Question 1

A part of a control system that attempts to focus an organization's attention and learning on key strategic issues is known as a(n):
A)diagnostic control system
B)boundary system
C)belief system
D)interactive control system

Accepted Answer

An interactive control system is designed to focus an organization's attention and learning on key strategic issues by promoting open communication, collaboration, and problem-solving among different levels and functions of the organization. It encourages the sharing of ideas and information, and helps to align individual and team goals with the overall strategic direction of the organization. Diagnostic control systems are used to monitor and evaluate performance against specific criteria or benchmarks, while boundary systems define and protect the boundaries of the organization's core activities and responsibilities. Belief systems are the values, norms, and beliefs that shape the culture and behavior of an organization.

Question 2

A part of a control system that focuses on meeting expectations is known as a(n):
A)diagnostic control system
B)boundary system
C)belief system
D)interactive control system

Accepted Answer

A diagnostic control system is designed to ensure that organizational processes are aligned with the set goals and expectations, allowing for performance monitoring and corrective actions.

Question 3

A part of a control system that articulates the mission, purpose, and core values of a company is known as a(n):
A)diagnostic control system
B)boundary system
C)belief system
D)interactive control system

Accepted Answer

A belief system is a part of a control system that defines the fundamental values and principles of an organization. It guides decision-making and behavior of individuals within the organization, and articulates the mission, purpose, and core values of the company. The other options (diagnostic, boundary, and interactive control systems) are not directly related to articulating the company's mission, purpose, and core values.

Question 4

An interactive control system is a formal information system that managers use to focus organization attention and learning on key strategic issues.

Accepted Answer

This is the definition of an interactive control system.

Question 5

The "four levers" of control are diagnostic control systems, boundary systems, belief systems, and interactive control systems.

Accepted Answer

The statement correctly identifies the four levers of control as diagnostic control systems, boundary systems, belief systems, and interactive control systems.

Question 6

A part of a control system that describes standards of behavior and codes of conduct expected of all employees, especially actions that are off-limits, is known as a(n):
A)diagnostic control system
B)boundary system
C)belief system
D)interactive control system

Accepted Answer

A boundary system is a type of control system that sets standards and expectations for behavior and conduct, including actions that are prohibited or off-limits. This can include areas such as ethical conduct, safety, and compliance with laws and regulations.

Question 7

"Levers of control," in addition to a diagnostic control system, are needed in an organization because:
A)diagnostic controls have been found to lead to poor financial performance
B)diagnostic controls have no place in a Balanced Scorecard system
C)pressure to perform on diagnostic controls may lead to unethical behavior
D)they are mandated by the Financial Accounting Standards Board

Accepted Answer

Pressure to perform on diagnostic controls may lead employees to engage in unethical behavior, such as manipulating financial results. Therefore, levers of control, such as interactive, belief, and boundary systems, are necessary to provide guidance and ensure ethical behavior in addition to diagnostic controls.

Question 8

Examples of "cooking the books" are understated assets and overstated liabilities.

Accepted Answer

"Cooking the books" typically involves overstating assets and understating liabilities to present a more favorable financial position than actually exists.

Question 9

Residual income is a better evaluation method than return on investment because it has a lower required rate of return for the company projects than return on investment does.

Accepted Answer

Residual income and return on investment are both methods used for evaluating whether an investment or project is profitable. However, residual income takes into account the cost of capital and subtracts it from the project's net income, which gives a more accurate representation of how much the project is contributing to the company's bottom line. Return on investment, on the other hand, only considers the percentage return on the investment, without factoring in the cost of capital. Therefore, return on investment generally has a higher required rate of return for the company's projects than residual income, making it a less attractive evaluation method.

Question 10

Which of the following is a difference between a diagnostic control system and an interactive control system?
A)A diagnostic control system focuses on meeting expectations, while an interactive control system focuses on standards of ethical behavior.
B)A diagnostic control system focuses on standards of ethical behavior while an interactive control system focus on meeting expectations.
C)A diagnostic control system focuses on meeting expectations, while an interactive control system focuses on organizational attention and learning on key strategic issues.
D)A diagnostic control system focuses on organizational attention and learning on key strategic issues, while an interactive control system focuses on meeting expectations.

Accepted Answer

The difference between a diagnostic control system and an interactive control system is that a diagnostic control system focuses on meeting expectations, while an interactive control system focuses on organizational attention and learning on key strategic issues. Ethical behavior and standards are not specifically associated with either system.

Question 11

Measures which monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are collectively called diagnostic control systems.

