Deck 24: Performance Evaluation and the Balanced Scorecard

Question 1

Which of the following is NOT a potential advantage of decentralization?

A) Top management can use their time to concentrate on long-term strategic planning rather than daily operations.
B) Customer relations are generally improved.
C) It improves the motivation and retention of division managers.
D) Decentralization promotes goal congruence and coordination.

Answer 1

D

Question 2

Companies that are centralized split their operations into different divisions or operating units and top management delegates decision-making to the division/unit managers.

Answer 2

False

Question 3

Which of the following is an advantage of decentralization?

A) May create disparities in alignment of goals between different business units
B) May cause inconsistencies in the way various business units operate
C) May duplicate costs and functions across multiple business units
D) Helps prepare and train managers at lower levels for higher positions later on

Answer 3

D

Question 4

Which of the following would most likely be evaluated using return on investment?

A) Cost center
B) Profit center
C) Revenue center
D) Investment center

Question 5

In a decentralized business, a typical cost center is responsible for not only the profit and loss of its business, but also for the evaluation and return on capital investment projects.

Question 6

A product line at Coca-Cola is most likely treated as a(n):

A) cost center.
B) revenue center.
C) profit center.
D) investment center.

Question 7

Performance evaluation systems provide top management with a framework for maintaining control over the organization.

Question 8

The Frito-Lay division of PepsiCo is most likely treated as a(n):

A) cost center.
B) revenue center.
C) profit center.
D) investment center.

Question 9

When a small company grows to a large size, it may decide to decentralize because it is difficult for one owner (or manager) to manage an entire, large business.

Question 10

The central reservations office at American Airlines is most likely treated as a(n):

A) cost center.
B) revenue center.
C) profit center.
D) investment center.

Question 11

Which of the following would be considered a profit center?

A) A company's accounting department
B) A company's sales department
C) A company's product line
D) A company's operating divisions

Question 12

The manager of a cost center has control of:

A) revenues.
B) investment decisions.
C) expenses.
D) investment funds.

Question 13

Which of the following is a cost center?

A) A company's legal department
B) A company's sales department
C) A product line of a particular company
D) A company's individual stores

Question 14

The manager of a profit center has control of:

A) revenues and expenses.
B) investment decisions and operating income.
C) revenues and financing decisions.
D) investment funds.

Question 15

A benefit of decentralization is that it allows top management to concentrate on long-term strategic planning.

Question 16

Which of the following BEST describes the term goal congruence?

A) The creation of a strategic plan that sets managers' goals
B) The alignment of unit managers' goals with those of upper management and shareholders
C) A set of incentives for managers to achieve performance targets
D) Making sure that compensation packages for managers at equivalent levels are equal

Question 17

Which of the following is a disadvantage of decentralization?

A) Promotes use of specialized skills and knowledge
B) Helps business keep closer relationships with customers
C) May duplicate costs and functions across multiple business units
D) Helps prepare and train managers at lower levels for higher positions later on

Question 18

The human resources department would most likely be considered a(n):

A) cost center.
B) revenue center.
C) investment center.
D) profit center.

Question 19

The production line at Gateway Computers is most likely treated as a(n):

A) cost center.
B) revenue center.
C) profit center.
D) investment center.

Question 20

Small companies tend to use centralized decision-making because of the smaller scope of their operations.

Question 21

Which of the following is NOT one of the four perspectives of a balanced scorecard?

A) Financial perspective
B) Customer perspective
C) Technological perspective
D) Learning and growth perspective

Question 22

A good balanced scorecard focuses only on leading indicators, because lagging indicators that relate to past performance are not important for the scorecard.

Question 23

The performance measurement system must ensure that managers know the specific goals and targets for the subunits. This statement reflects which of the following performance measurement goals?

A) Motivating unit managers
B) Communicating expectations
C) Providing feedback
D) Motivating managers

Question 24

Which one of the following is NOT a goal of a performance evaluation system?

A) Communicating expectations
B) Benchmarking
C) Motivating unit managers
D) Issuing stock to investors

Question 25

Financial performance metrics are considered to be a lead indicator, providing signs of future performance.

Question 26

One part of the balanced scorecard helps management answer the question: "How do we look to shareholders?" Which of the four perspectives is being described here?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 27

The performance measurement system should provide incentives for coordinating activities of the subunits and focusing them toward the overall company objectives. This statement reflects which of the following performance measurement goals?

A) Motivating unit managers
B) Promoting goal congruence
C) Providing feedback
D) Benchmarking

Question 28

If a manager's performance is evaluated solely on the ability to control costs, he or she may sacrifice quality for savings, thus endangering customer satisfaction.

