Ch. 16 -- Managerial Control

Which of the following would be a likely target of an internal audit? A. A corporation's charitable-giving program B. A corporation's potential merger partner C. A corporation's possible acquisition D. A corporation's current competitor E. A corporation's potential supplier

a. a corporation's charitable-giving program

Liquidity ratios indicate a company's A. ability to pay short-term debts. B. ability to generate a financial return on sales. C. relative amounts of funds supplied by creditors. D. ability to meet its long-term financial obligations. E. profitability and leverage ratios.

a. ability to pay short-term debts

Gillian's company relies on rules, as set forth in the employee handbook, the authority of managers, and regular employee reviews to guide performance. Gillian's company uses _____ control. A. bureaucratic B. market C. feedback D. concurrent E. clan

a. bureaucratic

The increasing need for clan control is caused by the A. changes in the employment relationship. B. unchanging nature of management. C. changes in the economic environment. D. changes in government regulations. E. unchanging nature of employees' jobs.

a. changes in the employment relationship

Control based on the norms, values, shared goals, and trust among group members is referred to as _____ control. A. clan B. feedback C. concurrent D. feedforward E. market

a. clan

An evaluation conducted by one organization on another organization is referred to as a(n) _____ audit. A. external B. competitive C. comparative D. intrinsic E. parallel

a. external

Amadi's company is about to start manufacturing a new product. Before beginning operations, Amadi and several other managers develop procedures to ensure that the planned activities are carried out properly. This is an example of _____ control. A. feedforward B. concurrent C. clan D. market E. reactive

a. feedforward

Which of the following is an outcome of bureaucratic controls? A. Inflexible behavior B. Decentralized decision making C. Boundarylessness D. Empowered workforce E. Innovation and creativity

a. inflexible behavior

Martha developed a revised balance sheet for her company. She used the balance sheet to show her company's ______ (the amounts the company owes to various creditors). A. liabilities B. assets C. budgets D. diseconomies E. expenses

a. liabilities

Which of the following is the most common type of tactical behavior that people use to try to beat control systems? A. Manipulating or distorting information B. Following the rules without question C. Doing only what the system requires D. Focusing on required behaviors E. Emphasizing rigidity over innovation

a. manipulating or distorting information

Which of the following is the second major step in a typical control system? A. Measuring performance B. Setting performance standards C. Developing values D. Comparing performance with standards E. Determining deviations

a. measuring performance

Control has been called one of the conjoined twins of management. The other twin is ____. A. planning B. organizing C. leading D. directing E. empowerment

a. planning

In order to gain employee acceptance of a control system, managers should A. set performance standards that employees view as possible to achieve. B. tell employees that they need not necessarily use the standards. C. focus on controlling negative behavior rather than enforcing positive behavior. D. set standards low enough that all employees can easily meet them. E. make their own decisions while setting performance standards.

a. set performance standards that employees view as possible to achieve

Empowerment is important in organizations today because A. the nature of management has changed. B. employees' jobs have become less challenging. C. employees are more concerned about pay. D. labor unions are growing. E. of the increasing role of technology.

a. the nature of management has changed

Leverage ratios indicate A. the relative amount of funds in the business supplied by shareholders. B. a company's ability to pay short-term debts. C. management's ability to generate a financial return on sales or investment. D. the profit margins for the last six months. E. the future profits from the current customer base.

a. the relative amount of funds in the business supplied by shareholders

Adriana is a financial manager at Environmental Fuel Inc., a producer of ethanol for use as an alternative fuel. She makes a budget that shows the anticipated receipts and expenses of the company. As the last budget that she creates for the upcoming year, it also shows the amount of working capital available and whether the company will need loans. Which of the following types of budgets has Adriana created? A. A master budget B. A cash budget C. A cost production budget D. A production budget E. A sales budget

b. a cash budget

Procedures used to verify accounting reports and statements are referred to as ____. A. lean accounting B. accounting audits C. activity-based costing D. accounting reforms E. budget audits

b. accounting audits

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) ____. A. profit and loss statement B. balance sheet C. expense report D. income statement E. budget report

