Test bank cost and management accounting 4e by barfield ch19

CHAPTER 19
MEASURING AND REWARDING ORGANIZATIONAL PERFORMANCE
MULTIPLE CHOICE

1.

Variance analysis would be appropriate to measure performance in
a.
b.
c.
d.

profit centers.
investment centers.
cost centers.
all of the above.

ANSWER:
2.

investment center
revenue center
profit center
cost center

ANSWER:

EASY

cost centers and investment centers.
revenue centers and profit centers.

revenue centers and investment centers.
profit and investment centers.

ANSWER:

d

EASY

Using a single performance evaluation criterion for an investment center
a.
b.
c.
d.

is most effective because a manager can concentrate on a single goal.
can result in manipulation of the performance measure.
allows multinational investment centers' performances to be equitably compared.
is only appropriate if the criterion is non-monetary.

ANSWER:

5.

a

Net cash flow could be used to measure performance in
a.
b.
c.

d.

4.

EASY

Which of the following responsibility centers may be evaluated on the basis of residual
income?
a.
b.
c.
d.

3.

d

b

EASY

A company has set a target rate of return of 16% for its investment center. An
investment center manager in this company would
a.

acquire assets that would increase divisional income by more than 16%.
19-1


19-2

Performance

b.
c.
d.
reduced

Chapter 19

sell all assets that do not generate divisional income of more than 16%.
acquire assets that would increase sales by more than 16%.
acquire any technologically advanced assets that would cause costs to be
by 16% or more.

ANSWER:
6.

c.
manager
d.

should be evaluated on all costs and revenues that can be directly traced to the
sub-unit.
c

EASY

The Statement of Cash Flows may be superior to the cash budget as a performance
evaluation measure because
a.

b.
c.
d.

cash flows are shown on the accrual basis on the cash budget.
the cash budget does not include capital investments.
cash flows are arranged by activity.
of all the above reasons.

ANSWER:

c

MEDIUM

The Statement of Cash Flows indicates the cash inflows and outflows from
a.
b.
c.
d.

investing, financing, and borrowing activities.
operating, investing, and sending activities.
merchandising, financing, and investing activities.
operating, investing, and financing activities.

ANSWER:

9.

EASY

and the sub-unit should be evaluated on the basis of the same costs and revenues.
should only be evaluated on the basis of variable costs and revenues of the subunit.
should be evaluated on all costs and revenues that are controllable by the

ANSWER:

8.

a

In evaluating the performance of a profit center manager, the manager
a.
b.

7.

Measuring and Rewarding Organizational

d

EASY

Division A's investment in a new project will raise the overall organization's return on
investment if
a.
b.

the return on investment on the new project exceeds the target return of the

overall organization.
the return on investment on the new project exceeds the return on investment of
Division A.


Chapter 19

c.
d.

Measuring and Rewarding Organizational Performance

the return on investment on the new project exceeds the overall organization's
return on investment.
Division A's return on investment exceeds the return on investment of the overall
organization.

ANSWER:
10.

c

EASY

If sales and expenses both rise by $100,000
a.
b.
c.
d.

residual income will increase.
return on investment will increase.
return on investment will be unchanged.
asset turnover will decrease
ANSWER:

11.

c

EASY

ABC Corp. is composed of three operating divisions. Overall, the ABC Corp. has a
return on investment of 20%. A Division has a return on investment of 25%. If ABC
Corp. evaluates its managers on the basis of return on investment, how would the A
Division manager and the ABC Corp. president react to a new investment that has an
estimated return on investment of 23%?
a.
b.
c.
d.

A Division manager
accept
accept
reject
reject

ANSWER:

12.

19-3

c

ABC Corp. president
accept
reject
accept
reject

EASY

A company's return on investment is affected by a change in

a.
b.
c.
d.

Asset Turnover
Yes
Yes
No
No

ANSWER:

a

Profit Margin
on Sales
Yes
No
No
Yes

EASY


19-4
Performance

13.

Chapter 19

Measuring and Rewarding Organizational

The return on investment (ROI) ratio measures
a.
b.
c.
d.

only asset turnover.
only earnings as a percent of sales.
both asset turnover and earnings as a percent of sales.
asset turnover and earnings as a percent of sales, correcting for the effects of

differing depreciation methods.

