Question 1

Which one of the following is not one of the perspectives of the balanced scorecard?
A) financial
B) customer service
C) learning and growth
D) cost controls

Accepted Answer

Cost controls is not one of the perspectives of the balanced scorecard. The four perspectives of the balanced scorecard are financial, customer service, internal business processes, and learning and growth.

Question 2

An example of intellectual capital is the
A) money invested in a mainframe computer.
B) brainpower of a company's product development team.
C) money invested in advertising in trade journals.
D) accounts receivables for services.

Accepted Answer

Intellectual capital refers to the knowledge, expertise, and skills of a company's employees or teams, which can drive innovation and create competitive advantages. Therefore, the brainpower of a company's product development team is a clear example of intellectual capital. A is incorrect because physical assets such as computers are not considered intellectual capital. C and D are incorrect because they represent financial assets and liabilities, respectively, which are not intellectual capital.

Question 3

The EVA (economic value added) is a guide to estimating how much a company earns in comparison to
A) competitive firms.
B) a stock index such as the Dow Jones industrial average.
C) the cost of capital.
D) the average return on government bonds.

Accepted Answer

EVA compares a firm's net operating profit after taxes to the cost of capital, which is the minimum return that investors require to invest in the company. In other words, it measures how much value a company creates above and beyond its required cost of capital. It is not directly related to competitive firms, stock indexes, or government bond returns.

Question 4

Which of the following is a recommended technique for preparing a sensible budget?
A) Budget liberally for income, and conservatively for expenses.
B) Budget conservatively for income and liberally for expenses.
C) Do not allow for wiggle room.
D) Go light in terms of basing budgets on historical information.

Accepted Answer

Budgeting conservatively for income and liberally for expenses ensures that you are prepared for the worst-case scenario, reducing the risk of overspending or running into financial trouble if income falls short or unexpected expenses arise.

Question 5

Cash from (or used in) operating activities is the
A) heart of cash flow.
B) cash paid to outsiders such as banks or stockholders.
C) cash received from selling stock or assets.
D) cash at the beginning and end of the period covered.

Accepted Answer

Cash from (or used in) operating activities is the heart of cash flow because it represents the cash generated or used by a company's core business activities, such as sales and expenses. This is the cash flow that reflects the company's ability to generate cash from its normal operations. Choices B, C, and D refer to other types of cash flows.

Question 6

The financial measure of net debt evaluates how much a company owes after taking into account
A) the effects of inflation on debt.
B) money on hand that could be used to eliminate debt.
C) the amount of debt that could be refinanced.
D) how much debt could be eliminated by declaring bankruptcy.

Accepted Answer

Net debt is the amount of debt a company has after subtracting their available cash and cash equivalents. Therefore, money on hand that could be used to eliminate debt is taken into account when calculating net debt.

Question 7

A major purpose of a pro-forma earnings statement is to exclude
A) salaries paid to non-productive employees.
B) kickbacks paid to the company by large customers
C) one-time charges not related to future earnings.
D) operating costs.

Accepted Answer

The purpose of a pro-forma earnings statement is to show investors what earnings would look like if certain adjustments were made. These adjustments may include excluding one-time charges that are not related to future earnings (such as restructuring costs or legal settlements) in order to provide a clearer picture of the company's ongoing profitability. The other options (A, B, and D) are operating costs that should not be excluded from a pro-forma statement.

Question 8

In its technical meaning, a budget is a plan for
A) allocating resources.
B) spending money.
C) saving money.
D) developing financial strategy.

Accepted Answer

A budget is a plan for allocating resources, which can include money, time, and other assets. While spending money and saving money may be part of a budget, the primary focus is on how resources will be used to achieve specific goals or objectives. Developing a financial strategy may also be part of the budgeting process, but it is not the sole purpose.

Question 9

Office manager Gus has spent all his annual money for paper towels, so he requests that until the end of the budget cycle, employees bring their own paper towels to the office. What type of budget does Gus most likely have?
A) pro-forma
B) master
C) flexible
D) fixed

Accepted Answer

Gus's request for employees to bring their own paper towels indicates that there is a fixed budget in place, meaning the amount allocated for paper towels has been fully spent and cannot be adjusted until the next budget cycle.

Question 10

Dunkin' Donuts franchise manager Julie estimates how much her three stores will take in next year, as well as how much she will spend. Julie is most likely preparing which type of budget?
A) revenue and expense
B) capital expenditure
C) cash
D) production

Accepted Answer

Julie is estimating both revenue (how much her stores will take in) and expenses (how much she will spend), which are two components of a revenue and expense budget.

Question 11

Positive approaches to cost cutting include
A) videoconferencing to cut travel costs
B) investing in new printers to cut inkjet cartridges costs.
C) keeping sales expenses at or below 10 percent of sales.
D) all of the choices

Accepted Answer

All the choices mentioned are positive approaches to cost cutting. Videoconferencing reduces travel expenses, investing in new printers can decrease the long-term costs of inkjet cartridges, and maintaining sales expenses at or below a certain percentage of sales ensures that selling costs do not disproportionately impact profits.

