Performance Management Flashcards
In the simple control cycle, what comes after measure outputs and feeds into monitor and control?
A - Feedback
B - Fixed costs
C - Activity levels
D - Budgets and standards
D - Budgets and standards
Resources feeds into operations
Operations feeds into measure outputs
Measure outputs feeds into budgets and standards and monitor and control
Monitor and control feeds into resources
Which of the following is not a feature of effective feedback reports?
A - Made available in a timely fashion
B - Produced on a regular basis
C - Distributed to as many managers as possible
D - Sufficiently accurate for the purpose intended
C - Distributed to as many managers as possible
Reports should be communicated to the manager who has responsibility and authority to act on the
information. There is no point in distributing reports to managers who cannot act on the information
contained therein.
Which of the following describes exception reporting?
A - Reporting of exceptional activities within an organisation
B - Reporting only controllable matters to managers
C - Reporting only of variances which exceed a certain value
D - Reporting of all variances to the relevant manager
C - Reporting only of variances which exceed a certain value
Areas that are conforming to plan are given less prominence in control reports, allowing managers to focus on areas requiring attention
Which two of the following statements about management control reports are correct?
A - Reports should be completely accurate
B - Reports should be clear and comprehensive
C - Reports should not include information about uncontrollable items
D - Based on the information contained in reports, managers may decide to do nothing.
B - Reports should be clear and comprehensive
D - Based on the information contained in reports, managers may decide to do nothing.
Management reports should be sufficiently accurate for the purpose intended. Complete accuracy
might not be possible, or might take so long to attain that the value of the information is diminished
by its late arrival
Which of the following is not a style of performance evaluation identified in Hopwood’s studies?
A - Budget constrained
B - Non-accounting
C - Revenue focused
D - Profit conscious
C - Revenue focused
Although managers might focus on the achievement of revenues in the context of a budget
constrained or profit conscious style of evaluation, ‘revenue focused’ is not a specific style identified
by Hopwood.
Select which of the following styles of using budgetary information is most likely to lead to each of the situations described.
Job-related tension is caused by which of the following styles:
A - Budget constrained
B - Profit conscious
C - Non-accounting
Less focus on cost control is caused by which of the following styles:
D - Budget constrained
E - Profit conscious
F - Non-accounting
Incidence of budget bias is caused by which of the following styles:
G - Budget constrained
H - Profit conscious
I - Non-accounting
A - Budget constrained
With a budget constrained style of evaluation, the focus is on meeting the budget on a short-term
basis. Compared with the other styles of evaluation this is more likely to lead to job-related tension
and budget bias
F - Non-accounting
With a non-accounting style of evaluation the budgetary information is not as important in the
evaluation of a manager’s performance. Compared with the other styles of evaluation there will be
less focus on cost control.
G - Budget constrained
With a budget constrained style of evaluation the focus is on meeting the budget on a short-term
basis. Compared with the other styles of evaluation this is more likely to lead to job-related tension
and budget bias.
A company have recently implemented a new budgetary planning and control system after several years of trading
Having made a significant investment in the new system, the company’s management team were
surprised to learn that it is not designed to do which of the following?
A - Improve control of actual performance
B - Improve coordination of activities
C - Improve gross profit
D - Improve communication of ideas and plans
C - Improve gross profit
A new budgetary planning and control system is not designed to improve actual performance levels.
It is designed to improve the control of actual performance, the coordination of activities, and the
communication of ideas and plans
Which of the following is a reason for adopting a decentralised rather than a centralised organisational structure?
A - Improved goal congruence between the goals of divisional management and the goals of the organisation
B - Rapid management response to changes in the trading environment
C - Availability of objective performance measures
D - Improved communication of information between the group’s managers
B - Rapid management response to changes in the trading environment
One of the advantages of decentralisation is the opportunity for a speeder response to problems
and situations as a result of divisional managers’ more detailed and ‘local’ knowledge
Division P is an investment centre within PC Ltd. Over which of the following is the manager of division P likely to have control?
1) Transfer prices
2) Level of inventory in the division
3) Discretionary fixed costs incurred in the division
4) Apportioned head office costs
A - 1, 2, 3, and 4
B - 1, 2, and 3
C - 1 and 2
D - 1 only
B - 1, 2, and 3
Apportioned head office costs are not controllable by the manager of an investment centre.
Discretionary fixed costs (those which do not have to be incurred in the short term, such as
advertising and training) are within the manager’s control since they can be increased or reduced at
fairly short notice
The manager of a trading division has complete autonomy regarding the purchase and use of non-current assets. The division operates its own credit control policy in respect of its customers but the group operates a central purchasing function through which the division places all orders with suppliers and invoices are paid by head office.
Inventories of goods for sale are kept in central stores, from which local divisions call off requirements for local sales on a monthly basis into a local inventory.
Divisional performance is assessed on the basis of controllable residual income. The company requires a rate of return of ‘R’
Using the following symbols:
Divisional non-current assets N
Apportioned net book value of central stores S
Divisional working capital
Receivables D
Local inventory I
Bank B
Payables (P)
—-
= W
C - Divisional contribution
(F) - Controllable fixed costs
(H) Head office charges
–
G = Divisional net income
Which of the following formulae calculates the division’s controllable residual income?
A - [C – F] – [(N + D + B) × R]
B - [C – F] – [(N + D + I + B) × R]
C - C – [(N + D) × R]
D - G – (T × R)
B - [C – F] – [(N + D + I + B) × R]
The fixed costs are labelled as controllable therefore they should be deducted from the contribution,
but the head office charges should not. The divisional manager cannot exercise control over the
latter costs and therefore should not be held responsible for them.
The divisional manager is responsible for the non-current assets and all of the current assets.
Although inventories of goods for sale are kept in central stores, the division calls off its requirements
on a monthly basis. The divisional manager is therefore responsible for the amount of inventory held
Division D of Distan Ltd is considering a project which will increase annual profit by £15,000 but will require average receivables levels to increase by £100,000. The company’s target return on investment is 10% and the imputed interest cost of capital is 9%. Division D currently earns a return on investment of 13%
Would the return on investment (ROI) and residual income (RI) performance measures motivate the
manager of Division D to act in the interest of the Distan company as a whole?
ROI
A - Manager would wish to act in the interest of Distan Ltd
B - Manager would not wish to act in the interest of Distan Ltd
RI
C - Manager would wish to act in the interest of Distan Ltd
D -
Division D of Distan Ltd is considering a project which will increase annual profit by £15,000 but will require average receivables levels to increase by £100,000. The company’s target return on investment is 10% and the imputed interest cost of capital is 9%. Division D currently earns a return on investment of 13%
Would the return on investment (ROI) and residual income (RI) performance measures motivate the
manager of Division D to act in the interest of the Distan company as a whole?
ROI
A - Manager would wish to act in the interest of Distan Ltd
B - Manager would not wish to act in the interest of Distan Ltd
RI
C - Manager would wish to act in the interest of Distan Ltd
D - Manager would not wish to act in the interest of Distan Ltd
A - Manager would wish to act in the interest of Distan Ltd
C - Manager would wish to act in the interest of Distan Ltd
The project is acceptable to the company as a whole because the RI is positive and the ROI exceeds
the target return of 10%.
The manager of Divison D will be willing to undertake the project whichever performance measure is used, since both the ROI and the RI will increase. Therefore, both measures will motivate the divisional manager to act in the interest of the company as a whole
Division B of a national house-building group is projected to earn profits of £4.5 million in the current year on capital employed at the year end of £25 million. The division has been set a target return on investment (ROI) of 20%.
The manager of division B is considering disposing of some slow-moving houses which have a full market value of £16 million, but are held in the books at cost of £12 million, for a reduced figure of £14 million.
Which of the following statements is true?
A - The revised divisional ROI will be below 20% and the manager will make a goal congruent decision
B - The revised divisional ROI will be above 20% and the manager will not make a goal congruent decision
C - The revised divisional ROI will be below 20% and the manager will not make a goal congruent decision
D - The revised divisional ROI will be above 20% and the manager will make a goal congruent decision
B - The revised divisional ROI will be above 20% and the manager will not make a goal congruent decision
Revised profit:
Current projection = £4.5m
Profit on sale of houses (14m - 12m) = £2m
—
6.5 million
Revised divisional investment
Current level = £25 million
Cash from sales of houses = £14 million
Less book value of houses = (£12 million)
—–
= 27 million
Revised ROI = (6.5/27) x 100% = 24.1%
The manager would wish to undertake the transaction since the projected ROI of (4.5/25) 18% would
otherwise not satisfy the target ROI of 20%. However, this is not a goal congruent decision since the
houses would be sold for £2 million below their market value of £16 million
On the last day of the financial year a division has net assets with a total carrying amount of £300,000. The return on investment for the division is 18%.
The division manager is considering selling a non-current asset immediately before the year end. The
non-current asset has a carrying amount of £15,000 and will sell for a profit of £5,000
What would be the division’s return on investment (ROI) immediately after the sale of the asset at the
end of the year?
A - 17.7%
B - 19.3%
C - 20.3%
D - 20.7%
B - 19.3%
Original profits £300,000 × 18% = 54,000
Profit on sale = 5,000
Revised profit = 59,000
Original net asset value = 300,000
Less carrying amount of asset sold = (15,000)
Plus cash received from sale of asset = 20,000
—-
305,000
Revised ROI after sale of asset = (£59,000/£305,000) × 100% = 19.3%
Which of the following is not a perspective that is monitored by the balanced scorecard approach to performance measurement?
A - Financial
B - Customer
C - Supplier
D - Innovation and learning
C - Supplier
The supplier perspective is not one of the four perspectives of the balanced scorecard. Aspects of a
supplier relationship would be monitored, if appropriate, within the internal business perspective