Question 1

Cornwall Company has two divisions, A and B. Information for each division is as follows:  What is EVA for Division B?
A) $144,000
B) $216,000
C) $116,000
D) $44,000

Accepted Answer

The answer of Cornwall Company has two divisions, A and...

Question 2

Which of the following is a political or legal factor affecting performance evaluation in a multinational firm?
A) social attitude toward industry and business
B) literacy rate
C) effect of defense policy
D) currency restrictions

Accepted Answer

The effect of defense policy can affect the performance evaluation of a multinational firm, as it can impact international trade agreements, import/export regulations, and restrictions on certain goods and services. Political factors such as government policies and regulations can also influence performance evaluation, but the given options do not capture this specific aspect. The other options - social attitude toward industry and business, literacy rate, and currency restrictions - are social, economic, and financial factors, respectively, that may indirectly affect performance but are not political or legal in nature.

Question 3

It is important to separate the evaluation of the manager from the evaluation of the division in a multinational firm. A manager's evaluation should NOT include
A) revenues.
B) income taxes.
C) operating costs.
D) cost of goods sold.

Accepted Answer

The evaluation of a manager should focus on their performance and effectiveness in managing resources, making strategic decisions, and achieving objectives. Income taxes are not directly under the control of the manager and would not be an appropriate measure of their performance. The other options, revenues, operating costs, and cost of goods sold, are key financial metrics that reflect the manager's success in delivering results.

Question 4

EVA encourages the right kind of behavior from divisions because of its emphasis on
A) after-tax net income.
B) total capital employed.
C) true cost of capital.
D) before-tax operating income.

Accepted Answer

EVA emphasizes on the true cost of capital, which is the minimum return that investors expect to receive on their investment. Therefore, divisions which achieve a positive EVA are those that generate returns above their cost of capital and encourage appropriate behavior.

Question 5

The transfer price that would leave the selling division no worse off if the good is sold to an internal division is(are) called:
A) The maximum transfer price
B) The negotiated transfer price
C) The minimum transfer price
D) Both a and c

Accepted Answer

The minimum transfer price is the price at which the selling division is still able to cover all its costs and make a profit, ensuring that it is not worse off by selling internally compared to externally. The maximum transfer price is the highest price that the buying division is willing to pay, while the negotiated transfer price is a price agreed upon by both the selling and buying divisions. Both a and c cannot be the correct answer since they are contradictory.

Question 6

In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:  The company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 1?
A) $90
B) $73
C) $83
D) $86

Accepted Answer

The answer of In the Bombadier Company, Division A has...

Question 7

Transfer prices are the prices charged
A) for distributing goods from one warehouse to another.
B) for the goods produced by one division to another division that needs these goods.
C) when delivering goods to the customer.
D) when transferring goods to international divisions.

Accepted Answer

Transfer prices are the prices charged for goods produced by one division to another division that needs these goods. This is used to calculate the revenue and expenses of each division separately and helps in measuring the profitability of each division.

Question 8

Economic value added is calculated by which of the following formulas?
A) EVA = After-tax operating income + (Weighted average cost of capital × Total capital employed)
B) EVA = After-tax operating income * Weighted average cost of capital
C) EVA = After-tax operating income - (Weighted average cost of capital × Total capital employed)
D) EVA = Total capital employed - (Weighted average cost of capital × After-tax operating income)

Accepted Answer

Economic value added (EVA) is calculated by subtracting the cost of capital from the after-tax operating income. Therefore, the correct formula is EVA = After-tax operating income - (Weighted average cost of capital × Total capital employed).

Question 9

Which of the following is NOT an environmental factor affecting performance evaluation in the multinational firm?
A) sociological factors
B) economic factors
C) political or legal factors
D) All of these are environmental factors affecting performance evaluation in the multinational firm.

Accepted Answer

All of these factors (sociological, economic, political or legal) are environmental factors affecting performance evaluation in the multinational firm. None of them can be excluded as they can impact the performance of the employees working in a multinational firm.

Question 10

Which of the following is an economic factor affecting performance evaluation in a multinational firm?
A) currency restrictions
B) economic stability
C) impact of foreign policy
D) both a and b

Accepted Answer

Currency restrictions and economic stability are both economic factors that can affect the performance evaluation of a multinational firm. Currency restrictions can limit the ability of the firm to make transactions in certain currencies or to move funds across borders, while economic stability can affect the overall financial environment in which the firm operates, influencing factors such as demand for products and services, labor costs, and investment conditions. Therefore, both options A and B are correct.

Question 11

A type of fringe benefit received over and above salary is(are) called:
A) Bonus based on net income
B) Cash compensation
C) Perquisites
D) EVA

Accepted Answer

Perquisites, also known as perks, refer to additional benefits received by an employee that are not part of their regular salary or wages. Examples of perks may include company cars, expense accounts, private health insurance, and retirement plans.

