Testbank Chapter 13 Strategy, Balanced Scorecard, and Strategic Profitability Analysis

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Cost Accounting, 14e (Horngren/Datar/Rajan)

Chapter 13 Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Objective 13.1

1) ________ describes how an organization matches its own capabilities with the opportunities in the

marketplace to accomplish its overall objectives.

A) Strategy

B) Planning

C) Learning and growth perspective

D) Customer perspective

Answer: A

Diff: 1

Terms: total quality management (TQM)

Objective: 1

AACSB: Reflective thinking

2) In general, profit potential ________ with greater competition, stronger potential entrants, products

that are similar, and more–demanding customers and suppliers.

A) increases

B) stays constant

C) decreases

D) increases exponentially

Answer: C

Diff: 1

Terms: five force industry analysis

Objective: 1

AACSB: Reflective thinking

3) Which of the following is NOT a force that shapes an organization‘s profit potential?

A) Competitors

B) Equivalent products

C) Bargaining power of input suppliers

D) All of these answers are correct.

Answer: D

Diff: 2

Terms: five force industry analysis

Objective: 1

AACSB: Reflective thinking

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4) Which of the following is a force that shapes an organization‘s profit potential?

A) Investors

B) Potential entrants into the market

C) Creditors

D) Research and development

Answer: B

Diff: 2

Terms: five force industry analysis

Objective: 1

AACSB: Reflective thinking

5) ________ is an organization‘s ability to offer products or services that are perceived by its customers

as being superior and unique relative to those of its competitors.

A) Strategy

B) Product differentiation

C) Cost leadership

D) The balanced scorecard

Answer: B

Diff: 1

Terms: product differentiation

Objective: 1

AACSB: Reflective thinking

6) ________ is an organization‘s ability to achieve low costs relative to competitors through productivity

and efficiency improvements, elimination of waste, and tight cost control.

A) Strategy

B) Product differentiation

C) Cost leadership

D) The balanced scorecard

Answer: C

Diff: 1

Terms: cost leadership

Objective: 1

AACSB: Reflective thinking

7) An organization that is using the product differentiation approach would:

A) focus on tight cost control

B) carefully cultivate their brands

C) provide products that are similar to competitors

D) offer products at a lower cost than competitors

Answer: B

Diff: 2

Terms: product differentiation

Objective: 1

AACSB: Reflective thinking

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8) An organization that is using the cost leadership approach would:

A) incur costs for innovative R&D

B) provide products at a higher cost than competitors

C) focus on productivity through efficiency improvements

D) bring products to market rapidly

Answer: C

Diff: 2

Terms: cost leadership

Objective: 1

AACSB: Reflective thinking

Answer the following questions using the information below:

Stewart Corporation plans to grow by offering a sound system, the SS3000, that is superior and unique

from the competition. Stewart believes that putting additional resources into R&D and staying ahead of

the competition with technological innovations is critical to implementing its strategy.

9) Stewart‘s strategy is:

A) product differentiation

B) downsizing

C) reengineering

D) cost leadership

Answer: A

Diff: 2

Terms: product differentiation

Objective: 1

AACSB: Reflective thinking

Answer the following questions using the information below:

Riter Corporation manufactures water toys. It plans to grow by producing high–quality water toys at a

low cost that are delivered in a timely manner. There are a number of other manufacturers who produce

similar water toys. Riter believes that continuously improving its manufacturing processes and having

satisfied employees are critical to implementing its strategy.

10) Riter‘s strategy is:

A) product differentiation

B) downsizing

C) reengineering

D) cost leadership

Answer: D

Diff: 2

Terms: cost leadership

Objective: 1

AACSB: Ethical reasoning

4

Answer the following questions using the information below:

Meale Company makes a household appliance with model number X500. The goal for 2012 is to reduce

direct materials usage per unit. No defective units are currently produced. Manufacturing conversion

costs depend on production capacity defined in terms of X500 units that can be produced. The industry

market size for appliances increased 10% from 2011 to 2012. The following additional data are available

for 2011 and 2012:

2011 2012

Units of X500 produced and sold 10,000 11,000

Selling price $100 $95

Direct materials (square feet) 30,000 29,000

Direct material costs per square foot $10 $11

Manufacturing capacity for X500 (units) 12,500 12,000

Total conversion costs $250,000 $240,000

Conversion costs per unit of capacity $20 $20

11) Which strategy is Meale‘s Corporation pursuing?

A) Product differentiation, because the units produced and sold increased.

B) Product differentiation, because total conversion costs decreased.

C) Cost leadership, because direct material costs per square foot increased.

D) Cost leadership, because the selling price decreased.

Answer: D

Diff: 2

Terms: cost leadership

Objective: 1

AACSB: Analytical skills

12) Strategy describes how an organization matches its own capabilities with the opportunities in the

marketplace to accomplish its overall objectives.

