Question 1

The balanced scorecard approach attempts to measure whether an organization is meeting its strategic goals.

Accepted Answer

A) True 
 B)False

Question 2

What is the return on investment for Mahen, Inc?

Accepted Answer

A)  5%. 
B)  6%. 
C)  10%. 
D)  20%. 
A)  5%. 
B)  6%. 
C)  10%. 
D)  20%.

Question 3

Residual income is the difference between net operating income at breakeven and actual net operating income.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not one of the balanced scorecard lenses?

Accepted Answer

A)  Financial perspective. 
B)  Learning and growth perspective. 
C)  Production perspective. 
D)  Business process perspective. 
A)  Financial perspective. 
B)  Learning and growth perspective. 
C)  Production perspective. 
D)  Business process perspective.

Question 5

A system that considers the earnings per sales dollar and the investment used to generate those sales dollars is called:

Accepted Answer

A)  The economic value added system. 
B)  The balanced scorecard system. 
C)  The Dupont system. 
D)  The residual income system. 
A)  The economic value added system. 
B)  The balanced scorecard system. 
C)  The Dupont system. 
D)  The residual income system.

Question 6

Listed below are eight accounting terms introduced or emphasized in this chapter:
Each of the following statements may (or may not) describe one of these technical terms. In the space provided, indicate the accounting term described, or answer "none" if the statement does not correctly describe any of the terms.
(a) _______ is the amount by which operating earnings exceeds a minimum acceptable return on the average invested capital. The minimum rate of return represents the opportunity cost of using the invested capital.
(b) ______ is the operating income divided by the average invested capital associated with the generation of that income.
(c) ________ is computed by dividing the operating income by the total sales for a particular business segment or product line. It tells managers the amount of earnings generated from a dollar of sales.
(d) ________ give an employee the right to purchase a pre-specified number of shares at a pre-specified price within a certain future time period. They provide incentives for managers to increase stock prices.
(e) _______ is the set of activities necessary to create and distribute a desirable product or service to a customer.
(f) _______ is a specific type of residual income. It is computed by multiplying after-tax weighted average cost of capital by total assets minus current liabilities, and subtracting that product from the after-tax operating income.
(g) _______ is a measure created by dividing sales by the average invested capital to generate those sales. It tells managers the amount of sales generated by a dollar of invested capital.
(h) _______ is a system for performance measurement that links a company's strategy to specific goals, assesses progress towards those goals, and measures specific initiatives to achieve those goals. It is a systematic attempt to create a business performance measurement process that integrates objectives across four business lenses to achieve the organization's strategic goals.
 $$\begin{array} { | l | l | } 
\hline \text { Balanced score card } & \text { Residual income } \
\hline \text { Stock options } & \text { Return on investment } \
\hline \text { Capital turnover } & \text { Return on sales } \
\hline \text { Economic value added } & \text { Value chain } \
\hline
\end{array}$$

Accepted Answer

(a) Residual income (b) Return

Question 7

Identify and explain the components of management compensation and the tradeoffs that compensation designers make.

Accepted Answer

In creating management compensation plan

Question 8

Which of the following is not a reason for using a measure such as ROI?

Accepted Answer

A)  To motivate employees to act in accordance with the goals of the organization. 
B)  To motivate employees towards short-term planning rather than long-term planning. 
C)  To motivate employees to accept a project that would benefit their own division but not necessarily the firm as a whole. 
D)  To motivate employees to act solely on their own best interest. 
A)  To motivate employees to act in accordance with the goals of the organization. 
B)  To motivate employees towards short-term planning rather than long-term planning. 
C)  To motivate employees to accept a project that would benefit their own division but not necessarily the firm as a whole. 
D)  To motivate employees to act solely on their own best interest.

Question 9

What is the return on sales for Brookes, Inc.?

Accepted Answer

A)  13%. 
B)  19%. 
C)  9%. 
D)  70%. 
A)  13%. 
B)  19%. 
C)  9%. 
D)  70%.

Question 10

Most organizations try to achieve their goals by providing incentives to employees who use resources wisely.

Accepted Answer

A) True 
 B)False

Question 11

What is division's Y ROI for product A?

