Chapter 25 Rewarding Business Performance Answer Key
True / False Questions
1.
Return on investment (ROI) tells us how much earnings can be expected for the average
invested dollar.
2.
Most organizations try to achieve their goals by providing incentives to employees who use
resources wisely.
3.
Accounting systems do not offer any benefit to management in generating and focusing
employee motivation.
4.
Capital turnover is equal to sales divided by average invested capital.
5.
Return on investment indicates the profitability that can be expected from one dollar of
sales.
6.
To increase return on sales, a manager could decrease cost of goods sold while increasing
revenues.
7.
Capital turnover can be improved by reducing invested capital while keeping sales
constant.
8.
The return on investment is calculated by multiplying the capital turnover by the return on
sales.
9.
Capital turnover is calculated by dividing operating income by average invested capital.
10.
Operating earnings rather than net income is used to compute return on sales.
11.
A common criticism of capital ROI as a performance measurement criterion is that it
encourages a long-term orientation sometimes to the detriment of shorter-term planning.
12.
Using only ROI as a business performance measure often leads to the best decisions.
13.
Residual income is calculated by subtracting the minimum acceptable return on the
average invested capital from the operating income.
14.
Residual income is the difference between net operating income at breakeven and actual
net operating income.
15.
EVA stands for “evaluating value added” performance.
16.
The balanced scorecard approach attempts to measure whether an organization is meeting
its strategic goals.
17.
The value chain consists of only those activities that increase the selling price of a product
as it is distributed to a customer.
18.
The main objective of the balanced scorecard system of performance measurement is
achieving the organization‘s strategic goals.
19.
The value chain starts with the supplier and ends with the consumer.
20.
A stock option is a right to sell a certain number of shares at a specific price sometime in
the future.
21.
Stock based performance evaluation of managers is considered more risky than accounting
based performance evaluation.
22.
Bonuses may be used to reward employees who meet performance goals.
Multiple Choice Questions
23.
Which of the following accounting system characteristics cannot generate motivation?
24.
The Parry Company provided the following information regarding its operations:
2014 Total assets $500,000
2015 Total assets $550,000
2014 Net operating income $875,000
2015 Net operating income $925,000
2014 Net sales $2,525,000
2015 Net sales $3,100,000
What is Parry’s ROI for the year ending 2015? (Round your answer to 2 decimal places.)
25.
The Lastrom Company provided the following information regarding its operations:
2014 Total assets $750,000
2015 Total assets $800,000
2014 Net operating income $1,875,000
2015 Net operating income $1,925,000
2014 Net sales $4,525,000
2015 Net sales $5,100,000
What is Lastrom’s ROI for the year ending 2015?
26.
Which ratio tells managers about how the invested capital is generating sales dollars?
27.
The return on investment is calculated by:
28.
Which of the following measures the amount of sales dollars generated from each dollar of
capital invested in assets?
29.
Return on sales.
Return on investment.
Inventory turnover.
Capital turnover.
Which of the following is
not
one of the components of the DuPont system for measuring
and evaluating business performance?
The following information regarding Mahen, Inc. is available:
30.
Refer to the information above. What is the return on investment for Mahen, Inc.?
31.
Refer to the information above. What is the return on sales for Mahen, Inc.?
32.
Refer to the information above. What is the capital turnover for Mahen, Inc.?
The following information regarding Brookes, Inc. is available:
33.
Refer to the information above. What is the return on investment for Brookes, Inc. (round
your answer to the nearest full percentage point)?
34.
Refer to the information above. What is the return on sales for Brookes, Inc. (round your
answer to the nearest full percentage point)?
35.
Refer to the information above. What is the capital turnover for Brookes, Inc. (round your
answer to the nearest full percentage point)?
36.
Clancy Stores has sales of $1,574,000, cost of sales of $653,000, and operating expenses of
$292,000. What is Clancy’s return on sales?
37.
Dwyer Company’s ROI is 6% and its return on sales is 16%. What is its capital turnover?
38.
Morgan Company has a ROI of 5% and a capital turnover of 8%. What is its return on
sales?