B2-6 Flashcards
Organizations focus on both financial and non-financial features of their operations to evaluate the degree to which they will be successful in their strategies. These financial and non-financial dimensions of their operations are sometimes referred to as:
a.
The total quality management continuum.
b.
Benchmarks.
c.
Balanced scorecards.
d.
Critical success factors.
Choice “d” is correct. Financial and non-financial features of an organization that contribute to its success in achieving strategy are referred to as critical success factors and are normally classified as:
Financial solvency and return,
Customer satisfaction,
Internal business processes, and
Human resource innovation.
Choice “a” is incorrect. The term total quality management continuum is a distracter.
Choice “c” is incorrect. Balanced scorecards serve to document the measurements of critical success factors. Although balanced scorecards include measurements that are classified by critical success factors, they are not, themselves, the features of the organization that contribute to its success.
Choice “b” is incorrect. Benchmarks represent the best practices within an industry or within a function. They may serve as the individual standards that serve to evaluate the achievement of goals classified within the context of critical success factors but they are not, themselves, the features that an organization must possess to accomplish their strategy.
Fairmount, Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make the decisions incurring the costs. For example, if the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as:
a.
Contribution accounting.
b.
Transfer price accounting.
c.
Responsibility accounting.
d.
Functional accounting.
Choice “c” is correct. Responsibility accounting is a system of accounting that recognizes various responsibility or decision centers throughout an organization and reflects the plans and actions of each of these centers by assigning particular revenues and costs to the one having the responsibility for making decisions about these revenues and costs.
Choice “d” is incorrect. This term is not defined.
Choice “b” is incorrect. Transfer pricing deals with prices charged by one business segment to another within a company.
Choice “a” is incorrect. Contribution accounting measures performance based on the contribution of a business segment.
Decentralized firms can delegate authority and yet retain control and monitor managers’ performance by structuring the organization into responsibility centers. Which one of the following organizational segments is most like an independent business?
a.
Cost center.
b.
Profit center.
c.
Revenue center.
d.
Investment center.
Choice “d” is correct. An investment center is most like an independent business. Investment centers are responsible for revenues, expenses, and invested capital.
Choice “c” is incorrect. A revenue center is responsible for revenues only.
Choice “b” is incorrect. A profit center is responsible for revenues and expenses, but not invested capital.
Choice “a” is incorrect. A cost center is responsible for costs only.
Controllable margin is used as a refined measure of strategic business unit reporting that is best described as:
a.
Margins reported to strategic business unit managers related to the revenues and costs specifically within the managers’ control and responsibility.
b.
Margins derived after comprehensive consideration of all costs designed to achieve strategic objectives.
c.
Margins exclusively focused on entirely direct costs.
d.
Contribution margin net of controllable fixed costs (those costs that managers can impact in less than one year).
Choice “d” is correct. Controllable margin is computed as contribution margin net of controllable costs. Controllable costs represent those fixed costs that managers can impact in less than one year.
Choice “a” is incorrect. Controllable margins are specifically defined as contribution margin less controllable fixed costs. Although the reporting objective is to most clearly define those margins for which a manger is responsible, the description relates to the components described in the correct answer.
Choice “c” is incorrect. Controllable margins are specifically defined as contribution margin less controllable fixed costs and are not limited to direct costs.
Choice “b” is incorrect. Controllable margins are specifically defined as contribution margin less controllable fixed costs and do not contemplate all costs directly associated with strategic objectives regardless of control.
Controllable revenue would be included in a performance report for a:
~Profit center
~Cost center
a.
Yes
No
b.
No
Yes
c.
No
No
d.
Yes
Yes
Choice “a” is correct. Profit centers generate revenues and incur costs, so controllable revenues would be included in a profit center’s performance report. Cost centers do not generate revenues and, therefore would not have any revenues to include in a performance report.
Choices “c”, “b”, and “d” are incorrect, based on the above explanation.
Under the balanced scorecard concept developed by Kaplan and Norton, employee satisfaction and retention are measures used under which of the following perspectives?
a.
