Question 1

Employees have a higher incentive to work when the bonus portion of an employment contract is larger than the guaranteed portion of the contract.

Accepted Answer

When the bonus portion of an employment contract is larger than the guaranteed portion of the contract, employees have a higher incentive to work because they can earn more money if they perform well. This motivates them to work harder, be more productive, and achieve better results.

Question 2

An ideal performance metric would measure and reward the manager for ________ factors and neither reward nor punish the manager for ________ factors.

Accepted Answer

An ideal performance metric should measure and reward the manager for controllable factors as those are the areas where the manager has full control and can make a significant impact. On the other hand, the metric should neither reward nor punish the manager for uncontrollable factors as it would be unfair to hold the manager accountable for factors outside their control. Therefore, the best choice is B - controllable and uncontrollable factors.

Question 3

The greater the influence of noncontrollable factors on responsibility center results,the more problems there are in using the results to measure and reward a manager's performance.

Accepted Answer

Noncontrollable factors are those factors that are not under the control of a manager or a responsibility center, such as economic conditions, industry trends, and environmental factors. When these factors have a significant impact on the results of a responsibility center, it becomes difficult to measure the performance of a manager accurately. Therefore, the greater the influence of noncontrollable factors, the more problems there are in using the results to measure and reward a manager's performance.

Question 4

Frazier Company's revenues are $300 on invested capital of $240.Expenses are currently 84% of sales.If Frazier Company can reduce its expenses to 70% of sales,return on investment will be ________.

Accepted Answer

Return on Investment (ROI) is calculated as (Net Profit / Invested Capital) * 100. Current expenses are 84% of $300, which is $252, so the current net profit is $48. If expenses are reduced to 70% of sales, expenses will be $210, and net profit will be $90. ROI will be ($90 / $240) * 100 = 37.5%.

Question 5

According to agency theory,employment contracts will balance three factors that include ________.

Accepted Answer

Agency theory suggests that employment contracts aim to balance incentives (to motivate the agent), risk (distribution between the principal and agent), and the cost of measuring performance (monitoring and ensuring the agent's actions align with the principal's interests).

Question 6

Profit centers can exist only in a decentralized organization.

Accepted Answer

Profit centers can exist in both centralized and decentralized organizations, as they are units within a company responsible for generating revenue and profits, regardless of the organizational structure.

Question 7

Companies must pay managers more if the managers bear more risk,assuming the managers are risk averse.

Accepted Answer

As risk increases, the uncertainty of outcomes increases, which makes most managers risk averse. To compensate managers for taking on additional risk, companies typically offer higher salaries, bonuses, and other incentives.

Question 8

Managers' incentives for performance are defined as the ________.

Accepted Answer

Managers' incentives for performance are defined as the rewards for their effort and actions, such as bonuses, promotions, and recognition. While the relationship between cost and perceived benefit, goal congruence and managerial effort, and the influence of uncontrollable factors on a manager's performance may all play a role in incentives for performance, they are not the primary defining factor.

Question 9

Incentives do not increase managerial effort toward goal congruence.

Accepted Answer

Incentives can increase managerial effort towards goal congruence by aligning their personal goals with organizational goals and rewarding them for achieving those goals.

Question 10

Jewel Company's revenues are $300 and invested capital is $240.Expenses are currently 60% of sales.Jewel Company's current return on investment is ________.

Accepted Answer

Return on investment (ROI) is calculated as (Net Profit / Invested Capital) * 100. Net Profit is calculated as Revenues - Expenses. Expenses are 60% of $300, which is $180. Therefore, Net Profit is $300 - $180 = $120. ROI is ($120 / $240) * 100 = 50%.

Question 11

Identify the disadvantages of decentralization.

Accepted Answer

The answer of Identify the disadvantages of decentralization....

Question 12

Which of the following statements about management control systems is FALSE?

Accepted Answer

This statement is false. Profit-center managers may or may not have more decentralized decision-making authority than cost-center managers. It depends on the specific organization and its management control system design.

Question 13

Performance-based rewards can be monetary or nonmonetary.

Accepted Answer

Performance-based rewards can be either in the form of monetary incentives (such as bonuses, raises, or profit-sharing) or nonmonetary incentives (such as flexible work hours, recognition, promotions, or opportunities for skill development).

Question 14

In agency theory,risk to the manager is defined as ________.

Accepted Answer

The answer of In agency theory,risk to the manager is...

Question 15

According to agency theory,employment contracts will balance three factors that include risk,incentive and the cost of measuring performance.

Accepted Answer

Agency theory proposes that employment contracts need to balance three factors: risk, incentive, and the cost of measuring performance. The goal is to align the interests of the principal (employer) and the agent (employee) to ensure that the agent acts in the best interest of the principal. A well-designed contract would take into account these three factors to achieve this alignment.

Question 16

In return on investment calculations,we should measure invested capital ________ because ________.

Accepted Answer

Invested capital should be measured as an average for the period under review because ROI calculations involve comparing the income generated during a period to the average invested capital during the same period. Measuring invested capital at the end of the period (Choices A and B) or at the beginning of the period (Choice C) does not accurately reflect the capital used throughout the entire period.

Question 17

Organizations should choose performance metrics that improve the alignment of managerial incentives with ________.

Accepted Answer

Performance metrics should be chosen to improve the alignment of managerial incentives with organizational objectives. This helps ensure that managers are incentivized to work towards the goals and objectives of the organization, rather than pursuing their own self-interest. This ultimately leads to a higher level of goal congruence within the organization. While ethical behavior is important, it is not necessarily the primary focus when choosing performance metrics.

Question 18

In designing accounting control systems,top managers should consider the system's impact on the behavior of employees.

Accepted Answer

This statement is true. Accounting control systems can influence employee behavior, so top managers should carefully consider the potential impact of these systems on employees. For example, if an accounting control system creates incentives for employees to prioritize short-term financial gains over long-term performance, this could lead to unethical or unsustainable practices. Alternatively, a well-designed accounting control system could encourage employees to act in the best interests of the organization, by promoting transparency, accountability, and responsible decision-making.

Question 19

Which statement is FALSE about performance metrics?

Accepted Answer

The statement "The more uncontrollable factors affect a manager's reward, the less risk the manager bears" is false. In reality, the more uncontrollable factors affect a manager's reward, the more risk the manager bears as they have less control over the outcome of the performance metric.

Question 20

Managers tend to focus their efforts in areas where performance is measured and where their performance affects rewards.

Accepted Answer

This statement is generally true as managers are motivated to perform well in areas where their performance is evaluated and where rewards, such as bonuses or promotions, are tied to their performance. This can sometimes lead to neglecting other important areas that are not as closely measured or incentivized.

Quiz 10: Management Control in Decentralized Organizations