Question 12

Which of the following managerial rewards is NOT a short-term reward?
A) stock ownership
B) cash bonuses
C) stock options
D) both a and b

Accepted Answer

Stock ownership is not a short-term reward as it involves owning a portion of the company's stock, which can appreciate over the long term. Cash bonuses and stock options are both short-term rewards as they typically require immediate action or achievement to receive. Option D is incorrect as it includes cash bonuses, which are a short-term reward.

Question 13

Division 'A' produces a component and wants to sell it to Division 'B'. The transfer price is
A) revenue to Division 'A' and a cost to Division 'B'
B) revenue to Division 'B' and a cost to Division 'A'
C) revenue to Division 'A' and no effect on Division 'B'
D) a cost to Division 'B' and no effect on Division 'A'

Accepted Answer

The transfer price is considered revenue for the selling division (Division A) because it represents the income received from selling the component. For the buying division (Division B), this transfer price is a cost because it represents the expense incurred to acquire the component.

Question 14

Cornwall Company has two divisions, A and B. Information for each division is as follows:  What is EVA for Division A?
A) $40,000
B) $28,000
C) $15,000
D) $25,000

Accepted Answer

EVA = NOPAT - (WACC * Capital)
For Division A:
NOPAT = $120,000 - ($300,000 * 0.10) = $90,000
Capital = $500,000
WACC = 0.12
EVA = $90,000 - (0.12 * $500,000) = $28,000

Therefore, the correct choice is B.

Question 15

Goal congruence can be defined as
A) an incentive plan arranged so the managers' goals are aligned with the shareholders' goals.
B) managers operating the business in the best interest of the shareholders.
C) tying management rewards to shareholder results.
D) all of these are correct.

Accepted Answer

Goal congruence involves aligning the goals of managers with the goals of shareholders to ensure that the actions and decisions made by management benefit the company as a whole. This can be achieved through incentive plans, operating the business in the best interest of shareholders, and tying management rewards to shareholder results. Therefore, all the given options are correct.

Question 16

Comparison of an international division's ROI can potentially be misleading because of
A) the absence of activity-based management.
B) differing production technologies.
C) the lack of good information.
D) differing environmental factors.

Accepted Answer

The answer of Comparison of an international division's ROI can...

Question 17

The transfer price that would leave the buying division no worse off if an input is purchased from an internal division is(are) called:
A) The maximum transfer price
B) The minimum transfer price
C) The negotiated transfer price
D) Both a and c

Accepted Answer

The maximum transfer price is the highest price the buying division is willing to pay without being worse off, as it represents the highest cost it can incur before it would be more economical to purchase the input externally.

Question 18

The right to buy a certain number of shares of a company's stock at a particular price is(are) called:
A) Perquisites
B) Cash compensation
C) Stock-based compensation
D) Stock options

Accepted Answer

The right to buy a certain number of shares of a company's stock at a particular price is called a stock option. Perquisites refer to non-wage benefits and privileges given to employees, cash compensation refers to money paid directly to employees, and stock-based compensation refers to compensation in the form of stock or stock options.

Question 19

Multiple measures of performance are beneficial if they
A) are all financial measures.
B) include nonfinancial operating measures.
C) focus only on short-run factors.
D) all of these statements are true.

Accepted Answer

Including nonfinancial operating measures in addition to financial measures provides a more comprehensive view of performance and can aid in identifying areas for improvement. Focusing only on short-run factors may not provide a complete picture of long-term success.

Question 20

Which of the following would be a reason why managers would NOT provide good service?
A) They may have low ability.
B) They may not prefer to work hard.
C) They may prefer to spend company resources on perquisites.
D) All of these are reasons.

Accepted Answer

All of these are reasons why managers may not provide good service. Low ability, lack of work ethic, and prioritizing their own benefits over those of the company can all contribute to poor service.

Quiz 10: Decentralization: Responsibility, Accounting, Performance Evaluation, and Transfer Pricing

Cornwall Company has two divisions, A and B. Information for each division is as follows: What is EVA for Division B?

Which of the following is a political or legal factor affecting performance evaluation in a multinational firm?

It is important to separate the evaluation of the manager from the evaluation of the division in a multinational firm. A manager's evaluation should NOT include

EVA encourages the right kind of behavior from divisions because of its emphasis on

The transfer price that would leave the selling division no worse off if the good is sold to an internal division is(are) called:

In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: The company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 1?

Transfer prices are the prices charged

Economic value added is calculated by which of the following formulas?

Which of the following is NOT an environmental factor affecting performance evaluation in the multinational firm?

Which of the following is an economic factor affecting performance evaluation in a multinational firm?

A type of fringe benefit received over and above salary is(are) called:

Which of the following managerial rewards is NOT a short-term reward?

Division 'A' produces a component and wants to sell it to Division 'B'. The transfer price is

Cornwall Company has two divisions, A and B. Information for each division is as follows: What is EVA for Division A?

Goal congruence can be defined as

Comparison of an international division's ROI can potentially be misleading because of

The transfer price that would leave the buying division no worse off if an input is purchased from an internal division is(are) called:

The right to buy a certain number of shares of a company's stock at a particular price is(are) called:

Multiple measures of performance are beneficial if they

Which of the following would be a reason why managers would NOT provide good service?