Management Control Systems Acct-814

Which one of the following is a disadvantage to using accounting profit measures to evaluate the performance of a manager? A) Accounting profits can be measured on a timely basis (e.g., annually).. B) The manager can usually control, or at least influence, the accounting measure. C) Accounting measures are opaque (not easily understood by nonaccounting, operating managers). D) It is inexpensive to use accounting measures for performance evaluation because they are already being produced for other purposes.

C) Accounting measures are opaque (not easily understood by nonaccounting,

The manufacturing, engineering, and administrative functions re typically ___ centers, and the sales function is a ____ center A) Profit; Cost B) Revenue; Cost C) Cost; Revenue D) Cost; Investment

C) Cost; Revenue

The book, In search of excellence, describes simultaneous tight-loose controls. This type of environment relies most heavily on: A) action controls B) Results controls C) Cultural controls D) no controsl

C) Cultural controls

Preaction reviews are considered tight if they include all of the following except: Congruent measures Frequent Detailed Performed by diligent, knowledgeable people

Congruent measures

Why do some firms establish an upper cutoff, or cap, on performance-based bonus plans? A) Fear that an employee could have a windfall gain simply due to unforeseen good luck B) Fear that a faulty design plan could lead to excessive payouts C) A desire to maintain vertical compensation equity D) All of the above

D) All of the above

Planning and budgeting systems vary among firms on the following dimension(s): A) how often the plans are updated to reflect current market conditions B) the duration of the planning period C) the duration and detail of the process used to develop the plan D) the amount of planning guidance provided by a centralized planning office E) all of the above are sources of variation

E) all of the above are sources of variation

Transfer pricing alternatives includes the following except A) market prices B) marginal costs C) full cost D) full cost plus a markup E) total cost plus a markup

E) total cost plus a markup

Accounting profit does not reflect a charge for the cost of borrowed capital (i.e., debt). True/False

False

An organization should constantly strive for perfect control True/False

False

Computer-based transactions always provide for tight action controls since control risks are virtually eliminated by technology and automation True/False

False

Decentralization means the same thing as divisionalization. True/False

False

Gamesmanship exists when there is a difference between what employees should be doing to help the organization achieve its strategic objectives versus what the MCS motivates them to do. True/False

False

If the primary purpose of results control is motivation, then the performance target should be the best guess of what will actually occur, or even slightly conservative, to make sure they are achieved True/False

False

It is generally agreed that the primary objective of for-profit organizations is to maximize accounting profit. True/False

False

Knowledge of what is desirable is most usefully defined in terms of broad, general statements such as, "always do your best to serve the stockholders." True/False

False

Management control is the front end of the management process True/False

False

Most companies set their annual profit budget targets at levels that are only attainable 10 to 20 percent of the time True/False

False

Responsibility Center Managment is the process of management getting involved only when problems arise True/False

False

Results controls can be applied in every situation True/False

False

Results controls can only be used effectively with senior management True/False

False

The empirical evidence to date clearly shows that combination-of-measures systems, like the Balanced Scorecard, are superior to other measurement options. True/False

False

All of the following are categories of action controls except: Redundancy Formal training and indoctrination programs Action accountability Behavioral constraints Preaction reviews

Formal training and indoctrination programs

The primary ________ of management control is to influence behaviors in desirable ways. The _______ of management control is the increased probability that the organization's objectives will be achieved Benefit, Function Direction, cost Focus, value Function, benefit

Function, benefit

To implement action accountability, actions may be tracked in all of the following ways except: Having two employees assigned to the same job. Direct observation. Mystery shoppers. Reviewing evidence

Having two employees assigned to the same job.

