Question 1

The four dimensions of the balanced scorecard are: the financial perspective; the monetary perspective; the customer perspective; and the learning and growth perspective.

Accepted Answer

The four dimensions of the balanced scorecard are the financial perspective, the customer perspective, the internal business perspective, and the learning and growth perspective.

Question 2

An internal business process perspective of a balanced scorecard system addresses the question 'What do we need to do to develop our employees?'

Accepted Answer

An internal business process perspective of a balanced scorecard system addresses the question 'What processes do we need to improve to achieve our strategic goals?' The question related to developing employees would fall under the learning and growth perspective.

Question 3

The economic value added (EVA) is a method of measuring how effectively a company achieves the objective of creating shareholder value.

Accepted Answer

The economic value added (EVA) is a financial performance metric that measures the difference between a company's net operating profit after tax (NOPAT) and the cost of the capital it uses. The goal of EVA is to determine how much value a company is creating for its shareholders by comparing its net operating profit to the cost of the capital it uses to generate that profit.

Question 4

A key performance indicator that measures which direction a firm should be taking is termed a strategic KPI.

Accepted Answer

This statement is true. Strategic KPIs measure the progress of a company towards its overall strategic goals and objectives, and can help determine if the company is on the right track towards success.

Question 5

Non-financial indicators of performance are easier to measure than financial indicators.

Accepted Answer

Non-financial indicators of performance, such as customer satisfaction or employee morale, can be more difficult to measure and quantify than financial indicators.

Question 6

Participation by responsible managers in the setting of budgets enhances the probability of effective planning and control within an organisation.

Accepted Answer

When responsible managers participate in the setting of budgets, they have a deeper understanding of the goals and objectives of the organisation, and are more committed to achieving them. This enhances effective planning and control by ensuring that budgetary decisions align with strategic objectives and are grounded in realistic assumptions about resources and capabilities. Moreover, involvement in budgeting can foster collaboration, communication, and accountability among managers, which can improve the accuracy and reliability of budget forecasts and monitoring. Therefore, participation by responsible managers in the budgeting process is generally considered a best practice in management accounting.

Question 7

Non-financial measures of performance assess items such as customer satisfaction and employee morale.

Accepted Answer

Non-financial measures of performance can include customer satisfaction surveys, employee engagement surveys, and other measures that do not directly relate to financial outcomes. These measures are important for assessing the overall health and success of a business beyond just the financial bottom line.

Question 8

Agricola Ltd is a diversified entity that has several central departments to service its various operating divisions. These include payroll, accounting and finance, and legal departments. As the divisions have no alternative but to use these 'in-house' services, the charges are referred to as 'uncontrollable' charges.

Accepted Answer

The statement accurately describes the nature of the charges for central departments in Agricola Ltd.

Question 9

An operating KPI measures whether a business is moving in the right direction.

Accepted Answer

This statement is true. Operating KPIs are used to measure the performance of various aspects of a business and determine whether they are meeting their goals and moving in the right direction.

Question 10

In the context of performance measurement, drivers are the indicators that measure the items that will cause a change in the outcome measures.

Accepted Answer

Drivers are the indicators that measure the items that will cause a change in the outcome measures.

Question 11

Which of the following is an example of a performance measure that is appropriate for an investment centre but not a profit centre or cost centre?
A) Quality of service
B) Income from operations
C) Rate of return on investment
D) Gross profit margin

Accepted Answer

The rate of return on investment is an appropriate performance measure for an investment centre as it measures the profitability of the investments made by the centre. This measure is not relevant for a profit centre or cost centre as they do not typically make investment decisions. Quality of service is a measure more relevant to a service-focused business and income from operations and gross profit margin are measures more relevant to profit centres and cost centres.

Question 12

The financial perspective of a balanced scorecard contains driver measures such as return on assets and return on shareholders' equity.

Accepted Answer

The answer of The financial perspective of a balanced scorecard...

Question 13

It is primarily the non-financial measures in the internal business process and learning and growth perspectives of the balanced scorecard that drive future financial performance.

Accepted Answer

Non-financial measures such as customer satisfaction, employee engagement, and process improvement initiatives can ultimately impact financial performance in the long run. Therefore, these measures are crucial in driving future financial performance.

Question 14

The rate of return on investment is an appropriate performance measure for an investment centre.

Accepted Answer

The rate of return on investment is a commonly used performance measure for an investment centre as it reflects how much profit or loss the centre generated compared to the amount of capital invested.

Question 15

A driver KPI measures factors that will cause a change, whereas an outcome KPI measures the result of a change.

Accepted Answer

A driver KPI measures the factors or activities that lead to achieving a specific outcome, while an outcome KPI measures the results or achievement of that outcome. Therefore, driver KPIs focus on the inputs or processes, while outcome KPIs focus on the outputs or results.

Question 16

A major strength of financial measures is that they provide a standardised measure in monetary terms, whereas non-financial measures are difficult to measure and therefore are rarely used in performance assessment systems.

Accepted Answer

Non-financial measures are frequently used in performance assessment systems alongside financial measures because they can provide valuable insights into areas such as customer satisfaction, employee performance, and operational efficiency, which are not captured by financial metrics alone.

Question 17

Economic value is the economist's way to measure profit.

Accepted Answer

Economic value refers to the maximum amount a consumer is willing to pay for an item, rather than measuring profit, which is the difference between the cost of producing something and the price at which it is sold.

Question 18

The equation for calculating economic value added (EVA) is as follows:
EVA = before-tax profit + interest - (cost of capital x total capital employed).

Accepted Answer

The correct equation for calculating Economic Value Added (EVA) is: EVA = Net Operating Profit After Taxes (NOPAT) - (Cost of Capital * Total Capital Employed).

Question 19

A manager is responsible for all costs of producing product X but does not set the selling price. This means the manager is responsible for a cost centre.

Accepted Answer

A cost centre is an organizational unit, department, or team for which costs are recorded and managed, but which does not generate revenue directly. In this scenario, the manager is responsible for controlling the costs of producing product X, which falls under the category of a cost centre. The fact that the manager does not set the selling price does not change the fact that they are responsible for managing the costs of production.

Question 20

A balanced scorecard is a measurement system that incorporates financial measures that tell the result of actions already taken and operational measures that are the drivers of future financial performance.

Accepted Answer

This is an accurate description of a balanced scorecard. It is a comprehensive performance management system that takes into account both financial results as well as non-financial measures such as customer satisfaction, internal processes, and learning and growth. The combination of these measures helps organizations to better understand their performance and make strategic decisions for the future.

Quiz 13: Performance Measurement and the Balanced Scorecard