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ch23 - Cost Accounting 13e(Horngren et al Chapter 23 1...

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Unformatted text preview: Cost Accounting, 13e (Horngren et al.) Chapter 23 1 Performance Measuremen t, Compensati on, and Multination al Consideratio 1) n s Many common performance measures, such as customer satisfaction, rely on internal financial accounting information. Answer: FALSE Explanation: Customer satisfaction would be obtained by surveys that are not in the financial accounting records. Diff: 1 Terms: Balanced Scorecard Objective: 1 AACSB: Analytical skills 2) Some s present financial and nonfinancial performance measures for various organization units in a single report called the companie "balanced scorecard." Answer: TRUE Diff: 1 Terms: Balanced Scorecard Objective: 1 AACSB: Analytical skills 3) The scorecard" in most organizations is broken down into the following categories: financial perspective, customer perspective, "balanced internal business-process perspecitve, and productivity perspective. Answer: FALSE Explanation: The "balanced scorecard" in most organizations is broken down into the following categories: financial perspective, customer perspective, internal business-process perspecitve, and learning-and-growth perspective. Diff: 1 Terms: Balanced Scorecard Objective: 1 AACSB: Reflective thinking 4) The first designing accounting based performance measures is to choose performance measures that align with top management's step in financial goals. Answer: TRUE Diff: 1 Terms: performance measure Objective: 2 AACSB: Reflective thinking 5) A major of comparing two companies using only operating incomes as the basis of comparison is this method ignores differences in weakness the size of the investment required to earn the operating income. Answer: TRUE Diff: 1 Terms: return on investment (ROI), investment Objective: 3 AACSB: Analytical skills 6) Return on investment is also called the accrual accounting rate of return. Answer: TRUE Diff: 1 Terms: return on investment (ROI) Objective: 3 AACSB: Reflective thinking 7) Investmen t turnover is calculated by dividing investments by revenues. Answer: FALSE Explanation: Investment turnover is calculated by dividing revenues by investments. Diff: 1 Terms: return on investment (ROI) Objective: 3 AACSB: Reflective thinking 8) Return on sales is calculated by dividing net income by revenues. Answer: TRUE Diff: 1 Terms: return on investment (ROI) Objective: 3 AACSB: Reflective thinking 9) The three es for increasing return on investment include increasing assets such as receivables, increasing revenues, and decreasing alternativ costs. (In all cases assume that all other items stay the same.) Answer: FALSE Explanation: Increasing receivables does not increase return on investment. Diff: 2 Terms: return on investment (ROI) Objective: 3 AACSB: Reflective thinking 10) Return on investment is the most popular performance measure when measuring performance in an investment center. Answer: TRUE Diff: 1 Terms: return on investment (ROI) Objective: 3 AACSB: Analytical skills 11) To overall aggregate performance, return on investment and residual income measures are more appropriate than return on evaluate sales. Answer: TRUE Diff: 2 Terms: return on investment (ROI), residual income residual income (RI) Objective: 3,4 AACSB: Analytical skills 12) Return on investment is also called the imputed cost of the investment. Answer: FALSE Explanation: Required rate of return multiplied by the investment is the imputed cost of the investment. Diff: 1 Terms: imputed cost Objective: 4 AACSB: Reflective thinking 13) Imputed costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures. Answer: TRUE Diff: 2 Terms: imputed cost Objective: 4 AACSB: Reflective thinking 14) The of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the objective viewpoint of the overall organization should be accepted. Answer: TRUE Diff: 2 Terms: return on investment (ROI) Objective: 4 AACSB: Analytical skills 15) Goal e is more likely to be promoted by using return on investment rather than residual income as a measure of a subunit's congruenc managerial performance. Answer: FALSE Explanation: Goal congruence is more likely to be promoted by using residual income rather than return on investment. Diff: 2 Terms: return on investment (ROI), residual income residual income (RI) Objective: 4 AACSB: Analytical skills 16) Residual calculations are similar to EVA® calculations because in each calculation there is a charge for the division's invested income capital which is deducted from a measure of that division's profit. Answer: TRUE Diff: 2 Terms: residual income, economic value added (EVA®) Objective: 4,5 AACSB: Analytical skills 17) Economic added, unlike residual income, charges managers