ANSWER:

c

EASY

14.
Return on investment (ROI) is a term most often used to express income earned on
assets invested in a business unit. A company's return on investment would increase if sales
a.
b.
c.
d.

increased by the same dollar amount as expenses and total assets increased.
remained the same and expenses were reduced by the same dollar amount that
total assets increased.
decreased by the same dollar amount that expenses increased.
and expenses increased by the same percentage that total assets increased.

ANSWER:
15.
sales

ROI
increase
indeterminate
no change

no change

ANSWER:

c

Assert turnover
increase
increase
increase
decrease

Profit margin
increase
decrease
decrease
no change

MEDIUM

Which of the following would be an appropriate alternative to the use of ROI in
evaluating the performance of an investment center?

a.
b.
c.
d.

Residual
income

yes
no
yes
yes

ANSWER:
17.

MEDIUM

A sub-unit of an organization is evaluated on the basis of its ROI. If this sub-unit’s
and expenses both increase by $30,000, how will the following measures be affected?
a.
b.
c.
d.

16.

b

Net cash
flow
yes
yes
no
no
c

Cost and revenue

variance analysis
yes
no
no
yes

EASY

Return on investment is computed by dividing income by


Chapter 19

a.
b.
c.
d.

Measuring and Rewarding Organizational Performance

19-5

contribution margin.
inventory turnover.
assets invested.
average assets employed.

ANSWER:

c

EASY

18.

Presently, the Alligator Division of Animal Crackers Co. has a profit margin of 30%. If
total sales rise by $100,000, both the numerator and the denominator of the profit
margin
will increase. The net result will be
a.
b.
c.
e.

an increase in the profit margin ratio to above 30%.
a decrease in the profit margin ratio to below 30%.
no change in the profit margin ratio.
a change in the profit margin ratio that cannot be determined from this
information.

ANSWER:
19.

covers fixed expenses.
is not used to cover expenses.
equals contribution margin.
equals product contribution margin.

ANSWER:

b

EASY

Profit margin equals
a.
b.
c.
d.

income divided by sales.
incomes divided by average inventory.
income divided by average assets.
income divided by average stockholder’s equity.

ANSWER:
21.

MEDIUM

Profit margin indicates the portion of sales that
a.
b.
c.
d.

20.

c

a

EASY

The Du Pont model measures
a.
b.
c.
d.

residual income.
return on investment.
throughput.
profit.

ANSWER:

b

EASY


19-6
Performance

22.

Chapter 19

In the Du Pont model, profit margin is a ratio of

a.
b.
c.
d.

income to sales.
income to assets.
sales to income.
sales to assets.

ANSWER:
23.

EASY

contribution margin and asset turnover.
profit margin and asset turnover.
asset turnover.
profit margin.

ANSWER:

b

EASY

Residual income is used as a performance measure in
a.
b.
c.

d.

profit centers.
cost centers.
investment centers.
revenue centers.

ANSWER:
25.

a

The Du Pont model measures ROI as it is affected by
a.
b.
c.
d.

24.

Measuring and Rewarding Organizational

c

EASY

If a new project generates a positive residual income, the
a.
b.
c.

d.

project's return on investment is less than the target rate.
project's return on investment is greater than the target rate.
project's return on investment is equal to the target rate.
relationship between the project's return on investment and the target rate cannot
necessarily be determined.

ANSWER:

b

EASY

26.

A prospective project under consideration by P Division of C Co. has an estimated
residual income of a negative $20,000. If the project requires an investment of
$400,000,
the
a.
b.
c.
d.

project generates a negative return on investment.
project's return on investment is zero.
project's return on investment is 5% less than the company's target rate.
company's target rate is 15%

ANSWER:

c

MEDIUM


Chapter 19

27.

Measuring and Rewarding Organizational Performance

Residual income is the
a.
b.
c.
d.

contribution margin of an investment center, less the imputed interest on the
invested capital used by the center.
contribution margin of an investment center, plus the imputed interest on the
invested capital used by the center.
income of an investment center, less the imputed interest on the invested capital
used by the center.
income of an investment center, plus the imputed interest on the invested capital
used by the center.

ANSWER:
28.

b

EASY

If a division generates a positive residual income then the division’s
a.
b.
c.
d.

asset turnover was very high.
profitability was greater than that of other divisions in the company.
performance was above expectations.
actual return on investment exceeds the division’s target return.