Accepted Answer

This statement is true. Diagnostic control systems are used to track and monitor critical performance indicators that are aligned with a company's strategic goals.

Question 12

Briefly explain each of the four levels of control. Why does a company need to implement more than a diagnostic control system?

Accepted Answer

The answer of Briefly explain each of the four levels...

Question 13

Boundary systems describe standards of behavior and codes of conduct expected of all employees, especially actions that are off-limits.

Accepted Answer

This statement is true, as boundary systems are a set of guidelines that define acceptable behavior and actions for employees and also outline actions and behaviors that are considered inappropriate or unacceptable.

Question 14

The Coffee Division of American Products is planning the 20X5 operating budget. Average operating assets of $1,500,000 will be used during the year and unit selling prices are expected to average $100 each. Variable costs of the division are budgeted at $400,000, while fixed costs are set at $250,000. The company's required rate of return is 18%.
Required:
a. Compute the sales volume necessary to achieve a 20% ROI.
b. The division manager receives a bonus of 50% of residual income. What is his anticipated bonus for 20X5, assuming he achieves the 20% ROI from part (a)?

Accepted Answer

The answer of The Coffee Division of American Products is...

Question 15

R&D Storage is a small, but diversified, moving and storage company. In recent years, its corporate income has declined to unacceptable levels. To change the direction of the company, the board of directors hired a new chief executive officer. She is currently considering three alternative ways to reward division managers for performance. They are:
1. Give each manager a competitive salary with no bonus for performance.
2. Give each manager a base salary with the largest portion being a bonus based on performance, ROI being the yardstick.
3. Give each manager a base salary with a bonus based on comparative performance with the other divisions.
Required:
Evaluate each of the ideas, giving strengths and weaknesses.

Accepted Answer

The answer of R&D Storage is a small, but diversified,...

Question 16

Capital Investments has three divisions. Each division's required rate of return is 15%. Planned operating results for 20X5 are as follows:
  The company is planning an expansion, which will require each division to increase its investments by $25,000,000 and its income by $4,500,000.
Required:
a. Compute the current ROI for each division.
b. Compute the current residual income for each division.
c. Rank the divisions according to their current ROIs and residual incomes.
d. Determine the effects after adding the new project to each division's ROI and residual income.
e. Assuming the managers are evaluated on either ROI or residual income, which divisions are pleased with the expansion and which ones are unhappy?

Accepted Answer

The answer of Capital Investments has three divisions. Each division's...

Question 17

The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.

Accepted Answer

There are multiple criticisms of team-based compensation, including potential issues with free-riding, difficulty in measuring individual contributions, and potential conflicts within the team.

Question 18

LaserLife Printer Cartridge Company is a decentralized organization with several autonomous divisions. The division managers are evaluated, in part, on the basis of the change in their return on invested assets. Operating results for the Packer Division for 20X5 are budgeted as follows:
  Operating assets for the division are currently $3,600,000. For 20X5, the division can add a new product line for an investment of $600,000. The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually. Variable costs of the new product will average 60% of the selling price.
Required:
a. What is the effect on ROI of accepting the new product line?
b. If the company's required rate of return is 6% and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations.

Accepted Answer

The answer of LaserLife Printer Cartridge Company is a decentralized...

Question 19

Managers use ________ to create an ongoing dialog around the organization's key strategic issues to personally involve themselves in subordinates' decision-making activities.
A)diagnostic control systems
B)boundary systems
C)belief systems
D)interactive control systems

Accepted Answer

Interactive control systems are used by managers to involve themselves in subordinates' decision-making activities by creating a continuous dialogue around the organization's key strategic issues. Diagnostic control systems are used to measure and monitor performance, boundary systems are used to establish and clarify the behavioral expectations of employees, and belief systems are the shared values, norms, and culture of the organization. None of these systems involve ongoing dialog or personal involvement in decision-making activities.

Quiz 23: Performance Measurement, Compensation, and Multinational Considerations

A part of a control system that attempts to focus an organization's attention and learning on key strategic issues is known as a(n) :

A part of a control system that focuses on meeting expectations is known as a(n) :

A part of a control system that articulates the mission, purpose, and core values of a company is known as a(n) :

An interactive control system is a formal information system that managers use to focus organization attention and learning on key strategic issues.

The "four levers" of control are diagnostic control systems, boundary systems, belief systems, and interactive control systems.

A part of a control system that describes standards of behavior and codes of conduct expected of all employees, especially actions that are off-limits, is known as a(n) :

"Levers of control," in addition to a diagnostic control system, are needed in an organization because: