Chapter 15

CHAPTER 15
Multiple Choice
1. A report that measures financial and nonfinancial performance
measures for various organization units in a single report is called a(n)
• balanced Scorecard.
• financial report scorecard.
• imbalanced scorecard.
• unbalanced Scorecard.
2.Customer-satisfaction measures are an example of:

a. Goal-congruence approach.
b. balanced scorecard approach.
c. financial report scorecard approach.
d. investment success approach.
3. An example of a performance measure with a long-run time horizon

• is direct materials efficiency variances.
• is overhead spending variances.
• is number of new patents developed.
• include all of the above measures.
4. Should assets be defined as total assets or net assets? This question is

considered part of which step in designing an accounting-based performance measure?
• Choose performance measures that align with top management's
financial goals
• Choose the time horizon of each performance measure.
• Choose a definition for each performance measure.
• Choose a measurement alternative for each performance measure.
5. Should assets be measured at historical cost or current cost? This

question is considered part of which step in designing an accounting-
based performance measure?
• Choose performance measures that align with top management's
financial goals.
• Choose the time horizon of each performance measure.
• Choose a definition for each performance measure.
• Choose a measurement alternative for each performance measure.
6. Which of the following statements about designing an accounting-based

performance measure is false?
• The steps may be followed in a random order.
• The issues considered in each step are independent.
• Management's beliefs are present during the analyses.
• Behavioral criteria are important when evaluating the steps.
7. The return on investment is usually considered the most popular

approach to incorporating the investment base into a performance
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measure because
• it blends all the ingredients of profitability into a single percentage.
• once determined, there is no need to use it with other measures of
performance.
• it is similar to the company's price earnings ratio in that a
corporation's return on investment appears every day in The Wall
Street Journal
• of both (a) and (c).
8. During the past twelve months, the Seven Corporation had a net income of P39,200. What
is the return on investment if the amount of the
investment is P280,000?
a. 10% c. 14%
b. 12% d. 16%
9. The Delta Corporation had the following information for 20X3:

Revenue P 900,000
Operating expenses 670,000
Total assets 1,150,000
What is the return on investment?
a. 10% c. 25%
b. 20% d. 78.2%
The following information applies to questions 10 through 12.

The HZL Corporation reported the following information for its Pasig
Division:
Revenues P1,000,000
Operating costs 600,000
Taxable income 200,000
Operating assets 500,000
Income is defined as operating income.
10. What is the Pasig Division's investment turnover ratio?

a. 2.00 c. 2.50
b. 3.33 d. 0.80
11. What is the Pasig Division's return on sales?

a. 0.2 c. 0.5
b. 0.4 d. 0.6
12. What is the Pasig Division's return on investment?

a. 0.2 c. 0.5
b. 0.4 d. 0.8
13. A problem with utilizing residual income is that
• a corporation with a high investment turnover ratio always has a higher residual
income than a corporation with a smaller investment turnover ratio.
• a corporation with a high return on sales always has a higher residual income than a
corporation with a smaller return on sales
• a corporation with a larger peso amount of assets is Iikely to have a higher
residual income than a corporation with a smaller peso amount of assets
• none of the above are correct.
14. A company which favors the residual income approach

• wants managers to concentrate on maximizing an absolute amount of pesos
• wants managers to concentrate on maximizing a percentage return
• wants managers to maximize the investment turnover ratio.
• dwants managers to maximize return on sales.

The Globe Medical Supply Company has two divisions that operate
independently of one another. The financial data for the year 20X3 reported
the following results:
Uptown Downtown
Sales P3,000,000 P2,500,000
Operating income 750,000 550,000
Taxable income 650,000 375,000
Investment 6,000,000 5,000,000
The company's desired rate of return is 10%. Income is defined as operating

income.
15. What are the respective return-on-investment ratios for the Uptown and Downtown
Divisions?
• 0.110 and 0.125 c. 0.125 and 0.110
• 0.108 and 0.075 d. 0.050 and 0.150
16. What are the respective residual incomes for the Uptown and Downtown Divisions?
• P30,000 and P50,000 c. P150,000 and P50,000
• P150,000 and P30,000 d. P50,000 and a negative P150,000
17. Which division has the best return on investment and which division has
the best residual income figure, respectively?
• Uptown, Uptown c. Uptown, Downtown
• Downtown, Downtown d. Downtown, Uptown
18. A negative feature of defining investment by excluding the portion of

total assets employed that are financed by short-term creditors is
• current liabilities are sometimes difficult to define.
• short-term debt is always more expensive to finance than long-term
debt.
• this method encourages managers to use an excessive amount of
short-term debt.
• this method encourages managers to use an excessive amount of
long-term debt.
Federov Company has two sources of funds: long-term debt with a market
and book value of P10 million issued at an interest rate of 12%, and equity
capital that has a market value of P8 million (book value of P4 million).
Federov Company has profit centers in the following locations with the
following operating incomes, total assets, and total liabilities. The cost of
equity capital is 12%, while the tax rate is 25%.
Operating Income Current Liabilities

Assets
Tarlac P 960,000 P 4,000,000 P 200,000
Quezon P1,200,000 P 8,000,000 P 600,000
Manila P2,040,000 P12,000,000 P1,200,000
19. What is the EVA for Tarlac?