ANSWER:

d

EASY

Residual income is determined as
a.
b.
c.
d.

income times the asset turnover rate.
income times the inventory turnover rate.

income minus (asset base times target rate of return).
sales minus (asset base times target rate of return).

ANSWER:
31.

EASY

long-term
short-term
qualitative
profit center

ANSWER:

30.

c

Residual income is an example of a ____________ performance measurement.
a.
b.
c.
d.

29.

19-7

c

EASY

Residual income is used as a performance measure in which of the following types of
centers?
a.

Revenue
yes

Investment
no

Profit
yes


19-8
Performance

b.
c.
d.

Chapter 19

yes
no
no

ANSWER:
32.

c

EASY

All other things being equal, an increase in sales price would increase
a.
b.
c.
d.

asset turnover.
profit margin.
residual income.
all of the above.

ANSWER:

d

EASY

If sales and expenses both rise by $100,000, profit margin will
a.
b.
c.
d.

decrease and asset turnover will decrease.
increase and asset turnover will decrease.
decrease and asset turnover will increase.
increase and asset turnover will increase.

ANSWER:
35.

EASY

increase in residual income.
decrease in return on investment.
decrease in residual income.
decrease in both residual income and return on investment.

ANSWER:

34.

d

yes
yes
no

An increase in a corporation's target rate would result in a(n)
a.
b.
c.
d.

33.

yes
yes
yes

Measuring and Rewarding Organizational

c

MEDIUM

Asset turnover equals
a.
b.
c.
d.

income divided by average assets.
sales divided by assets.
sales divided by average assets.
assets divided by sales.

ANSWER:

c

EASY

Chapter 19

36.

Measuring and Rewarding Organizational Performance

19-9

The information below relates to costs, revenues, and assets anticipated for 1999 in B
Division of BVD Corp:
Sales
Variable costs
Average assets employed
Fixed costs

$ 4,000,000
75% of sales
$12,000,000
0

How would each of the following measures be affected if sales rise by $5,000 in X
Division?
a.
b.
c.
d.

ROI
increase

increase
increase
no change

ANSWER:
37.

EASY

100%
4%
25%
2%

ANSWER:

b

EASY

Which measure is limited by the fact that it uses accounting income?
a.
b.
c.
d.

ROI
RI
EVA
All of the above

ANSWER:
39.

Profit margin
increase
increase
no change
increase

A division of Lucky Co. reported a return on investment of 20% for a recent period. If
the division's asset turnover was 5, its profit margin must have been
a.
b.
c.
d.

38.

c

Asset turnover
increase
no change
increase
no change

d

EASY

Z Division of XYZ Corp. has the following information for 1998:
Assets available for use
Target rate of return
Residual income

$1,800,000
10%
$ 270,000

What was Z Division's return on investment for 1998?
a.

15%


19-10
Performance

b.
c.
d.

Chapter 19

Measuring and Rewarding Organizational

10%
25%
20%

ANSWER:

c

MEDIUM

Use the following information for questions 40-43:
Apple Division of the American Fruit Co had the following statistics for 1998:
Assets available for use
$1,000,000 Book Value
$1,500,000 Market Value
Residual income
100,000
Return on investment
15%
40.

What was Apple Division's segment income for 1998?
a.
b.
c.
d.

$150,000
$100,000
$250,000
$ 50,000

ANSWER:

41.

MEDIUM

What was the target rate of return in the American Fruit Company for 1998?
a.
b.
c.
d.

10%
15%
25%
5%

ANSWER:
42.

a

d

MEDIUM

If the manager of Apple Division is evaluated based on return on investment, how much
would she be willing to pay for an investment that promises to increase net segment
income by $50,000?
a.
b.

$ 50,000
$ 333,333


Chapter 19

c.
d.

Measuring and Rewarding Organizational Performance

$1,000,000
$ 500,000

ANSWER:
43.

19-11

b

MEDIUM

If expenses increased by $20,000 in Apple Division,
a.
b.
c.
d.

return on investment would decrease.

residual income would increase.
the target rate of return would decrease.
asset turnover would decrease.

