Question 1

Use the information below to answer the following question(s).
The top management at Groundsource Company,a manufacturer of lawn and garden equipment,is attempting to recover from a flood,which destroyed some of its accounting records.The main computer system was also severely damaged.The following information was salvaged:
 
-What is the value of the total assets belonging to the Tractor Division?

Accepted Answer

A) $ 3,500,000 
B) $4,000,000 
C) $4,500,000 
D) $5,000,000 
E) $2,000,000

Question 2

Use the information below to answer the following question(s).
The following data are available for a foundry operation started as a new company four years ago when the construction cost index was 125:
  * = "of long-term assets at historical cost"
-What is the current cost annual depreciation in year 4 dollars?

Accepted Answer

A) $165,000 
B) $200,000 
C) $240,000 
D) $295,000 
E) $440,000

Question 3

Use the information below to answer the following question(s).
Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent;and,equity capital that has a market value of $6 million (book value of $2 million).The cost of equity capital is 5 percent,while the tax rate is 30 percent.Brandorf Company has profit centres in the following locations with the following data:
 
-What is EVA for St.Johns?

Accepted Answer

A) $142,200 
B) $190,600 
C) $310,600 
D) $200,000 
E) $145,000

Question 4

Imputed costs are costs recognized in particular situations that are not regularly recognized by accrual accounting procedures.

Accepted Answer

A) True 
 B)False

Question 5

Use the information below to answer the following question(s).
Berger Publishing has two divisions which operate autonomously.Their results for the past year were as follows:
  The company's desired rate of return is 15%.
-Which of the following is TRUE concerning the ROI performance measure?

Accepted Answer

A) ROI is based on cash flow. 
B) Is also called the accounting rate of return. 
C) Some companies use net assets (assets minus liabilities)as the numerator. 
D) The usual formulation is [total assets/ income ]. 
E) Net assets are sometimes used as the denominator,and net assets are sometimes used as the numerator.

Question 6

Many common performance measures rely on internal financial and accounting information.

Accepted Answer

A) True 
 B)False

Question 7

________ describes contexts in which,once risk is shared,the individual fails to make as much effort to avoid harm as when risk was not shared.

Accepted Answer

A) Goal congruence 
B) Moral hazard 
C) Management compensation 
D) Incentive compensation 
E) Executive compensation

Question 8

What is the Beta Division's investment turnover?

Accepted Answer

A) .50 
B) 0.75 
C) 0.67 
D) 2.5 
E) 1.5

Question 9

Use the information below to answer the following question(s).
The top management at Groundsource Company,a manufacturer of lawn and garden equipment,is attempting to recover from a flood,which destroyed some of its accounting records.The main computer system was also severely damaged.The following information was salvaged:
 
-What is the Tiller Division's investment turnover?

Accepted Answer

A) .50 
B) 1.333 
C) 1.2 
D) 1.5 
E) .833

Question 10

An important consideration in designing compensation arrangements is the tradeoff between creating incentives,and reducing risk.

Accepted Answer

A) True 
 B)False

Question 11

Answer the following question(s)using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%,and equity capital that has a market value of $9 million (book value of $5 million).Coldbrook Company has profit centres in the following locations with the following operating incomes,total assets,and current liabilities.The cost of equity capital is 15%,while the tax rate is 30%.
 
-What is the for Bish Bash Falls?

Accepted Answer

A) $338,563 
B) $305,000 
C) $275,500 
D) $255,500 
E) $220,188

Question 12

R & D Storage is a small,but diversified,moving and storage company.In recent years its corporate income has declined to unacceptable levels.To change the direction of the company,the board of directors hired a new chief executive officer.She is currently considering three alternative ways as to how division managers are rewarded for their performance.They are;ROI,RI,and EVA.
Required:
Evaluate the CEO's plans by comparing the similarities and differences of the three methods.

Accepted Answer

The answer of R & D Storage is a small,but...

Question 13

Answer the following question(s)using the information below:
Springfield Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%,and equity capital with a market value of $12,000,000 and a cost of equity of 12%.Springfield has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year:
 
-What is Economic Value Added ()for the Blue Division?

Accepted Answer

A) -$233,400 
B) $21,960 
C) $188,600 
D) $433,960 
E) -$63,800

Question 14

Comparing the performance of divisions of a multinational company operating in different countries is difficult because of the differences in economic,legal,political,social and cultural environments.