b. balance sheet

In today's complex organizations, the budget process is most likely to be _____. A. top-down B. bottom-up C. horizontal D. circular E. compartmentalized

b. bottom-up

Brian is preparing a budget that shows the company's expected sales receipts and expenditures for the year, a projection of how much cash will be available each month, and the extent of outside financing the company might need. This is a _____ budget. A. capital B. cash C. cost D. production E. sales

b. cash

Which of the following are the basic elements of a balance sheet? A. Income, expenses, and outcome B. Operations, sales, and growth C. Assets, liabilities, and stockholder's equity D. Receipts, deductions, and taxes E. Budgets, controls, and corrective actions

c. assets, liabilities, and stockholder's equity

The process of investigating what is being done and comparing the results with the corresponding budget data to verify accomplishments or remedy differences is referred to as ____. A. activity-based costing B. budgetary auditing C. budgetary control D. financial audits E. budget planning

c. budgetary control

The use of budgeting, statistical reports, and performance appraisals to regulate behavior and results is considered a component of ____. A. clan control B. market control C. bureaucratic control D. financial audits E. management audits

c. bureaucratic control

A _____ budget is used for the cost of fixed assets, such as plants and equipment, that are usually treated as investments instead of as regular expenses. A. master B. cash C. capital D. production E. sales

c. capital

The _____ budget is used for areas of an organization that incur expenses but no revenue, such as human resources and other support departments. A. sales B. production C. cost D. cash E. capital

c. cost

The effective use of clan control is associated with employee ____. A. bureaucracy B. manipulation C. empowerment D. dissatisfaction E. unionization

c. empowerment

Control that focuses on the use of information about previous results to correct deviations from the acceptable standard is referred to as _____ control. A. feedforward B. preliminary C. feedback D. audit E. performance

c. feedback

At Halsted Medical Products Corp., all assembly workers must wear specialized gear to reduce possible injuries from minute particles in the manufacturing environment. This requirement best reflects _____ control. A. feedback B. proactive C. feedforward D. reactive E. concurrent

c. feedforward

Which of the following controls is future oriented and aims to prevent problems before they arise? A. Feedback control B. Proactive control C. Feedforward control D. Reactive control E. Concurrent control

c. feedforward control

Which of the following statements about the six sigma approach to quality is true? A. It is an excellent way for delivering business results. B. It usually improves the bottom line. C. It focuses on eliminating defects in a process. D. It looks at whether a process is the best one available. E. It has little practical use in the business world.

c. it focuses on eliminating defects in a process

Which of the following best describes what a profitability ratio is? A. It shows the relative amount of funds in the business supplied by creditors and shareholders. B. It indicates a company's ability to pay short-term debts. C. It indicates management's ability to generate a financial return on sales or investment. D. It shows the profit margins for the last six months. E. It indicates the future profits from the current customer base.

c. it indicates management's ability to generate a financial return on sales or investment

Which of the following is a symptom of an out-of-control company? A. Flexible work hours for employees B. Highly challenging organizational goals C. Lack of periodic reviews D. Highly rigid work culture E. Lack of new employees

c. lack of periodic reviews

The debt-equity ratio is an example of a _____ ratio. A. net working capital B. profitability C. leverage D. current E. liquidity

c. leverage

Which of the following conditions must be true for clan control to be effective? A. Managers stress the mindless following of the rules. B. The company culture emphasizes status and authority. C. Managers create a culture that encourages correct behavior. D. The company culture promotes whistle blowing. E. The top executives are secretive about the company's values and goals.