ANSWER:

a

EASY

Use the following information for questions 44 through 46:
T Division of the Alphabet Co. has the following statistics for its 1998 operations:
Assets available for use
$2,000,000
T Division's return on investment
25%
T Division's residual income
200,000
Return on investment (entire Alphabet Co)
20%
44.

Compute EVA assuming the cost of capital is 10% and the tax rate is 40%.
a.
b.
c.
d.

$ 90,000
$ 150,000

$0
$ (60,000)

ANSWER
45.

MEDIUM

What is the target rate of return in the Alphabet Co.?
a.
b.
c.
d.

25%
20%
15%
10%

ANSWER:
46.

d

c

MEDIUM

If Alphabet Co. evaluates its managers on the basis of return on investment, the manager
of T Division would invest in a project costing $100,000 only if it increased net segment

income by at least
a.
b.
c.

$10,000.
$15,000.
$20,000.


19-12
Performance

d.

Chapter 19

Measuring and Rewarding Organizational

$25,000.

ANSWER:

d

MEDIUM

47. A Corp. has a target return of 15%. If a prospective investment has an estimated return
on investment of 20%, and a residual income of $10,000, what is the estimated cost of
the investment?

a.
b.
c.
d.

$200,000
$ 66,667
$ 50,000
The answer can't be determined from this information.

ANSWER:
48.
need

15%
12%
25%
27%

ANSWER:

d

MEDIUM

In the X Division of S Co., 1998 segment income exceeded 1998 residual income by
$15,000. Also for 1998, return on investment exceeded the target rate of return by 10%.
What was the level of investment in the X Division for 1998?
a.
b.

c.
d.

$ 15,000
$100,000
$150,000
An answer can't be determined from this information.

ANSWER:
50.

MEDIUM

The Bullwhip Division of Leather Products Co. is considering an investment in a new
project. The project has an estimated cost of $1,000,000. If Leather Products Co. has a
target rate of return of 12%, how large does the return on investment on this project
to be to generate $150,000 of residual income?
a.
b.
c.
d.

49.

a

c

DIFFICULT

BAD Co. has established a target rate of return of 16% for all divisions. In 1998,
Division D generated sales of $10,000,000 and expenses of $7,500,000. Total assets at
the beginning of the year were $5,000,000 and total assets at the end of the year were
$7,000,000. For 1998, what was Division D’s return on investment ?
a.

20.83 %


Chapter 19

b.
c.
d.

Measuring and Rewarding Organizational Performance

35.71 %
41.67 %
50.00 %

ANSWER:
51.

c

MEDIUM

BAD Co. has established a target rate of return of 16% for all divisions. In 1998,
Division D generated sales of $10,000,000 and expenses of $7,500,000. Total assets at

the beginning of the year were $5,000,000 and total assets at the end of the year were
$7,000,000. For 1998, what was Division D’s residual income?
a.
b.
c.
d.

$ 960,000
$1,380,000
$1.540,000
$1,700,000

ANSWER:
52.

c

MEDIUM

Bagel Division of Pita Company reported the following results for 1999:
Sales
Expenses
Total assets (1/1/99)
Total assets (12/31/99)

$8,000,000
6,250,000
5,000,000
5,400,000

What was the profit margin of Bagel Division in 1999?
a.
b.
c.
d.

68%
35%
32%
22%

ANSWER:
53.

19-13

d

MEDIUM

Bagel Division of Pita Company reported the following results for 1999:
Sales
Expenses
Total assets (1/1/99)
Total assets (12/31/99)

$8,000,000
6,250,000
5,000,000
5,400,000

What was the asset turnover ratio of Bagel Division in 1999?
a.
b.
c.
d.

1.538
2.97
0.650
1.20


19-14
Performance

Chapter 19

ANSWER:
54.
For

40%
13%
20%
33%

ANSWER:

c.

d.

MEDIUM

are usually the most well-received by managers.
often reflect long-term organizational goals better than financial performance
measures.
can only be developed in the production area of an organization.
is limited by the number of critical success factors defined by the organization.

ANSWER:

b

EASY

Relative to qualitative performance measures, quantitative performance measures are
a.
b.
c.
d.

subject to manipulation.
dependent on accounting information.
effective in the pursuit of organizational goals.
subjective.

ANSWER:
57.

d

Qualitative non-financial performance measures
a.
b.

