Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

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

Accepted Answer

In creating management compensation plans,designers consider multiple characteristics such as fixed salary versus bonuses and the type of bonuses (cash,stock or stock options,for example).In addition,numerous design trade-offs are available such as choices related to the time horizon over which compensation is available,choosing to emphasize local versus global performance,or choosing a cooperative or a competitive incentive scheme.

Question 3

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 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.

Accepted Answer

(a)Residual income (b)Return on investment (c)Return on sales (d)Stock options (e)Value chain (f)Economic value added (g)Capital turnover (h)Balanced scorecard

Question 4

Residual income is calculated by subtracting the minimum acceptable return on the average invested capital from the operating income.

Accepted Answer

A) True 
 B)False

Question 5

Capital turnover can be improved by reducing invested capital while keeping sales constant.

Accepted Answer

A) True 
 B)False

Question 6

The following information is available for the Hancock Company.   Compute the answers for items A-D.

Accepted Answer

(A)$189,00

Question 7

The value chain usually starts with the _________ and ends with the ____________.

Accepted Answer

A) Supplier; customer 
B) Retailer; wholesaler 
C) Customer; retailer 
D) Retailer; customer 
A) Supplier; customer 
B) Retailer; wholesaler 
C) Customer; retailer 
D) Retailer; customer

Question 8

Which of the following is not one of the strategies of the financial perspective lens of the balanced scorecard?

Accepted Answer

A) Improve shareholder perspectives. 
B) Improve credit rating. 
C) Improve customer relations. 
D) Reduce risk. 
A) Improve shareholder perspectives. 
B) Improve credit rating. 
C) Improve customer relations. 
D) Reduce risk.

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

Operating earnings rather than net income is used to compute return on sales.

Accepted Answer

A) True 
 B)False

Question 12

Explain the importance of incentive systems for motivating performance.

Accepted Answer

Employees may have goals and objectives

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

EVA stands for "evaluating value added" performance.

Accepted Answer

A) True 
 B)False

Question 15

The Lastrom Company provided the following information regarding its operations: 2014 Total assets $750,000
2015 Total assets $800,000
2014 Net operating income $1,875,000
2015 Net operating income $1,925,000
2014 Net sales $4,525,000
2015 Net sales $5,100,000
What is Lastrom's ROI for the year ending 2015?

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 16

The return on investment is calculated by:

Accepted Answer

A) Multiplying the capital turnover by the return on sales. 
B) Dividing the capital turnover by the return on sales. 
C) Dividing average invested capital by sales. 
D) Multiplying operating income by capital turnover. 
A) Multiplying the capital turnover by the return on sales. 
B) Dividing the capital turnover by the return on sales. 
C) Dividing average invested capital by sales. 
D) Multiplying operating income by capital turnover.

Question 17

Management compensation plans:

Accepted Answer

A) May be affected by adopting International Financial Reporting Standards since earnings under IFRS are typically higher than GAAP earnings. 
B) May be affected by adopting International Financial Reporting Standards since earnings under IFRS are typically lower than GAAP earnings. 
C) Will not be affected by IFRS since earnings are equivalent to GAAP. 
D) Are decided by shareholders who do not consider GAAP or IFRS when deciding how much compensation managers receive. 
A) May be affected by adopting International Financial Reporting Standards since earnings under IFRS are typically higher than GAAP earnings. 
B) May be affected by adopting International Financial Reporting Standards since earnings under IFRS are typically lower than GAAP earnings. 
C) Will not be affected by IFRS since earnings are equivalent to GAAP. 
D) Are decided by shareholders who do not consider GAAP or IFRS when deciding how much compensation managers receive.

Question 18

Capital turnover is equal to sales divided by average invested capital.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Which ratio tells managers about how the invested capital is generating sales dollars?

Accepted Answer

A) Return on investment. 
B) Receivable turnover. 
C) Capital turnover. 
D) Return on sales. 
A) Return on investment. 
B) Receivable turnover. 
C) Capital turnover. 
D) Return on sales.

Exam 25: Rewarding Business Performance

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

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

Residual income is calculated by subtracting the minimum acceptable return on the average invested capital from the operating income.

Capital turnover can be improved by reducing invested capital while keeping sales constant.

The following information is available for the Hancock Company. Compute the answers for items A-D.

The value chain usually starts with the _________ and ends with the ____________.

Which of the following is not one of the strategies of the financial perspective lens of the balanced scorecard?

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

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

Operating earnings rather than net income is used to compute return on sales.

Explain the importance of incentive systems for motivating performance.

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

EVA stands for "evaluating value added" performance.

The return on investment is calculated by:

Management compensation plans:

Capital turnover is equal to sales divided by average invested capital.

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

Which ratio tells managers about how the invested capital is generating sales dollars?

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

Filters

The value chain usually starts with the _ and ends with the ____.