Accepted Answer

A)  12.0%. 
B)  10.0%. 
C)  11.0%. 
D)  12.5%. 
A)  12.0%. 
B)  10.0%. 
C)  11.0%. 
D)  12.5%.

Question 12

In considering customer's needs, the balanced scorecard method will look at:

Accepted Answer

A)  Market share growth and customer retention. 
B)  Return on sales and sales turnover. 
C)  Residual income and return on investment. 
D)  Organizational procedures and information systems. 
A)  Market share growth and customer retention. 
B)  Return on sales and sales turnover. 
C)  Residual income and return on investment. 
D)  Organizational procedures and information systems.

Question 13

State the four performance lenses in a balanced scorecard and briefly describe each of them.

Accepted Answer

1. Financial perspective - This lens hel

Question 14

Stock based performance evaluation of managers is considered more risky than accounting based performance evaluation.

Accepted Answer

A) True 
 B)False

Question 15

Calculate the residual income assuming the following information:

Accepted Answer

A)  $156,000. 
B)  $108,000. 
C)  $219,000. 
D)  $45,000. 
A)  $156,000. 
B)  $108,000. 
C)  $219,000. 
D)  $45,000.

Question 16

Capital turnover is equal to sales divided by total investment.

Accepted Answer

A) True 
 B)False

Question 17

The Lastrom company provided the following information regarding its operations: What is Lastrom's ROI for the year ending 2012?
Refer To: 25-50

Accepted Answer

A)  2.48%. 
B)  2.72%. 
C)  2.40%. 
D)  2.50%. 
A)  2.48%. 
B)  2.72%. 
C)  2.40%. 
D)  2.50%.

Question 18

Which of the following is not a measure used by the financial perspective lens of the balanced scorecard?

Accepted Answer

A)  ROI. 
B)  EVA. 
C)  Residual income. 
D)  Net operating income. 
A)  ROI. 
B)  EVA. 
C)  Residual income. 
D)  Net operating income.

Question 19

Assuming division Y's manager has an opportunity to undertake an investment that would require a $500,000 investment and yield $40,000 in net operating income for its product B, what would be the ROI for the entire division?

Accepted Answer

A)  11.0%. 
B)  10%. 
C)  9%. 
D)  8%. 
A)  11.0%. 
B)  10%. 
C)  9%. 
D)  8%.

Question 20

Criticisms of return on investment as the only performance measure include:

Accepted Answer

A)  ROI focuses on short-term decisions. 
B)  ROI is focused on only one component of the value chain. 
C)  Managers evaluated based only on ROI are sometimes motivated not to make an investment that is in the best interest of the organization as a whole. 
D)  All of the above. 
A)  ROI focuses on short-term decisions. 
B)  ROI is focused on only one component of the value chain. 
C)  Managers evaluated based only on ROI are sometimes motivated not to make an investment that is in the best interest of the organization as a whole. 
D)  All of the above.

Exam 25: Rewarding Business Performance

The balanced scorecard approach attempts to measure whether an organization is meeting its strategic goals.

What is the return on investment for Mahen, Inc?

Residual income is the difference between net operating income at breakeven and actual net operating income.

Which of the following is not one of the balanced scorecard lenses?

A system that considers the earnings per sales dollar and the investment used to generate those sales dollars is called:

Identify and explain the components of management compensation and the tradeoffs that compensation designers make.

Which of the following is not a reason for using a measure such as ROI?

What is the return on sales for Brookes, Inc.?

Most organizations try to achieve their goals by providing incentives to employees who use resources wisely.

What is division's Y ROI for product A?

In considering customer's needs, the balanced scorecard method will look at:

State the four performance lenses in a balanced scorecard and briefly describe each of them.

Stock based performance evaluation of managers is considered more risky than accounting based performance evaluation.

Calculate the residual income assuming the following information:

Capital turnover is equal to sales divided by total investment.

The Lastrom company provided the following information regarding its operations: What is Lastrom's ROI for the year ending 2012? Refer To: 25-50

Which of the following is not a measure used by the financial perspective lens of the balanced scorecard?

Assuming division Y's manager has an opportunity to undertake an investment that would require a $500,000 investment and yield $40,000 in net operating income for its product B, what would be the ROI for the entire division?

Criticisms of return on investment as the only performance measure include:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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