Results controls are often used to perform two important, but competing, control functions. These two functions are: A) motivation and indoctrination B) motivation and coordination C) coordination and productivity D) indoctrination and coordination

B) motivation and coordination

Control problem avoidance may be attained by all of the following EXCEPT: Activity elimination Automation Centralization Risk Sharing Matrix form of organization

Matrix form of organization

All four basic types of action controls can help alleviate: Lack of direction Motivational problems Personal limitations Cultural adaptations

Motivational Problems

All of the following are behavioral constraints except: Physical constraints Administrative constraints Separation of duties Internal controls Mystery shoppers

Mystery shoppers

Management may be broken down into smaller elements along several dimensions. Management control is classified as one of the ______ included within the broader area of management. Functions Processes Resources Capabilities

Processes

A university wants to be nationally know for research (performance dimension). it implements a reward system where in faculty are rewarded based upon the number of articles published in academic journals (performance measure). This best illustrates the concept of: objectivity understandable congruency controllable

congruency

Cultural controls include all of the following except: Codes conduct Tone at the top Piece rate reward systems Physical and social arrangement

piece rate reward systems

Qualities of good measures include all of the following except: Precision controllable subjective timely congruent

subjective

In defining tight results controls, we consider all of the following except: Definition of desirable results Stability of group norms over time measurement of results Rewards or punishments

Stability of group norms over time

Personnel/control controls have which one of the following disadvantages: They are more expensive to implement than more obtrusive forms of controls. The produce more harmful side effects Strong cultures are extremely difficult to change when they are no longer consistent with the market demands. Research and surveys show it does not pay to be nice to employees.

Strong cultures are extremely difficult to change when they are no longer consistent with the market demands.

Which one of the following is the best definition of congruence as it pertains to results or action controls? There is a direct link from the desired result or action and the reward or punishment There is a timely feedback given with respect to whether the action or result has been achieved The result or action is effectively communicated to employees and accepted by them The measured performance dimensions are highly correlated with the organization's true objectives

The measured performance dimensions are highly correlated with the organization's true objectives

All of the following are necessary for results controls to be most effective except: The employee must be able to exert a significant influence over the desired result The employee must know what specific results are desirable The desirable results must be capable of being measured The organization must have an effective audit committee.

The organization must have an effective audit committee.

A definite link between measured results and rewards or punishments means that no excuses are tolerated; you either meet your predetermined goal and get rewarded, or miss it and face sanctions True/False

True

A financial responsibility center is a responsibility center in which the assigned responsibilities are defined at least partially in financial terms True/False

True

A fundamental tenant of corporate finance is higher expected risk must e rewarded with higher expected return True/False

True

As it pertains to results control, completeness means the measured results or results should encompass all of the areas over which the organization desires good performance. Otherwise, it is human nature that what is not measured will tend to be ignored True/False

True

Having more controls in place does not always guarantee better control True/False

True

Key results have been defined as, "the few key areas where things must go right for the business to flourish." True/False

True

Re-engineering business processes may often be described as loose because some acction controls have been deleted since they are viewed as being non-value added activities. True/False

True

The correlations between accounting profits and firm value increase with the length of the measurement period. True/False

True

The longer the period of measurement the more congruent are the accounting measures of performance with economic income. That is, accounting income will more closely approximate economic income over a five year period than it will over a one year period. True/False

True

The overriding criterion used to judge the effectiveness of results measures is whether the measure evokes the desired behaviors True/False

True

The textbook defines tight control as the degree to which we can be assured that employees will behave as the organization wishes True/False

True

The use of results controls typically results in a manager bearing more risk True/False

True

To avoid the harmful side effects of tight controls managers sometimes choose to loosen their company's MCS. In essence, one is trying to balance the benefits (greater assurance that employees will act in accordance with desired firm objectives) and costs(resentment, game playing, ore even fraud) of tight controls True/False

True

action controls are the most direct form of management control. True/False

True

An employee is being held accountable for increasing economic value added (EA), yet she has no idea what EVA even is or how it is calculated. Furthermore, she does not know what actions would lead to higher EA in her particular job. This reflects a measure that is poor on what dimension? Precision Objectivity Timeliness Understandability

Understandability

A proper "tone at the top" is best illustrated by: A teacher who never accepts late assignments, but routinely misses grading deadlines. The vice president of sales encouraging ethical sales practices but frequently bending the rules to complete large sales. The CEO who requires that employees receive a copy of the company code of conduct but does not follow it herself. A coach who does not tolerate players being late for practice and is always ready to start practice at least 10 minutes before the official start time.

