Question 1

When activities are performed inside firms,which of the following is true?
A)Centralized firms delegate decision rights to the lowest operational level
B)The best performance measurement systems use only financial data because it is objective
C)Individuals strive to manipulate the performance evaluation system to maximize their own benefits
D)For efficiency,a manager should have both decision rights and decision control
E)None of the choices are correct

Accepted Answer

E

Question 2

Printing Press (PP)is operating close to capacity.The sales department earns commissions of 8% on sales.Setup charges amount to $60 per item,plus variable costs of $1 per copy.When capacity is reached,PP can still meet the order,but incurs overtime charges and other variable overhead of 25 cents per copy.The production manager complains that the sales staff promise delivery within very tight deadlines in order to secure orders,which means that overtime and other variable overhead has to be paid.A recent rush order for 100 engraved wedding invitations was secured at the normal price of $200.Which is true? A)The present arrangements maximize profits for PP B)Sales staff would coordinate rush orders with production if the excess charges were to be charged against their sales commission C)Sales will increase if sales commission arrangements are changed D)Sales staff are not rewarded for maximizing sales at any cost E)None of the choices are correct

Accepted Answer

Given the situation, if the sales staff's commissions were affected by the extra charges incurred from rush orders (overtime and other variable overhead), they would likely coordinate better with the production team to avoid such costs. This would align their incentives with the company's goal of maximizing profits while managing capacity efficiently.

Question 3

Which of the following is necessary in order for accounting numbers to be effective in decision monitoring?
A)The controller reports to the audit committee of the board of directors.
B)The CEO and senior management use the accounting system to check on the performance of the board of directors.
C)Financial measures used at the corporate level are used to make operating decisions.
D)Accounting reports are subjective and available on an as-needed basis.
E)All of the choices.

Accepted Answer

The controller reporting to the audit committee of the board of directors ensures independence and integrity in financial reporting, which is crucial for effective decision monitoring. This structure helps in preventing conflicts of interest and ensures that accounting numbers are reliable and trustworthy for decision-making purposes.

Question 4

Which of the following is true?
A)People in firms have equal knowledge
B)Employee empowerment increases when firms centralize key functions
C)Decision rights and knowledge must be separated to minimize agency costs
D)Theft by employees is an example of an agency cost
E)None of the choices are correct

Accepted Answer

Theft by employees is an example of an agency cost because it represents a conflict of interest between the employee and the firm. The employee gains a personal benefit at the expense of the firm, which is an agency problem. The other choices are not true - people in firms do not have equal knowledge, employee empowerment does not increase when firms centralize key functions, and decision rights and knowledge often need to be combined to reduce agency costs.

Question 5

Which of the following is true?
A)Successful firms have lower transactions costs than markets do
B)A legal system that protects ownership rights is critical to the efficient functioning of firms and markets
C)Markets measure and reward performance
D)Markets allocate resources to their highest value use
E)All of the choices

Accepted Answer

All of the choices are true. Successful firms typically have lower transactions costs than markets do, a legal system that protects ownership rights is critical to the efficient functioning of firms and markets, markets measure and reward performance, and markets allocate resources to their highest value use.

Question 6

Fundamental tenets of economics include all of the following,except:
A)all market participants are rational
B)individuals seek to maximize utility
C)people strive to maximize benefits to their community
D)people value status,job title,love,free time
E)None of the choices are correct

Accepted Answer

The other choices are fundamental tenets of economics, which assume that individuals act rationally and seek to maximize their own self-interest, whether it be in the form of utility, status, or leisure time. The assumption that people strive to maximize benefits to their community is not a core tenet of economics, although it may be relevant in certain contexts.

Question 7

When activities are performed inside firms,which of the following is true about organizational architecture?
A)Decision initiation is a feature of decision control
B)The party who ratifies a decision must implement it
C)Rewards should be distributed equally to keep everyone happy
D)It is cost-ineffective to ratify all decisions
E)None of the choices are correct

Accepted Answer

Ratifying all decisions within a firm can be cost-ineffective because it can slow down the decision-making process and increase administrative costs. Efficient organizational architecture often delegates decision-making to lower levels to enhance responsiveness and efficiency.

Question 8

Which of the following is true?
A)A free rider contributes to teamwork but does not receive pay
B)Mitigating the agency problem requires alignment of the interests of principal and agent
C)The horizon problem describes agents who focus on the long-term
D)Agency costs are an advertising expense
E)None of the choices are correct

Accepted Answer

Mitigating the agency problem requires alignment of the interests of principal and agent. This is because the agency problem arises when there is a conflict of interest between the principal (owner/shareholder) and the agent (manager/employee) who acts on behalf of the principal. To mitigate this problem, their interests need to be aligned through various mechanisms such as performance-based incentives, stock options, and regular monitoring and evaluation of the agent's performance. Therefore, option B is the correct choice.

Question 9

Which advantage accrues when teams,or firms,are formed?
A)Positive synergies
B)Each participant perceives an advantage to joining
C)Increase in economies of scale
D)Contracting efficiencies
E)All of the choices are correct

Accepted Answer

All of the choices are correct. Forming teams or firms can lead to positive synergies where the whole is greater than the sum of the parts. Each participant perceives an advantage to joining, which can lead to increased motivation and commitment. Teams or firms can also benefit from economies of scale, such as shared resources and reduced costs per unit. Finally, contracting efficiencies can be achieved through the pooling of resources and expertise.

Question 10

Which of the following statements is correct?
A)Agency costs can be minimized by separating decision management from decision control.
B)Specific internal accounting procedures,such as standard costs,aid in decision management.
C)For decision management,most managers prefer accounting numbers.
D)Departments and companies with lower stock turns are using their capital more efficiently by limiting the number of times inventory is replaced during the period.
E)All of the choices are correct.

Accepted Answer

Agency costs refer to the cost incurred by a firm to mitigate conflicts of interest between different stakeholders. By separating decision management from decision control, the principal can delegate decision-making authority to a trusted agent while retaining control over decisions that affect their interests. This reduces the risk of opportunistic behavior by agents and, therefore, minimizes agency costs. The other options have either incorrect or incomplete statements.

Question 11

The university computer lab is having difficulty controlling its costs.Analysis showed that a key issue is the cost of printer supplies (ink,paper,and machine repair).Which strategy is likely to reduce costs the most,if typical student use is 200 copies per month?
A)Plan A: requiring students to pay 12 cents per copy
B)Plan B: charging a fee of $20 for the first 100 copies per month,then 10 cents per copy thereafter
C)Plan C: charging a fee of $10 for the first 50 copies per month,then 15 cents per copy thereafter
D)Plan D: adding a flat lab fee of $30 per academic term
E)All of the choices are correct

Accepted Answer

Plan A is likely to reduce costs the most by directly charging for each copy, which can discourage excessive printing and ensure costs are covered.

Quiz 4: Organizational Architecture

When activities are performed inside firms,which of the following is true?

Which of the following is necessary in order for accounting numbers to be effective in decision monitoring?

Which of the following is true?

Which of the following is true?

Fundamental tenets of economics include all of the following,except:

When activities are performed inside firms,which of the following is true about organizational architecture?

Which of the following is true?

Which advantage accrues when teams,or firms,are formed?

Which of the following statements is correct?

The university computer lab is having difficulty controlling its costs.Analysis showed that a key issue is the cost of printer supplies (ink,paper,and machine repair) .Which strategy is likely to reduce costs the most,if typical student use is 200 copies per month?