Accepted Answer

A) True 
 B)False

Question 15

Answer the following question(s)using the information below:
Miller Medical Services provided the following information for it past year's operations in its Hospital Bed Division.
 
-What is the Hospital Bed Division's return on sales if income is defined as operating income?

Accepted Answer

A) 0.40 
B) 0.53 
C) 0.92 
D) 1.33 
E) 2.50

Question 16

Use the information below to answer the following question(s).
Berger Publishing has two divisions which operate autonomously.Their results for the past year were as follows:
  The company's desired rate of return is 15%.
-What are the respective residual incomes for the Toronto and Vancouver divisions?

Accepted Answer

A) $975,000;$1,125,000 
B) $1,025,000;$1,125,000 
C) $1,025,000;$2,375,000 
D) $2,375,000;$1,025,000 
E) $1,075,000;$1,125,000

Question 17

Use the information below to answer the following question(s).
Ruth Cleaning Products manufactures home cleaning products.The company has two divisions,Bleach and Bleach-2.Because of different accounting methods and inflation rates,the company is considering multiple evaluation measures.The following information is provided for the year just ended:
  The company is currently using a required rate of return of 15 percent.
-What are Bleach's and Bleach-2's residual incomes,based on current values,respectively?

Accepted Answer

A) $116,250;$37,500 
B) $110,000;$67,500 
C) $67,500;$110,000 
D) $37,500;$116,250 
E) $115,340;$80,000

Question 18

Which of the following is NOT a reason for evaluating subunits over a multi-year time horizon?

Accepted Answer

A) Benefits of actions taken in the current period may not show up in a short-term performance measure. 
B) Managers may curtail R & D or plant maintenance in order to increase short-term results. 
C) Investments may actually decrease ROI and or RI in the short-term. 
D) The NPV of the cash flows over the life of an investment equals [total assets ÷ ROI]. 
E) Investments may actually decrease ROI and or RI in the short-term,and benefits of actions taken in the current period may not show up in a short-term performance measure.

Question 19

Novella Ltd.reported a return on investment of 16%,an asset turnover of 6,and income of $190,000.On the basis of this information,the company's invested capital was

Accepted Answer

A) $1,187,500. 
B) $7,125,000. 
C) $1,140,000. 
D) $197,917. 
E) $182,400.

Question 20

Which of the following is a difference between a diagnostic control system and an interactive control system?

Accepted Answer

A) A diagnostic control system focuses on meeting expectations,while an interactive control system focuses on standards of ethical behaviour. 
B) A diagnostic control system focuses on standards of ethical behaviour while an interactive control system focus on meeting expectations. 
C) Both systems focus on standards of ethical behaviour and meeting expectations. 
D) A diagnostic control system focuses on organizational attention and learning on key strategic issues,while an interactive control system focuses on meeting expectations. 
E) A diagnostic control system focuses on meeting expectations,while an interactive control system focuses on organizational attention and learning on key strategic issues.

Exam 22: Multinational Performance Measurement and Compensation

Imputed costs are costs recognized in particular situations that are not regularly recognized by accrual accounting procedures.

Use the information below to answer the following question(s) . Berger Publishing has two divisions which operate autonomously.Their results for the past year were as follows: The company's desired rate of return is 15%. -Which of the following is TRUE concerning the ROI performance measure?

Many common performance measures rely on internal financial and accounting information.

________ describes contexts in which,once risk is shared,the individual fails to make as much effort to avoid harm as when risk was not shared.

What is the Beta Division's investment turnover?

An important consideration in designing compensation arrangements is the tradeoff between creating incentives,and reducing risk.

Comparing the performance of divisions of a multinational company operating in different countries is difficult because of the differences in economic,legal,political,social and cultural environments.

Answer the following question(s) using the information below: Miller Medical Services provided the following information for it past year's operations in its Hospital Bed Division. -What is the Hospital Bed Division's return on sales if income is defined as operating income?

Which of the following is NOT a reason for evaluating subunits over a multi-year time horizon?

Novella Ltd.reported a return on investment of 16%,an asset turnover of 6,and income of $190,000.On the basis of this information,the company's invested capital was

Which of the following is a difference between a diagnostic control system and an interactive control system?