A coach who does not tolerate players being late for practice and is always ready to start practice at least 10 minutes before the official start time.

A benefit of group rewards is: A) Cultural control, or mutual monitoring B) a free rider effect C) A direct link between individual actions and rewards D) People are happier when evaluated as part of a large group, some of whom they've never even met

A) Cultural control, or mutual monitoring

Greater and more certain knowledge of what it is the organization wants the employees to do has all of the following advantages except: A)Gives higher level managers the ability to micromanage their subordinates B) Yields a larger set of feasible control alternatives C) Provides a better chance of being able to apply each alternative tightly D) Reduces the chance of creating a behavioral displacement problem

A) Gives higher level managers the ability to micromanage their subordinates

A Positive reward might be in the form of: A) Greater workplace autonomy B) No promotion C) Public humiliation D) Loss of job

A) Greater workplace autonomy

Which one of the following types of controls seems to have the fewest harmful side effects? A) Personnel/cultural controls B) Results controls C) Pre-action reviews D) Action accountability

A) Personnel/cultural controls

Although they were dominant 15-20 years ago, this type of stock-based reward has declined in popularity in the U.S. in recent years A) Stock options B) stock appreciation plans C) Performance stock D) Restricted stock

A) Stock options

Combination-of-measures systems like the balanced scorecard have all of the following potential advantages except: A) backward-looking B)flexible C) understandable D) more complete and congruent than a single measure

A) backward-looking

When the specified action or results control measure is incongruent and/or incomplete which one of the following harmful side effects is most likely to occur? A) Behavioral displacement B) gamesmanship C) operating delays D) Negative attitudes

A) behavioral displacement

Transfer prices affect the revenues of the selling profit center and the cost of the buying profit center A) directly B) indirectly C) incrementally D) not at all

A) directly

Highly achievable budget targets have some advantages. Which one of he following is NOT an advantage of highly achievable budget targets? A) they ensure the organization is maximizing shareholder value B) they increase management commitment to achieve the target C) they help guard against over-investment to support overly optimistic revenue projections D) they help reduce the need for managers to engage in gameplaying to achieve their targets

A) they ensure the organization is manimizing shareholder value

Managers of product divisions without authority for all functions that effect the success of their products, such as research and development or advertising, are managers of the... A) complete profit center B) incomplete profit center C) gross margin center D) none of the above

B) incomplete profit center

only one of the four basic types of action controls can be classified as a detection-type control. It is: Behavioral constraint Redundancy Action accountability Preaction reviews

Action accountability

Implementing action accountability involves: Defining what actions are acceptable or unacceptable Communicating those definitions to employees Observing or otherwise tracking what happens Rewarding good actions or punishing deviant actions All of the above

All of the above

The term management control in our textbook has the same meaning as: Execution of plans Strategy implementation Carrying out our game plan All of the above

All of the above

Tight control can be implemented with: Personnel/Cultural controls Action controls Results controls B and C All of the above

All of the above

________ transfer prices should be used when a perfectly competitive external market exists A) negotiated B) market-based C) full cost D) marginal cost

B) market based

All of the following are disadvantages of action controls except: A) excellent knowledge of what actions are desirable is difficult for most jobs B) Checklist mentalities encourage creativity C) Independent thinkers typically do not enjoy operating under strict action controls D) They lead to the problem of & quot;generals preparing to fight the previous war".

B) checklist mentalities encourage creativity

Implementing results controls includes four steps. which one of the following is not one of those steps? defining performance dimensions measuring performance setting performance targets assessing risk providing rewards

Assessing risk

Which one of the following is a correct depiction of the problem of suboptimization? In all cases assume the cost of capital is 15 percent. A) A division with a 10 percent ROI invests in a new asset with an expected ROI of 18 percent. B) A division with a 10 percent ROI invests in a new asset with an expected ROI of 12 percent. C) A division with a 20 percent ROI invests in a new asset with an expected ROI of 22 percent. D) A division with a 5 percent ROI invests in a new asset with an expected ROI of 16 percent.

