Deck 14: Performance Measurement, balanced Scorecards, and Performance Rewards

Question 1

An organization's values statement identifies fundamental beliefs about what is important to the organization.

Answer 1

True

Question 2

In order to assure achievement of an organizational goal,performance measures must be established for that goal.

Answer 2

True

Question 3

Economic value added (EVA)applies the target rate of return to the market value of the capital invested in a division.

Answer 3

True

Question 4

Economic value added (EVA)applies the target rate of return to the book value of the assets invested in a division.

Question 5

Economic value added (EVA)is a more appropriate performance measure when there is a large difference between the market value of invested capital and the book value of assets.

Question 6

Internal performance measures focus on the efficiency and effectiveness of an organization's production process.

Question 7

The segment margin of a profit or investment center includes allocated common costs.

Question 8

The most common external performance measure used for all organizations is financial in nature.

Question 9

Financial measures are lagging indicators.

Question 10

Asset turnover measures the effective use of assets relative to revenue production.

Question 11

Manipulation of segment expenses may result in the segment margin not being an accurate performance measure.

Question 12

An organization typically develops a values statement before developing a mission statement.

Question 13

Performance measures need not be correlated with the mission of a subunit.

Question 14

The objectives identified in an organization's values statement must be objective in nature.

Question 15

Profit margin indicates management's efficiency with regard to sales and expenses.

Question 16

External performance measures focus on the efficiency and effectiveness of an organization's production process.

Question 17

Economic value added (EVA)is focused on short-term performance measurement.

Question 18

Speed of delivery is an example of a leading indicator.

Question 19

Benchmarks for performance measures may be monetary or non-monetary.

Question 20

The segment margin of a profit or investment center does not include allocated common costs.

Question 21

Non-financial measures are generally more appropriate for gauging teamwork than are financial performance measures.

Question 22

A statement that identifies fundamental beliefs about what is important to an organization is referred to as a ______________________________.

Question 23

Tax deferral is the most desirable form of tax treatment for employee compensation elements.

Question 24

The ratio of sales to assets is referred to as ______________________________.

Question 25

Cultural differences between countries may make performance evaluation in multinational settings more difficult.

Question 26

In a pay-for-performance plan,defined performance measures must be highly correlated with an organization's operational targets.

Question 27

Performance measures that reflect an organization's ability to satisfy customers better than rival firms do are referred to as ____________________ measures.

Question 28

The number of good units or quantity of services that are produced and sold by an organization within a specified time is referred to as process quality yield.

Question 29

Non-financial measures are generally more indicative of productive activity than are financial performance measures.

Question 30

Hourly compensation provides a definite link between performance and reward.

Question 31

A measure of profit produced above the cost of capital is referred to as ___________________________________.
or

Question 32

Expatriate workers should receive a compensation package that reflects cost of living factors and currency fluctuations.

Question 33

Performance measures that provide a focus on the efficiency and effectiveness of production processes are referred to as ____________________ measures.

Question 34

Profit earned in excess of an amount charged for funds committed to a profit center is referred to as ______________________________.

Question 35

Total units produced during the period divided by the value-added processing time is referred to as process productivity.

Question 36

The ratio of income to assets invested is referred to as ___________________________________.
or

Question 37

The balanced scorecard approach complements measures of past performance with measures of the drivers of future performance.

Question 38

Profit margin ´ Asset Turnover is often referred to as the _________________________.

Question 39

The ratio of income to sales is referred to as ______________________________.

Question 40

Non-financial measures are generally less timely than are financial performance measures.

Question 41

The number of good units or quantity of services that are produced and sold by an organization within a specified time is referred to as ____________________.

Question 42

The Statement of Cash Flows indicates the cash inflows and outflows from

A)investing,financing,and borrowing activities.
B)operating,investing,and sending activities.
C)merchandising,financing,and investing activities.
D)operating,investing,and financing activities.

