Becker B3 Review

Question 1

Which of the following incentive designs will most likely encourage the use of nonfinancial
measures by a manager?

A. All of the answer choices can be equally effective.

B. Tying incentives to the overall profit of the firm.

C. Tying incentives to the manager’s individual effort.

D. Tying incentives to the salary level of the manager.

Answer 1

Choice “C” is correct. Managers are more likely to use nonfinancial measures if they are tied to the managers individual effort and, by extension, the manager can control the outcome.

Choice “A” is incorrect. Forcing alignment of individual effort and incentive compensation is more likely to promote the use of non financial measures than aligning incentives with profits or salary levels.

Choice “B” is incorrect. Tying incentives to the overall profit of the firm links compensation most closely with financial results such that the individual manager may not be as motivated to use non financial measures.

Choice “D” is incorrect. While a bonus on salary is often very effective in motivating performance, it does not link performance to non financial measures.

Question 2

MCQ-03924
A cost that bears an observable and known relationship to a quantifiable activity base is
a(n):

A. Indirect cost.
B. Target cost.
C. Engineered cost.
D. Fixed cost.

Answer 2

Choice “C” is correct. An engineered cost bears an observable and known relationship to a quantifiable activity base.

Choice “A” is incorrect. Indirect costs (overhead costs) are all manufacturing costs other than direct material and direct labor.

Choice “B” is incorrect. A target cost is carefully predetermined standard cost that should be attained.

Choice “D” is incorrect. Fixed costs are all those organization and plant costs that continue to be incurred and cannot be reduced without damaging the organization’s ability to meet long-range goals.