B) A division with a 10 percent ROI invests in a new asset with an expected ROI of 12 percent.

Which one of the following choices is not an example of operating myopia? A) Routine maintenance on equipment is postponed to minimize maintenance expense in the current period. B) A manager foregoes buying a new, technologically advanced asset with a large net present value but a long payback period. C) A manager reduces and delays spending on marketing to boost current period income. D) The manager cuts payroll to the point that customer service is negatively impacted.

B) A manager foregoes buying a new, technologically advanced asset with a large net present value but a long payback period.

A strict system of action controls can lead to people being told "when to step and where to step", such that they get to the point that they don't even care where they are going as long as they are following the established rules. This is referred to as: A) over quantification B) Means-end inversion C) Entrepreneurial D) Myopic

B) Means-end inversion

Which one of the following statements is false about short-term incentive awards? A) the most commonly used performance metrics in annual bonus plans are financial B) There is a trend toward decreased use of non-financial measures as performance metrics in annual bonus plans C) bonuses are often awarded in a two step process. First, a bonus pool is funded as a function of company performance. Then, the bonus pool is allocated to individuals based upon rankings or ratings D) a survey of U.S. and Canadian firms indicates that the bonus proportions of compensation are increasing

B) There is a trend toward decreased use of non-financial measures as performance metrics in annual bonus plans

In terms of the three planning cycles discussed in the chapter, which one has the shortest planning horizon A) strategic planning B) budgeting C) programming D) long-term planning

B) budgeting

There are several criteria to judge reward systems. The criteria that states rewards have greater value if employees remember them for a long time is: A) timely B) durable C) understandable D) impact

B) durable

Which one of the following is a disadvantage of allowing subordinates to participate in the process of setting their own performance target? A) managers who participate will have a higher level of commitment to achieve the target B) participation allows subordinates the opportunity to set easily achievable performance targets C) participation promotes information sharing among the various managerial levels in the organization D) Involving subordinates in this process has a cognitive benefit as it encourages them to think about how best to achieve their performance targets

B) participation allows subordinates the opportunity to set easily achievable performance targets

Which one of the following is not a value driver, or leading indicator, of performance? A) new product introductions B) return on investment C) customer satisfaction D)backlog (or book-to-bill ratio), meaning how many orders we have from customers waiting to be filled compared to how many we have fulfilled

B) return on investment

The harmful, indirect side effects of controls include all of the followoing except: A) Operating delays B) Risk reduction C) gamesmanship D) negative attitudes

B) risk reduction

Which one of the following is not a useful way to reduce the myopia problem? A) reduce pressure for short-term profit. B) shortening the horizon over which performance is measured and rewarded. C) changing what is measured. D) replacing accounting measures with non-financial, value drivers of performance.

B) shortening the horizon over which performance is measured and rewarded.

Making improvements, or adjustments, to accounting income to move it closer to economic income can necessitate what the chapter refers to as a third set of financial records called the: A) financial reporting set of books. B) the management set of books. C) the tax set of books. D) the stockholder set of books. E) the fraudulent set of books.

B) the management set of books.

Which one of the following is NOT a criticism of companies' planning and budgeting processes? A) the cost of planning and budgeting can exceed the benefits B) the process can foster too much creativity and innovation C) the process often focuses on cost reduction, not value creation D) the process favors bureaucrats (paper pushers) rather than action-oriented people

B) the process can foster too much creativity and innovation

One way to assess what is likely is to consider the potential for control problems. Control problems stem from all of the following except: A) employees do not understand what they are expected to do or accomplish. B) Employees are not properly motivated C) Employees are passionate about the company's products and services.. D) Employees do not have the skills and abilities to fulfill their desired roles

C) Employees are passionate about the company's products and services

The reward function specifies how one's performance is translated into, or mapped to, a reward. All of the following are generally true about reward functions except: A) There is typically a lower threshold one must meet before becoming eligible for any bonus B) rewards are typically promised over a restricted performance range C) Most plans establish an curvilinear reward function such the the rewards are increasing at an increasing rate as one moves from the lower threshold to the upper cutoff D) There is typically an upper cutoff, or cap, beyond which additional performance does not increase one's bonus