for the costs of their investments in long-term assets and working capital. value Answer: FALSE Explanation: Both economic value added and residual income charge managers for the costs of their investments in long-term capital. Diff: 2 Terms: economic value added (EVA®), residual income (RI) Objective: 5 AACSB: Reflective thinking 18) Companie s that adopt the Economic Value Added concept define investment as total assets employed minus current liabilities. Answer: TRUE Diff: 2 Terms: economic value added (EVA®) Objective: 5 AACSB: Reflective thinking 19) In an Added Value calculation, the corporate charge for a division's investment is based entirely on the after-tax interest rate on Economic the firm's debt. Answer: FALSE Explanation: In an Economic Added Value calculation, the corporate charge for a division's investment is based on a weighted average of the after-tax interest rate on the firm's debt and the cost of the firm's equity. Diff: 2 Terms: economic value added (EVA®) Objective: 5 AACSB: Reflective thinking 20) In an Value Added calculation, the measure of the invested capital for a division would be that division's assets minus that Economic division's liabilities. Answer: FALSE Explanation: In an Economic Value Added calculation, the measure of the invested capital for a division would be that division's assets minus that division's current liabilities. Diff: 2 Terms: economic value added (EVA®) Objective: 5 AACSB: Reflective thinking 21) In an Value Added calculation, the appropriate measure of a division's profit would be that division's after tax operating income. Economic Answer: TRUE Diff: 2 Terms: economic value added (EVA®) Objective: 5 AACSB: Reflective thinking 22) Current cost return on investment is a better measure of the current economic returns from an investment than historical cost return on investment. Answer: TRUE Diff: 2 Terms: current cost, return on investment (ROI) Objective: 6 AACSB: Reflective thinking 23) A firm difference in the return on investment amount depending if they use historical cost or current cost valuation methods for will see a the assets. Answer: TRUE Diff: 2 Terms: return on investment Objective: 6 AACSB: Analytical skills 24) Using gross book value as an investment base is consistent with the amount of total assets shown in the conventional balance sheet. Answer: FALSE Explanation: Using net book value as an investment base is consistent with the amount of total assets shown in the conventional balance sheet. Diff: 2 Terms: return on investment Objective: 6 AACSB: Analytical skills 25) Using gross book value as an investment base will result in a lower ROI than using net book value as an investment base. Answer: TRUE Diff: 2 Terms: return on investment Objective: 6 AACSB: Reflective thinking 26) Comparin performance of divisions of a multinational company operating in different countries is difficult due to the differences in g the economic, legal, political, social, and cultural environments. Answer: TRUE Diff: 1 Terms: Balanced Scorecard Objective: 7 AACSB: Multiculturalism and diversity 27) One way greater comparability of historical cost-based ROIs for a company's foreign division is to restate performance in dollars. to achieve Answer: TRUE Diff: 2 Terms: return on investment (ROI) Objective: 7 AACSB: Multiculturalism and diversity 28) An consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks. important Answer: TRUE Diff: 1 Terms: moral hazard Objective: 8 AACSB: Analytical skills 29) Moral hazard describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort cannot be accurately monitored and enforced. Answer: TRUE Diff: 1 Terms: moral hazard Objective: 8 AACSB: Ethical reasoning 30) Another term for benchmarking is a relative performance evaluation. Answer: TRUE Diff: 1 Terms: benchmarking Objective: 8 AACSB: Reflective thinking 31) Evaluatin g an executive's performance using the annual return on investment would sharpen an executive's long-run focus. Answer: FALSE Explanation: Using return on investment is a short-run tool. Diff: 2 Terms: return on investment (ROI) Objective: 8 AACSB: Analytical skills 32) Managers only employ one task as a part of their job, and thus evaluation of how well they do is simple to accomplish. Answer: FALSE Explanation: Managers employ many tasks as a part of their job, and thus evaluation of how well they do is difficult to accomplish. Diff: 2 Terms: Balanced Scorecard Objective: 8 AACSB: Analytical skills 33) The only of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall criticism performance. Answer: FALSE Explanation: An additional critcism is that there can be problems managing team members who are not productive contributors to the team's success but who, nevertheless, share in the team's rewards. Diff: 2 Terms: Balanced Scorecard Objective: 8 AACSB: Analytical