Deck 2: Measuring and Evaluating Performance

Question 1

Management accounting information is produced in a process that is highly regulated by generally accepted accounting principles.

Answer 1

False

Question 2

Financial accounting information is intended for an audience of investors and creditors external to the reporting entity.

Answer 2

True

Question 3

The success of Southwest Airlines' strategy hinges critically on its ability to minimize the amount of time that an aircraft spends at the gate. The amount of time required to clean, fuel, and supply an aircraft would be viewed by Southwest as a key performance indicator (KPI).

Answer 3

True

Question 4

A measure possesses the characteristic of objectivity if it is clear, precise, and consistent, providing the right signal within an acceptable level of measurement error.

Question 5

The appropriate focus of an entity's mission statement is the key customer needs it intends to satisfy.

Question 6

Tactical goals translate the entity's vision into actionable elements to be achieved over the long run.

Question 7

The specific number of units that an automobile manufacturer plans to deliver in the coming month illustrates an operational goal.

Question 8

Deviations between planned and actual expenditures on raw materials can result from price and/or quantity errors. Such deviations are best analyzed by variance computations.

Question 9

When actual revenue, sales, or profit is greater than plan, the resulting variance is labeled as favorable.

Question 10

Cost-volume-profit analysis is appropriate when examining the impact of complex changes such as outsourcing or product-line decisions.

Question 11

Your grade on a final exam is an example of a results control as opposed to an action control.

Question 12

Managing reported income by choosing when to dispose of an investment at a gain is an illustration of falsification.

Question 13

Dysfunctional consequences refer to the unintended side effects of a poorly designed measure of performance measurement.

Question 14

Total quality management is focused on discovering ways to improve performance by eliminating waste.

Question 15

Applying the philosophy of continuous improvement requires that organizations allow self-directed teams of workers to make decisions regarding process improvements.

Question 16

Of the following specialized types of accounting, which is focused on the information needs of investors and creditors external to the entity?

A) Tax accounting.
B) Regulatory accounting.
C) Financial accounting.
D) Management accounting.

Question 17

Unlike financial accounting, management accounting:

A) Is governed by a strict set of rules and procedures referred to as generally accepted accounting principles.
B) Provides information to support decision making before any actions are taken.
C) Is focused on outcomes of the entity's actions taken in the past.
D) Is confined to measurements expressed in monetary units.

Question 18

Which of the following describes what an organization wants to accomplish and leads to the formulation of long-term business objectives?

A) Values.
B) Strategy.
C) Competency.
D) Mission statement.

Question 19

In its vision statement, Tesla Motors, Inc., commits the company to "driving the world's transition to electric vehicles." This commitment is a:

A) Critical success factor.
B) Key performance indicator.
C) Tactical goal.
D) Operational goal.

Question 20

Tesla Motors, Inc., has committed to begin delivering its new lower-priced Model 3 automobile to customers in the second half of 2017. This commitment best illustrates a:

A) Critical success factor.
B) Key performance indicator.
C) Tactical goal.
D) Operational goal.

Question 21

Quantified key performance indicators, called measures, have eight essential features. When a measure is unbiased, providing the same signal no matter who or what is being measured, or who is doing the measuring, it is said to be:

A) Reliable.
B) Consistent.
C) Unambiguous.
D) Objective.

Question 22

An entity's mission statement differs from its vision statement by:

A) Providing a concrete translation of the vision.
B) Specifying the critical success factors.
C) Defining key performance indicators in quantitative terms.
D) Identifying key stakeholders.

Question 23

Costco Wholesale Corporation is the second-largest retailer in the world. In its annual report, the company commits itself "to continually provide our members (customers) with quality goods and services at the lowest possible prices." This statement identifying the key customer needs that Costco intends to meet is most probably an extract from the company's:

A) Vision statement.
B) Mission statement.
C) Statement on ethics.
D) Statement of operational goals.

Question 24

A key difference between strategic objectives and tactical goals is that:

A) Tactical goals are very specific, while strategic objectives are broad and general.
B) Tactical goals are always quantified, while strategic objectives are cast as qualitative statements.
C) Tactical goals bear little if any relation to the entity's mission, while strategic objectives flow from the mission.
D) Tactical goals are focused on actions that will be taken in the intermediate term of two to five years, while strategic goals are focused on the long run.

Question 25

Of the following, which does an entity attempt to accomplish over the shortest period of time?

A) Tactical goals.
B) Strategic objectives.
C) Operational goals.
D) Its vision.

Question 26

In July 2017, Elon Musk, CEO of Tesla Motors, Inc., announced that the company would produce and deliver 20,000 of its new Model 3 automobiles in December 2017. This announcement is an example of:

A) A strategic objective.
B) A mission statement.
C) An operational goal.
D) A vision statement.

Question 27

An automated filling machine is designed to place a specific or standard amount of breakfast cereal into a box. Insignificant variations around this standard are allowable; however, significant variations require shutting down the filling process and adjusting or servicing the machine. Which of the following analytical tools would most likely be used to support the decision to shut down the filling process?

A) Gap analysis.
B) Trend analysis.
C) Variance analysis.
D) Shewart control chart.

Question 28

In 2016, Tesla Motors, Inc., planned to deliver 90,000 automobiles. Its actual deliveries that year totaled only 76,230. The difference of 13,770 between the planned and actual deliveries illustrates:

A) Gap analysis.
B) Trend analysis.
C) Variance analysis.
D) Shewart control deviation.