Question 43

An indicator that reflects the results of past decisions is referred to as a(n)______________________________.

Question 44

Statistical data about the steps that will create the results desired as referred to as ___________________________________.

Question 45

The three components of throughput are _____________________________________________,______________________________,and ___________________________________.

Question 46

Variance analysis would be appropriate to measure performance in

A)profit centers.
B)investment centers.
C)cost centers.
D)all of the above.

Question 47

Total units produced during the period divided by the value-added processing time is referred to as ______________________________.

Question 48

The Statement of Cash Flows may be superior to the cash budget as a performance evaluation measure because

A)cash flows are shown on the accrual basis on the cash budget.
B)the cash budget does not include capital investments.
C)cash flows are arranged by activity.
D)of all the above reasons.

Question 49

Which of the following responsibility centers may be evaluated on the basis of residual income?

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

Question 50

In evaluating the performance of a profit center manager,the manager

A)and the sub-unit should be evaluated on the basis of the same costs and revenues.
B)should only be evaluated on the basis of variable costs and revenues of the sub-unit.
C)should be evaluated on all costs and revenues that are controllable by the manager
D)should be evaluated on all costs and revenues that can be directly traced to the sub-unit.

Question 51

Net cash flow could be used to measure performance in

A)cost centers and investment centers.
B)revenue centers and profit centers.
C)revenue centers and investment centers.
D)profit and investment centers.

Question 52

Division A's investment in a new project will raise the overall organization's return on investment if
A)

A)the return on investment on the new project exceeds the target return of the overall organization.
B)the return on investment on the new project exceeds the return on investment of Division
C)the return on investment on the new project exceeds the overall organization's return on investment.
D)Division A's return on investment exceeds the return on investment of the overall organization.

Question 53

The proportion of good units resulting from activities is referred to as ________________________________________.

Question 54

Perry Corporation is composed of three operating divisions.Overall,the Perry Corporation has a return on investment of 20%.Division A has a return on investment of 25%.If Perry Corporation.evaluates its managers on the basis of return on investment,how would the Division A manager and the Perry Corporation president react to a new investment that has an estimated return on investment of 23%?

A)accept accept
B)accept reject
C)reject accept
D)reject reject

Question 55

Which of the following statements is true about the values statement of an organization?

A)It is used to formulate the mission statement.
B)It reflects the organization's culture by identifying beliefs about what is important to the organization.
C)It focuses on long-range plans for the organization.
D)The values contained in the statement must be quantifiable.

Question 56

Using a single performance evaluation criterion for an investment center

A)is most effective because a manager can concentrate on a single goal.
B)can result in manipulation of the performance measure.
C)allows multinational investment centers' performances to be equitably compared.
D)is only appropriate if the criterion is non-monetary.

Question 57

Which of the following statements about an organization's mission statement is true?

A)The mission statement should express an organization's purpose.
B)The mission statement should identify how an organization will meet the needs of its targeted customers.
C)The mission statement must be communicated throughout the organization.
D)All of the statements are true.

Question 58

A company has set a target rate of return of 16% for its investment center.An investment center manager in this company would

A)acquire assets that would increase divisional income by more than 16%.
B)sell all assets that do not generate divisional income of more than 16%.
C)acquire assets that would increase sales by more than 16%.
D)acquire any technologically advanced assets that would cause costs to be reduced by 16% or more.

Question 59

If sales and expenses both rise by $100,000

A)residual income will increase.
B)return on investment will increase.
C)return on investment will be unchanged.
D)asset turnover will decrease

Question 60

A company's return on investment is affected by a change in

A)Yes Yes
B)Yes No
C)No No
D)No Yes

Question 61

Residual income is the

A)contribution margin of an investment center,less the imputed interest on the invested capital used by the center.
B)contribution margin of an investment center,plus the imputed interest on the invested capital used by the center.
C)income of an investment center,less the imputed interest on the invested capital used by the center.
D)income of an investment center,plus the imputed interest on the invested capital used by the center.

