Question 1

How should multinational corporations reduce economic exposure?

Accepted Answer

Multinational corporations can reduce economic exposure by making competitive strategic and operational decisions, such as diversifying markets, adjusting production locations, and managing supply chains, which help mitigate the impact of currency fluctuations on their overall business.

Question 2

SSM Corporation, a multinational healthcare system, measures the number of minutes between a patient's arrival at the emergency room and the time he/she is seen by a physician. This measure focuses on what aspect of the balanced scorecard?

Accepted Answer

The internal business processes perspective focuses on the efficiency and effectiveness of the company's internal processes. In this case, the measure of the number of minutes between a patient's arrival at the emergency room and the time he/she is seen by a physician is a measure of the efficiency of the emergency room process.

Question 3

Under what condition should the gain or loss from translating foreign currency profit of subsidiary into the parent's home currency be included in the subsidiary's measure of performance?

Accepted Answer

If the subsidiary manager is authorized to hedge the translation exposure, they have control over the impact of currency fluctuations, making it appropriate to include translation gains or losses in performance measures.

Question 4

The Squeaky Division of Household Products Corporation showed a net loss of £5,000,000 last year, but Squeaky's manager received a bonus for outstanding performance. Why would Household Products' management control system appropriately allow for this apparent inconsistency?

Accepted Answer

The fact that the division showed a net loss does not necessarily mean that the manager's performance was poor. Economic factors outside the manager's control, such as shifts in the market, may have affected the division's performance. Therefore, the bonus could be a recognition of the manager's ability to navigate tough economic conditions despite the loss.

Question 5

Assume that the Chinese government allowed the yuan to float relative to the U.S. dollar. Appreciation in the yuan could have an adverse affect on sales of Chinese goods to the U.S. This possible impact on Chinese exports is referred to as:

Accepted Answer

Economic exposure refers to the impact of exchange rates on a company's future cash flows, which can be affected by changes in exchange rates. If the yuan appreciates relative to the U.S. dollar, Chinese goods will become more expensive for U.S. consumers, leading to lower demand and potentially lower sales for Chinese exporters. Translation exposure refers to the impact of exchange rate changes on a company's financial statements, transaction exposure refers to the risk of losses from unexpected currency fluctuations in the short term, and accounting exposure refers to the need to adjust financial statements to conform to different accounting standards in different countries.

Question 6

In designing an effective management control system for a multinational corporation, the accountant should measure factors appropriate for each unit's level of responsibility. Which of the following measures would be appropriate for evaluating the performance of a cost center?

Accepted Answer

Output volume is an appropriate measure for a cost center as it evaluates the amount of output or activity generated by the center without considering the cost of the inputs or the revenue generated. Cost centers are responsible for controlling costs and maximizing efficiency in their use of resources, and a measure of output volume can help evaluate their performance in achieving this goal. Return on investment and residual income are measures appropriate for evaluating the performance of profit centers, while EBIT is used to evaluate the overall profitability of the company.

Question 7

Which of the following is the role of a performance evaluation system in a multinational corporation?

Accepted Answer

A performance evaluation system in a multinational corporation serves multiple purposes, including monitoring organizational effectiveness, identifying areas that need improvement, and assessing how well division managers are performing. Therefore, option D, "All of the above," is the best choice.

Question 8

According to surveys in the U.S. and the United Kingdom, what are the most frequently used financial measures to evaluate subsidiary performance by MNCs?

Accepted Answer

According to surveys in the U.S. and the United Kingdom, the most frequently used financial measures to evaluate subsidiary performance by MNCs are budgeted profit vs. actual profit, return on investment, and profit. Choice A includes stock price, which is commonly used by investors but not necessarily by MNCs to evaluate subsidiary performance. Choice B includes sales, which may be used as a performance measure but is not as commonly used as the other measures listed. Choice D includes internal rate of return, which is a more specialized financial measure and may not be used as frequently as the other measures listed.

Question 9

The balanced scorecard includes non-financial measures of performance with the financial measures of performance traditionally used. Which of the following are included in the balanced scorecard?

Accepted Answer

The balanced scorecard includes all of the above non-financial measures of performance, including customer satisfaction, internal business processes, and innovation and learning.

Question 10

Which of the following is a non-financial measure of performance?

Accepted Answer

Market share is a non-financial measure of performance as it represents the portion of a market that a company controls in terms of sales or revenue. The other options (A, C, and D) are financial measures, as they analyze profitability and return on investment for shareholders.

