Question 1

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

Accepted Answer

Performance measures like customer satisfaction are not based on internal financial accounting information, but rather on external feedback from customers.

Question 2

During the past twelve months, the Aaron Corporation had a net income of $25,000. What is the amount of the investment if the return on investment is 20%?
A)$50,000
B)$100,000
C)$125,000
D)$250,000

Accepted Answer

To calculate the investment, we can use the formula:
Net Income = (Return on Investment/100)*Investment
$25,000 = (20/100)*Investment
Investment = $125,000

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

The executive vice president of Wicker Pen Company wants to establish an accounting-based performance measurement system for the company's new plant. The company has an accounting information system sufficient to support a fairly sophisticated performance measurement system. The new plant is going to be considered an investment center since its products will be markedly different from others the company currently sells. The new plant will have no internal dealings with other plants within the company.
Required:
What are some of the key steps that should be undertaken in the establishment of an accounting-based performance measurement system?

Accepted Answer

The answer of The executive vice president of Wicker Pen...

Question 5

Designing an accounting based performance measure requires six steps. List each step. For three of the steps, describe a question that must be resolved as part of the implementation process.

Accepted Answer

The answer of Designing an accounting based performance measure requires...

Question 6

A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n):
A)balanced scorecard
B)financial report scorecard
C)imbalanced scorecard
D)unbalanced scorecard

Accepted Answer

A balanced scorecard is a report that measures both financial and nonfinancial performance measures for various organization units, providing a more comprehensive view of an organization's performance. The other options either do not exist or do not accurately describe the nature of the report.

Question 7

Customer-satisfaction measures are an example of the:
A)goal-congruence approach
B)balanced scorecard approach
C)financial report scorecard approach
D)investment success approach

Accepted Answer

Customer-satisfaction measures are typically included as part of the balanced scorecard approach, which seeks to measure a company's performance across a variety of areas, including financial, customer, internal processes, and learning/growth. The goal-congruence approach is a theory of organizational behavior, the financial report scorecard approach is a method of analyzing financial statements, and the investment success approach focuses on financial returns to shareholders.

Question 8

The return on investment is usually considered the most popular approach to incorporating the investment base into a performance measure because:
A)it blends all the ingredients of profitability into a single percentage
B)once determined, there is no need to use it with other measures of performance
C)it is similar to the company's price earnings ratio because a corporation's return on investment appears every day in The Wall Street Journal
D)Both A and C are correct.

Accepted Answer

Return on investment (ROI) is popular because it combines various aspects of profitability into a single, easy-to-understand percentage, making it a comprehensive measure of performance.

Question 9

Some companies present financial and nonfinancial performance measures for various organization units in a single report called the "balanced scorecard."

Accepted Answer

The balanced scorecard is a strategic management tool that presents both financial and nonfinancial performance measures for various organizational units in a single report.

Question 10

The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.
A)Balanced Scorecard
B)Residual-Income
C)Dupont
D)Economic Value Added

Accepted Answer

The Dupont method of profitability analysis recognizes the two basic ingredients in profit-making, which are increasing income per dollar of revenues and using assets to generate more revenues. The method breaks down the return on equity (ROE) into three components: net profit margin, total asset turnover, and financial leverage. This approach helps managers identify areas where they can improve operations to increase profitability. The other options listed (Balanced Scorecard, Residual-Income, and Economic Value Added) are other methods of performance measurement but do not specifically focus on the two basic ingredients of profit-making.

Question 11

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

The balanced scorecard typically includes financial perspective, customer perspective, internal business-process perspective, and learning and growth perspective, not productivity perspective.

Question 12

Return on investment can be increased by:
A)increasing operating assets
B)decreasing operating assets
C)decreasing revenues
D)Both B and C are correct.

Accepted Answer

Decreasing operating assets can increase the return on investment by reducing the amount of money invested, thereby increasing the return earned on the remaining investment. Increasing operating assets can lead to increased expenses, which can reduce the overall return on investment. Decreasing revenues would have a negative impact on the return on investment.