skills 34) Examples of "cooking the books" are understated assets and overstated liabilities. Answer: FALSE Explanation: Cooking the books is overstating assets and understating liabilities. Diff: 1 Terms: moral hazard Objective: 9 AACSB: Reflective thinking 35) Residual a better evaluation method than return on investment because it has a lower required rate of return for the company income is projects than return on investment does. Answer: FALSE Explanation: A company can make a decision using the same required rate of return with either return on investment or residual income. Diff: 1 Terms: residual income, return on investment (ROI) Objective: 9 AACSB: Reflective thinking 36) An e control system is a formal information system that managers use to focus organization attention and learning on key interactiv strategic issues. Answer: TRUE Diff: 2 Terms: interactive control system Objective: 9 AACSB: Communication 37) Boundary describe standards of behavior and codes of conduct expected of all employees, especially actions that are off-limits. systems Answer: TRUE Diff: 2 Terms: boundary systems Objective: 9 AACSB: Ethical reasoning 38) The "four levers" of control are operating profit before taxes, return on investment, residual income, and economic value added. Answer: FALSE Explanation: The "four levers" of control are diagnostic control systems, boundary systems, belief systems, and interactive control systems. Diff: 2 Terms: levers of control Objective: 9 AACSB: Reflective thinking 39) Measures monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are which collectively called diagnostic control systems. Answer: TRUE Diff: 2 Terms: diagnostic control systems Objective: 9 AACSB: Reflective thinking 40) A report measures financial and nonfinancial performance measures for various organization units in a single report is called a(n): that A) balanced B) scorecard financial report scorecard C) imbalanced D) scorecard unbalanced scorecard Answer: A Diff: 1 Terms: Balanced Scorecard Objective: 1 AACSB: Reflective thinking 41) Customer -satisfaction measures are an example of the: A) goalB) congruence approach balanced C) scorecard approach financial report scorecard approach D) investment success approach Answer: B Diff: 1 Terms: Balanced Scorecard Objective: 1 AACSB: Reflective thinking 42) An example of a performance measure with a long-run time horizon is: A) direct materials efficiency variances B) overhead C) spending variances number of new patents developed D) All of these answers are correct. Answer: C Diff: 2 Terms: Balanced Scorecard Objective: 1 AACSB: Reflective thinking 43) Does income best measure a subunit's financial performance? This question is considered part of which step in designing an operating accounting-based performance measure? A) Choose B) performance measures that align with top management's financial goals. Choose the time horizon of each performance measure. C) Choose a D) definition for each performance measure. Choose a measurement alternative for each performance measure. Answer: A Diff: 2 Terms: Balanced Scorecard Objective: 2 AACSB: Reflective thinking 44) Should defined as total assets or net assets? This question is considered part of which step in designing an accounting-based assets be performance measure? A) Choose B) performance measures that align with top management's financial goals. Choose the time horizon of each performance measure. C) Choose a D) definition for each performance measure. Choose a measurement alternative for each performance measure. Answer: C Diff: 2 Terms: return on investment (ROI) Objective: 2 AACSB: Reflective thinking 45) Should measured at historical cost or current cost? This question is considered part of which step in designing an accounting-based assets be performance measure? A) Choose B) performance measures that align with top management's financial goals. Choose the time horizon of each performance measure. C) Choose a D) definition for each performance measure. Choose a measurement alternative for each performance measure. Answer: D Diff: 2 Terms: current cost, return on investment (ROI) Objective: 2 AACSB: Reflective thinking 46) Which of the following statements about designing an accounting-based performance measure is FALSE? A) The steps may be followed in a random order. B) The issues C) considered in each step are independent. Management's beliefs are present during the analyses. D) Behavioral criteria are important when evaluating the steps. Answer: B Diff: 2 Terms: Balanced Scorecard Objective: 2 AACSB: Reflective thinking 47) Managers usually use the term return on investment to evaluate: A) the performance of a subdivision B) a potential C) project the performance of a subunit D) Both A and C are correct. Answer: D Diff: 2 Terms: return on investment (ROI) Objective: 3 AACSB: