Deck 16: Performance Measurement and Compensation

Question 1

The time it takes to plan and build new hotels is an example of a performance measure with a ________ time horizon.

A)long
B)equal
C)short
D)balanced
E)consistent

Answer 1

A

Question 2

What is the goal of all balanced scorecard implementations?

Answer 2

The goal is to make improvements in the learning-and-growth perspective that will lead to improvements in the internal-business-process perspective,which then will result in improvements in the customer and financial perspectives.

Question 3

Return on investment (ROI)can provide more insight into performance when it is represented by which of the following options?

A)Two components.
B)Four components.
C)Three components.
D)One representative number.
E)Four representative numbers.

Answer 3

A

Question 4

In the balanced scorecard,stock price,net income,return on sales,return on investment,and economic value added,are measures of the ________.

A)employee perspective
B)customer perspective
C)financial perspective
D)learning-and-growth perspective
E)internal-business-process perspective

Question 5

Different organizations stress different measures in their scorecards,but the measures are always derived from a company's ________.

A)strategy
B)balance sheet
C)income statement
D)fixed-cost budget
E)resource statement

Question 6

________ is popular because it blends all ingredients of profitability into one percentage and it can be compared with the rate of return on opportunities inside and outside the company.

A)ROI
B)AARR
C)Return on sales
D)Residual income
E)Economic value added

Question 7

Organization subunits are the most widely-used performance measures that cover the ________.

A)hierarchy of an organization
B)intermediate-to-long-term horizon
C)history of an organization's divisions
D)residual income from past investments
E)internal framework changes in management structure

Question 8

The time it takes to check into a hotel is an example of a performance measure with a ________ time horizon.

A)long
B)equal
C)short
D)balanced
E)consistent

Question 9

Step 1 of the designing accounting-based performance measures is Choose Performance Measures That Align with Top Management's Financial Goals.

Question 10

Companies commonly use four measures to evaluate the performance of their subunits.Which of the following options is not one of these four common measures?

A)AARR.
B)ROI.
C)Residual income.
D)Economic value added.
E)Return on sales.

Question 11

Return on investment (ROI)is an accounting measure of ________ divided by an accounting measure of investment.

A)income
B)variable costs
C)current assets
D)operating income
E)income before income taxes

Question 12

In the balanced scorecard,customer-service time for making reservations and for check-in and restaurants are measures of the ________.

A)employee perspective
B)customer perspective
C)financial perspective
D)learning-and-growth perspective
E)internal-business-process perspective

Question 13

Is it necessary for management to follow the steps for designing accounting-based performance measures in order?

Question 14

In the balanced scorecard,market share in different geographic locations,customer satisfaction,and average number of repeat visits are measures of the ________.

A)employee perspective
B)customer perspective
C)financial perspective
D)learning-and-growth perspective
E)internal-business-process perspective

Question 15

Which of the following is not true about return on investment (ROI)?

A)Is not known as the accrual rate of return.
B)Some organizations use total assets in the denominator.
C)Used to evaluate performance of an organization's subunit.
D)Some organizations use operating income to represent the numerator.
E)Some organizations prefer to calculate it on an after-tax basis.

Question 16

Employee education and skill levels,employee satisfaction,employee turnover,hours of employee training,and availability of information systems,are measures of the ________.

A)employee perspective
B)customer perspective
C)financial perspective
D)learning-and-growth perspective
E)internal-business-process perspective

Question 17

In Step 2 of the designing accounting-based performance measures,managers ask,"Should performance reports be sent to top management daily,weekly,or monthly?"

Question 18

Many organizations are increasingly presenting financial and nonfinancial performance measures for their subunits in a single report referred to as the ________.

A)balance sheet
B)balanced scorecard
C)resource statement
D)fixed cost flexible-budget
E)variable unfixed cost flexible-budget

Question 19

Hospitality Inns use balanced-scorecard measures to evaluate and reward the performance of its managers.

Question 20

Some performance measures,such as the time it takes to build a new hotel,have a long time horizon.Other measures,such as the check-in processing time for guests in a hotel,have a short time horizon.What kind of time horizon do organizational subunits utilize?

Question 21

Which of the following is not a common alternative definition used to measure investments in divisions used in the construction of accounting-based performance measures?

A)Standard output.
B)Stockholders equity.
C)Total assets available.
D)Total assets employed.
E)Total assets employed minus current liabilities.

Question 22

The Wintergreen Organization,whose tax rate is 30%,generates two sources of funds: long-term debt with a market value of $7,000,000 and an interest rate of 8%,and equity capital with a market value of $12,000,000 and a cost of equity of 11%.What is Wintergreen's weighted cost of capital (WACC)?