Question 29

Trend analysis provides an improvement over gap analysis by:

A) Focusing on one variable at a time to better identify the reasons for a performance shortfall.
B) Tracking changes over time in a key performance indicator rather than a deviation from plan at a single point in time.
C) Providing feedback in a more timely fashion.
D) Providing more objective performance measures.

Question 30

During the past month, labor wage costs at Vanadium Alloy Steel Company exceeded the budgeted amount by $18,000. This difference was most probably detected by:

A) Trend analysis.
B) Shewart control chart.
C) Variance analysis.
D) Cost-volume-profit analysis.

Question 31

If actual revenue exceeds planned revenue, then:

A) The difference is said to be a favorable variance.
B) The difference is said to be an unfavorable variance.
C) The difference must be decomposed into price and quantity components before it can be judged to be favorable or unfavorable.
D) Gap analysis would be preferred to variance analysis in assessing performance.

Question 32

If actual operating expenses exceeds planned operating expenses, then:

A) The difference is said to be a favorable variance.
B) The difference is said to be an unfavorable variance.
C) The difference must be decomposed into price and quantity components before it can be judged to be favorable or unfavorable.
D) Gap analysis would be preferred to variance analysis in assessing performance.

Question 33

Your Daily Bread, Inc., is a large chain of franchised restaurants specializing in soup and sandwich lunches. Management is attempting to determine whether or not to introduce dinner-size salads into its product mix. The most appropriate form of analysis for this decision is known as:

A) Incremental analysis.
B) Cost-volume-profit analysis.
C) Business case analysis.
D) Gap analysis.

Question 34

Harmony Greens Golf Club barely achieved a level of sales volume last year that allowed it to break even. Management would like to determine how operating income would be affected by a 20% reduction in the daily golf fee it charges. The most appropriate form of analysis would be:

A) Incremental analysis.
B) Cost-volume-profit analysis.
C) Trend analysis.
D) Variance analysis.

Question 35

Management control includes all of the efforts of an organization to influence individual performance. A control that places emphasis on what has been accomplished is:

A) An action control.
B) A personal/culture control.
C) A results control.
D) Goal congruence.

Question 36

Action controls as opposed to results controls place emphasis on:

A) What is accomplished by a process.
B) How work is done inside the process.
C) The influence of individual and group dynamics at work inside the process.
D) The "check" phase of the management process.

Question 37

Which of the following illustrates an action control?

A) The recipe and baking instructions for a particular style of bread.
B) The percentage of defective units produced by a process over a period of time.
C) Periodic team meetings to assess progress against process goals.
D) A sales goal.

Question 38

P.C. Programs Inc. produces software for individual users and small businesses. Rita Morgan manages the customer hotline department for the firm and is responsible for answering customer questions related to software products produced by all divisions of the firm. For purposes of promoting goal congruence, which of the following would be the least appropriate measure of her performance?

A) Average time to provide an answer or solution to a customer.
B) Number of calls to the hotline for each new release of software.
C) Average time a customer is on hold.
D) Number of customer complaints due to incorrect responses given to customers.

Question 39

A common form of data manipulation consists of reporting sales revenue near the end of a financial reporting period, even though the actual sales transactions will not be completed until the following period. This practice is referred to as:

A) Gamesmanship.
B) Behavioral displacement.
C) Falsification.
D) Smoothing.

Question 40

To successfully implement a continuous improvement philosophy, an entity must:

A) Empower its production line workers to make process decisions.
B) Place all process decisions under the control of line managers.
C) Strengthen the role of top management in the "do" phase of the management process.
D) Rely exclusively on results controls.

Question 41

Chase Green Racing, Inc., provides a full range of services to thoroughbred horse owners including boarding, training, and veterinary care. The table below provides both the budgeted and actual statements of operating income for the first quarter of 2018.
Required:
Prepare a variance analysis to explain the differences between actual and budgeted amounts. Compute a variance for each line item and indicate whether each variance is favorable or unfavorable.

Question 42

Backwoods Products, Inc., produces an insect repellant spray that has become popular due to its ability to repel ticks that are known carriers of Lyme disease. The effectiveness and safety of the product depend critically on achieving the proper concentration of its active ingredient, Beet. If too little Beet is mixed into a 4-ounce container, then the product will fail to repel most ticks. On the other hand, if the concentration of Beet is too high, the product poses a risk of certain skin diseases. The amount of Beet targeted for a 4-ounce container of the repellant spray is 0.25 ounces with an upper limit of 0.28 ounces and a lower limit of 0.22 ounces. One container is sampled every 15 minutes to determine if the mixing process is under control and introducing an appropriate concentration of Beet into the product. The table below contains the first 10 measurements for today's production.
Required:
Prepare a Shewart control chart for the quantity of Beet placed into the 4-ounce spray containers. Given the results from your control chart, does it appear that the production line should be stopped and adjusted? Why or why not?

Question 43

Six Sigma College of Business offers five different courses of study. The planned enrollment in each course is 25 students. Registration for the upcoming semester of study has been recently completed. Actual enrollments for the five courses are given in the table below.
Required:
Prepare a simple gap analysis of Six Sigma's course enrollments.