Question 29

From the shareholders' point of view, performance measurement should focus on financial performance only.

Question 30

Companies benchmark their performance against the performance of their competitors and also against their own past performance.

Question 31

In a balanced scorecard system, the key performance indicators (KPIs) are ways to measure whether the company is meeting its goals.

Question 32

Which one of the following is NOT a goal of a performance evaluation system?

A) Communicating expectations
B) Formulating a budget
C) Motivating unit managers
D) Providing feedback

Question 33

Decentralization increases the difficulty of achieving goal congruence among managers.

Question 34

Which of the following goals of a performance evaluation system is accomplished when targets are compared to actual results?

A) Communication of a company's expectations
B) The promotion of goal congruence
C) Motivation of assembly line employees
D) Providing feedback to management

Question 35

Each one of the four perspectives of a strong balanced scorecard should have as many KPIs as management can devise, to create a more effective and efficient system.

Question 36

Which of the following statements reflects the use of benchmarking in a performance evaluation system?

A) A company uses internal controls to prevent theft and wastage.
B) A company initiates innovative production technology.
C) A company compares its performance metrics with other companies in its industry.
D) A company attracts top talent from other companies using stock options and other financial rewards.

Question 37

In designing a balanced scorecard, the company begins with company goals, then develops KPIs, and finally, based on the KPIs that are established, the company identifies the company's critical factors.

Question 38

The performance measurement system should compare the company's performance against the best practices in the industry. This statement reflects which of the following performance measurement goals?

A) Motivating unit managers
B) Promoting goal congruence
C) Providing feedback
D) Benchmarking

Question 39

The performance measurement system lets upper management know whether the subunits are achieving their goals and targets or not. This statement reflects which of the following performance measurement goals?

A) Motivating unit managers
B) Communicating expectations
C) Providing feedback
D) Motivating managers

Question 40

A company that uses a balanced scorecard has established a KPI for employee turnover. If the KPI is negative, that implies a very low rate of employee turnover.

Question 41

Many companies use a balanced scorecard for performance evaluation. The balanced scorecard has four business perspectives, and utilizes KPIs to evaluate performance in various areas. Which of the following KPIs would relate to the learning and growth perspective?

A) Hours of employee training
B) Number of warranty claims
C) Percentage of market share
D) Return on investment

Question 42

Employee skills, information system capabilities, and the company's "climate for action" are key factors related to which of the four perspectives of a balanced scorecard?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 43

Many companies use a balanced scorecard for performance evaluation. The balanced scorecard has four business perspectives, and utilizes KPIs to evaluate performance in various areas. Which of the following KPIs would relate to the customer perspective?

A) Hours of employee training
B) Number of warranty claims
C) Percentage of market share
D) Return on investment

Question 44

KPIs, such as percentage of market share and rate of on-time deliveries, pertain to which of the four perspectives of a balanced scorecard?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 45

Innovation, operations and post-sales service are key factors related to which of the four perspectives of a balanced scorecard?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 46

In a balanced scorecard system, which of the following KPIs would relate to the financial perspective?

A) Defect rate
B) Employee satisfaction
C) Gross margin growth
D) Number of repeat customers

Question 47

KPIs for customer satisfaction ratings pertain to which of the four perspectives of a balanced scorecard?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 48

In a balanced scorecard system, if employee excellence was one of the critical factors, which of the following would be a relevant KPI?

A) Revenue growth
B) Production yield rate
C) Market share
D) Employee training hours

Question 49

In a balanced scorecard system, which of the following KPIs would relate to the internal business perspective?

A) Defect rate
B) Employee satisfaction
C) Gross margin growth
D) Number of repeat customers

Question 50

Many companies use a balanced scorecard for performance evaluation. The balanced scorecard has four business perspectives, and utilizes KPIs to evaluate performance in various areas. Which of the following KPIs would relate to the financial perspective?

A) Hours of employee training
B) Number of warranty claims
C) Percentage of market share
D) Return on investment

Question 51

One perspective of the balanced scorecard focuses on revenue growth and productivity. Which of the four perspectives is this?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 52

KPIs for revenue growth and cost cutting pertain to which of the four perspectives of a balanced scorecard?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 53

Which of the following statements most accurately describes the company's "climate for action?"

A) A corporate culture that encourages communication, change, and growth
B) A corporate culture that is focused on strong, top-down command and control
C) A corporate culture which is aimed exclusively at period earnings
D) A corporate culture that encourages physical activity, sports and recreation to improve employee health and morale

Question 54

In a balanced scorecard system, which of the following KPIs would relate to the customer perspective?

A) Defect rate
B) Employee satisfaction
C) Gross margin growth
D) Number of repeat customers

Question 55

In a balanced scorecard system, which of the following KPIs would relate to the learning and growth perspective?

A) Defect rate
B) Employee satisfaction
C) Gross margin growth
D) Number of repeat customers

Question 56

Many companies use a balanced scorecard for performance evaluation. The balanced scorecard has four business perspectives, and utilizes KPIs to evaluate performance in various areas. Which of the following KPIs would relate to the internal business perspective?

A) Hours of employee training
B) Number of warranty claims
C) Percentage of market share
D) Return on investment

Question 57

In a balanced scorecard system, if operational efficiency was one of the critical factors, which of the following would be a relevant KPI?

A) Revenue growth
B) Production yield rate
C) Market share
D) Employee training hours

Question 58

In a balanced scorecard system, if customer satisfaction was one of the critical factors, which of the following would be a relevant KPI?

A) Revenue growth
B) Production yield rate
C) Market share
D) Employee training hours

Question 59

One part of the balanced scorecard helps management answer the question: "What business processes must we excel at in order to reach our objectives?" Which of the four perspectives is being described here?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 60

One part of the balanced scorecard helps management answer the question: "How can we continue to improve and create value?" Which of the four perspectives is being described here?

A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective

Question 61

Which of the following is a lagging indicator?

A) Operational performance
B) Customer satisfaction
C) Financial performance
D) Employee training

Question 62

When measuring a company's performance, which of the following is NOT a lag indicator?

A) Operating income for the last month
B) Ratio analysis
C) Variance analysis
D) The expected growth in future demand for a company's products

Question 63

Customer satisfaction, operational efficiency, and employee excellence are the three primary considerations when using the balanced scorecard approach.

Question 64

Based on the variances shown on responsibility performance reports, management must take corrective action on all variances, including favorable, unfavorable, controllable, and uncontrollable variances.

Question 65

Which of the following is a relevant performance indicator for the balanced scorecard's learning and growth perspective?

A) Earnings per share growth
B) Revenue growth
C) Employee access to customer information
D) Percentage of on-time deliveries

Question 66

Manufacturing cycle time is a measure pertaining to the balanced scorecard's:

A) learning and growth perspective.
B) internal business perspective.
C) financial perspective.
D) customer perspective.

Question 67

Which of the following statements BEST describes the purpose of the balanced scorecard approach?

A) The goal of the balanced scorecard approach is to maximize profits.
B) The goal of the balanced scorecard approach is to maximize operational efficiency.
C) The goal of the balanced scorecard approach is to develop a set of organizational performance measures to assist the organization in implementing its strategies.
D) The goal of the balanced scorecard approach is to maximize shareholder wealth.

Question 68

In a balanced scorecard system, if financial profitability was one of the critical factors, which of the following would be a relevant KPI?

A) Revenue growth
B) Production yield rate
C) Market share
D) Employee training hours

Question 69

When companies use the management by exception approach, ONLY unfavorable variances are investigated.

Question 70

Revenue center performance reports highlight ONLY flexible budget variances, whereas cost center performance reports include sales volume variances.

Question 71

Real-time feedback on quality is a measure pertaining to the balanced scorecard's:

A) learning and growth perspective.
B) internal business perspective.
C) financial perspective.
D) customer perspective.

Question 72

A critical function of the performance report is to focus on which managers must take blame for unfavorable variances.

Question 73

Managers of profit centers are responsible for generating revenue and controlling costs, so their performance reports include both revenues and expenses.

Question 74

Waycross Construction Company has a pipeyard operation which is run as a cost center. They are preparing a performance report for the month of March and have provided the data below:
$\begin{array}{|l|r|r|r|r|r|r|}\hline \text { Cost Center } & & \text { Flexible } & \text { Flexible Budget } \\\hline \text { Performance Report } & \text { Actual } & \text { Budget } & \text { Variance } & \text { U/F } & \% \text { variance } & \text { U/F } \\\hline \text { Wages \& benefits } & \$ 81,200 & \$ 80,000 \\\hline \text { Office lease expense } & 42,060 & 45,000 \\\hline \text { Depreciation expense } & 39,600 & 42,000 \\\hline \text { Insurance expense } & 33,490 & 30,000 \\\hline \text { Other expense } & 7,120 & 8,000 \\\hline & \$ 203,470 & \$ 205,000 \\\hline\end{array}$

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How much is the percentage variance for Wages and benefits?

A) 2.2 % F
B) 2.2 % U
C) 1.5% F
D) 1.5% U

Question 75

Waycross Construction Company has a pipeyard operation which is run as a cost center. They are preparing a performance report for the month of March and have provided the data below:
$\begin{array}{|l|r|r|r|r|r|r|}\hline \text { Cost Center } & & \text { Flexible } & \text { Flexible Budget } \\\hline \text { Performance Report } & \text { Actual } & \text { Budget } & \text { Variance } & \text { U/F } & \% \text { variance } & \text { U/F } \\\hline \text { Wages \& benefits } & \$ 81,200 & \$ 80,000 \\\hline \text { Office lease expense } & 42,060 & 45,000 \\\hline \text { Depreciation expense } & 39,600 & 42,000 \\\hline \text { Insurance expense } & 33,490 & 30,000 \\\hline \text { Other expense } & 7,120 & 8,000 \\\hline & \$ 203,470 & \$ 205,000 \\\hline\end{array}$

A) 11.6 % U
B) 11.6 % F
C) 12.5 % U
D) 12.5% F

Question 76

Union Company's corporate payroll department is a cost center, and prepares monthly performance reports. Union uses the management by exception approach, based on the dollar amounts of the variances. Based on the performance report for the payroll department shown below, on which of the following variances would the company focus first for investigation and explanation?
$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Cost Center } & & \text { Flexible } & \text { Flexible Budget } \\ \hline \text { Performance Report } & \text { Actual } & \text { Budget } & \text { Variance } & \mathrm{U} / \mathrm{F} & \% \text { variance } & \mathrm{U} / \mathrm{F} \\\hline \text { Salary \& benefits } & \$ 46,000 & \$ 44,500 & \$ 1,50 & \text { U } & 3.4 & \mathrm{U} \\\hline \text { Rent expense } & 12,750 & 11,900 & 850 & \text { U } & 7.1 \% & \mathrm{U} \\\hline \text { Depreciation expense } & 8,900 & 9,080 & 180 & & 2.0 \% & \text { F } \\\hline \text { Supply expense } & 1,890 & 2,200 & 310 & \bar{F} & 14.1 \% & \text { F } \\\hline \text { Miscellaneous expense } & 4,320 & 4,120 & 200 & \text { U } & 4.9 \% & \text { U } \\\hline&\$73,860&\$71,800&\$2,060&\text { U } &2.9\%&\text { U } \\\hline\end{array}$

A) Rent expense
B) Miscellaneous expense
C) Salary and benefits
D) Depreciation expense

Question 77

Which of the following is NOT a relevant performance indicator for the balanced scorecard's financial perspective?

A) Earnings per share
B) Revenue growth
C) Return on investment
D) Number of repeat customers

Question 78

Westhaven Company has a warehousing unit which operates as a cost center. They prepare monthly performance reports.
The report for February is shown here:
$\begin{array}{|l|r|r|r|r|r|r|}\hline \text { Cost Center } & & \text { Flexible } & \text { Flexible Budget } \\\hline \text { Performance Report } & \text { Actual } & \text { Budget } & \text { Variance } & \text { U/F } & \% \text { variance } & \text { U/F } \\\hline \text { Salary \& benefits } & \$ 119,000 & \$ 120,000 & \$ 1,000 & F & 0.8 \% & F \\\hline \text { Rent expense } & 94,500 & 90,000 & 4,500 & U & 5.0 \% & U \\\hline \text { Depreciation expense } & 23,200 & 24,000 & 800 & F & 3.3 \% & \text { F } \\\hline \text { Depreciation expense } & 23,200 & 24,000 & 800 & F & 3.3 \% & \text { F } \\\hline \text { Supply expense } & 11,890 & 12,000 & 110 & \text { F } & 0.9 \% & \text { F } \\\hline \text { Other expense } & 8,120 & 8,000 & 120 & \mathrm{U} & 1.5 \% & \mathrm{U} \\\hline& \$ 256,710 & \$ 254,000 & \$ 2,710 & \mathrm{U} & 1.1 \% & \mathrm{U} \\\hline\end{array}$

Westhaven uses the management by exception approach. On which of the following variances would the company focus first for investigation and explanation?

A) Supply expense
B) Rent expense
C) Other expense
D) Depreciation expense

Question 79

Which of the following is FALSE about a balanced scorecard?

A) It communicates the company's strategy to employees.
B) It monitors how well the company's employees are realizing the company's business strategy.
C) It provides a starting point for creating company strategies.
D) It provides benchmarks to encourage employees to carry out the company's strategy.

Question 80

New product development time is a measure pertaining to the balanced scorecard's:

A) learning and growth perspective.
B) internal business perspective.
C) financial perspective.
D) customer perspective.