CHAPTER 23 QUIZ
1. An example of a performance measure based on external financial information would be
a. market share.
b. stock prices.
c. innovation measures.
d. defect rates.
2. Which of the following does not describe the three steps in designing an
accounting-based performance measure?
a. The issues in each step are interdependent.
b. The decision maker will often proceed through the steps several times before deciding
on one or more performance measure(s).
c. The answers to the questions raised at each step depend on top management’s beliefs
about the organization.
d. The steps must be done in sequence.
The following data apply to questions 3 through 7.
Information pertaining to Piney River Division of MO Corporation for 2004:
Revenues $950,000
Variable costs 575,000
Traceable fixed costs 336,500
Average invested capital 350,000
Imputed interest rate 10%
3. [CPA Adapted] The return on investment (ROI) was
a. 4 percent.
b. 10 percent.
c. 11 percent.
d. 37 percent.
4. The return on sales (ROS), a component of the DuPont method of profitability analysis,
was (rounded to the nearest percent)
a. 11 percent.
b. 40 percent.
c. 1 percent.
d. 4 percent.
5. [CPA Adapted] The residual income was
a. $3,500.
b. $35,000.
c. $38,500.
d. $0.
6. If top management at MO Corporation adopts a 15 percent target ROI for the Piney
River Division, which combination (while holding other factors constant) will yield at least
this targeted ROI?
a. A 1 percent increase in sales volume
b. A 5 percent decrease in average invested assets
c. A 2 percent increase in sales prices
d. A 3 percent decrease in fixed costs
7. Which of the following factors would not be needed to calculate EVA from the given
information for Piney River Division of MO Corporation?
a. Income tax rate
b. Weighted-average cost of capital
c. Current liabilities
d. Current assets
8. When calculating performance measures, it is best to use
a. steady improvement against targets.
b. gross book value asset measurement.
c. historical cost asset measurement.
d. current cost asset measurement.
9. James Jessmore is a manager at a local bank. James’s management style is best
described as entrepreneurial—he is risk neutral. Wynetta George is a customer service
representative who reports to James. Wynetta is risk averse. In designing a compensation
package for James and Wynetta, which type of compensation arrangement should be
emphasized more?
James Jessmore Wynetta George
a. Performance-based Performance-based
b. Performance-based Straight salary
c. Straight salary Performance-based
d. Straight salary Straight salary
10. Moral hazard is best described in contexts in which
a. division managers cite enormous top management pressures “to make the budget” as
excuses for not adhering to ethical accounting policies and procedures.
b. the numbers that subunit managers report should be uncontaminated by “cooking the
books.”
c. an employee prefers to exert less effort than desired by the owner because the effort
cannot be accurately monitored and enforced.
d. socially responsible companies set aggressive environmental goals and measure and
report their performance against them.
CHAPTER 23 QUIZ SOLUTIONS
