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MGMT 201 > Module 2 > Flashcards

Module 2 Flashcards

1
Q

___ costs are incurred on defective products before they are shipped to customers.

A

Internal Failure

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2
Q

True or False?

Myopia occurs when a manager chooses to increase his performance in the short run in a way that reduces his performance in the long-run by a larger amount.

A

True

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3
Q

___ is the underestimation of revenue and/or the overestimation of costs in order to make budgeted targets more easily achievable.

A

Slack

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4
Q

The theory of constraints

A. Focuses on improving product quality

B. Focuses on improving learning and growth

C. Focuses on improving operations

D. Is a way of reducing capacity

A

C

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5
Q

___ centers measure sales goals, market share, and inventory turnover.

A

Revenue

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6
Q

What is the difference between absolute performance measuers and relative performance measures?

A. Absolute measures depend on how well others perform and relative measures depend on a performance standard

B. Absolute measures depend on how well others perform and relative measures depend on meeting a performance target

C. Absolute measures depend on how your performance tanks against others and relative measures do not

D. Absolute measures depend on reaching a target or goal and relative measures depend on how well performance ranks compared to your peers.

A

D

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7
Q

True or False?

When activities are particularly difficult (or costly) to measure, the balanced scorecard is a good tool for motivating goal congruent performance.

A

False

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8
Q

How is Profit Margin computed?

A

Operating Income / Sales

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9
Q

___ centers measure net income and segment margin.

A

Profit

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10
Q

How is ROI computed?

A

Profit Margin x Asset Turnover

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11
Q

Name two problems with transfer pricing.

A
  • No external market price: difficult to say what a fair price is without a market
  • Misrepresentation of private information: each division manager possesses critical local information about division costs, capacity, market conditions, etc. and they may withhold it or misrepresent it.
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12
Q

Successfull implementation of strategic goals depends on balancing which four types of performance measures?

A
  • Financial
  • Customer
  • Operations
  • Learning and Growth
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13
Q

True or False?

A company with multiple products can compute a breakeven point without making any assumptions.

A

False

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14
Q

True or False?

A cost may be relevant for one decision, but not relevant for another decision.

A

True

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15
Q

___ costs are incurred on defective products after they are shipped to customers.

A

External Failure

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16
Q

A ___ budget includes budgeted costs for the actual level of activity.

A

Flexible

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17
Q

Name the 3 ways in which Responsibility Accounting attempts to achieve goal congruence.

A
  1. Dividing the organization into areas of responsibility
  2. Identifying who is responsible for managing each part of the organization
  3. Holding the manager for each responsibility center accountable for at minimum the activities they can control
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18
Q

___ performance measures depend on reaching a target, budget, or goal that is independent of other peer performance outcome.

A

Absolute

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19
Q

True or False?

When there are alternative uses for a division’s production capacity, the opportunity cost of the capacity can be relevant.

A

True

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20
Q

How is Asset Turnover computed?

A

Sales / Average Operating Assets

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21
Q

A ___ is a proposed plan of action by management for a future time period (usually the next year) expressed in financial terms.

A

Budget

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22
Q

A ___ budgte does not recognize difference between the budgeted and actual level of activity.

A

Static

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23
Q

True or False?

A plastic dashboard is produced by the parts division and used by the assembly division within a multi-divisional corporation that produces recreational vehicles. The parts division currently has a large amount of excess capacity. In this situation, the assembly division manager must rely on the honesty of the parts division manager to share his private information about his division’s incremental costs to identify the minimum transfer price.

A

True

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24
Q

___ control systems identify acceptable and unacceptable behaviors.

A

Boundary control systems

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25
Q

True or False?

Relevant costs are expected future costs that differ among alternatives.

A

True

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26
Q

___ are when each responsibility center budget is cut by the same percentage.

A

Across-the-board budget cuts

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27
Q

Name the four objectives of Transfer Pricing.

A
  • Goal Congruence: motivate managers to contribute to overall performance of the firm
  • Motivate, accurately measure, and separately reward each division manager
  • Autonomy: managers should separately control their respective divisions
  • Fairness: when people believe the system in unfair it takes away their motivation to perform
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28
Q

___ control systems include face to face meetings in small groups involving negotiation and persuasive arguments to try to reach agreement.

A

Interactive

29
Q

___ centers measure budget variances, percent of defects, and on-time deliveries.

A

Cost

30
Q

Which of the following is a method for identifying quality problems?

A. Pareto diagrams

B. Control charts

C. Cause and effect diagrams

D. All of the above

A

D

31
Q

True or False?

Compared to the case in which there is not a market price available, establishing a fair transfer price is more difficult when there is an external market for the product or service being transferred.

A

False

32
Q

How is the Degree of Operating Leverage (DOL) computed?

A

Contribution margin / Pretax operating income

33
Q

When a market price is not available, when are fixed costs relevant to transfer pricing?

A

When the selling division has no excess capacity

34
Q

How is Economic Value Added (EVA) computed?

A

After tax operating income - (weighted average cost of capital * average assets)

35
Q

___ exists when employees and managers work toward achieving mutually supportive goals that are consistent with the firms overall strategy.

A

Goal Congruence

36
Q

Which of the following is most likely to be an invesment center?