Question 13

An example of a performance measure with a long-run time horizon is:
A)direct materials efficiency variances
B)overhead spending variances
C)number of new patents developed
D)All of these answers are correct.

Accepted Answer

The number of new patents developed requires a long-run time horizon as the process of research, development, and patent approval can take several years. Direct materials efficiency variances and overhead spending variances are more short-term measures that focus on immediate cost control and efficiency.

Question 14

Does operating income best measure a subunit's financial performance? This question is considered part of which step in designing an accounting-based performance measure?
A)Choose performance measures that align with top management's financial goals.
B)Choose the time horizon of each performance measure.
C)Choose a definition for each performance measure.
D)Choose a measurement alternative for each performance measure.

Accepted Answer

The answer of Does operating income best measure a subunit's...

Question 15

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

Accepted Answer

The first step in designing accounting based performance measures is to choose performance measures that align with top management's financial goals.

Question 16

Companies are increasingly using nonfinancial measures to evaluate performance. Why? Since these numbers do not come from the company's financial records, why are they used?

Accepted Answer

The answer of Companies are increasingly using nonfinancial measures to...

Question 17

Should assets be measured at historical cost or current cost? This question is considered part of which step in designing an accounting-based performance measure?
A)Choose performance measures that align with top management's financial goals.
B)Choose the time horizon of each performance measure.
C)Choose a definition for each performance measure.
D)Choose a measurement alternative for each performance measure.

Accepted Answer

This question relates to the fourth step in designing an accounting-based performance measure, which involves choosing a measurement alternative for each performance measure. The choice of whether to measure assets at historical cost or current cost is an example of a measurement alternative. Therefore, the best choice is D, which is the option that deals specifically with these alternatives.

Question 18

Should assets be defined as total assets or net assets? This question is considered part of which step in designing an accounting-based performance measure?
A)Choose performance measures that align with top management's financial goals.
B)Choose the time horizon of each performance measure.
C)Choose a definition for each performance measure.
D)Choose a measurement alternative for each performance measure.

Accepted Answer

This question is related to choosing the definition for the performance measure, hence the answer is C. The question is asking whether the assets being measured should be total assets or net assets, which highlights the importance of defining the measure clearly to avoid any confusion or misinterpretation.

Question 19

Which of the following statements about designing an accounting-based performance measure is FALSE?
A)The steps may be followed in a random order.
B)The issues considered in each step are independent.
C)Management's beliefs are present during the analyses.
D)Behavioral criteria are important when evaluating the steps.

Accepted Answer

The answer of Which of the following statements about designing...

Question 20

Managers usually use the term return on investment to evaluate:
A)the performance of a subdivision
B)a potential project
C)the performance of a subunit
D)Both A and C are correct.

Accepted Answer

Return on investment (ROI) is commonly used by managers to evaluate the performance of subdivisions and subunits within an organization, making both A and C correct.

Quiz 23: Performance Measurement, Compensation, and Multinational Considerations

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

During the past twelve months, the Aaron Corporation had a net income of $25,000. What is the amount of the investment if the return on investment is 20%?

Designing an accounting based performance measure requires six steps. List each step. For three of the steps, describe a question that must be resolved as part of the implementation process.

A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n) :

Customer-satisfaction measures are an example of the:

The return on investment is usually considered the most popular approach to incorporating the investment base into a performance measure because:

Some companies present financial and nonfinancial performance measures for various organization units in a single report called the "balanced scorecard."

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

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

Return on investment can be increased by:

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

Does operating income best measure a subunit's financial performance? This question is considered part of which step in designing an accounting-based performance measure?

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

Companies are increasingly using nonfinancial measures to evaluate performance. Why? Since these numbers do not come from the company's financial records, why are they used?

Should assets be measured at historical cost or current cost? This question is considered part of which step in designing an accounting-based performance measure?

Should assets be defined as total assets or net assets? This question is considered part of which step in designing an accounting-based performance measure?

Which of the following statements about designing an accounting-based performance measure is FALSE?

Managers usually use the term return on investment to evaluate: