Quiz Chapter 4

Which is true?

Mitigating the agency problem requires alignment of the interests of principal and agent

Which of the following is necessary in order for accounting numbers to be effective in decision making?

The controller reports to the audit committee of the board of directors

Which of the following is true?

Theft by employees is an example of an agency cost

Which is true?

All of the above

When activities are performed inside firms, which of the following is true about organizational architecture?

It is cost - ineffective to to ratify all decisions

In which of the following circumstances is a moral hazard problem described?

Kate makes a claim under her homeowner's insurance for damage from a hurricane and includes in her claim a pool pump that was broken prior to the hurricane

When activities are performed inside firms, which of the following is true?

None of the above

University computer lab having difficulty controlling its costs. Analysis showed key is cost of printer supplies (ink, paper and machine repair). Which strategy likely to reduce costs the most, if typical student use is 200 copies per month?

Require students to pay 12 cents per copy

Printing company operating close to capacity. Sales Dept earns commissions of 8% on sales. Set up charges amount to $60 per item, variable costs of $1 peer copy. When capacity reached, company can still meet order but incurs overtime charges and other variable overhead of $.25 per copy. Production complains that sales staff promise delivery with tight deadlines to secure orders(overtime and variable overhead have to be paid). Recent rush order for 100 engraved wedding invitations secured at normal price of $200. Which is a true statement?

Sales staff would coordinate rush orders with production if the excess charges were to be charged against their sale commission

Fundamental tenets of economics include all of the following, except:

people strive to maximize benefits to their community