Chapter 11—Decentralization, Performance Evaluation, and the Balanced Scorecard
MULTIPLE CHOICE
1. A decentralized organization is one in which:
a.
each employee in the organization is given permission to make decisions about their
company.
b.
only top-level management is given decision-making authority.
c.
managers at various levels throughout the organization are given decision-making
authority.
d.
each stockholder is given decision-making authority.
2. A local chain department store grants each of its store managers the authority to make buying
decisions for their stores. Granting managers this kind of authority is found in which type of
organization?
a.
Segmented
b.
Centralized
c.
Desegmented
d.
Decentralized
3. A local chain electronics store does not allow its store or district managers to make important
decisions about their stores. The main role of store managers is to supervise employees and make sure
day-to-day transactions run smoothly while district managers supervise store managers and report
profitability data back to top-level management. Not allowing store or district managers decision-
making authority is most likely to be found in which type of organization?
a.
Segmented
b.
Centralized
c.
Desegmented
d.
Decentralized
4. When a few individuals at the top of an organization retain decision-making authority, the organization
is referred to as a(n):
a.
investment center.
b.
decentralized organization.
c.
profit center.
d.
centralized organization.
5. Which of the following statements regarding the structure of organizations is false?
a.
When decision-making authority is spread among too many managers, managers may
become so concerned with their own area of responsibility that they lose sight of the
company’s overall focus.
b.
In a decentralized organization, decision-making authority is confined to top-level
management.
c.
In a decentralized organization, there may be a lack of coordination and communication
between segments.
d.
Decentralization may make it difficult for managers to share unique and innovative ideas.
6. Which of the following is an advantage of decentralization?
a.
It allows top-level management who normally work at corporate headquarters to get
involved with the day-to-day decisions that need to be made at lower levels.
b.
It allows managers to focus on their own area of responsibility rather than what is best for
the company as a whole.
c.
It allows decisions to be made in a more timely manner.
d.
It requires very little as far as manager training costs.
7. Which of the following is not an advantage of decentralization?
a.
It often creates higher job satisfaction for managers.
b.
It allows top-level managers more time to devote to long-range strategic planning.
c.
It allows lower-level managers to focus on their own particular goals and objectives
without having to consider the overall company’s goals and objectives.
d.
It permits lower-level managers to gain valuable on-the-job training in order to become
better managers.
8. Which of the following is often not a disadvantage of decentralization?
a.
Decreased job satisfaction for lower-level managers.
b.
Lack of coordination and communication between segments.
c.
Lack of company focus as lower-level managers may make decisions that benefit their
own particular segment.
d.
Higher training costs for lower-level managers.
9. Which of the following is a disadvantage of decentralization?
a.
Less timely decisions are able to be made on a day-to-day basis.
b.
Decreased job satisfaction for lower-level managers.
c.
Lack of coordination and communication between segments.
d.
Lower training costs for lower-level managers.
10. “Responsibility accounting” is the concept that says:
a.
Managers should be held entirely responsible for all investment decisions that impact the
particular segment in which they are in charge.
b.
Managers should be held responsible for only those things under their control.
c.
Managers should never be held entirely responsible for things that happen within the
particular segment in which they are in charge.
d.
Managers should be responsible for both revenues and costs of their particular segment.
11. Which of the following statements about responsibility accounting is true?
a.
Managers should be held responsible for all price variances that occur within their
department.
b.
Managers should be held responsible for all revenues and costs that occur within their
department.
c.
Managers should be responsible for all investment decisions that occur within their
department.
d.
Managers should be held responsible for only those things under their control.
12. Which of the following reports provides key financial and nonfinancial measures of performance?
a.
Flexible budget variance report
b.
Performance report
c.
Production report
d.
Common costs report
13. A manager of a cost center would most likely be held responsible for which of the following
variances?
a.
Flexible budget variance
b.
Sales volume variance
c.
Sales price variance
d.