• P255,740 c. P392,540
• P327,460 d. P720,000
20. What is the EVA for Quezon?
• P135,580 c. P234,000
• P220,000 d. P305,000
21. What is the EVA for Manila?
• P 450,000 c. P 414,360
• P1,530,000 d. P1,115,640
The following information applies to questions 22 through 24
P. Jones Cleaning Products manufactures home cleaning products. The

company has two divisions, Bleach and Cleanser. Because of different accounting methods
and inflation rates, the company is considering multiple
evaluation measures. The following information is provided for 2013:
Assets Income
Book Current Book Current
value value value value
Bleach P225,000 P300,000 P150,000 P155,000
Cleanser P450,000 P250,000 P100,000 P105,000
The company is currently using a 15% required rate of return.
22. What are Bleach's and Cleanser's return on investment based on book
values, respectively?
• 0.22; 0.67 c. 0.52; 0.42
• 0.42; 0.52 d. 0.67; 0.22
23. What are Bleach's and Cleanser's return on investment based on current
• 0.22; 0.67 c. 0.52; 0.42
• 0.42; 0.52 d. 0.67; 0.22
24. What are Bleach's and Cleanser's residual incomes based on book
• P116,250; P 32,500 c. P 67,500; P110,000
• P110,000; P 67,500 d. P 37,500; P116,250
25. If a company is a multinational company with operations in several

different countries, one way to achieve comparability of historical-cost
based on ROIs for facilities in different countries is
• restate the results of operations using the cash basis method of
accounting
• use GAAP for all reporting and calculations.
• restate the results of all operations in pesos.
• all of the above would achieve comparability.
26. Which of the following statements is true
• The economic, legal, political, social and cultural environments
differ across countries.
• Governments in some countries may impose controls and limit
selling prices of a company's products.
• Because of advances in telecommunications and transportation, the
availability of materials and skilled labor does not differ significantly across countries.
• Both (a) and (b) are correct.
27. Tying performance measures more closely to a manager's efforts

• encourages the use of nonfinancial measures.
• results in a strict use of financial ratios.
• c results in the salary component of compensation dominating the
total compensation package.
• includes both (a) and (c).
28. Team incentives encourage cooperation by

• forcing people to work together on difficult tasks.
• improving morale.
• letting individuals help one another as they strive toward a common
goal.
• rewarding all teams the same amount.
29. Many manufacturing, marketing, and design problems require

employees with multiple skills; therefore, teams are used and the
members have the added encouragement of
• individual incentives.
• management incentives.
• morale incentives.
• team incentives.
30. Designers of executive compensation plans emphasize which of the
following factors?
• Achievement of organizational goals
• Administrative case
• The probability that the executives affected by the plan will perceive the plan as fair
• All of the above are emphasized.
31. Rate of sales growth and number of customers are two examples of critical performance
indicators for which of the following
success factors?
• Service c. Cost
• Quality d. Revenue
32. An effective system of performance measurement contains critical

Performanceindicators that are a reflection of the customer’s perspective, a reflection of the
customer’s validation, a reflection of comprehensive information and a provision for
feedback.
What critical performance indicator is described by the following

statement?
Customer-focused performance measures help organization members manage activities by
concentrating their attention on improving what matters to the customers.
• Reflection of the customer's perspective
• Reflection of the customer's validation
• Reflection of comprehensive information
• Provision of feedback

performance indicators that are a reflection of the customer's
perspective, a reflection of the customer's validation, a reflection of
comprehensive information, and a provision for feedback.

statement?
Performance measures should be external, rather than internal and
should reflect an understanding of the difference between the output and
outcome of activities.
34. When a firm discovers that sales have been declining because of poor
service and slow delivery schedules, they are receiving a(n):
• diagnostic signal.
• warning signal.
• supporting signal.
• "green light" signal.

statement?
An effective program of performance measurement assesses all facets
of relevant performance so that the decision maker will not trade off
relevant, but unmeasured, facets of performance for performance on
measured facets.

What critical performance indicator is concerned with outcomes?


What critical performance indicator uses performance measures
warning and diagnostic signals?
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CHAPTER 15

2.Customer-satisfaction measures are an example of:

3. An example of a performance measure with a long-run time horizon

4. Should assets be defined as total assets or net assets? This question is

5. Should assets be measured at historical cost or current cost? This

6. Which of the following statements about designing an accounting-based

7. The return on investment is usually considered the most popular

9. The Delta Corporation had the following information for 20X3:

The following information applies to questions 10 through 12.

Income is defined as operating income.

10. What is the Pasig Division's investment turnover ratio?

11. What is the Pasig Division's return on sales?

12. What is the Pasig Division's return on investment?

13. A problem with utilizing residual income is that

14. A company which favors the residual income approach

The following information applies to questions 15 through 17.

The company's desired rate of return is 10%. Income is defined as operating

18. A negative feature of defining investment by excluding the portion of

The following information applies to questions 19 through 21.

Operating Income Current Liabilities

19. What is the EVA for Tarlac?

The following information applies to questions 22 through 24

P. Jones Cleaning Products manufactures home cleaning products. The

25. If a company is a multinational company with operations in several

27. Tying performance measures more closely to a manager's efforts

28. Team incentives encourage cooperation by

29. Many manufacturing, marketing, and design problems require

30. Designers of executive compensation plans emphasize which of the

32. An effective system of performance measurement contains critical

What critical performance indicator is described by the following

33. An effective system of performance measurement contains critical

What critical performance indicator is described by the following

What critical performance indicator is described by the following

36. An effective system of performance measurement contains critical

What critical performance indicator is concerned with outcomes?

37. An effective system of performance measurement contains critical

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