the scorecard
C)introduce the scorecard to the whole organisation at once
D)all of the above are not recommended if successful implementation of the balanced scorecard is to be achieved

Question 5

The balanced scorecard framework implies that:

A)all of the options are implications of the balanced scorecard framework
B)traditional performance measures alone are inadequate to capture the entire performance of the entity.
C)that long-term and short term measures need to be considered
D)non-financial as well as financial measures need to be considered

Question 6

A valid criticism of the balanced scorecard's overall value is:

A)senior management are seldom committed to its success.
B)it must be introduced without a trial.
C)the approach is too complicated for most managers to understand.
D)it does not give proper attention to employees and suppliers.

Question 7

A centre that is solely responsible for costs,revenues and investment in assets is known as a:

A)cost centre
B)profit centre
C)revenue centre
D)investment centre

Question 8

The appointment of managers responsible for the performance of divisions of an entity assists in which of the following?

A)improving the timeliness of and access to information as a result of localised decision making
B)improving the commitment and motivation of managers
C)freeing up central management time for strategic long-term planning
D)all of the options are ways in which the appointment of division managers assist an entity

Question 9

When reporting on divisional performance,the format generally used is:

A)a contribution margin format
B)a gross profit format
C)a net profit format
D)none of the options gives the format generally used when reporting on divisional performance.

Question 10

If the profit margin is 12.5% and investment turnover is 1.1 times,return on investment is:

A)13.8%
B)11.4%
C)13.6%
D)11.6%

Question 11

In using the balanced scorecard,to which of the perspectives would the measures of 'per cent of sales from new products' and 'on-time delivery (customer defined)' be most likely to apply to?

A)financial
B)customer
C)internal operations
D)innovation and improvement activities

Question 12

At a divisional level,when using cost information for pricing decisions:

A)only controllable costs should be included in the decision
B)common costs must be included as pricing needs to cover the entity's total costs
C)only common costs should be included in the decision
D)none of the options is true

Question 13

A term for a division,segment or branch of an organisation is:

A)business unit.
B)entity
C)corporation
D)firm

Question 14

The return on assets for a firm with a profit margin of 4.5%,compared to a firm with a profit margin of 3.5%,will:

A)always be higher
B)always be lower
C)always be the same
D)could be higher or lower

Question 15

Division K has a contribution margin of $100 000 and fixed costs traceable to the division of $25 000 mean it is making a divisional margin of $75 000.However after the allocation of $90 000 of common costs,which would not be saved if the division were to be closed,it is making a loss of $15 000.Assuming all other factors are equal,if the division were closed the effect on the overall profit of the organisation would be:

A)an increase of $15 000
B)an increase of $75 000
C)a decrease of $90 000
D)a decrease of $75 000

Question 16

In using the balanced scorecard which of the four perspectives would the measures of contribution margin per product and changes in cash flow be most likely to apply to?

A)financial
B)customer
C)internal operations
D)innovation and improvement activities

Question 17

A key performance indicator (KPI)is:

A)a performance measure of profitability
B)a performance measure that is critical for the success of the entity
C)a performance measure used only by manufacturing entities
D)a management performance measure

Question 18

Which of the following could undermine the value of the balanced scorecard to an entity?

A)all of the options could undermine the value of the balanced scorecard to an entity
B)trying to use the scorecard as an extra level of top down control
C)not making available sufficient resources such as training for implementation of the balanced scorecard
D)not ensuring that top management are committed to the success of the balanced scorecard

Question 19

A responsibility centre which is responsible for both cost inputs and revenue is known as a:

A)cost centre.
B)revenue centre.
C)profit centre.
D)investment centre.

Question 20

Performance must be measured to verify the achievement of goals.Generally an entity's goals are expressed in a:

A)financial statement
B)mission statement
C)benchmark
D)income statement

Question 21

Economic value added is:

A)a long-term performance indicator
B)a short-term performance indicator
C)a medium-term performance indicator
D)not a performance indicator

Question 22

A change in the investment turnover ratio from 2.3 times to 3.7 times will always mean,no matter what other factors change,that:

A)more sales are being generated relative to investment.
B)less sales are being generated relative to investment.
C)return on investment will be higher.
D)return on investment will be lower.

Question 23

An advantage of using economic value added as a performance indicator is:

A)Minimisation of suboptimal decision-making
B)The charge for capital can be varied to take into account various levels of risk
C)Adjustments can be made to the components within the equation to suit the specific circumstances of each division
D)all of the above

Question 24

Which of these is a disadvantage of the residual income performance measure?

A)it can still encourage short-term decision-making
B)the cost of capital may not be easy to determine
C)the required rate of return may not be easy to determine
D)all the options are disadvantages of the residual income performance measure

Question 25

Which of the following categories is not used in the Environmental management - Environmental Performance Evaluation Guidelines relied upon by the United Nations Division for Sustainable Development (UNDSD)?

A)operational performance indicators
B)management performance indicators
C)financial performance indicators
D)environmental condition indicators

Question 26

Which of the following statements about the economic value added (EVA)performance measure is not true?

A)EVA is a short term financial performance measure of the economic value created over a specific time period.
B)The formula to calculate EVA uses profit before tax.
C)Adjustments can be made to the components of the EVA formula to suit the specific circumstances of each division.
D)Using the EVA performance measure can assist in the minimisation of suboptimal decision making.

Question 27

The formula for residual income is:

A)profit before tax - (required rate of return x investment).
B)profit/sales.
C)sales/investment.
D)operating profit after tax - (cost of capital x capital).

Question 28

The ratio that measures the profit relative to sales is:

A)residual income.
B)investment turnover.
C)return on investment.
D)return on sales.