A).050
B).060
C).070
D).080
E).090

Question 23

Which of the following is the cost of purchasing an asset today identical to the one currently held?

A)Past cost.
B)Current cost.
C)Future cost.
D)Optimal cost.
E)Suboptimal cost.

Question 24

Candy's Chocolate Company's financial management is compiling data in order to assess the favorability of the company's investments.The Boise faction of the company calculates a total investment of $2,000,000 and the operating income is computed to be $380,000 while the required rate of return is 15%.The Butte faction of the company has tallied a total investment of $1,500,000 and an operating income of $230,000 while the Butte faction also has a 15% required rate of return.
Required
Compute the residual income at the Boise faction and the residual income at the company's Butte faction.

A)$80,000
B)$5,000
C)$15,000
D)$25,000
E)$120,000

Question 25

The imputed cost of the investment is a cost recognized in particular situations and it is always recorded in financial accounting systems.

Question 26

Which of the following is the alternative definition of all assets,regardless of their intended purpose used in the construction of accounting-based performance measures?

A)The minimum ROS.
B)Stockholders equity.
C)Total assets available.
D)Total assets employed.
E)Total assets employed minus current liabilities.

Question 27

Measuring assets at current costs will result in different ROIs compared to the ROIs calculated on the basis of ________.

A)past cost
B)future cost
C)current cost
D)historical cost
E)suboptimal cost

Question 28

The DuPont method of profitability analysis recognizes the ________ basic ingredients in profit-making.

A)one
B)two
C)three
D)four
E)five

Question 29

Contrast Crystal Company has experienced some questionable changes in both its operating income and total assets.The managerial accountant reported that operating income has decreased by 6% from $400,000 to $376,000 and its total assets have decreased by 6% from $2,025,000 to $1,900,000 in 2012.
Required
Compute the original ROI and the final ROI.

A)35%;14%
B)20%;20%
C)20%;16%
D)25%;28%
E)13%;18%

Question 30

The ________ of the investment is a cost recognized in particular situations but not recorded in financial accounting systems because it is an opportunity cost.

A)imputed cost
B)disputed cost
C)rejected cost
D)preferred costs
E)discouraged cost

Question 31

Abound Seed Company's financial manager has calculated the company's after-tax income to be $720,000.The total assets or investment of the company is $1,440,000.
Required
Compute the ROI at Abound Seed Company.

A)68%
B)50%
C)7%
D)32%
E)28%

Question 32

Which of the following is the alternative definition of total assets available minus the sum of idle assets and assets purchased for future expansion?

A)The minimum ROS.
B)Stockholder's equity.
C)Total assets available.
D)Total assets employed.
E)Total assets employed minus current liabilities.

Question 33

Which of the following is not true about residual income (RI)?

A)Influenced by size.
B)Managers maximize an absolute amount.
C)Managers maximize percentages.
D)Stakeholders want residual income to achieve goal congruence.
E)Managers evaluated on residual income choose new project only if residual income is positive.

Question 34

Why is the DuPont method of profitability analysis the preferred method?

Question 35

The managerial accountant at Island Fabrics reported the following information:

The company wants to expand its operations,which will require each division to increase its investments by $25,000,000 and its income by $5,000,000.
Required
Compute the ROI and RI for each Division.Which Division has the largest RI? Compute the ROI and the RI with the investments and increases in income for each division.Should each division do the expansion?

Question 36

The DuPont method recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.

Question 37

Which of the following is an accounting measure of income minus a charge for required return on an accounting measure of investment?

A)Residual income (RI).
B)Return on investment (ROI).
C)Accrual rate of return (ARR).
D)Required rate of return (RRR).
E)Economic value added (EVA).

Question 38

Which of the following is not true about investment bases associated with return on investment (ROI)?

A)Involves decreasing idle cash.
B)Involves managing credit judiciously.
C)Involves determining proper inventory levels.
D)Managers spend carefully on long-term assets.
E)Managers never have benefits when they reduce long-term assets.

Question 39

Should operating income or net income be used as the numerator to calculate ROI?

Question 40

The managerial accountant at Preferential Drupelet Company is compiling data.The current net income of the company is $350,000 and the total assets are $1,005,000.
Required
Compute PDCs accrual accounting rate of return.

A)35%
B)13%
C)28%.
D)55%
E)72%

Question 41

The Hobby Shop Company owns outlets in Olympia,WA,Boise,ID,and Boston,MA.The operating income for the Olympia outlet is $260,000 while the operating incomes for the Boise and Boston outlets are $320,000 and $620,000.The 2012 gross book value of the total assets for the Olympia outlet is $2,300,000 and for the Boise outlet and Boston outlet the gross book value of the total assets is $2,800,000 and $4,100,000.
Required
Compute the 2012 ROIs for the Olympia outlet,the Boise outlet,and the Boston outlet for the Hobby Shop Company.

