ACC 306 final

The conventional return on investment (ROI) performance measure calculates "profit" and "investment" based on:

Generally Accepted Accounting Principles (GAAP).

The evaluation by upper-level managers of the performance of mid-level managers is:

Management control.

Performance evaluation in most firms is applied at:

Many different levels from top management down to individual production and sales employees.

The process by which managers at all levels in the firm gain information about the performance of tasks within the firm and judge that performance against pre-established criteria is:

Performance measurement.

Return on investment (ROI) is a term often used to express income earned on capital invested in a division (investment center). A division's ROI would increase if:

Sales remained the same and expenses were reduced by the same dollar amount that total assets increased.

Which of the following is the most appropriate and comprehensive short-term financial-performance indicator for an investment center that is a division of a larger business entity?

Residual income (RI).

Return on investment (ROI) is the result of multiplying:

Return on sales (ROS) times asset turnover (AT).

A measure of the manager's ability to control expenses and increase revenues in order to improve profitability is:

Return on sales (ROS).

The manager acting independently in such a way as to simultaneously achieve top management's objectives is:

Goal congruence.

When evaluating capital budgeting decision models, the payback period emphasizes:

Liquidity.

The time value of money is explicitly considered in which of the following capital budgeting method(s)?

Net present value (NPV) method.

Residual income (RI) is:

Operating income of an investment center, less the imputed interest on the invested capital used by the center.

The evaluation of operating level employees by mid-level managers is:

Operational control.

Which of the following is not a characteristic of the payback method for making capital budgeting decisions?

It considers returns over the entire life of the project.

In contrast to residual income (RI), economic value added (EVA®) uses:

A measure (or estimate) of economic, not accounting, income.

Return on investment (ROI) encourages business units—such as investment centers— to invest only in projects that earn:

A rate of return higher than the unit's current ROI.

The balanced scorecard measures the SBU's performance in all of the following areas except:

Accounting and tax compliance.

The difference between the historical cost and the net book value (NBV) of a plant asset is the:

Accumulated depreciation expense of the asset.

A measure of the manager's ability to produce increased sales from a given level of investment is:

Asset turnover (AT).

By not distinguishing between direct and indirect costs in their performance reporting, many companies:

Can cause poor decision-making.

Intolerance of uncertainty often leads managers to:

Choose projects with short payback periods.

Since residual income (RI) is not a percentage, it is not useful for:

Comparing business units of significantly different size.

Production or support SBUs within the firm that have the goal of providing the best quality product or service at the lowest cost are:

Cost Centers.

In a not-for-profit organization, you are more likely to see

Cost centers.

For a typical capital investment project, the bulk of the investment-related cash outflow occurs:

During the initiation stage of the project.

Put simply, transfer pricing is a management tool for assigning a "price" to internally transferred goods (or services) in order to simulate the marketplace, thus encouraging mangers to make decisions that are in the best interest of the:

Firm as a whole.

SBUs that include the assets they employ as well as profits in the performance evaluation are:

Investment centers.

Which one of the following is a drawback of decentralization?

May hinder coordination among independent SBUs.

The objectives of management control of the manager include:

Motivation, incentive and fairness.

SBUs that generate revenues and incur the major portion of the cost for producing those revenues are:

Profit centers.

The need for coordination between the production and the selling function will impact the choice of:

Profit, cost or revenue center.

Under the notion of controllability, it is most appropriate for top management to evaluate the profitability of an investment center in terms of:

Profits in relation to the amount of capital invested in the unit.

ROI, though widely used, is subject to which one of the following limitations?

ROI may motivate managers to take suboptimal decisions from the standpoint of the organization as a whole.

The choice of valuation method for inventories would normally not affect which item(s) used in calculating ROI?

The valuation of fixed assets (e.g., Plant, Property, and Equipment) used by an investment center.

Which one of the following is an advantage of both ROI and Residual Income (RI)?

They both measure all elements important for measuring short-term financial performance of investment centers: revenues, costs, and investment.

Which one of the following is not a limitation shared by residual income (RI) and return on investment (ROI) divisional performance measures?

They both relate, in percentage terms, earnings to the level of investment in each division.

Especially for projects with long lives, estimation of revenues (or benefits), costs, and cash flows of a capital investment project is a difficult task principally because of:

Uncertainty about future events.

The main concept of the balanced scorecard is that, to evaluate the SBU's progress to strategic success, an organization must use all of the following except:

Value chain analysis.

The primary limitation of using Economic Value Added (EVA®) to evaluate the financial performance of investment centers is:

Complexity of the calculation.