Internal business.
b.
Customer.
c.
Financial.
d.
Learning and growth.
Choice “d” is correct. Employee satisfaction and retention measures are used under the “learning and growth” perspective of the balanced scorecard. Employee satisfaction typically correlates with productivity, employee effectiveness, and retention. Retention itself often relates to reduced retraining, increased opportunity for human resource development, and reduced investment in learning curves.
Choice “b” is incorrect. The customer perspective of the balanced scorecard measures results of business operation (e.g., customer satisfaction and customer retention), not employee satisfaction and retention.
Choice “a” is incorrect. The internal business perspective of the balanced scorecard measures results of business operation (e.g., improvements in throughput and other measures of efficiency), not employee satisfaction and retention.
Choice “c” is incorrect. The financial perspective of the balanced scorecard measures traditional results of business operation (e.g., improved margins or improved cash flows), not employee satisfaction and retention.
Strategic Business Units (SBUs) are classified into different types based on the responsibility levels assigned to their managers. Which SBU has the least amount of responsibility?
a.
Cost SBU.
b.
Investment SBU.
c.
Profit SBU.
d.
Revenue SBU.
Choice “a” is correct. Managers in a cost SBU only have responsibility for one dimension of financial performance and it is one that they control entirely, the level of costs incurred.
Choice “d” is incorrect. Revenue SBUs represent a greater responsibility than cost SBUs. Managers of a revenue SBU only have responsibility for one dimension of financial performance, but revenue generation is not under the control of the managers. Clearly the uncertainty associated with generating sales increases the risk and difficulty associated with the manager’s responsibility.
Choice “c” is incorrect. Profit SBUs represent a greater responsibility than either cost or revenue SBUs. Profit SBUs require the manager to maintain control of revenues, and costs AND the relationship between the two.
Choice “b” is incorrect. Investment SBUs represent the organizational segment with the highest level of responsibility. Managers not only consider cost, revenues and their relationship, but also the relationship between profits generated and assets invested.
Which is not an example of responsibility accounting?
a.
Product center.
b.
Profit center.
c.
Cost center.
d.
Investment center.
Choice “a” is correct. Product center does not refer to any responsibility or decision center.
Choice “c” is incorrect. Cost centers are responsible for costs only.
Choice “b” is incorrect. Profit centers are responsible for revenues and expenses.
Choice “d” is incorrect. Investment centers are responsible for revenues, expenses and invested capital.
Which of the following balanced scorecard perspectives examines a company’s success in targeted market segments?
a.
Learning and growth.
b.
Financial.
c.
Internal business process.
d.
Customer.
Choice “d” is correct. The customer perspective of a balanced scorecard is concerned with target markets (e.g., low-price leader).
Choice “b” is incorrect. The financial perspective of a balanced scorecard is concerned with the capture of increased market share, not “success in targeted market segments” (a customer measure).
Choice “c” is incorrect. The internal business process perspective of a balanced scorecard is concerned with maintaining low costs that are supported with low prices, not with the capture of increased market share.
Choice “a” is incorrect. The learning and growth (advanced learning and innovation) perspective of a balanced scorecard is concerned with linking strategy with reward and recognition, not with the capture of increased market share.
Strategic Business Units (SBUs) are classified into different types based on the responsibility levels assigned to their managers. Each of the following items are reasons for classifying Strategic Business Units as cost, revenue, profit, or investment, except to:
a.
Highlight different responsibility levels among managers in highly centralized organizations.
b.
Promote goal congruence.
c.
Isolate financial measurement for segment performance.
d.
Communicate segment goals to managers for improved operational and financial control.
Choice “a” is correct. Strategic Business Units are established in a decentralized environment not a centralized environment. Highlighting different responsibility levels in centralized environments is not a reason for using cost, revenue, profit and investment SBUs.
Choice “b” is incorrect. Goal congruence is a valid reason for SBU classification.
Choice “d” is incorrect. Improved operational and financial control is a valid reason for classification of SBUs by type.