A. A marketing department

B. A division of a large corporation

C. A personnel department

D. An accounting department

E. All of the above are equally likely to be investment centers

A

B

37
Q

Which of the following is NOT an advantage of ROI?

A. It encourages managers to pay careful attention to the relationships among sales, expenses, and investment

B. It encourages managers of departments with high ROIs to invest in lower ROI projects that are beneficial to the company as a whole

C. It encourages efficiency

D. It discourages investments in unproductive operating assets

E. All of the above are advantages of ROI

A

B

38
Q

How can budgets be a better criterion than past performance for evaluating a managers performance?

A. Budgets can identify and eliminate inefficiencies included in actual performance

B. Future conditions may be expected to differ from the past, and therefore can be factored into budgets

C. Budgets can include slack

D. A and B

A

D

39
Q

Name the four types of responsibility centers.

A
  1. Investment centers
  2. Profit centers
  3. Cost centers
  4. Revenue centers
40
Q

What does DOL measure?

A

How fixed costs magnify the effects of changes in sales on pretax operation income

41
Q

___ performance measures depend on how an individual’s or a groups’ performance ranks relative to peers.

A

Relative

42
Q

Name 3 ways to increase ROI.

A
  1. Increase Sales
  2. Reduce Expenses
  3. Reduce Assets
43
Q

True or False?

Centralization is the delegation of decision making authority to lower level managers and employees within an organization.

A

False

44
Q

True or False?

Operating leverage describes the effect of changes in sales and variable costs on operating income.

A

False

45
Q

What is the Economic Theory of Motivation?

A

People have personal goals that are in conflict with organizational goals and their motivation to do what is best for their organization comes from economic rewards and leisure.

46
Q

Which of the following is NOT a reason for decentralization?

A. Decentralized managers tend to be more focused on managing their responsibility center than centralized managers

B. Decentralized managers have better access to information about decentralized work

C. Centralized management can spend more time focusing on strategic planning and decision making

D. Decentralized managers can make decisions on a more timely basis

E. Lower-level managers are more highly motivated to take the initiative when decision making is decentralized

A

A

47
Q

___ budgets start from zero rather than the prior year budget.

A

Zero-Based

48
Q

How is Residual Income (RI) computed?

A

Operating Income - (Minimum return % * Average operating assets)

49
Q

___ centers measure ROI, residual income, and economic value added.

A

Investment

50
Q

___ is the income in excess of the minimum return on the firm’s average investment in operating assets.

A

Residual Income

51
Q

___ are NOT controlled by the manager of a profit center.

A. Revenues

B. Costs

C. Investments

D. Profits

E. All of the above are controlled by the manager of a profit center.

A

C

52
Q

Name the four ways in which transfer prices are set.

A
  • Market based
  • Cost based
  • Negotiated
  • Administered transfer prices
53
Q

The ___ arises when the performance of the team as a while can be measured but the performance of each individual cannot.

A

1/n problem

54
Q

___ costs are incurred to preclude the production of products that do not conform to specifications.

A

Prevention

55
Q

How can team production create problems motivating employees?

A. It provides strong incentives to contribute to team performance

B. It provides weak incentives to contribute to team production

C. It increases individual accountability

D. Performance of each team member is independent of other team members

A

B

56
Q

___ is a top management style of granting subordinate managers an autonomy and independence in operating and making decisions for their organizational units.

A

Decentralization

57
Q

Economic theory makes all but which of the following assumptions about human motivation?

A. People are motivated by monetary incentives

B. People are basically honest and ethical

C. People will not work harder unless they are paid more
D. Accurately measuring people’s performance is critical to motivating them

A

B

58
Q

___ budgets start with the prior year’s budget and adjust for changes that are expected for the coming year.

A

Incremental

59
Q

If a firm is at full capacity, the minimum transfer price must cover

A. Only variable labor and material costs associated with the special order

B. Total variable costs associated with the special order

C. Variable and sunk manufacturing costs associated with the special order

D. Variable costs and incremental fixed costs associated with the special order.

A

D

60
Q

Name the 5 steps of problem solving.

A
  1. Define the problem and the alternatives
  2. Gather relevant information
  3. Develop plans for each alternative
  4. Make a decision
  5. Implement the decision, evaluate performance, and learn
61
Q

___ costs are incurred to detect which of the individual units of products do not conform to specifications.

A

Appraisal

62
Q

If a perfectly competitive market price is not available, the minimum transfer price …

A

Should cover all of the selling division’s relevant or incremental costs

63
Q

True or False?

A strength of return on investment (ROI) is that it motivates managers whose annual bonus is based on ROI emphasizing long-term strategic goals.

A

False

64
Q

___ control systems include accepted social norms, patterns of behavior, and corporate culture expected of all employees.

A

Belief

65
Q

Which of the following is NOT a goal of responsibility accounting?

A. Implementing and evaluating strategy at decentralized levels of an organization

B. Treating the organization as an unidivided system or whole

C. Performance evaluation

D. Gathering information

E. All of the above are goals of responsibilty accounting

A

B

66
Q

Based on DOL, when is leverage present?

A

DOL > 1

67
Q

How is Contribution Margin Computed?

A

Sales Revenue - Variable Expenses

68
Q

How is Operating Income computed?

A

Revenue - Cost of Goods Sold

MGMT 201 (5 decks)

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