c. managers create a culture that encourages correct behavior

Control based on the use of pricing mechanisms and economic information to regulate activities within organizations is referred to as _____ control. A. clan B. feedback C. market D. feedforward E. bureaucratic

c. market

The _____ budget is thought of as a "budget of budgets." A. capital B. cost C. master D. production E. sales

c. master

The Midwest Digital Training Center has begun a new system of allocating costs according to the tasks their employees perform and the amount of time they spend on the particular tasks. This practice is referred to as ____. A. unit-based accounting B. time-based auditing C. task accounting D. activity-based costing E. allocation costing

d. activity-based costing

On the balance sheet, the values of the various items a corporation owns are referred to as ____. A. liabilities B. debts C. budgets D. assets E. savings

d. assets

A managerial principle stating that control is enhanced by concentrating on the significant deviations from the expected result or standard is referred to as the principle of ____. A. budgeting B. concentration C. progression D. exception E. standardization

d. exception

Which of the following controls takes place before operations begin? A. Feedback control B. Clan control C. Initial control D. Feedforward control E. Concurrent control

d. feedforward control

A company's balance sheet shows its A. areas of improvement. B. projected profit. C. strengths, weaknesses, and threats. D. financial picture at a given time. E. performance over time.

d. financial picture at a given time

An important purpose of external audits is to A. assess what a company has done for itself. B. evaluate production efficiency. C. evaluate sales effectiveness. D. investigate possible targets for mergers or acquisitions. E. assess what a company has done for its customers.

d. investigate possible targets for mergers or acquisitions

Cara had to buy a lot of equipment to open her beauty salon. She bought most of it on credit. The amounts of money that she owes her creditors are called _____. A. assets B. capital C. investments D. liabilities E. equity

d. liabilities

Grace has just reviewed a number of indicators of financial control for her firm. One that worries her indicates that the company may soon have trouble making loan payments and clearing its current accounts receivables. In this case, Grace is concerned about the _____ ratio. A. profit and loss B. profitability C. leverage D. net working capital E. return on investment

d. net working capital

With market control, the activities of an organization are regulated through the use of A. rules, regulations, and formal authority. B. budgets, statistical reports, and performance appraisals. C. shared values, expectations, and goals. D. pricing mechanisms and economic information. E. real-time monitoring and fine tuning.

d. pricing mechanisms and economic information

A _____ budget is commonly expressed in physical units, and it can be prepared with information including types and capacities of machines, economic quantity, and availability of materials. A. master B. cash C. capital D. production E. sales

d. production

Which of the following statements about six sigma is true? A. Six sigma was developed at the Ford Company during the 1970s. B. The lower the sigma number, the lower the level of defects. C. Six sigma is designed only to reduce product defects. D. Six sigma indicates how often defects in a process are likely to occur. E. Six sigma always improves the bottom line.

d. six sigma indicates how often defects in a process are likely to occur

On the balance sheet, the amount accruing to a corporation's owners is referred to as ____. A. a liability B. transfer price C. an asset D. stockholders' equity E. return on investment

d. stockholders' equity

Manuel was new to his organization but quickly noticed a pattern at the annual budgeting session. Mid-level managers were asking for unrealistically high budgets, while top management was attempting to request budgets under last year's actual expenditures. Both parties were using strategies that are referred to as ____. A. budget breakdowns B. bureaucratic budgeting C. budget resistance D. tactical behaviors E. rigid behaviors

d. tactical behavior

What is the last step in the control process? A. Measuring performance B. Defining performance C. Setting performance standards D. Taking action to correct problems and reinforce successes E. Comparing performance against the standards and determining deviations

d. taking action to correct problems and reinforce successes

Scott is in charge of production at Fasteners Unlimited Inc. His job responsibilities include eliminating defects in the equipment parts the factory produces. However, he has advised his crew to alert him only when defects exceed 200 per million, which he considers a serious deviation from standards. In this case, Scott is using A. a management audit. B. the principle of deviation. C. clan control. D. the principle of exception. E. behavioral standards.

d. the principle of exception

To be effective, control systems should A. keep performance standards flexible and easy. B. focus on one-way top-down communication. C. be acceptable to all stockholders. D. use multiple control approaches. E. centralize decision making.

d. use multiple control approaches

Control is defined as A. the function that concentrates on the exceptions to, or significant deviations from, the expected result or standard. B. an itemized financial statement of the income and expenses of a company's operations. C. valid performance standards that are expressed in quantitative terms. D. the manipulation of information or the reporting of false performance data to beat the system. E. any process that directs the activities of individuals toward the achievement of organizational goals.

e. any process that directs the activities of individuals toward the achievement of organizational goals