56.
less

MEDIUM

Pasta Division of We Make Italian, is evaluated based on residual income generated.
1998, the Division generated a residual income of $2,000,000 and net income of
$5,000,000. The target rate of return for all divisions of We Make Italian is 20%. For
1998, what was the return on investment for Pasta Division?
a.
b.
c.
d.

55.

a

Measuring and Rewarding Organizational

d

EASY

Improved effectiveness and efficiency of a product is considered a ______ performance
measurement?
a.
b.
c.
d.

non-financial
financial
quantitative
qualitative

ANSWER:

d

EASY


Chapter 19

58.

Measuring and Rewarding Organizational Performance

Non-financial performance measures (NFPMs) are better than financial measures in that
NFPMs
a.
b.
c.

d.

provide a better indication of customer satisfaction.
may better predict the direction of future cash flows.
directly measure how well an organization does those things that create
shareholder value.
all of the above

ANSWER:
59.

b.
c.
d.

b

EASY

Which of the following would be considered a non-financial performance measurement?
a.
b.
c.
d.

increase in market share
variances from standards
number of customer complaints
cost of engineering changes

ANSWER:

c

EASY

Which type of financial measure better predicts the direction of future cash flows?
a.
b.
c.
d.

Non-financial Measures
yes
yes
no
no

ANSWER:

62.

EASY

qualitative characteristics that point out sub-optimization activities and
throughput bottlenecks.
both short-term and long-term measures related to critical success factors.
long-term supplier satisfaction levels.
short-term financial viability.

ANSWER:

61.

d

In selecting non-financial performance measures managers should choose measures that
reflect
a.

60.

19-15

d

Financial Measures
yes
no
no
yes

EASY

Which of the following would be classified as a non-financial critical success factor?
Technical

Manufacturing

Manufacturing

19-16
Performance

a.
b.
c.
d.

Chapter 19

Quality
no
yes
yes
yes

ANSWER:
63.

EASY

d

EASY

Which of the following is necessary for any valid performance measurement?
a.
b.

c.
d.

It must be part of the financial accounting system in use.
It must be quantifiable.
Goal congruence must be promoted by its use.
It must be financial in nature.

ANSWER:

c

EASY

Process quality yield is used in the measurement of
a.
b.
c.
d.

throughput.
cash flows.
asset turnover.
profit margin.

ANSWER:

66.

no

no
yes
no

Effectiveness
yes
no
yes
yes

profitability
costs
market
sales

ANSWER:

65.

c

Efficiency

Which of the following is not one of the four areas of performance measurements
mentioned in the text?
a.
b.
c.
d.

64.

Excellence
no
no
yes
yes

Measuring and Rewarding Organizational

a

EASY

An increase in productive processing time will increase
a.
b.
c.
d.

throughput.
process yield.
return on investment.
productive capacity.


Chapter 19

Measuring and Rewarding Organizational Performance

ANSWER:
67.

Processing time/Total time
Good units/Total time
Good units/Processing time
Total units/Total time

ANSWER:

d

EASY

Process quality yield reflects the proportion of
a.
b.
c.
d.

good units to bad units.
time required to produce a good unit.
total units manufactured that are good.
total time spent to time available.

ANSWER:

c

EASY

When inventory sits idle in a department, this would not affect the department's
a.
b.
c.
d.

processing time.
throughput.
process quality yield.
dollar days.

ANSWER:
71.

EASY

residual income.
net cash flow.
return on investment.
throughput.

ANSWER:

70.

b

Productive capacity is a measure used in computing
a.

b.
c.
d.

69.

EASY

Which of the following is the throughput measure?
a.
b.
c.
d.

68.

a

c

EASY

Process quality yield reflects the proportion of
a.
b.
c.
d.

time it takes to make a good unit.
good units to defective units.

total time spent to total time available.
total units produced that are good units.

ANSWER:

d

EASY

19-17


19-18
Performance

72.

Chapter 19

Holding total production in units constant, as the proportion of defective units to total
units declines, all of the following measures will be affected, except
a.
b.
c.
d.

total unit sales.
throughput.
process quality yield.
process productivity.

ANSWER:
73.

EASY

total units divided by non-value-added processing time.
total units divided by value-added processing time.
value-added processing time divided by total units.
value-added processing divided by total time.

