Question 1

Carlos noticed a pattern at the annual budgeting session of his company. Mid-level managers were asking for unrealistically high budgets while top management was attempting to limit budgets under last year's actual expenditures. The management's strategies 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 mid-level 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 2

Catherine has recently reviewed a number of indicators of financial control. The one that troubled her indicated that the company could have trouble meeting its short-term financial obligations. Which of the following was she concerned about?

Accepted Answer

The current ratio indicates the extent to which current assets can decline and still be adequate to pay current liabilities.

Question 3

_____ indicate management's ability to generate a financial return on sales or investment.

Accepted Answer

Profitability ratios indicate management's ability to generate a financial return on sales or investment.

Question 4

A company enforced a rule that employees were required to submit their cell phones for safekeeping before entering their work bay. Employees followed the rule in order to avoid getting into trouble with the management. As a result, many of them missed important phone calls from their clients/customers. This scenario is an example of:

Accepted Answer

Rigid bureaucratic behavior occurs when control systems prompt employees to stay out of trouble by following the rules. Unfortunately such systems often lead to poor customer service and make the entire organization slow to act.

Question 5

The most common liquidity ratio is current assets to current liabilities, known as the:

Accepted Answer

The most common liquidity ratio is current assets to current liabilities, called the current ratio or net working capital ratio.

Question 6

_____ are the values of the various items the corporation owns.

Accepted Answer

Assets are the values of the various items the corporation owns.

Question 7

_____ indicates the company's ability to meet its long-term financial obligations.

Accepted Answer

The debt-equity ratio indicates the company's ability to meet its long-term financial obligations.

Question 8

_____ is the amount accruing to the corporation's owners.

Accepted Answer

Stockholders' equity is the amount accruing to the corporation's owners.

Question 9

_____ show the relative amount of funds in the business supplied by creditors and shareholders.

Accepted Answer

Leverage ratios show the relative amount of funds in the business supplied by creditors and shareholders.

Question 10

A report that shows the financial picture of a company at a given time and itemizes assets, liabilities and stockholders' equity is referred to as a(n):

Accepted Answer

A report that shows the financial picture of a company at a given time and itemizes assets, liabilities, and stockholders' equity is known as a balance sheet.

Question 11

When employees feel forced to attempt to "beat the system," their behavior is known as:

Accepted Answer

Control systems will be ineffective if employees engage in tactics aimed at "beating the system."

Question 12

A 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 13

Which of the following relationships is true?

Accepted Answer

Assets = Liabilities + Stockholders' equity

Question 14

Which of the following is a reason why employees resist control systems?

Accepted Answer

People resist control systems for several reasons. 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, change the social structure of an organization, and they can be seen as an invasion of privacy.

Question 15

_____ refers to the situation when managers focus on short-term earnings and profits at the expense of their longer-term strategic obligations.

Accepted Answer

Management myopia refers to the situation when managers focus on short-term earnings and profits at the expense of their longer-term strategic obligations.

Question 16

_____ indicate(s) a company's ability to pay short-term debts.

Accepted Answer

Liquidity ratios indicate a company's ability to pay short-term debts.

Question 17

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 meet several criteria:• The systems are based on valid performance standards.• They communicate adequate information to employees.• They are acceptable to employees.• They use multiple approaches.• They recognize the relationship between empowerment and control.

Question 18

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 19

An itemized financial document of the income and the expenses of a company's operations is known as the:

Accepted Answer

The profit and loss statement is an itemized financial statement of the income and expenses of a company's operations.

Question 20

_____ are the amounts the corporation owes to various creditors.

Accepted Answer

Liabilities are the amounts the corporation owes to various creditors.

Quiz 14: Managing Control