A)10.1%;11.2%;9.9%
B)11.3%;11.4%;15.1%
C)12.5%;12.3%;16.0%
D)10.9%;11.1%;13.5%
E)9.8%;10.2%;14.0%

Question 42

What causes the initial method of calculating EVA to be less important than evaluating performance on the basis of improvements in EVA?

Question 43

Surveys report ________ book value to be the dominant measure of assets used by companies for internal performance evaluation.

A)net
B)past
C)cost
D)current
E)historical

Question 44

Another way to motivate managers to take a long-run perspective is by compensating them on the basis of changes in the market price of the company's stock.

Question 45

Companies that use ROI or RI generally define investment as the total assets available.

Question 46

Evaluating performance on the basis of improvements in EVA makes the initial method of calculating EVA more important.

Question 47

What are the advantages of the net book value?

Question 48

In companies that use EVA as a performance measure,top management can evaluate operations on year-to-year changes in EVA,rather than on ________ measures of EVA.

A)past
B)preset
C)absolute
D)forecasted
E)benchmark

Question 49

The Hobby Shop Company has outlets in Olympia,WA,Boise,ID,and Boston,MA.The gross book value of long-term assets at historical costs that the Olympia outlet holds is $1,600,000,the Boise outlets holds $2,400,000 and the Boston outlet holds $3,200,000.The construction cost index for all three outlets in 2012 was 190.The construction cost index the year that the Olympia outlet was built was 120,the year that the Boise outlet was built it was 160 and the year that the Boston outlet was built it was 170.
Required
Compute the gross book assets at current cost at the end of 2012 for the Olympia outlet,the Boise outlet,and the Boston outlet.

A)$2,360,363;$1,650,022;$688,520
B)$1,866,352;$2,148,633;$1,225,333
C)$2,533,333;$2,850,000;$3,576,471
D)$1,955,000;$2,225,036;$4,020,333
E)$3,148,523;$3,963,000;$455,630

Question 50

Companies that adopt EVA^© define investment as total assets employed plus current liabilities.

Question 51

Why may current-cost estimates be difficult to obtain for some assets?

Question 52

Managers can use historical-cost ROIs to evaluate current performance by establishing ________ ROIs.

A)target
B)function
C)ambition
D)intention
E)destination

Question 53

How do managers determine if assets are measured at historic costs,or current costs?

Question 54

In establishing targets for financial performance measures,companies using the balanced scorecard simultaneously determine targets in the customer,________,and learning-and-growth perspectives.

A)master budget
B)peripheral market
C)budgeted-sales objective
D)internal-business-process
E)fixed-cost business process

Question 55

Companies should tailor budgets and the timing of feedback to managers and employees to the nature of the ________,the accounting system in place,and the particular performance measure being used for evaluation.

A)subunit
B)variation
C)business plan
D)market adaption
E)internal benchmark

Question 56

Why should managers evaluate subunits over multiple years?

Question 57

Explain how the multiyear analysis is an advantage to managers that use the RI measure.

Question 58

The following data was compiled for Infer-Tech PC Company in order to assess the effect of a $500,000 initial investment with a $70,000 operating cost increase per year over a five year period.The company factored in a 15% required rate of return.

Required
Compute the present value of the investment in year 2 and year 4.

A)$132,444;$85,669
B)$120,522;$72,996
C)$115,669;$85,000
D)$128,544;$97,198
E)$105,008;$80,663

Question 59

The following information was compiled for Infer-Tech PC Company applying a $500,000 initial investment with an $80,000 operating cost increase per year over a five year period.The company factored in a 15% required rate of return.

Required
Compute the present value of the investment in years 2 and 4.Next,compute the net present value for the investment for the full five years.

A)$17,688;$29,599;$98,952
B)$15,123;$28,588;$103,388
C)$11,015;$22,336;$105,950
D)$15,866;$25,411;$101,990
E)$5,652;$32,652;$85,420

Question 60

A popular way for management to establish targets is to set intermittent improvement targets.

Question 61

The managerial accountant at Pepper Supreme International Burrito's reported operating income of 7,250,000 pesos and total assets of 35,000,000 pesos in 2012.
Required
Compute the ROI at the end of 2012 in pesos.

A).180%
B).190%
C).207%
D).217%
E).220%

Question 62

Which of the following is not an issue of an organization operating in different countries?

A)Inflation.
B)Foreign currency.
C)Cost of materials and labor.
D)Availability of materials and skilled labor.
E)Inflation has no impact on performance evaluation.

Question 63

Residual income calculated in pesos has the same problems as ROI calculated using pesos.