ANSWER:

b

EASY

Which of the following would not be an appropriate cost driver to measure internal
failure?
a.
b.
c.
d.

design error
product failure
machine reliability
operator error

ANSWER:

75.

d

Process productivity is calculated as
a.
b.
c.
d.

74.

Measuring and Rewarding Organizational

b

EASY

When assessing performance, one way to compensate for differences among divisions of
a multinational organization would be for the parent company to
a.
b.
c.
d.

use different target rates of return to compute residual incomes.
modify the return on investment calculation so that foreign currency fluctuations
are removed from all financial statement figures.
classify all domestic divisions as investment centers and all foreign divisions as

profit centers.
use financial performance measures for units whose records are kept in the
domestic currency and non-financial measures for units whose records are kept
in a foreign currency.

ANSWER:

a

MEDIUM


Chapter 19

76.

Measuring and Rewarding Organizational Performance

If performance measures are perfect proxies for organizational goals,
a.
b.
c.
d.

sub-optimization will be enhanced.
sub-unit managers will strive to achieve organizational goals.
sub-units can all be decentralized.
residual income will rise.

ANSWER:

77.

b

EASY

The following information is made available for June, what is the throughput per hour?
Good units manufactured
Value-added hours of manufacturing time
Total units manufactured
Total hours of manufacturing time
a.
b.
c.
d.

a

EASY

The following information is made available for June, what is the process quality yield?
Good units manufactured
Value-added hours of manufacturing time
Total units manufactured
Total hours of manufacturing time
a.
b.
c.
d.

40,000
20,000
50,000
30,000

50%
75%
80%
125%

ANSWER:
79.

40,000
20,000
50,000
30,000

1.3 units (rounded)
2.0 units
1.8 units
.8 units

ANSWER:

78.

19-19

c

EASY

One of the products manufactured by I Can Fly TOO, Company is a plastic disk. The
information below relates to the Disk Production Department:


19-20
Performance

Chapter 19

Good units produced
Units started in production
Processing time (budgeted hours)
Processing time (total hours)
Value-added processing time

Measuring and Rewarding Organizational

200,000
250,000
425
400
300

What is the process quality yield in the Disk Production Department?
a.
b.
c.

d.

75%
44%
80%
125%

ANSWER:

80.

c

EASY

One of the products manufactured by I Can Fly TOO, Company is a plastic disk. The
information below relates to the Disk Production Department:
Good units produced
Units started in production
Processing time (budgeted hours)
Processing time (total hours)
Value-added processing time

200,000
250,000
425
400
300

What is the throughput per hour in the Disk Production Department?

a.
b.
c.
d.

470 units
500 units
625 units
667 units

ANSWER:
81.

b

MEDIUM

One of the products manufactured by I Can Fly TOO, Company is a plastic disk. The
information below relates to the Disk Production Department:


Chapter 19

Measuring and Rewarding Organizational Performance

Good units produced
Units started in production
Processing time (budgeted hours)
Processing time (total hours)
Value-added processing time

200,000
250,000
425
400
300

What is the process productivity in the Disk Production Department?
a.
b.
c.
d.

588
625
667
833

ANSWER:
82.

financial measures
environmental measures
business process measures
personnel measures

ANSWER:

EASY

managers a way to judge past performance.
stockholders a way to judge current performance.
managers a way to forecast future performance.
stockholders a way to tie strategy to profitability.

ANSWER:

c

MEDIUM

In a balanced scorecard, measurements should be directly linked to
a.
b.
c.
d.

organizational strategy and values.
the cost management system.
current organizational profitability.
activity-based management concepts.

ANSWER:
85.

b

A primary purpose of a balanced scorecard is to give
a.
b.

c.
d.

84.

MEDIUM

Which of the following is not a balanced scorecard category?
a.
b.
c.
d.

83.

d

a

EASY

Customer measures on the balanced scorecard should be
a.
b.

Internal
yes
no

External

no
yes

Monetary
no
yes

Non-monetary
yes
no

19-21


19-22
Performance

c.
d.

Chapter 19

no
yes

yes
yes

ANSWER:
86.

c.
d.

MEDIUM

b

MEDIUM

On a balanced scorecard, which of the following would be most appropriate to measure
customer service?
a.
b.
c.
d.