Reflective thinking 48) The investment is usually considered the most popular approach to incorporating the investment base into a performance return on measure because: A) it blends all the ingredients of profitability into a single percentage B) once C) determined, there is no need to use it with other measures of performance it is similar to price earnings ratio because a corporation's return on investment appears every day in The Wall Street Journal the company's D) Both A and C are correct. Answer: A Diff: 2 Terms: return on investment (ROI) Objective: 3 AACSB: Reflective thinking 49) Return on investment can be increased by: A) increasing B) operating assets decreasing C) operating assets decreasing D) revenues Both B and C are correct. Answer: B Diff: 2 Terms: return on investment (ROI) Objective: 3 AACSB: Reflective thinking 50) The method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of ________ revenues and using assets to generate more revenues. A) Balanced B) Scorecard ResidualC) Income Dupont D) Economic Value Added Answer: C Diff: 2 Terms: return on investment (ROI) Objective: 3 AACSB: Reflective thinking 51) During the past twelve months, the Aaron Corporation had a net income of $50,000. What is the amount of the investment if the return on investment is 20%? A) $100,000 B) $200,000 C) $250,000 D) $500,000 Answer: C Explanation: C) 0 Diff: 2 T 3 AACSB: Analytical skills 52) During the past twelve months, the Zenith Corporation had a net income of $39,200. What is the return on investment if the amount of the investment is $280,000? A) 10% B) 12% C) 14% D) 16% Answer: C Explanation: C) $ Diff: 1 T 3 AACSB: Analytical skills 53) The information for 20X5: Alpha Revenue $ 900,000 Beta Operating expenses 670,000 Corporati Total assets 1,150,000 on had the following What is the return on investment? A) 10% B) 20% C) 25% D) 78.2% Answer: B Explanation: B) ( Diff: 2 T 3 AACSB: Analytical skills 54) Wacker are as follows: Company Maryland New York has two Revenues $ 580,000 $ 596,000 regional Operating assets 4,800,000 9,000,000 offices. Net operating income 2,016,000 2,400,000 The data for each What is the Maryland Division's return on investment? A) 0.42 B) 0.54 C) 0.96 D) 4.12 Answer: A Explanation: A) $ Diff: 1 T 3 AACSB: Analytical skills 55) Thacker are as follows: Company Maryland New York has two Revenues $ 580,000 $ 596,000 regional Operating assets 4,800,000 9,000,000 offices. Net operating income 2,016,000 4,860,000 The data for each What is the return on investment for the New York Division? A) 0.42 B) 0.54 C) 0.96 D) 4.12 Answer: B Explanation: B) $ Diff: 1 T 3 AACSB: Analytical skills Answer the following questions using the information below: The Cybertronics Corporation reported the following information for its Cyclotron Division: Revenues Operating costs Taxable income Operating assets Income is defined as operating income. 56) $1,000,000 600,000 200,000 500,000 What is the Cyclotron Division's investment turnover ratio? A) 2.00 B) 3.33 C) 2.50 D) 0.80 Answer: A Explanation: A) $ Diff: 2 T 3 AACSB: Analytical skills 57) What is the Cyclotron Division's return on sales? A) 0.20 B) 0.40 C) 0.50 D) 0.60 Answer: B Explanation: B) $ Diff: 2 T 3 AACSB: Analytical skills 58) What is the Cyclotron Division's return on investment? A) 0.2 B) 0.4 C) 0.5 D) 0.8 Answer: D Explanation: D) $ Diff: 2 T 3 AACSB: Analytical skills Answer the following questions using the information below: The top management at Munchie Company, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: Alpha Division $2,500,000 $1,500,000 (b) 0.25 (e) (f) Beta Division (a) $650,000 (c) 0.15 0.10 (g) Gamma Division $1,150,000 $ 575,000 $ 766,667 (d) 0.5 1.5 Sales Net operating income Operating assets Return on investment Return on sales Investment turnover 59) What were the sales for the Beta Division? A) $4,333,333 B) $5,952,380 C) $6,500,000 D) $7,151,800 Answer: C Explanation: C) 0 Diff: 2 T 3 AACSB: Analytical skills 60) What is the value of the operating assets belonging to the Alpha Division? A) $4,333,333 B) $6,000,000 C) $6,500,000 D) $7,151,800 Answer: B Explanation: B) $ Diff: 2 T 3 AACSB: Analytical skills 61) What is the value of the operating assets belonging to the Beta Division? A) $4,333,333 B) $5,952,380 C) $6,500,000 D) $7,151,800 Answer: A Explanation: A) . Diff: 2 T 3 AACSB: Analytical skills 62) What is the Gamma Division's return on investment? A) 0.25 B) 0.42 C) 0.60 D) 0.75 Answer: D Explanation: D) 0 Diff: 2 T 3 AACSB: Analytical skills 63) What is the Alpha Division's return on sales? A) 0.25 B) 0.42 C) 0.60 D) 0.75 Answer: C Explanation: C) $ Diff: 2 T 3 AACSB: Analytical skills Answer the following questions using the information below: The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The...
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