Question 11

MSM Ltd. has a strategy of being the first to market with new products and so it measures the number of new products introduced each year. Where does this measure fit in the balanced scorecard?

Accepted Answer

This measure fits in the Innovation and learning perspective of the balanced scorecard, as it focuses on the company's ability to innovate and improve, which is directly related to the introduction of new products.

Question 12

If only one currency is used for evaluating subsidiary performance in a multinational corporation, what currency is it most likely to be?

Accepted Answer

It is most likely to be the currency of the parent company's home country as this is the currency that the parent company will be most familiar with and will use to evaluate the overall performance of the multinational corporation. Using the local currency of the subsidiary may not be the best option as fluctuations in exchange rates can distort the true performance of the subsidiary. Using euros may also not be appropriate if not all the subsidiaries operate within the eurozone.

Question 13

Which of the following statements is true about performance evaluation in a multinational organization?

Accepted Answer

Divisional performance can be influenced by a wide range of factors beyond a manager's control, such as economic conditions, exchange rates, and local market dynamics. Therefore, it is not accurate to equate divisional performance directly with managerial performance.

Question 14

Which of the following is NOT measured by the accounting system of a multinational corporation?

Accepted Answer

Translation exposure and transaction exposure are both measured by the accounting system of a multinational corporation. Economic exposure, however, is not typically measured by traditional accounting methods. Economic exposure refers to the effect of exchange rate changes on a company's future cash flows and market value. It is more difficult to measure and typically requires more advanced financial analysis techniques.

Question 15

Which of the following statements is a reason for using operating income or EBIT as a measure of performance in a profit center of a multinational corporation?

Accepted Answer

Operating income or EBIT (Earnings Before Interest and Taxes) is a better performance measure for profit centers of multinational corporations because it excludes interest and taxes, which are beyond the control of the manager. This measure focuses on the operating activities of the division and allows for better evaluation of the manager's ability to generate revenue and control costs. Furthermore, it is a commonly accepted measure in the industry, making it a useful tool for benchmarking against competitors. However, it is not necessarily easier to calculate and should not be the only measure used for management control.

Question 16

What measures may be used in the performance evaluation system of a multinational corporation?

Accepted Answer

All of the listed measures may be used in the performance evaluation system of a multinational corporation. Financial measures like profit, cost, and return on investment can help assess financial performance, while quality and customer satisfaction can indicate the effectiveness of the company's products or services. Market share can also provide an insight into the company's position in the industry and its competitiveness. Therefore, all of these measures are important for evaluating the multinational corporation's overall performance.

Question 17

Which of the following would be characteristic of a bureaucratic control system?

Accepted Answer

Bureaucratic control systems rely heavily on financial targets and budgets to monitor and control performance across the organization. Goals may be less specific and more generalized, and there is typically a more rigid structure and hierarchy in place. Meetings between managers may also be scheduled on a specific and regular basis to ensure oversight and accountability. Therefore, option B is the most characteristic of a bureaucratic control system.

Question 18

What result can be expected if a management control system encourages managers to focus on inappropriate measures?

Accepted Answer

If a management control system encourages managers to focus on inappropriate measures, they may engage in dysfunctional behaviors such as manipulating data or neglecting other important aspects of their job that are not being measured. Option A and C are not necessarily true outcomes of this situation. Option D is not a valid answer as it does not provide any information.

Question 19

Holding managers accountable only for the factors over which they have control is called:

Accepted Answer

Responsibility accounting is a system that holds managers accountable only for the factors over which they have control. This allows managers to focus on their areas of responsibility and promotes efficient use of resources. Management control systems refer to the set of tools and techniques used to manage performance, while decentralization involves delegating decision-making power throughout the organization. Centralization refers to a more centralized decision-making structure where decisions are made at the top of the hierarchy.

Question 20

In designing an effective management control system for a multinational corporation, the accountant should measure factors appropriate for each unit's level of responsibility. Which of the following measures would be appropriate for evaluating the performance of an investment center?

Accepted Answer

Residual income is the most appropriate measure for evaluating the performance of an investment center. Output on costs of input and EBIT are not as relevant as they do not consider the cost of capital employed in the investment center. Residual income measures the operating performance of an investment center after deducting a charge for the cost of invested capital.

Quiz 10: Management Accounting Issues in Multinational Corporations