The executives at Family Funstop Inc., a chain of restaurants that feature game rooms for children, believe that the company's employees share the corporate goals of service, quality, value, and "good clean fun." Because of this, corporate leadership believes that employees are motivated to work for the common good without a lot of formal controls. This is an example of _____ control. A. feedforward B. market C. feedback D. concurrent E. clan

e. clan

_____ control involves creating relationships based on mutual respect and encouraging each individual to take responsibility for his or her actions. A. Autocratic B. Centralized C. Bureaucratic D. Cultural E. Clan

e. clan

Which of the following is not periodically assessed as an essential part of a company's internal audits? A. Planning B. Organizing C. Leading D. Controlling efforts E. Competing against rivals

e. competing against rivals

Motivating employees and setting benchmarks are two of the reasons to _____. A. detect performance deviations B. analyze market forces C. correct problems D. increase bureaucracy E. establish performance standards

e. establish performance standards

Lexie uses the results of customer surveys to point out ways that her cashiers can improve their service. This is an example of _____ control. A. feedforward B. concurrent C. clan D. market E. feedback

e. feedback

While doing an external audit of a potential distribution partner, Darius uncovered some serious legal problems that could cause trouble for his company if it goes through with the deal. Darius's external audit provided essential _____ control. A. feedforward B. concurrent C. clan D. market E. feedback

e. feedback

A balanced scorecard is a control system combining four sets of performance measures: financial, customer satisfaction, business processes (quality and efficiency), and _____. A. technology B. bureaucracy and hierarchy C. productivity D. efficiency E. learning and growth

e. learning and growth

An itemized financial statement of the income and expenses of a company's operations is called the ____. A. statement of financial ratios B. balance sheet C. cash flow statement D. assets and liabilities statement E. profit and loss statement

e. profit and loss statement

Which of the following is one of the factors on which performance standards can be set? A. The principle of exception B. Knowledge C. Market share D. Employee satisfaction E. Quality

e. quality

Because financial ratios usually are expressed in compressed time horizons, they often cause management myopia

true

If an employee believes his or her control system is overly controlling, that employee is likely to exhibit dysfunctional behavior

true

In large diversified companies, market controls are often used to regulate independent business units

true

Point-of-sale terminals that send sales data from the store checkout line back immediately to a retailer's headquarters is an example of how information technology has improved concurrent control

true

Three key categories of financial ratios are liquidity, leverage, profitability

true

Traditional methods of cost accounting tend to be inappropriate in today's business environment because they are based on outdated methods of rigid hierarchical organization

true

How does clan control differ from bureaucratic control and market control? A. Clan control uses formal controls more often. B. Clan control does not assume that the interests of the organization and individuals naturally diverge. C. Clan control is based on past performance, whereas the other two try to influence future performance. D. Clan control is based on a more negative view of human character. E. Clan control is more heavily based on economic factors.

b. clan control does not assume that the interacts of the organization and individuals naturally diverge

After Glennon's restaurant opened, she spent the first two weeks closely correcting any flaws she found in the way the business operated. This is an example of _____ control. A. feedforward B. concurrent C. clan D. market E. proactive

b. concurrent

Electronic monitoring of telemarketers' conversations with potential clients is an example of _____ control. A. feedback B. concurrent C. preliminary D. clan E. feedforward

b. concurrent

The control process used while plans are being carried out, including directing, monitoring, and fine-tuning activities as they are performed, is referred to as _____ control. A. feedforward B. concurrent C. feedback D. preliminary E. market

b. concurrent

Olympia has been put in charge of a group of young employees who were recently hired by her company. In her new role as a supervisor, she is careful to keep an eye on the young employees to ensure that they work efficiently and avoid making serious mistakes. Which of the following types of control is Olympia using? A. Organizational modification B. Concurrent control C. Management adjustment D. Feedback control E. Feedforward control

b. concurrent control

One of the fundamental forces that keep an organization heading in the right direction is _____. A. competition B. control C. accounting D. myopia E. bureaucracy

b. control

_____ ratio is a liquidity ratio that indicates the extent to which short-term assets can decline and still be adequate to pay short-term liabilities. A. Debt-equity B. Current C. Profitability D. Return on investment E. Stockholders' equity

b. current

In contrast to bureaucratic controls, market controls involve the use of A. rules and regulations. B. economic forces. C. authority. D. autocratic power. E. norms.