Question 29

If profit after tax is $800 000,taxation is $230 000,the required rate of return is 12% and the investment is $3 000 000 the residual income calculation is:

A)$670 000.
B)35%.
C)19%.
D)$210 000.

Question 30

As return on investment is a short-term performance measure:

A)there is a need to combine it with long-term measures when assessing performance.
B)it cannot be manipulated by managers for their own benefit
C)it is useful for comparing divisions of different sizes
D)none of the options is true

Question 31

Under the opportunity cost principle,when calculating ROI and RI

A)market value is used as the investment base
B)original cost is used as the investment base
C)written down value is used as the investment base
D)none of the options would be used when calculating ROI and RI under the opportunity cost principle.

Question 32

Using written-down value as the investment base in ROI and RI calculations will tend to produce _________ returns with the passing of time

A)higher
B)lower
C)constant
D)variable

Question 33

If the purpose of an entity is to maximise the wealth of its owners,the most complete measure of economic profit is considered to be:

A)residual income.
B)economic value added.
C)return on investment.
D)return on sales.

Question 34

Investment turnover is sometimes called.

A)asset turnover
B)investment base
C)profit margin
D)return on investment

Question 35

Which of these is a disadvantage of the return on investment performance measure?

A)all the options are disadvantages of the ROI measure
B)ROI does not consider divisions that are different in type or size
C)the use of ROI can least to suboptimal decision making
D)divisional managers can manipulate ROI by decreasing the investment base

Question 36

Which of these is regarded as a disadvantage of return on investment as a performance measure?

A)it is easy to calculate
B)it encourages overinvestment in assets
C)it is a percentage measure,not a measure of absolute values
D)all of the options are disadvantages of return on investment as a performance measure.

Question 37

If investment is $300 000,credit sales are $800 000 and cash sales are $300 000,the investment turnover ratio is:

A)2.67 times.
B)3.75 times.
C)3.67 times.
D)2.72 times.

Question 38

If profit before tax is $320 000,required rate of return is 15% and the investment is $1 900 000 the residual income calculation is:

A)$1 650 000.
B)$35 000.
C)13.2%.
D)$2 150 000.

Question 39

Which of these is an investment base that could be used in ROI and RI calculations?

A)original cost
B)written-down value
C)market value
D)all the options are possible investment bases for ROI and RI calculations

Question 40

If return on investment is 15.5% and investment turnover is 0.7 times profit margin is:

A)4.5%
B)22.14%
C)40.4%
D)10.85%

Question 41

If return on sales is 16% and investment turnover is 1.5 times,return on investment is ____________.

Question 42

Which statement is not true in relation to measuring individual performance?

A)Performance measures should highlight the most important aspect of an employees' job
B)It is generally considered best to choose an individual reward system rather than a team reward system
C)Executives incentive packages should include both financial and non-financial performance measures
D)Share options schemes are designed to reward executives for long-term performance

Question 43

A responsibility centre that is responsible for generating a target level of revenue (e.g.a sales division)is known as a _____________ centre.

Question 44

The approach where ROI = return on sales × investment turnover is known as the _______ _________ approach.

Question 45

Divisional managers can increase the Return on Investment by (increasing/decreasing)____________ the investment base relative to segment profit.

Question 46

Responsibility centres include cost centres,revenue centres,investment centres and ____________ centres.

Question 47

The term ______________________ is used to describe the focus on the efficient use of resources to minimise their impact on the environment.

Question 48

The ratio that measures the amount of sales generated relative to the level of investment is the investment _______________ ratio.

Question 49

A short statement that sets out the overall philosophy and objectives of an entity is known as its ______________ statement.

Question 50

Goal _____________ occurs when the goals of the individual manager are in line with the goals of the entity.

Question 51

Life cycle carbon cost accounting helps assess ___________ emissions of products from production to consumption.

Question 52

The financial performance measure which is included in the list below is:

A)warranty claims
B)asset turnover
C)customer survey
D)maintenance hours

Question 53

The first reporting period for entities whose characteristics are covered under the National Greenhouse and Energy Reporting Act,commenced on

A)1 July 2007
B)1 July 2008
C)1 July 2009
D)1 July 2010

Question 54

Which of the items below are examples of non-financial performance measures for operating performance?

A)customer response time
B)warranty claims
C)all of the items are examples of non-financial performance measures for operating performance
D)percentage of defects per delivery

Question 55

Which of the following is a criticism of the Australian Government Clean Energy Act 2011 which sets up the carbon pricing mechanism?

A)the carbon price will burden businesses unnecessarily
B)the legislation will encourage investment offshore in countries that do not have a carbon price giving those countries a competitive advantage
C)the tax is not considered to be significant enough to encourage innovation
D)all the options are criticisms that have been put forward regarding the introduction of the carbon tax.

Question 56

The performance measure,which is like residual income and is based on the economic increase in an organisation's value after a suitable charge for capital is subtracted,is ___________ value added.

Question 57

In executive remuneration packages,long-term performance is rewarded by:

A)payment of an annual bonus based on profitability
B)long term incentives such as share options
C)fixed remuneration
D)a company car and travel

Question 58

The formula for return on investment is ___________ divided by ____________.

Question 59

Which of the following is not an advantage of non-financial performance measures?

A)Non-financial performance measures can easily be benchmarked.
B)There is no proven cause and effect link between non-financial measures and economic success.
C)Non-financial performance measures are more likely to lead to longer-term performance gains,as they tend to be linked more readily to the organisation's goals.
D)Non-financial performance measures can identify problems in a more timely fashion.

Question 60

The methods used to inventory and audit greenhouse gas emissions are

Question 61

There is no proven cause and effect link between non-financial performance measures and _________________ success.

Question 62

Sections of the Corporations Act and the accounting standards require large companies to report on director and executive ___________________ in their external reports.