Answer: TRUE

Diff: 1

Terms: total quality management (TQM)

Objective: 1

AACSB: Reflective thinking

13) One of the five forces of industry analysis is understanding the bargaining power of your input

suppliers.

Answer: TRUE

Diff: 1

Terms: five force industry analysis

Objective: 1

AACSB: Reflective thinking

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14) Product differentiation is an organization’’s ability to achieve lower costs relative to competitors

through productivity and efficiency improvements, elimination of waste, and tight cost control.

Answer: FALSE

Explanation: Cost leadership is an organization‘s ability to achieve lower costs relative to competitors

through productivity and efficiency improvements, elimination of waste, and tight cost control.

Diff: 1

Terms: cost leadership

Objective: 1

AACSB: Reflective thinking

15) Product differentiation is an organization’’s ability to offer products or services perceived by its

customers to be superior and unique relative to the products or services of its competitors.

Answer: TRUE

Diff: 1

Terms: product differentiation

Objective: 1

AACSB: Reflective thinking

16) The cost leadership strategy is for products and services that are similar to competitor‘s products and

services.

Answer: TRUE

Diff: 1

Terms: cost leadership

Objective: 1

AACSB: Reflective thinking

17) The product differentiation strategy is probably best for a company if the engineering staff is more

skilled at making process improvements than at creatively designing new products.

Answer: FALSE

Explanation: The cost leadership strategy is probably best for a company if the engineering staff is

more skilled at making process improvements than at creatively designing new products.

Diff: 2

Terms: product differentiation

Objective: 1

AACSB: Reflective thinking

18) In general, profit potential increases with greater competition, stronger potential entrants, products

that are similar, and tougher customers and suppliers.

Answer: FALSE

Explanation: In general, profit potential decreases with greater competition, stronger potential entrants,

products that are similar, and tougher customers and suppliers.

Diff: 1

Terms: five force industry analysis

Objective: 1

AACSB: Reflective thinking

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19) Bosely Corporation is reviewing its business strategy. The first step for Bosely is to perform an

industry analysis. You have been hired to help the company go through the strategy formulation process.

Required:

To perform the industry analysis, what areas should Bosely focus on and give at least one example of

how Bosely can effectively deal with each area.

Answer: The industry analysis is composed of five areas:

1. Competitors – How competitive is the industry for Bosely‘s particular product ? They can

differentiate the product to reduce competition.

2. Potential entrants to the market – How easy is it for new competitors to join the market? Create

barriers to entry, such as high capital requirements.

3. Equivalent products – Is there a substitute product available? Make continuous product

improvements to reduce likelihood of equivalent products.

4. Bargaining power of customers – How many suppliers can customers access? Try to negotiate long–

term purchase agreements.

5. Bargaining power of input suppliers – How many raw material vendors are there? Try to find

alternative suppliers and negotiate the best price for raw materials.

Diff: 3

Terms: five force industry analysis

Objective: 1

AACSB: Reflective thinking

20) Explain the product differentiation and the cost leadership strategies.

Answer: Product differentiation is an organization‘s ability to offer products or services perceived by its

customers to be superior and unique relative to the products or services of its competitors.

Cost leadership is an organization‘s ability to achieve lower costs relative to competitors through

productivity and efficiency improvements, elimination of waste, and tight cost control.

Diff: 3

Terms: cost leadership, product differentiation

Objective: 1

AACSB: Reflective thinking

Objective 13.2

1) ________ is the fundamental rethinking and redesign of business processes to achieve improvements

in critical measures of performance such as cost, quality, service, speed, and customer satisfaction.

A) Strategy

B) Customer perspective

C) Learning and growth perspective

D) Reengineering

Answer: D

Diff: 1

Terms: reengineering

Objective: 2

AACSB: Reflective thinking

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2) Successful reengineering involves:

A) cutting across functional lines to focus on the entire business process

B) redefining the roles and responsibilities of employees

C) using information technology

D) All of these answers are correct.

Answer: D

Diff: 2

Terms: reengineering

Objective: 2

AACSB: Reflective thinking

3) The balanced scorecard measures an organization‘s performance from all of the following

perspectives EXCEPT:

A) financial

B) government

C) customer

D) learning and growth

Answer: B

Diff: 2

Terms: Balanced Scorecard

Objective: 2

AACSB: Reflective thinking

4) Reengineering is the fundamental rethinking and redesign of business processes to achieve

improvements in critical measures of performance such as cost, quality, service, speed, and customer

satisfaction.

Answer: TRUE

Diff: 1

Terms: reengineering

Objective: 2

AACSB: Reflective thinking

5) Reengineering benefits are most significant when they focus on one business function rather than

crossing functional lines of the business process.

Answer: FALSE

Explanation: Reengineering benefits are most significant when they cut across functional lines to focus

on the entire business process.