C) Most plans establish an curvilinear reward function such the the rewards are increasing at an increasing rate as one moves from the lower threshold to the upper cutoff

Which one of the three planning cycles discussed in the chapter is most closely associated with allocation of scarce resources, often called capital budgeting in your finance classes? A) Strategic planning B) Budgeting C) Programming D) Long-term planning

C) Programming

Which one of the following is not one of the three main categories of monetary rewards? A) Long-term incentive plans B) Performance-based salary increases C) Strategic business unit compensatory adjustment factor scaling D) Short-term incentive plans

C) Strategic business unit compensatory adjustment factor scaling

Cycle time, yield, and efficiency are examples of measures in which one of the following Balanced Scorecard categories? A) financial B) customer C) internal D) innovation and E)learning regulatory

C) internal

Discretionary cost centers are sometimes called A) Revenue centers B) Investment centers C) managed cost centers D) profit centers

C) managed cost centers

Companies sometimes use highly achievable budget targets. Which of the following is(are) a reason(s) to set highly challenging targets? A) Management believes there is substantial 'fat' in the budget and they are attempting to reduce it B) The organization is on the brink of survival and management must set a high performance target to communicate the seriousness of the short-term situation C) Upper-level management feels a lower-level manager is not motivated to do his or her best D) All of the above are reasons to set highly challenging performance targets

D) All of the above are reasons to set highly challenging performance targets

Which of the following is a problem with holding managers directly accountable for changes in firm value? A) Market valuations are affected by many factors the managers can not control (e.g., interest rates, market psychology). B) Markets are not always well informed about a company's plans and prospects. C) Market valuations contain significant 'noise', meaning changes in market value are not perfectly correlated with management performance. D) All of the above.

D) All of the above.

Strict action controls can be good in environments characterized by: A) Rapid, unpredictable changes in market conditions B) Stable product and market environments C) Considerable centralized knowledge about what actions truly lead to good outcomes D) Both B and C

D) Both B and C

All of the following are accounting methods of data manipulation (in contrast with real, underlying economic manipulations) except: A) Changing methods of depreciation B) Accelerating revenue recognition practices C) Reducing the estimated amounts of collectible accounts receivable D) delaying maintenance expenditures until next year

D) Delaying maintenance expenditures until next year

Results controls can lead to negative attitudes because of all of the following except: A) Employees are not committed to the result because it is perceived to be unattainable B) Employees feel the desired result is an unfair performance measure because they can not exert much influence over the ultimate outcome C) The rewards and punishments are not distributed in an equitable manner D) Employees are provided a meaningful opportunity to participate in the process of setting the performance goals

D) Employees are provided a meaningful opportunity to participate in the process of setting the performance goals

Gamesmanship includes the following behaviors: A) Requesting 10% more for your unit's budgeted expenditures than you really think will be needed to accomplish the unit's objectives for the upcoming period B) Dating significant year-end sales January 2 rather than the true date of December 29 since the sales goal had already been met for the current year and no additional reward would be forthcoming for exceeding it. C) creating fictions sales on December 30 so that the sales quota for the year will be made and a bonus will be earned D) Gamesmanship includes all of the above behaviors

D) Gamesmanship includes all of the above behaviors

Consider the issue of how challenging financial performance targets should be. Which one of the following statements is false? A) psychological research indicates there is a non-linear relationship between target difficulty and motivation B) for planning purposes, the budgeting target should equal expected performance C) for optimal motivation, the budget target should have less than a 50 percent change of target achievement D) making performance goals more challenging always leads to increased motivation and higher perfomance

D) Making performance goals more challenging always leads to increased motivation and higher performance

Stock option plans are declining in popularity in the U.S. for all of the following reasons except: A) New accounting rules require expensing of stock options B) The bear market has caused many stock options to be underwater, hence losing their motivational impact C) investor activists have complained about excessive pay D) Most U.S. executives report that they are no longer motivated by material possessions

D) Most U.S. executives report that they are no longer motivated by material possessions

Residual income is: A) Revenues minus expenses. B) Net income divided by net capital employed. C) Net income divided by sales. D) Net income minus a capital charge for the net assets used in the investment center.

