Reference no: EM133306791

Question 1: Which of the following best describes decentralization?

Extent to which decision-making rights are distributed to managers and employees

A poor choice when local knowledge is important

How wide the organizational hierarchy is

A static (i.e., unchanging) feature of the organization

Question 2: Which of the following is a disadvantage of decentralization?

Potentially creates inefficiencies

Overly focuses on learning and development

Increases responsiveness

Makes managers and employees move quickly

Question 3: As an organization becomes more decentralized, there is more need for performance measures and incentives.

True

False

Question 4: Return on investment can be manipulated due to the number of choices to use as profit and/or investment measures.

True

False

Question 5: The manager of the Wales division of NLH, Inc. is considering making an investment to expand operations.

The investment has the following projections:

Revenues = $100,000

Cost of goods sold = $60,000

Operating expenses = $25,000

Income taxes = $5,000

Investment = $180,000

The required rate of return is 8%.

The manager has a personal preference to NOT make the investment and is about to make a presentation about the investment to upper management.

Which of the following is true?

The manager will use either net income before taxes or net income after taxes as the profit measure.

The manager will not use either net income amount as the profit measure.

The manager will use net income before taxes as the profit measure, but not net income after taxes.

The manager will use net income after taxes as the profit measure, but not net income before taxes.

Question 6: Two division managers in NLH, Inc. are individually considering whether to invest in a new product. Before the investment, the Wales division manager earns an average return on investment of 11%. The Campbell division manager earns an average of 10.5%. Managers are compensated based on improving return on investment.

Projected profit from the investment is $20,000. The investment required for the project is $200,000.

The cost of capital at NLH, Inc. has been set by upper management at 9.5%.

Which manager(s) will exhibit behavior consistent with the underinvestment problem?

Both division managers

Only the Wales division manager

Neither division manager

Only the Campbell division manager

Question 7: Which of the following is true about residual income?

It is calculated by subtracting the cost of capital (in $) from accounting-based profit.

It creates the underinvestment problem.

It is communicated in percentage terms.

It is used widely by organizations.

Question 8: The Central division of NLH, Inc. is considering an investment that has the following projected information:

Revenues = $100,000

All expenses = $85,000

Investment value = $250,000

Upper management of NLH, Inc. has established the cost of capital at 10%.If the manager is compensated based on residual income, will she make the investment?

Yes, because the residual income percentage exceeds the cost of capital percentage.

No, because the residual income from this investment is -$10,000.

Yes, because the residual income from this investment is $15,000.

No, because the residual income is -$25,000.

Question 9: Which of the following is a quality of non-financial performance measures that is a disadvantage?

Subjective

Uni-dimensional

Predictive

Forward looking

Question 10: Which of the following is a key purpose of strategic performance measurement systems?

Communicate strategy

Inform strategy evolution

Evaluate strategy

All of the above

None of the above

Question 11: Which of the following performance measurement issue best reflects the following scenario: A division employee does not expend a lot of effort in his job because other employees are not expending effort.

Alignment

Controllability

Interdependence

Question 12: Which of the following is true about subjective performance evaluation?

Is usually implemented at the beginning of an accounting period.

Reduces potential for bias.

Usually involves a single mechanism.

Overcomes obstacles of purely objective evaluation.