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CHAPTER 23: PERFORMANCE MEASUREMENT, COMPENSATION, AND MULTINATIONAL CONSIDERATIONS TRUE/FALSE 1. Many common performance measures, such as customer satisfaction, rely on internal financial accounting information. Answer : False Difficulty : 1 Objective : 1 Customer satisfaction would be obtained by surveys that are not in the financial accounting records. 2. Some companies present financial and nonfinancial performance measures for various organization units in a single report called the " balanced scorecard." Answer : True Difficulty : 1 Objective : 1 3. A major weakness of comparing two companies using only operating incomes as the basis of comparison is this method ignores differences in the size of the investment required to earn the operating income. Answer : True Difficulty : 1 Objective : 2 4. Return on investment is also called the accrual accounting rate of return. Answer : True Difficulty : 1 Objective : 3 5. Investment turnover is calculated by dividing investments by revenues. Answer : False Difficulty : 1 Objective : 3 Investment turnover is calculated by dividing revenues by investments. 6. The three alternatives for increasing return on investment include increasing assets such as receivables, increasing revenues, and decreasing costs. (In all cases assume that all other items stay the same.) Answer : False Difficulty : 2 Objective : 3 Increasing receivables does not increase return on investment. 7. Imputed costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures. Answer : True Difficulty : 2 Objective : 4 Chapter 23 Page 1
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8. The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted. Answer : True Difficulty : 2 Objective : 4 9. Goal congruence is more likely to be promoted by using return on investment rather than residual income as a measure of a subunit's managerial performance. Answer : False Difficulty : 2 Objective : 4 Goal congruence is more likely to be promoted by using residual income rather than return on investment. 10. Economic value added, unlike residual income, charges managers for the costs of their investments in long-term assets and working capital. Answer : False Difficulty : 2 Objective : 5 Both economic value added and residual income charge managers for the costs of their investments in long-term capital. 11. To evaluate overall aggregate performance, return on investment and residual income measures are more appropriate than return on sales. Answer : True Difficulty : 2 Objective : 5 Return on investment and residual income are better measures of overall aggregate performance because they both consider income earned and investments made.
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