Question 64

Arboretum Hybrid Greenery Company is assessing the performance of the Georgia outlet for the years 2011 and 2012.In 2011,the operating income for the outlet was $450,000 while in 2012 it was $390,000.In 2011 gross book value of total assets held by the Georgia outlet was $2,400,000 while in 2012 it was $2,160,000.The accumulated depreciation of total assets for 2011 and 2012 was $600,000.
Required
Compute the 2011 and 2012 ROI using the net book value of total assets.

A)25%;25%
B)13%;22%
C)15%;10%
D)30%;12%
E)22%;15%

Question 65

Issues of inflation and fluctuations in foreign currency exchange rates do not affect performance measures.

Question 66

One way to make a comparison of historical-cost-based ROIs more meaningful is to ________ HIMC's performance in U.S.dollars.

A)add
B)restate
C)divide
D)multiply
E)subtract

Question 67

Astute Intel,a data prospecting company,is compiling data from 2011 and 2012 to compare to the company's 2012 performance in order to assess the best company directives for 2013.The operating income of the company in 2011 was $480,000,but new streamlined practices in 2012 resulted in $360,000 in operating income.In 2011 the gross book value of total assets was $1,840,000 and the accumulated depreciation of total assets was $400,000.In 2012 the gross book value of total assets was $1,930,000,while the accumulated depreciation for that year was $130,000.
Required
Compute the 2011 and 2012 ROI using the net book value of total assets.

A)15.8%;22.0%
B)33.3%;20.0%
C)18.9%;10.5%
D)10.2%;19.9%
E)5.7%;15.1%

Question 68

Because subsequent inflation does not affect the cost of assets in JIMC's financial accounting records,managers should use the prevailing exchange rate when the assets were acquired to convert the assets into ________.

A)pesos
B)francs
C)dollars
D)foreign currency
E)non-cash assets

Question 69

Whole Foods Company management has determined the company's 2012 ROI using the gross book value of total assets and has now compiled the following data to determine the company's 2012 ROI using net book value of total assets.

Required
Compute the ROI at the Nome plant.

A)12.6%
B)21.7%
C)5.6%
D)26.1%
E)35.0%

Question 70

Operating a division in a/an ________ economy like Singapore is very different from navigating a closed economy such as Venezuela.

A)open
B)closed
C)cultural
D)controlled prices
E)threat of nationalization

Question 71

Alloy Metallurgy Company management is compiling data for 2012.The operational manager has computed that the operating income for 2012 was $260,000 and the net book value of total assets was $1,000,000.The gross book value of total assets was $1,300,000 and the GBV of ROI was 26%.
Required
Compute the accumulated depreciation of total assets for AMC.

A)$560,000
B)$260,000
C)$300,000
D)$740,000
E)$440,000

Question 72

The managerial accountant at International Nacho Company reported operating income of 6,250,500 pesos in 2012 and total assets of 34,000,000 pesos in 2012.
Required
Compute the 2012 ROI in pesos.

A).183%
B).190%
C).200%
D).210%
E).222%

Question 73

Inflation clouds the real economic returns on an asset and makes historical cost-based ROI ________.

A)stable
B)lower
C)higher
D)consistent
E)unpredictable

Question 74

The managerial accountant at International Food Services reported that operating income was earned evenly throughout 2012.The average exchange rate in Mexico was 11.7 pesos = $1 U.S.dollar and they have a total of 345,000,000 pesos.
Required
Compute the operating income from pesos to dollars in 2012.

A)$29,250,115
B)$29,380,189
C)$29,487,179
D)$29,880,650
E)$29,958,726

Question 75

The managerial accountant at Premier Tacos International reported that operating income was earned evenly throughout 2012.The average exchange rate in Mexico was 11.9 pesos = $1 U.S.dollar and they have a total of 250,000,000 pesos.
Required
Compute the operating income from pesos to dollars.

A)$20,000,000
B)$20,516,821
C)$21,008,403
D)$21,216,836
E)$21,624,315

Question 76

Why does the timing of feedback in the balanced scorecard vary?

Question 77

Whole Foods Company owns rendering plants in Nome,Alaska,Brownsville,Texas,and Gurnee,IL.The following data was compiled by operational management.

Required
Compute the ROI at the Nome plant.

A)13.3%
B)15.2%
C)9.8%
D)16.2%
E)22.0%

Question 78

Some countries in Asia,Latin America,and Eastern Europe impose ________ and custom duties to restrict imports of certain goods.

A)tariffs
B)passes
C)rebates
D)refunds
E)coupons

Question 79

Discuss the decline in value of the peso compared to the U.S.dollar in 2012.How did this impact the Mexican economy?

Question 80

Why would management at a hotel measure employee satisfaction annually,but measure quality of room service over much shorter time spans such as weekly?