Question 1

Net income divided by sales is the correct formula for calculating:
A) return on assets.
B) the current ratio.
C) the quick ratio.
D) profit margin on sales.
E) gross margin.

Accepted Answer

Net income divided by sales gives us the profit margin on sales. This is a measure of how much profit a company generates for each dollar of sales it makes.

Question 2

Brad is a department manager at Home Theater, Inc. His sole role in the budget process is to implement the budget that is developed for him. This is an example of:
A) strategic budgeting.
B) operational budgeting.
C) top-down budgeting.
D) management by objectives.
E) bottom-up budgeting.

Accepted Answer

Brad's role, where the budget is developed for him and his responsibility is solely to implement it, is an example of top-down budgeting. In top-down budgeting, decisions and the budget itself are formulated at the top level of the organization and then passed down through the hierarchy for implementation.

Question 3

At RWI Distilleries, rules and procedures are used only when necessary. Instead, managers rely on shared goals and values to control employee behavior. RWI uses what type of organizational control?
A) Centralized
B) Hierarchical
C) Decentralized
D) Top-down
E) Balanced

Accepted Answer

The use of shared goals and values to control behavior indicates that RWI Distilleries uses a decentralized form of organizational control, where decision-making authority is pushed down to lower-level employees rather than being centralized at the top.

Question 4

The __________ ratio indicates an organization's ability to meet its current debt obligations.
A) activity
B) liquidity
C) profitability
D) conversion
E) growth

Accepted Answer

The liquidity ratio measures an organization's ability to meet its short-term debt obligations. It indicates the company's ability to pay its bills on time and avoid defaulting on its loans.

Question 5

Which of the following refers to funding activities with borrowed money?
A) Return on assets
B) Leverage
C) Liquidity
D) Profitability
E) Activity

Accepted Answer

Leverage refers to funding activities with borrowed money.

Question 6

In organizations that use decentralized control, self-discipline and self-control keep workers performing their jobs up to standard. Which of the following does not contribute to internal standards that provide self-control?
A) Empowerment of employees
B) Training
C) Effective socialization
D) Extrinsic rewards
E) All of these contribute to internal standards that provide self-control.

Accepted Answer

Extrinsic rewards are external motivators that may decrease the internal drive to maintain self-discipline and self-control. While empowerment of employees, training, and effective socialization can all contribute to creating internal standards that promote self-control.

Question 7

Which of the following is considered a leverage ratio?
A) Debt ratio
B) Return on assets
C) Profit margin on sales
D) Conversion ratio
E) Inventory turnover

Accepted Answer

A leverage ratio is a financial ratio that measures how much of a company's capital comes from debt. The debt ratio compares a company's total debt to its total assets and is considered a popular leverage ratio. B) Return on assets, C) Profit margin on sales, D) Conversion ratio, and E) Inventory turnover are not considered leverage ratios.

Question 8

__________ is/are to the difference between assets and liabilities and is/are the company's net worth in stock and retained earnings.
A) Assets
B) Current debt
C) Net profit
D) Owners' equity
E) Liabilities

Accepted Answer

Owners' equity is the difference between a company's assets and liabilities, which represents the net worth of the company based on stock and retained earnings. This is the amount that belongs to the company's owners. Assets represent what a company owns, liabilities represent what a company owes, and current debt represents the amount of debt due within one year. Net profit is the amount of revenue left over after all expenses have been paid.

Question 9

Which of the following is a ratio that measures the firm's internal performance with respect to key activities defined by management?
A) A liquidity ratio
B) An activity ratio
C) Return on assets
D) A current ratio
E) Profit margin on sales

Accepted Answer

An activity ratio measures how efficiently a company manages its assets and liabilities within key internal activities such as inventory management, accounts receivable management, and accounts payable management. Examples of activity ratios include inventory turnover ratio, accounts receivable turnover ratio, and accounts payable turnover ratio.

Question 10

The conversion ratio is considered to be a(n) __________ ratio.
A) activity
B) liquidity
C) profitability
D) leverage
E) cash

Accepted Answer

The conversion ratio is a measure of how many convertible securities (such as preferred stock or bond) can be converted into common shares. This is an activity ratio because it looks at the company's ability to convert its securities into common shares, which is an activity that can affect the company's financial position. The other answer choices are not applicable to this ratio.

Question 11

__________ is purchase orders divided by customer inquiries.
A) The current ratio
B) Inventory turnover
C) The conversion ratio
D) Profit margin on sales
E) Gross margin

Accepted Answer

The given formula is for conversion ratio, which calculates how many customer inquiries are successful in converting into purchase orders. Inventory turnover, current ratio, profit margin on sales, and gross margin do not use this formula.

Question 12

Net income divided by sales is the formula for:
A) profit margin on sales.
B) the current ratio.
C) gross margin.
D) the debt ratio.
E) return on assets.

Accepted Answer

Net income divided by sales is the formula for profit margin on sales, which measures the percentage of each dollar of revenue that is left after expenses.

Question 13

All of the following are shown on an income statement except:
A) cost of goods sold.
B) accounts receivable.
C) taxes.
D) depreciation.
E) net income.

Accepted Answer

Accounts receivable is a balance sheet item and is not shown on an income statement. All the other options (cost of goods sold, taxes, depreciation, and net income) are shown on an income statement.