Question 12

The executive team at Midas Muffler and Brake decides to publish a statement of its available cash that subtracts from the cash, the planned investments in new shops and new technology. The statement can best be labeled a measure of
A) pro-forma earnings
B) free cash flow.
C) EBITDA (earnings before interest, taxes, depreciation, and amortization.
D) EVA (economic value added)

Accepted Answer

The statement subtracts planned investments from available cash, indicating the cash that is available for other purposes, such as paying dividends or reducing debt. This is commonly known as free cash flow. Options A, C, and D are not relevant to the calculation of free cash flow.

Question 13

The financial ratio, revenue per employee is often used as a(n)
A) measure of productivity.
B) measure of return on capital.
C) index of growth potential.
D) index of bankruptcy potential.

Accepted Answer

Revenue per employee measures how much revenue a company generates per employee, indicating their productivity. It is not an indicator of return on capital, growth potential, or bankruptcy potential.

Question 14

In calculating the profit margin, net income is
A) subtracted from cost of goods sold.
B) added to profits.
C) divided by sales.
D) subtracted from sales.

Accepted Answer

The profit margin is calculated by dividing net income by sales. This ratio shows how much profit a company is making for every dollar of sales. Therefore, net income is divided by sales, not subtracted or added to any other category in the calculation.

Question 15

An important use of activity-based costing is to estimate the
A) fixed and variable costs necessary to deliver a product or service.
B) amount of resources consumed in producing a product or service.
C) balanced scorecard for a firm.
D) cycle time for delivering a product or service.

Accepted Answer

Activity-based costing helps to estimate the amount of resources consumed in producing a product or service by identifying and assigning costs to specific activities involved in the production process. This information can be used to improve cost management and pricing decisions. Option A is better suited for traditional costing methods, while options C and D are not directly related to the purpose of activity-based costing.

Question 16

An example of a feedback control is a(n)
A) financial report.
B) quality specification.
C) in-process inspection of parts.
D) a field visit by top-level management.

Accepted Answer

The answer of An example of a feedback control is...

Question 17

A control system begins with
A) measuring performance.
B) agreeing on accuracy of measurement needed.
C) agreeing on who will use the measurements.
D) setting appropriate performance standards.

Accepted Answer

A control system begins by setting appropriate performance standards. This provides a benchmark for evaluating actual performance. Measuring performance, agreeing on the accuracy of measurement needed, and agreeing on who will use the measurements are all important steps, but they come after setting the performance standards.

Question 18

The basic purpose of measuring cash flow is to estimate how much
A) net cash a company has during a given period.
B) money customers owe a company.
C) time is left before a company goes bankrupt.
D) return stockholders can expect during a given period.

Accepted Answer

Measuring cash flow allows us to estimate the net cash a company has during a given period, which is useful in understanding a company's liquidity and ability to pay its bills, make investments, and return funds to shareholders. Options B and C refer to other financial metrics, while D may be related but not the primary measure addressed by cash flow analysis.

Question 19

The purpose of a preventive (or pre-control) is to prevent
A) existing problems from escalating.
B) problems caused by a deviation from performance.
C) feedback controls from creating damage.
D) quality standards from being too demanding.

Accepted Answer

Preventive or pre-control measures are designed to prevent issues that arise due to deviations from expected or standard performance levels, by ensuring processes are controlled and monitored before problems occur.

Question 20

Under a balanced scorecard system, compensation is based on
A) achieving all the factors in the balanced scorecard.
B) financial goals and customer service goals.
C) financial goals and internal process goals.
D) learning and growth goals and internal process goals.

Accepted Answer

The balanced scorecard system evaluates performance based on a broad range of factors including financial goals, customer service goals, internal process goals, and learning and growth goals. Compensation under this system is based on achieving a balanced performance across all these areas, not just a subset.

Quiz 15: Essentials of Control

Which one of the following is not one of the perspectives of the balanced scorecard?

An example of intellectual capital is the

The EVA (economic value added) is a guide to estimating how much a company earns in comparison to

Which of the following is a recommended technique for preparing a sensible budget?

Cash from (or used in) operating activities is the

The financial measure of net debt evaluates how much a company owes after taking into account

A major purpose of a pro-forma earnings statement is to exclude

In its technical meaning, a budget is a plan for

Office manager Gus has spent all his annual money for paper towels, so he requests that until the end of the budget cycle, employees bring their own paper towels to the office. What type of budget does Gus most likely have?

Dunkin' Donuts franchise manager Julie estimates how much her three stores will take in next year, as well as how much she will spend. Julie is most likely preparing which type of budget?

Positive approaches to cost cutting include

The executive team at Midas Muffler and Brake decides to publish a statement of its available cash that subtracts from the cash, the planned investments in new shops and new technology. The statement can best be labeled a measure of

The financial ratio, revenue per employee is often used as a(n)

In calculating the profit margin, net income is

An important use of activity-based costing is to estimate the

An example of a feedback control is a(n)

A control system begins with

The basic purpose of measuring cash flow is to estimate how much

The purpose of a preventive (or pre-control) is to prevent

Under a balanced scorecard system, compensation is based on