Rapid time-to-market of new products
Corporate financial profits
On-time delivery
Decrease in reworked products

ANSWER:

c

EASY

On a balanced scorecard, which of the following would be most appropriate to measure
production process integrity?

a.
b.
c.
d.

Rapid time-to-market of new products
Corporate financial profits
Low employee turnover
Decrease in reworked products

ANSWER:
89.

yes
yes

records the variances between budgeted and actual revenues and expenses.
can be used at multiple organizational levels by redefining the categories and
measurements.
is most concerned with organizational financial solvency and business processes.
all of the above.

ANSWER:

88.

no
yes

A balanced scorecard

a.
b.

87.

d

Measuring and Rewarding Organizational

d

EASY

On a balanced scorecard, which of the following would be most appropriate to measure
innovation:
a.
b.
c.
d.

Rapid time-to-market of new products
Corporate financial profits
On-time delivery
Manufacturing cycle efficiency


Chapter 19

Measuring and Rewarding Organizational Performance

ANSWER:
90.

Market share
Customer retention
Percentage of sales from new products
Investment in intellectual capital

ANSWER:

b

MEDIUM

Which of the following would not normally affect the compensation strategy of a firm?
a.
b.
c.
d.

organizational goals
location of firm
competition
number of subsidiaries

ANSWER:

d

EASY

Managers should be paid
a.
b.
c.
d.

on a periodic basis.
based on results achieved.
using ESOPs.
on a piece rate basis.

ANSWER:
94.

EASY

consistency at all levels in the organization.
adaptability to differing situations in the organization.
efficiency of application to all individuals in the organization.
flexibility to delay rewards although performance objectives have been met.

ANSWER:

93.

a

A primary characteristic of a performance management system is
a.

b.
c.
d.

92.

EASY

On a balanced scorecard, which of the following would be most appropriate to measure
financial performance?
a.
b.
c.
d.

91.

a

19-23

b

EASY

Financial incentives are
a.

different from monetary rewards

19-24
Performance

b.
c.
d.

Chapter 19

the same thing as a salary element
provided to all employee groups.
available to top management whose performance exceeds targeted objectives

ANSWER:
95.

EASY

are not needed in a performance-based plan.
must be stated for a performance-based plan to work.
are essential for a periodic compensation plan to be successful.
are unnecessary for a merit pay plan.

ANSWER:

b

EASY

Merit pay is
a.
b.
c.
d.

a contingent amount of pay that is earned by managers whose subunits meet a
target rate of return.
always for a limited period of time and must be re-earned each period.
any pay earned when the company is profitable.
a pay increment received when a specific performance level is achieved.

ANSWER:

d

EASY

Contingent pay
a.
b.
c.
d.

is always paid in stock options.
is the sole source of pay an employee receives from his/her employer.
is received in addition to the basic wage and is dependent upon performance
exceeding some performance objective.
can only apply to individual performance.

ANSWER:
99.

d

Objectives for a pay plan
a.
b.
c.
d.

98.

EASY

set performance rewards
identify performance measures
determine reward
identify critical success factors

ANSWER:

97.

d

Which of the following steps in the performance reward plan model comes before the
others listed?
a.
b.

c.
d.

96.

Measuring and Rewarding Organizational

c

EASY

Piece rate pay
a.

is a suitable pay plan for low-IQ workers.


Chapter 19

b.
c.
d.

Measuring and Rewarding Organizational Performance

involves a salary plus pay for each unit produced or carried out.
encourages quality output.
does not encourage workers to look at the company's well being.

ANSWER:

100.

c

EASY

Which performance plan is most tied to company objectives?
a.
b.
c.
d.

profit sharing
pensions
piece rate
merit pay

ANSWER:

a

EASY

Which performance plan best promotes quality of the product or service?
a.
b.
c.
d.

piece rate
health insurance
pensions
profit sharing

ANSWER:
103.

EASY

monthly salary
cafeteria plan
profit sharing
pensions

ANSWER:

102.

d

Which of the following pay plans encourages the improvement of the overall company's
well-being?
a.
b.
c.
d.

101.

19-25

d

EASY

Employee stock ownership in the employees' firm
a.
b.
c.
d.

will encourage short term earnings growth patterns.
will encourage employees to take a longer term perspective regarding their
performance in the company.
is not suitable for hourly or salaried employees.
is common for management in American firms.

ANSWER:

b

MEDIUM