Choice “c” is incorrect. Isolating the relevant measure of financial performance is appropriate to SBU classification.
Which of the following Performance Management Measures integrates both financial and non-financial measures of performance?
a.
Variance Analysis.
b.
Control Charts.
c.
Return on Investment.
d.
Balanced Scorecard.
Choice “d” is correct. The balanced scorecard seeks to fully integrate financial measures of performance with non-financial measures of performance.
Choice “c” is incorrect. ROI is a financial measure of performance that gauges earnings as a percentage of investment and can be further analyzed to measure both margin on sales and efficient use of assets.
Choice “b” is incorrect. Control charts graphically display the impact of measuring goalpost conformance with an attribute which could be either financial or non-financial.
Choice “a” is incorrect. Variance analysis is generally viewed as a financial measure of performance. Although variances break out the efficiency and usage components using the non-financial data required to develop standards, variances are computed in a context that seeks to explain financial results.
A successful responsibility accounting reporting system is dependent upon:
a.
The correct allocation of controllable variable costs.
b.
The proper delegation of responsibility and authority.
c.
A reasonable separation of costs into their fixed and variable components since fixed costs are not controllable and must be eliminated from the responsibility report.
d.
Identification of the management level at which all costs are controllable.
Choice “b” is correct. Responsibility for costs, and the authority to do something about them, are necessary for a successful responsibility accounting system.
Choice “a” is incorrect. Allocation of variable costs is easy; allocation of other controllable costs is harder.
Choice “d” is incorrect. All costs are not controllable at one level.
Choice “c” is incorrect. All costs, in the long run, are variable, and controllable at some level.
Discount Super Stores has adopted a strategy of becoming the low cost leader for consumer products in the northwest. The company defines its value in the marketplace through low prices and consistently measures its prices against those of its competitors. The location of these measurements would most likely be classified and summarized in which section of Discount’s balanced scorecard?
a.
Learning and innovation.
b.
Internal business processes.
c.
Customer.
d.
Financial.
Choice “c” is correct. Measurement of customer value, such as Discount’s prices compared to competitor’s prices for a cost leader, would most likely be included in the customer section of the balanced scorecard.
Choice “d” is incorrect. Measures of financial performance would focus more on results of operations and utilization of assets.
Choice “b” is incorrect. Internal business processes would focus more on internal efficiencies and cost structure than external comparisons to competitor pricing.
Choice “a” is incorrect. Learning and innovation would focus more on the effective use of personnel in improving business processes and linking rewards with recognition as opposed to external comparisons to competitor costs as a means for customer satisfaction and retention.
Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n):
a.
Investment center.
b.
Profit center.
c.
Revenue center.
d.
Operating unit.
Choice “b” is correct. A profit center is responsible for revenue and costs.
Choice “c” is incorrect. A revenue center is responsible for revenue only.
Choice “d” is incorrect. An operating unit is typically a division, which is not precisely defined.
Choice “a” is incorrect. An investment center is responsible for revenues, expenses, and invested capital.
Although there is no single format for the balanced scorecard, the report generally includes a variety of measurements associated with objectives classified by critical success factors. Critical success factors often include:
a.
Throughput and lifecycle times.
b.
Shareholder satisfaction, customer satisfaction, vendor satisfaction, and employee satisfaction issues.
c.
Financial, internal business process, customer, and human resource considerations.
d.
Sales, net income, cash flow, and return on investment performance.
Choice “c” is correct. Critical success factors identified in the balanced scorecard generally include human resource aspects, particularly as it relates to harnessing employee innovation, internal business process improvement, customer satisfaction, and financial performance.
Choice “d” is incorrect. Sales, net income, cash flow, and return on investment represent elements of critical financial success factors.
Choice “b” is incorrect. Shareholder, customer, vendor, and employee satisfaction are significant elements of critical success factors covering a broad dimension of business issues but are not in and of themselves critical success factors.
Choice “a” is incorrect. Throughput and lifecycle times represent measures of internal business improvement processes and do not represent critical success factors.