D) Net income minus a capital charge for the net assets used in the investment center.

Which one of the following statements is false regarding ROI measures of performance? A) The numerator is accounting profit so ROI has all of the same limitations as accounting profit. B) ROI can lead to suboptimization, meaning they may encourage a manager to make investments whose expected return is less than the cost of capital. C) Provides misleading performance signals due to difficulty in measuring the fixed asset portion of the denominator. D) ROI can not be used to compare returns on dissimilar businesses, such as divisions and outside competitors, or types of investments.

D) ROI can not be used to compare returns on dissimilar businesses, such as divisions and outside competitors, or types of investments.

Results controls suffer from all of the following disadvantages except: A) The measure, or measures, of the results are imperfect B) results controls shift risk from owners to employees C) results are often influenced by factors that the employees can not control D) Results controls are good in theory but rarely used in practice

D) Results controls are good in theory but rarely used in practice

Which one of the following is not a benefit of performance-dependent rewards? A) the rewards provide information, or signals, to convey which areas of performance are important B) the rewards are motivational C) The rewards serve a personnel-related purpose in helping attract the right type of people to the organization D) The rewards are easily tailored to the individual wants and needs of employees

D) The rewards are easily tailored to the individual wants and needs of employees

Improvements, or adjustments, to accounting profit are designed to reduce the difference between accounting income and economic income. These adjustments include: A) value changes are recognized as soon as they can be measured or estimated rather than waiting for completion of a transaction. B) capitalization (i.e., recording as an asset) of investments such as research and development, advertising, and employee development. C) including an imputed charge for the cost of equity capital on the income statement. D) all of the above are potentially useful adjustments to accounting income.

D) all of the above are potentially useful adjustments to accounting income.

The accounting department of a manufacturing company is an example of A) contribution center B) profit center C) investment center D) cost center

D) cost center

In deciding what type of responsibility center to use, the primary consideration from a behavioral standpoint is: A) the manager's ability to exercise complete control over the items B) whether the organizational structure is consistent with the desired responsibility center C) the manager's ability to easily manipulate the items to meet performance objectives D) holding managers accountable for those items you most want them to pay attention to

D) holding managers accountable for those items you most want them to pay attention to

In going from theory to practice with a combination-of-measures system, which one of the following items has not been an implementation problem? A) determining how many measures to include in the system B) determining the weight to be placed on each measure C) developing the causal linkages among measures and desired results D) measuring accounting profits.

D) measuring accounting profits.

The problem of organizations "wanting what they can easily measure rather than working to develop good measures of what they really want" is termed: A) incomplete specification B) churning C) Incorrect understanding D) Over quantification

D) overquantification

The balanced scorecard includes all of the following perspectives except: A) financial B) internal C)customer D) regulatory E) innovation and learning

D) regulatory

personnel/cultural controls have all of the following benefits except: A) they have relatively few harmful side effects B) one has to rely on personnel/cultural controls to some extent no matter what other forms of control are utilized C) They can usually be relied upon exclusively D) They have relatively low out-of-pocket costs

D) they can usually be relied upon exclusively

A top-down process may be the appropriate way to set financial performance targets when: A) lower-level managers are not good at budgeting B) top-level managers have the information available for evaluating performance on a relative basis C) an environment is highly predictable or programmable such that top management does not need to negotiate with lower-level managers to determine expected output D) lower-level managers are prone to impart biases into their targets that can not be controlled E) All of the above are situations in which it may be reasonable to use a top-down process to establish performance targets

E) All of the above are situations in which it may be reasonable to use a top-down process to establish performance targets

When our textbook authors say that management control should have a behavioral emphasis they mean that the overriding concern of management controls systems is: Functions Resources People Sales

People

A basketball player understands what she is supposed to do and she is committed to doing her best for the team. She is assigned to guard a player who is six inches taller and 50 pounds heavier. This best illustrates which one of the following causes of management control problems? Lack of direction Lack of motivation Personal limitations Better to be lucky than good

Personal limitations