Diff: 2

Terms: reengineering

Objective: 2

AACSB: Reflective thinking

6) Successful reengineering efforts generally involve changing the roles and responsibilities of

employees.

Answer: TRUE

Diff: 2

Terms: reengineering

Objective: 2

AACSB: Reflective thinking

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7) What is reengineering. Can you contrast a reengineering approach to change with a kaizen approach

to change?

Answer: Reengineering is the rethinking of business processes, such as the order delivery process, to

improve critical performance measures such as cost, quality, or customer satisfaction. It can be

contrasted to a kaizen approach to change in that reengineering is most often a sudden, drastic change,

while a kaizen approach involves small, incremental but continual improvements.

Diff: 2

Terms: reengineering

Objective: 2

AACSB: Analytical skills

Objective 13.3

1) ________ translates an organization‘s mission and strategy into a comprehensive set of performance

measures that provide the framework for implementing its strategy.

A) Productivity component

B) Product differentiation

C) Cost leadership

D) The balanced scorecard

Answer: D

Diff: 1

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

2) The purpose of the balanced scorecard is best described as helping an organization:

A) develop customer relations

B) mobilize employee skills for continuous improvements in processing capabilities, quality, and

response times

C) introduce innovative products and services desired by target customers

D) translate an organization‘s mission and strategy into a set of performance measures that help to

implement the strategy

Answer: D

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

3) The first step to successful balanced scorecard implementation is clarifying the:

A) organization‘s vision and strategy

B) elements that pertain to value–added aspects of the business

C) owner‘s expectations about return on investment

D) objectives of all four balanced scorecard measurement perspectives

Answer: A

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

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4) The balanced scorecard is said to be “balanced” because it measures:

A) short–term and long–term objectives

B) financial and nonfinancial objectives

C) internal and external objectives

D) All of these answers are correct.

Answer: D

Diff: 2

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

5) Balanced scorecard objectives are in balance when:

A) debits equal credits

B) financial performance measurements are less than the majority of measurements

C) the measurements are fair

D) the measurements reflect an improvement over the previous year

Answer: B

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

6) The internal business processes perspective of the balanced scorecard comprises three subprocesses

that address all of the following EXCEPT:

A) innovative processes used to create new products, services, and processes

B) motivating current employees

C) providing service and support to the customer after the sale

D) delivering existing products and services to best meet the needs of customers

Answer: B

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

7) Identify the best description of the balanced scorecard‘s financial perspective. To achieve our firm‘s

vision and strategy:

A) how can we obtain greater profits for the current year?

B) how can we increase shareholder value?

C) how will we obtain continuous improvements?

D) how can we secure greater customer satisfaction?

Answer: B

Diff: 2

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

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8) Identify the best description of the balanced scorecard‘s internal business processes perspective. To

achieve our firm‘s vision and strategy:

A) how do we lower costs?

B) how do we motivate employees?

C) how can we obtain greater profits?

D) what processes will increase value to customers?

Answer: D

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

9) All of the following relate to the balanced scorecard‘s learning and growth perspective EXCEPT:

A) How do we achieve greater employee satisfaction?

B) What new products do we create?

C) How do we provide information systems with updated technology?

D) How will we motivate and empower our employees?

Answer: B

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

10) Measures of the balanced scorecard‘s financial perspective include:

A) information system availability

B) number of new patents

C) revenue growth

D) defect rates

Answer: C

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

11) Measures of the balanced scorecard‘s financial perspective include all of the following EXCEPT:

A) operating income

B) customer satisfaction

C) gross profit percentage

D) cost reductions

Answer: B

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

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12) Measures of the balanced scorecard‘s customer perspective include:

A) market share

B) number of on–time deliveries

C) number of process improvements

D) revenue growth

Answer: A

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

13) Measures of the balanced scorecard‘s customer perspective include all of the following EXCEPT:

A) market share

B) customer satisfaction

C) number of new customers

D) customer training on new products

Answer: D

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

14) Measures of the balanced scorecard‘s internal–business–process perspective include:

A) market share

B) new product development time

C) employee education

D) return on investment

Answer: B

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

15) Measures of the balanced scorecard‘s internal–business–process perspective include all of the

following EXCEPT:

A) operating capabilities

B) number of new products

C) employee turnover rates

D) defect rates

Answer: C

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

16) Measures of the balanced scorecard‘s learning–and–growth perspective include:

A) employee satisfaction ratings

B) economic value added

C) time taken to deliver product to customers

D) customer–retention percentage

Answer: A

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking

17) Measures of the balanced scorecard‘s learning–and–growth perspective include all of the following

EXCEPT:

A) employee education and skill level

B) percentage of processes with advanced controls

C) employee–satisfaction ratings

D) time taken to replace defective products

Answer: D

Diff: 3

Terms: Balanced Scorecard

Objective: 3

AACSB: Reflective thinking