Question 1

Bureaucratic controls often result in

Accepted Answer

Often people act in ways that will look good on the control system's measures. This tendency is useful when it focuses people on required behaviors. But it can result in rigid, inflexible behavior geared toward doing only what the system requires.

Question 2

Leverage ratios

Accepted Answer

There are three categories of financial ratios: liquidity, leverage, and profitability. Leverage ratios show the relative amount of funds in the business supplied by creditors and shareholders.

Question 3

Market controls involve

Accepted Answer

In contrast to bureaucratic controls, market controls involve the use of economic forces and the pricing mechanisms that accompany them to regulate performance.

Question 4

To be effective, control systems must

Accepted Answer

Effective control systems maximize potential benefits and minimize dysfunctional behaviors. To achieve this, management needs to design control systems that do the following: establish valid performance standards, provide adequate information to employees, ensure acceptability to employees, maintain open communication, and use multiple approaches.

Question 5

The debt-equity ratio is an example of a

Accepted Answer

Leverage ratios show the relative amount of funds in the business supplied by creditors and shareholders. An important example is the debt-equity ratio, which indicates the company's ability to meet its long-term financial obligations.

Question 6

Maya has just reviewed a number of indicators of financial control for her firm. One that worries her indicates that the company may soon have trouble making loan payments and clearing its accounts receivables. Maya is concerned about

Accepted Answer

The most common liquidity ratio is current assets to current liabilities, called the current ratio or net working capital ratio. This ratio indicates the extent to which current assets can decline and still be adequate to pay current liabilities.

Question 7

The use of market control mechanisms has been criticized by those who believe that

Accepted Answer

The use of market control mechanisms has been criticized by those who insist that economic measures do not adequately reflect the complete value of an organization. Employees often suffer as diversified companies are repeatedly bought and sold based on market controls.

Question 8

Management myopia refers to managers who

Accepted Answer

Because financial ratios usually are expressed in compressed time horizons (monthly, quarterly, or yearly), they often cause management myopia, which occurs when managers focus on short-term earnings and profits at the expense of their longer-term strategic obligations.

Question 9

Yiheng was new to his organization but quickly noticed a pattern at the annual budgeting session. Midlevel managers were asking for unrealistically high budgets while top management was attempting to require budgets under last year's actual expenditures. Both parties were using strategies that are referred to as

Accepted Answer

A common form of tactical behavior is when people falsify predictions or request for the future. When asked to give budgetary estimates, employees usually ask for more than what they need. This is what the midlevel managers are doing. Or if they believe a low estimate will help them get a budget or a project approved, they may submit unrealistically low estimates. Top management was engaging in the second form of tactical behavior.

Question 10

The price charged by one unit of an organization that supplies to another unit in the same organization is referred to as a(n)

Accepted Answer

A transfer price is the charge by one unit in the organization for a good or service that it supplies to another unit of the same organization. For example, in automobile manufacturing, a transfer price may be affixed to components and subassemblies before they are shipped to subsequent business units for final assembly.

Question 11

The liquidity ratio that indicates the extent to which short-term assets can decline and still be adequate to pay short-term liabilities is referred to as the

Accepted Answer

The most common liquidity ratio is current assets to current liabilities, called the current ratio or net working capital ratio. This ratio indicates the extent to which current assets can decline and still be adequate to pay current liabilities.

Question 12

Profitability ratios

Accepted Answer

There are three categories of financial ratios: liquidity, leverage, and profitability. Profitability ratios indicate management's ability to generate a financial return on sales or investment.

Question 13

Efforts to circumvent a control system, such as reporting false performance data, are behavior that would be termed

Accepted Answer

Control systems will be ineffective if employees engage in tactics aimed at beating the system. The most common type of tactical behavior is to manipulate information or report false performance data.

Question 14

Traditionally, boards have tried to control CEO performance mainly through

Accepted Answer

Traditionally, boards have tried to control CEO performance mainly through the use of incentive pay, including bonuses tied to short-term profit targets. These typically include some type of bonus tied to short-term profit targets.

Question 15

When a control system prompts employees to do only tasks required in their formal job descriptions, it is causing

Accepted Answer

Often people act in ways that will look good on the control system's measures. This tendency is useful when it focuses people on required behaviors. But it can result in rigid, inflexible behavior geared toward doing only what the system requires.

Question 16

Employees resist formal control systems for which of the following reasons?

Accepted Answer

People resist control systems for several reasons. First, they increase the accuracy of performance data and make employees more accountable for their actions. Control systems uncover mistakes, threaten people's job security and status, and decrease people's autonomy. Control systems can change expertise and power structures and can change the social structure of an organization.

Question 17

A manager designing a control system should evaluate the information provided by the system in terms of which of the following questions?

Accepted Answer

In general, a manager designing a control system should evaluate the information system in terms of the following questions: (1) Does it provide people with data relevant to the decisions they need to make? (2) Does it provide the right amount of information to decision makers throughout the organization? (3) Does it provide enough information to each part of the organization about how other, related parts of the organization are functioning?

Question 18

A ratio of profit to capital used or a rate of return from capital is referred to as

Accepted Answer

Profitability ratios indicate management's ability to generate a financial return on sales or investment. For example, return on investment (ROI) is a ratio of profit to capital used, or a rate of return from capital (equity plus long-term debt). This ratio allows managers and shareholders to assess how well the firm is doing compared with other investments.

Question 19

In order to gain employee acceptance of useful performance standards, a manager can

Accepted Answer

Employees are less likely to resist a control system and exhibit dysfunctional behaviors if they accept the system. They are more likely to accept systems that have useful performance standards but are not overly controlling. Employees also will find systems more acceptable if they believe the standards are possible to achieve.

Question 20

Casinos control card dealers in a variety of ways. Which of the following would be the most correct tool to use for control?

Accepted Answer

The use of closed-circuit cameras is a form of direct scrutiny that helps control the risk so that the casino does not lose money. The requirement of a dealer's license rather than a driver's license would be a better control. Furthermore, paperwork auditing the transfer of cash and cash equivalents would be appropriate. Finally, searching employees before and after work does not directly control the dealers' jobs while they are occurring.

Quiz 16: Managerial Control