b. economic forces

Which of the following is the most pertinent argument against market control mechanisms? A. They rely too heavily on rules and procedures. B. Economic measures do not adequately reflect the complete value of an organization. C. They are too dependent on organization culture. D. Hierarchical structure is the only valid way to determine the future success of an organization. E. Decision making and power are too centralized when they are in use.

b. economic measures do not adequately reflect the complete value of an organization

Which of the following is not an element of bureaucratic control? A. Rules B. Exchange relationships C. Authority D. Budgets E. Performance appraisals

b. exchange relationships

Management myopia occurs when managers A. lack motivation to reach their performance targets and in turn find it difficult to motivate subordinates. B. limit their focus to short-term profits at the expense of longer-term strategic obligations. C. find themselves unable to rise beyond a certain level in the organizational hierarchy. D. are promoted beyond their level of competence. E. find it hard to progress within an organization due to corporate downsizing or paring of middle management layers.

b. limit their focus to short-term profits at the expense of longer-term strategic obligations

An evaluation of the effectiveness and efficiency of various systems within an organization is called a(n) _____ audit. A. human resource B. management C. activity-based D. budget E. six-sigma

b. management

_____ involves going to the area where activities take place and watching what is occurring. A. Setting standards B. Personal observation C. Deviation analysis D. Defining performance E. Reinforcing success

b. personal observation

Which of the following can be drawn tentatively and used as a goal against which actual performance can be measured? A. Statement of cash flow B. Profit and loss statement C. Balance sheet D. External audit E. Capital budget

b. profit and loss statement

Which of the following is the first major step in a typical control process? A. Comparing performance with standards B. Setting standards C. Taking corrective action D. Developing values E. Measuring performance

b. setting standards

The price charged by one unit for a good or service provided to another unit within the organization is referred to as a(n) _____ price. A. substitute B. transfer C. department D. organizational E. budget

b. transfer

The activity-based costing system A. is more appropriate method of cost accounting for rigid hierarchical organizations. B. effectively departmentalizes an organization based on its core functions such as human resources, purchasing, and maintenance. C. provides a more accurate picture of how costs should be charged to products and services. D. assumes that organizations are bureaucratic "machines" that can be separated into component functions. E. fails to allocate costs across business processes and is less effective than traditional methods of cost accounting.

c. provide a more accurate picture of how costs should be charged to products and services

A ratio of profit to capital used, or a rate of return from capital, is referred to as ____. A. the debt-equity ratio B. the leverage ratio C. return on investment D. net working capital E. transfer price

c. return on investment

Before you can measure performance, what must you do? A. Evaluate employees B. Improve performance C. Set performance standards D. Analyze market conditions E. Experiment with methods

c. set performance standards

A(n) _____ is the level of expected performance for a given goal; it is a target that establishes a desired performance level, motivates performance, and serves as a benchmark against which actual performance is assessed. A. goal B. objective C. standard D. control process E. audit

c. standard

According to the principle of exception, which deviations from the expected standard require corrective action? A. The most common deviations B. Most of the deviations C. The most significant deviations D. Any and all deviations E. No type of deviation

c. the most significant deviations

Ideally, a transfer price should be _____ the price that the receiving business unit would have to pay in the marketplace. A. somewhat less than B. somewhat more than C. the same as D. at least half E. at least twice

c. the same as

Which of the following is a commonly used source for obtaining performance data? A. Competitors B. Human resource department C. Written reports D. Upper management E. Technical analysts from outside the company

c. written reports

Authority and profit are considered the conjoined twins of management

false

If bureaucratic and market mechanisms are insufficient for directing a company's workforce in today's environment, it can turn to structural control

false

Performance standards can only be set with respect to quantity and quality

false

With bureaucratic control, business units are treated as profit centers, and their managers are evaluated based on profit and loss

false