Exam 2

Question 1

True or False?

Accounting systems normally measure opportunity costs

Answer 1

False

Question 2

True or False?

A potential problem with ROI is that it can encourage managers of divisions with high ROIs to reject investments in lower ROI projects that are beneficial to the company as a whole

Answer 2

True

Question 3

True or False?

Compared to centralized decision making, decentralized decision making decreases coordination problems.

Answer 3

False

Question 4

True or False?

Compared to tasks done by individuals, tasks performed by teams result in stronger accountability and stronger incentives

Answer 4

False

Question 5

True or False?

The balanced scorecard explains how to weigh the four types of performance measures (Financial, customer, operations, and learning & growth)

Answer 5

False

Question 6

True or False?

As measuring employee’s performance becomes less costly (or less dificult). control such as belief and boundary controls become more important.

Answer 6

True

Question 7

True or False?

The negotiated transfer price determines how profits are divided between divisions within a corporation

Answer 7

True

Question 8

The Titanic hit an iceberg and sank. Assuming tax considerations are ignored, the ship’s book value is

A. a relevant cost

B. a sunk cost

C. an opportunity cost

D. a discretionary cost

E. a variable cost

Answer 8

B

Question 9

Myopia occurs when:

A. a manager chooses actions in her department only after carefully evaluating how those actions impact other departments in the corporation

B. a manager chooses actions that increase his long-run performance at the expense of his short-term performance

C. a conflict exists between the budget and the strategic plan and the manager chooses to act on the strategic plan

D. department managers focus on short-term performance over long-term performance

Answer 9

D

Question 10

Relevant costs:

A. exclude opportunity costs

B. are only those that would be incurred within the relevant range of production

C. are anticipated future costs

D. are costs that differ across alternatives

E. C and D

Answer 10

E

Question 11

The important qualitative factor to consider regarding a special order is

A. The avoidable fixed costs associated with the special order

B. The effect the sale of special-order units will have on regularly priced units

C. The incremental revenue from the special order

D. The variable costs associated with the special order, including incremental fixed costs

E. All of the above

Answer 11

B

Question 12

Which of the following is not a reason large corporations decentralize decision making to lower-level managers and employees?

A. To speed up coordination and information processing

B. To more effectively utilize local knowledge

C. To increase budget slack

D. To develop managerial expertise

E. All of the above are reasons large corporations decentralize decision making

Answer 12

C

Question 13

In addition to performance measurement, management accounting systems include boundary controls such as

A. the company mission statement

B. rules

C. meetings

D. culture

Answer 13

B

Question 14

Which of the following measures or control is most important for solving unexpected problems within organizations?

A. Budgets

B. Interactive Control

C. Boundary control

D. All of the above are important controls for solving unexpected problems

Answer 14

B

Question 15

Which of the following statements is true about budget slack?

A. It can help responsibilty center managers achieve their budget

B. It can help the organization achieve high performance

C. Top managers know more about slack than lower-level managers

D. Budget slack decreases product cost

Answer 15

A

Question 16

Which of the following motivates employees to compete?

A. Separate budgets

B. Working in different responsibility centers that are not comparable

C. Absolute performance measures

D. Relative performance measures

Answer 16

D

Question 17

___ describes the effect of weak or shared incentives that reward individuals for how their team performs as a whole

A. High commitment

B. High effort

C. Teamwork

D. Free riding

Answer 17

D

Question 18

Which of the following is a potential problem of offering large incentives for meeting accounting performance measures?

A. managers are motivated to manipulate accounting information

B. screening managers who have high performance ability is more difficult

C. manager’s attention is focused on the most important tasks

D. managers are motivated to exert less effort

Answer 18

A

Question 19

How is responsibility accounting implemented within organizations?

A. By dividing up the organization into separate responsibility centers

B. By focusing on investment center measures but not cost, revenue, or profit center measures

C. By reporting accounting information to top management but not to lower-level managers

D. By building up budgets “bottom-up” based on assumptions made by lower managers

Answer 19

A

Question 20

A company that uses residual income:

A. Wants managers to concentrate on maximizing a percentage that can be compared to other divisions within the corporation

B. Wants managers to concentrate on maximizing dollar earnings above and beyond the cost of the investment

C. Wants managers to maximize after tax income

D. Wants managers to focus on managing costs.

Answer 20

B

Question 21

What term best describes performance measurement based on comparison of managers who perform similar activities?

A. Absolute performance

B. Relative performance

C. Zero-based budgeting

D. Flexible budgeting

Answer 21

B

Question 22

Which of the following performance measures is best designed to measure investment center performance from the perspective of stockholders?

A. Economic value added

B. Residual income

C. Return on investment

D. None of the above

Answer 22

A

Question 23

In transfer pricing, division managers often possess critical local information about division cost, capacity, and market conditions. The fairness of the transfer price and the goal congruence for the corporation as a whole is likely to suffer when:

A. the division managers have incentives to help the corporation as a whole perform

B. there is misrepresentation of private information

C. there is truthful disclosure of private information

D. a perfectly competitive market price for the product or service being transferred is available

Answer 23

B

Question 24

Which objective of transfer pricing does an administered transfer price violate?

A. Treating divisions as responsibility centers

B. Goal congruence

C. Centralization

D. Autonomy

Answer 24

D

Question 25

Which of the following is not an objective of transfer pricing?

A. Having divisions make decisions that contribute to company performance

B. Treating both the buying and selling divisions as cost centers

C. Separately rewarding each division

D. Setting transfer prices that division managers believe are fair.

Answer 25

B

Question 26

Why do many companies use non-financial performance measures?

A. Non-financial performance measures are often easier for lower-level employees to control and understand.

B. Non-financial performance measures often lead or predict financial performance measures

C. Non-financial performance is often easier to measure at lower levels of organizations

D. All of the above

Answer 26

D

Question 27

Why are environmental costs becoming more important for large organizations?

A. Depletion of natural resources causes energy costs to increase

B. Some stakeholders, such as customers and employees, are demanding that organizations are to be held accountable for their environmental costs

C. High environmental costs can cause increased government regulation

D. All of the above

Answer 27

D

Question 28

The theory of constraints focuses mainly on:

A. reducing inventory levels

B. increasing production volume

C. improving product quality

D. improving customer satisfaction

Answer 28

B

Question 29

In the Baldwin Bicycle mini-case an important qualitative consideration is:

A. Breaking even on the special order

B. Uncertainty about future sales

C. Increasing employee morale

D. Improving product quality

Answer 29

B