Question 14

__________ allows the employee to see how his or her job fits into the big picture and affects the financial future of the organization.
A) Activity-based costing
B) An economic value-added system
C) Open-book management
D) A hierarchical control process
E) None of these

Accepted Answer

Open-book management involves sharing financial information with employees so that they can see how their individual job performance impacts the financial success of the organization. This allows the employee to see how their job fits into the big picture and promotes a sense of ownership and commitment to the organization's goals.

Question 15

Pauline is an area manager at Ironman Gym. She anticipates her area's needs and formulates a proposed budget every quarter. She then sends this proposal to her manager. This is an example of __________ budgeting.
A) top-down
B) strategic
C) revenue
D) bottom-up
E) operational

Accepted Answer

Pauline's approach of formulating a proposed budget based on her area's needs and sending it up to her manager is an example of bottom-up budgeting. This method involves lower-level employees initiating the budget process, which is then reviewed and approved by higher management.

Question 16

The basic philosophy of control at Nutrients-For-You, Inc. is based on the policies found in the employee handbook, as well as a strict hierarchy of authority. This philosophy is consistent with __________ control.
A) clan
B) bottom-up
C) hierarchical
D) culture
E) decentralized

Accepted Answer

The strict hierarchy of authority indicates that Nutrients-For-You, Inc. follows a hierarchical control philosophy, where decisions are made at the top by managers and then passed down to lower-level employees. The policies in the employee handbook further emphasize this top-down approach to control.

Question 17

At LBK Industries, responsibility for quality control rests with a team of quality control inspectors and supervisors rather than with employees. LBK uses what type of organizational control?
A) Matrix
B) Hierarchical
C) Decentralized
D) Bottom-up
E) Balanced

Accepted Answer

LBK Industries' approach to quality control, where a specific team of inspectors and supervisors is responsible rather than the employees, exemplifies a Hierarchical organizational control. This model relies on a top-down approach where decisions and responsibilities are centralized within specific roles or levels within the organization.

Question 18

Tammy is a production manager at Eagle's Nest, Inc. She is concerned that too much money is being wasted on inventory that is sitting in the warehouse too long. She should calculate:
A) the current ratio.
B) inventory turnover.
C) the conversion ratio.
D) return on assets.
E) the debt ratio.

Accepted Answer

Tammy's concern about inventory indicates that she needs to calculate the inventory turnover ratio, which measures how many times a company sells and replaces its inventory during a given period. A high inventory turnover ratio indicates that a company is efficiently managing its inventory and is not holding excess inventory. Therefore, B (inventory turnover) is the best choice. A (current ratio), C (conversion ratio), D (return on assets), and E (debt ratio) do not relate to Tammy's concern about inventory management.

Question 19

The firm's financial position with respect to assets and liabilities at a specific point in time is shown by its:
A) activity ratio.
B) profitability ratio.
C) income statement.
D) liquidity ratio.
E) balance sheet.

Accepted Answer

The balance sheet shows a company's financial position at a specific point in time by indicating its assets and liabilities. The other options (activity ratio, profitability ratio, income statement, and liquidity ratio) do not provide a snapshot of a company's overall financial position.

Question 20

Which of the following is the first step of the benchmarking process?
A) Collect
B) Plan
C) Analyze
D) Find
E) Improve

Accepted Answer

The first step of the benchmarking process is to plan, which involves identifying the process to be benchmarked, selecting the relevant metrics, and identifying potential benchmarking partners.

Quiz 19: Managing Quality and Performance

Net income divided by sales is the correct formula for calculating:

Brad is a department manager at Home Theater, Inc. His sole role in the budget process is to implement the budget that is developed for him. This is an example of:

At RWI Distilleries, rules and procedures are used only when necessary. Instead, managers rely on shared goals and values to control employee behavior. RWI uses what type of organizational control?

The __________ ratio indicates an organization's ability to meet its current debt obligations.

Which of the following refers to funding activities with borrowed money?

In organizations that use decentralized control, self-discipline and self-control keep workers performing their jobs up to standard. Which of the following does not contribute to internal standards that provide self-control?

Which of the following is considered a leverage ratio?

__________ is/are to the difference between assets and liabilities and is/are the company's net worth in stock and retained earnings.

Which of the following is a ratio that measures the firm's internal performance with respect to key activities defined by management?

The conversion ratio is considered to be a(n) __________ ratio.

__________ is purchase orders divided by customer inquiries.

Net income divided by sales is the formula for:

All of the following are shown on an income statement except:

__________ allows the employee to see how his or her job fits into the big picture and affects the financial future of the organization.

Pauline is an area manager at Ironman Gym. She anticipates her area's needs and formulates a proposed budget every quarter. She then sends this proposal to her manager. This is an example of __________ budgeting.

The basic philosophy of control at Nutrients-For-You, Inc. is based on the policies found in the employee handbook, as well as a strict hierarchy of authority. This philosophy is consistent with __________ control.

At LBK Industries, responsibility for quality control rests with a team of quality control inspectors and supervisors rather than with employees. LBK uses what type of organizational control?

Tammy is a production manager at Eagle's Nest, Inc. She is concerned that too much money is being wasted on inventory that is sitting in the warehouse too long. She should calculate:

The firm's financial position with respect to assets and liabilities at a specific point in time is shown by its:

Which of the following is the first step of the benchmarking process?