Question 62

The return on investment (ROI)ratio measures

A)only asset turnover.
B)only earnings as a percent of sales.
C)both asset turnover and earnings as a percent of sales.
D)asset turnover and earnings as a percent of sales,correcting for the effects of differing depreciation methods.

Question 63

The Du Pont model measures

A)residual income.
B)return on investment.
C)throughput.
D)profit.

Question 64

Profit margin indicates the portion of sales that

A)covers fixed expenses.
B)is not used to cover expenses.
C)equals contribution margin.
D)equals product contribution margin.

Question 65

The Du Pont model measures ROI as it is affected by

A)contribution margin and asset turnover.
B)profit margin and asset turnover.
C)asset turnover.
D)profit margin.

Question 66

An increase in a corporation's target rate would result in a(n)

A)increase in residual income.
B)decrease in return on investment.
C)decrease in residual income.
D)decrease in both residual income and return on investment.

Question 67

Profit margin equals

A)income divided by sales.
B)incomes divided by average inventory.
C)income divided by average assets.
D)income divided by average stockholder's equity.

Question 68

Which of the following would be an appropriate alternative to the use of ROI in evaluating the performance of an investment center?

A)yes yes yes
B)no yes no
C)yes no no
D)yes no yes

Question 69

Residual income is used as a performance measure in which of the following types of centers?

A)yes no yes
B)yes yes yes
C)no yes yes
D)no yes no

Question 70

Residual income is determined as

A)income times the asset turnover rate.
B)income times the inventory turnover rate.
C)income minus (asset base times target rate of return).
D)sales minus (asset base times target rate of return).

Question 71

A prospective project under consideration by the Internet Division of Communications Corporation.has an estimated residual income of $(20,000).If the project requires an investment of $400,000,the

A)project generates a negative return on investment.
B)project's return on investment is zero.
C)project's return on investment is 5% less than the company's target rate.
D)company's target rate is 15%

Question 72

Residual income is an example of a ____ performance measurement.

A)long-term
B)short-term
C)qualitative
D)profit center

Question 73

In the Du Pont model,profit margin is a ratio of

A)income to sales.
B)income to assets.
C)sales to income.
D)sales to assets.

Question 74

Return on investment (ROI)is a term most often used to express income earned on assets invested in a business unit.A company's return on investment would increase if sales

A)increased by the same dollar amount as expenses and total assets increased.
B)remained the same and expenses were reduced by the same dollar amount that total assets increased.
C)decreased by the same dollar amount that expenses increased.
D)and expenses increased by the same percentage that total assets increased.

Question 75

If a new project generates a positive residual income,the

A)project's return on investment is less than the target rate.
B)project's return on investment is greater than the target rate.
C)project's return on investment is equal to the target rate.
D)relationship between the project's return on investment and the target rate cannot necessarily be determined.

Question 76

Presently,the Comic Book Division of Anderson Publishing Corporation has a profit margin of 30%.If total sales rise by $100,000,the net result will be

A)an increase in the profit margin ratio to above 30%.
B)a decrease in the profit margin ratio to below 30%.
C)no change in the profit margin ratio.
D)a change in the profit margin ratio that cannot be determined from this information.

Question 77

Return on investment is computed by dividing income by

A)contribution margin.
B)inventory turnover.
C)assets invested.
D)average assets employed.

Question 78

Residual income is used as a performance measure in

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

Question 79

A sub-unit of an organization is evaluated on the basis of its ROI.If this sub-unit's sales and expenses both increase by $30,000,how will the following measures be affected?

A)increase increase increase
B)indeterminate increase decrease
C)no change increase decrease
D)no change decrease no change

Question 80

If a division generates a positive residual income then the division's

A)asset turnover was very high.
B)profitability was greater than that of other divisions in the company.
C)performance was above expectations.
D)actual return on investment exceeds the division's target return.