Chapter 11

Question 1

A rule of thumb stating that one
should monitor those 20% of the factors that
determine 80% of the results.

Answer 1

80/20 rule

Question 1

An accounting method for allocating indirect and fixed costs to individual products or product lines
based on the value-added activities going
into that product.

Answer 1

Activity-based costing (ABC)

Question 2

Combines financial
measures with operational measures on customer satisfaction, internal processes, and
the corporation’s innovation and improvement activities

Answer 2

Balanced scorecard

Question 3

A control that specifies
how something is to be done through policies,
rules, standard operating procedures, and orders from a superior

Answer 3

Behavior control

Question 4

A phenomenon that
occurs when people substitute activities that
do not lead to goal accomplishment for activities that do lead to goal accomplishment
because the wrong activities are being
rewarded.

Answer 4

Behavior substitution

Question 5

The process of measuring
products, services, and practices against
those of competitors or companies recognized as industry leaders

Answer 5

Benchmarking

Question 6

A calculation that is determined by dividing net earnings by the
number of shares of common stock issued.

Answer 6

Earnings per share (EPS)

Question 7

A shareholder
value method of measuring corporate and divisional performance. Measures after-tax operating income minus the total annual cost of
capital.

Answer 7

Economic value added (EVA)

Question 7

Software that unites all of a company’s
major business activities, from order processing to production, within a single family of software modules

Answer 7

Enterprise resource planning (ERP) software

Question 8

A corporatewide, integrated process to manage the uncertainties that could negatively or
positively influence the achievement of the
corporation’s objectives.

Answer 8

Enterprise risk management (ERM)

Question 9

A process in which
corporate activities and performance results
are monitored so that actual performance can
be compared with desired performance

Answer 9

Evaluation and control

Question 10

A business unit that uses
money but contributes to revenues only indirectly.

Answer 10

Expense center

Question 11

Confusion of means with
ends, which occurs when activities originally
intended to help managers attain corporate
objectives become ends in themselves or are
adapted to meet ends other than those for
which they were intended.

Answer 11

Goal displacement

Question 12

The amount of money a new owner can take out of a firm without harming
the business.

Answer 12

Free cash flow

Question 13

Confusion of means with
ends, which occurs when activities originally
intended to help managers attain corporate
objectives become ends in themselves or are
adapted to meet ends other than those for
which they were intended.

Answer 13

Goal Displacement

Question 14

A control that specifies resources, such as knowledge, skills, abilities,
values, and motives of employees.

Answer 14

Input Control

Question 15

A unit in which performance is measured in terms of the difference between the unit’s resources and its services
or products.

Answer 15

Investment center

Question 16

An internationally accepted way of objectively documenting a company’s high level of quality operations.

Answer 16

ISO 9000 Standards Series

Question 17

An internationally accepted way to document a company’s
impact on the environment.

Answer 17

ISO 14000 Standards Series

Question 18

Essential measures for achieving a desired strategic
option—used in the balanced scorecard.

Answer 18

key performance measures

Question 19

A method in which managers are compensated for achieving objectives set over a multiyear period.

Answer 19

long-term evaluation method

Question 20

A technique used to
evaluate corporate activities.

Answer 20

management audit

Question 21

The difference between the market value of a corporation and the capital contributed by shareholders and
lenders.

Answer 21

market value added

Question 22

The amount of money
generated by a company before the costs of
financing and taxes are figured.

Answer 22

operating cash flow

Question 23

A control that specifies what
is to be accomplished by focusing on the end
result of the behaviors through the use of objectives and performance targets.

Answer 23

output control

Question 24

A unit’s performance, measured in terms of the difference between revenues and expenditures.

Answer 24

profit center

Question 25

Performance The end result of activities, actual outcomes of a strategic management
process.

Answer 25

performance

Question 26

A unit that is isolated
so that it can be evaluated separately from the
rest of the corporation.

Answer 26

responsibility center

Question 27

A measure of performance that is calculated by dividing net income by total equity.

Answer 27

return on equity

Question 28

A measure of performance that is calculated by dividing net income before taxes by total assets.

Answer 28

return on investment

Question 29

A responsibility center in
which production, usually in terms of unit or
dollar sales, is measured without consideration of resource costs.

Answer 29

revenue center

Question 30

The present value of the anticipated future stream of cash flows from
a business plus the value of the company if it
were liquidated.

Answer 30

shareholder value

Question 31

The tendency of
managers to consider only current tactical or
operational issues and ignore strategic ones.

Answer 31

short-term orientation

Question 32

A responsibility center
that is primarily used to evaluate the performance of manufacturing facilities.

Answer 32

standard cost center

Question 33

Measures of variables that
influence future profitability.

Answer 33

steering control

Question 34

An evaluation
method that encourages executives to look at
development expenses as being different from
expenses required for current operations.

Answer 34

strategic funds method

Question 35

A phenomenon in which a
unit optimizes its goal accomplishment to the
detriment of the organization as a whole.

Answer 35

suboptimization

Question 36

A practice in which one
unit can charge a transfer price for each
product it sells to a different unit within a
company.

Answer 36

transfer pricing

Question 37

A method that is
appropriate for measuring and rewarding
the performance of top SBU managers and
group-level executives when performance
factors and their importance vary from one
SBU to another.

Answer 37

weighted-factor method