Question 1

Make a list of steps of designing an accounting based performance measure. Give an example of decisions taken under each step.

Accepted Answer

1.Choose performance measures that align with top management's goals.
Does operating income, return on assets, or revenues best measure a subunit's financial goals?
2.Choose the Details of Each Performance Measure.
Once a firm has chosen a specific performance measure, it must make a variety of decisions about the precise way in which various components of the measure are to be calculated. For example, if the chosen performance measure is return on assets, should it be calculated for one year or for a multiyear period? Should assets be defined as total assets or net assets (total assets
minus total liabilities)? Should assets be measured at historical cost or current cost?
3.Choose a Target Level of Performance and Feedback Mechanism for Each Performance Measure
For example, should all subunits have identical targets, such as the same required rate of return on assets? Should performance reports be sent to top managers daily, weekly, or monthly?

Question 2

A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n) ________.

Accepted Answer

A balanced scorecard is a report that measures both financial and nonfinancial performance measures for various organizational units in a single report. This report provides a comprehensive view of an organization's performance and allows managers to make well-informed decisions. Option B, C, and D are incorrect because they do not accurately describe a report that measures both financial and nonfinancial performance measures.

Question 3

The first step in designing accounting based performance measures is to choose a target level of performance and feedback mechanism.

Accepted Answer

The first step in designing accounting based performance measures is to choose performance measures that align with top management's financial goals.

Question 4

Return on investment can be increased by ________.

Accepted Answer

Increasing return on sales means increasing the efficiency of operations and generating more profits with the same amount of resources. This can lead to a higher return on investment without the need to increase current assets or take on more debt. Decreasing revenues or increasing debt may have negative effects on ROI.

Question 5

Average number of repeat visits in a spa unit is a ________ measure on a balanced scorecard.

Accepted Answer

The average number of repeat visits in a spa unit is a measure of customer satisfaction and loyalty, which falls under the customer perspective on a balanced scorecard. This perspective focuses on how well the organization is serving its customers and meeting their needs.

Question 6

An example of a performance measure with a long time horizon is ________.

Accepted Answer

Number of new patents developed is an example of a performance measure with a long time horizon as it reflects the long-term success and competitiveness of the organization. Direct materials efficiency variances and overhead spending variances are short-term measures that focus on cost control in the production process. Quality of room service is a measure of customer satisfaction and does not necessarily reflect long-term success.

Question 7

The balanced scorecard in most organizations is broken down into the following categories: commercial perspective, supplier perspective, external business-process perspective, and productivity perspective.

Accepted Answer

The balanced scorecard in most organizations is broken down into the following categories: financial perspective, customer perspective, internal business-process perspective, and learning-and-growth perspective.

Question 8

Some companies present financial and nonfinancial performance measures for various organization units in a single report called the balanced scorecard.

Accepted Answer

The balanced scorecard is a strategic management tool that presents both financial and nonfinancial performance measures for various organizational units in a single report. It helps organizations to align their strategic objectives with their actions and monitor their progress towards achieving those objectives.

Question 9

Which of the following is true about designing an accounting-based performance measure?

Accepted Answer

Behavioral criteria are important when evaluating the steps involved in designing an accounting-based performance measure. This is because, while the steps themselves may be independent, they are ultimately informed by the beliefs and behaviors of the people making the decisions. Therefore, understanding the behavioral criteria involved can help to ensure that the performance measure is designed in a way that will effectively motivate and incentivize the desired behaviors in the organization.

Question 10

Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?

Accepted Answer

Selecting net income as a measure of financial performance is a part of choosing performance measures that align with the firm's financial goals.

Question 11

Customer-satisfaction measures are an example of the ________.

Accepted Answer

Customer satisfaction measures are a key component of the balanced scorecard approach, which focuses on multiple perspectives such as financial, customer, internal processes, and learning and growth to evaluate the performance of an organization. The goal-congruence approach, financial report scorecard approach, and investment success approach do not specifically address the measurement of customer satisfaction.

Question 12

Aaron Corp's net income is $25,000. What is the amount of the investment if the return on investment is 30%?

Accepted Answer

Return on investment = 0.3 = $25,000 / Investment; Investment = $83,333.

Question 13

Many common performance measures, such as customer satisfaction, rely on internal financial accounting information.

Accepted Answer

Customer satisfaction would be obtained by surveys that are not in the financial accounting records.

Question 14

All of the following are ways to calculate different versions of ROI except ________.

Accepted Answer

Options B, C, and D are all variations of the ROI formula. Option A is the formula for calculating asset turnover ratio, which measures how efficiently a company uses its assets to generate revenue. It is not a version of ROI.

Question 15

When designing the steps in accounting-based performance measures, should the decisions in these steps be sequential?

Accepted Answer

The answer of When designing the steps in accounting-based performance...

Question 16

Companies are increasingly using nonfinancial measures to evaluate performance. Why? Since these numbers do not come from the company's financial records, why are they used?

Accepted Answer

The answer of Companies are increasingly using nonfinancial measures to...

Question 17

Which of the following steps in designing an accounting-based performance measure includes decisions such as defining assets as total assets or net assets in the calculation of return on assets?

Accepted Answer

Choosing the details for each performance measure includes decisions such as defining the components of the measure and the calculation method. This would involve deciding whether to use total assets or net assets in the calculation of return on assets, as stated in the question. The other options (A, B, and D) do not specifically involve this decision.

Question 18

The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.

Accepted Answer

The DuPont method of profitability analysis considers both increasing income per dollar of revenues (through analyzing profit margins) and using assets to generate more revenues (through analyzing asset turnover). This method breaks down return on equity into these two components and is used to evaluate a company's overall efficiency in generating profits.

Question 19

The return on investment is usually considered the most popular approach to measure performance because ________.

Accepted Answer

The return on investment combines various elements of profitability, such as net income and assets, into a single percentage. This makes it a popular method of measuring performance as it provides a comprehensive overview of the company's profitability. It does not relate to measuring the company's working capital or cash balance. While it is useful on its own, it may also be combined with other measures of performance for a more thorough analysis.

Question 20

The Cybertronics Corporation reported the following information for its Cyclotron Division:

Income is defined as operating income.
What is the Cyclotron Division's return on investment?

Accepted Answer

The answer of The Cybertronics Corporation reported the following information...

Quiz 23: Performance Measurement, Compensation, and Multinational Considerations