Direct materials price variance
14. The manager of a cost center has control over:
a.
revenues and costs.
b.
costs only.
c.
costs and investment decisions.
d.
pricing decisions.
15. The manager of a revenue center has control over:
a.
profit and investment decisions.
b.
revenues and costs.
c.
revenues only.
d.
revenues and profit
16. The manager of a profit center should not be responsible for which of the following types of decisions?
a.
Deciding which supplier should be used for the purchase of direct materials.
b.
Establishing the number of employees that will need to work each day.
c.
Deciding whether or not their segment should purchase additional machinery.
d.
Deciding whether or not to accept a special order from a customer.
17. Which type of manager would be allowed to decide whether or not new manufacturing equipment
should be purchased?
a.
Production manager
b.
Cost center manager
c.
Profit center manager
d.
Investment center manager
18. Which type of manager would most likely be held responsible for the return on investment (ROI) of
his segment?
a.
Investment center
b.
Profit center
c.
Cost center
d.
Revenue center
19. Hillary Todd, a manager for BEO Inc., has been told that her bonus this year will be based on the
segment margin of her department. Hillary is most likely a:
a.
revenue center manager.
b.
profit center manager.
c.
production manager.
d.
cost center manager.
20. Which of the following would be the best measure of performance for a profit center?
a.
Residual income
b.
Return on investment (ROI)
c.
Segment margin
d.
Economic value added (EVA)
21. The term “strategic business unit” is often used to describe a(n):
a.
investment center.
b.
revenue center.
c.
profit center.
d.
cost center.
22. Which of the following statements is true regarding a company’s segment margin?
a.
It is primarily used to make short-term decisions such as cost-volume-profit (CVP)
analysis and special order decisions.
b.
It ignores all fixed costs.
c.
It is primarily a measure of long-term profitability.
d.
It should not be used to make decisions on whether or not to drop a product line.
23. In the decision-making process, which of the following situations would be best addressed by
managers using a segmented income statement rather than a contribution margin format income
statement?
a.
The decision on whether or not a one-time special order for a customer should be
accepted.
b.
The calculation of the break-even point for the upcoming month.
c.
The decision on whether or not an entire product line should be discontinued.
d.
The decision on whether or not to process a product further or sell “as is”.
24. Which of the following items is often most difficult to allocate to a particular segment?
a.
Traceable fixed costs
b.
Sales revenue
c.
Common fixed costs
d.
Variable costs
25. Costs that can not be traced or reasonably allocated to a particular segment are called:
a.
variable costs.
b.
common costs.
c.
segment costs.
d.
fixed costs.
26. Which of the following items is not part of the calculation for segment margin?
a.
Contribution margin
b.
Traceable fixed expenses
c.
Common costs
d.
Variable costs
27. Which of the following statements is true regarding the allocation of a company’s indirect fixed costs?
a.
Indirect fixed costs should always be traced to a particular segment.
b.
If the indirect fixed cost would go away should a particular segment be eliminated, then
the indirect fixed cost should be traced to that particular segment.
c.
Indirect fixed costs should never be allocated to a particular segment.
d.
Indirect fixed costs should not benefit more than one particular segment.
28. Finley Company has its company headquarters based in Raleigh, North Carolina, and has six
individual retail stores spread throughout North Carolina and Virginia. Which of the following costs
would most likely be treated as a common cost for segmented reporting purposes?
a.
Lease costs for the company headquarters.
b.
Property tax costs for the Virginia stores.
c.
Direct labor costs for the North Carolina stores.
d.
Utilities costs for the both the Virginia and North Carolina stores.
NARRBEGIN: Pennington Products
Pennington Products
Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each
of the product lines are as follows:
R-100
R-200
Selling price per unit
$45
$60
Variable costs per unit
15
24
Traceable fixed expenses
$250,000
$360,000
Pennington has common fixed expenses of $250,000 per year. Last year, the company produced and
sold 30,000 units of R-100 and 20,000 units of R-200.
NARREND
29. Refer to the Pennington Products information above. What is the segment margin of the R-100 product
line?
a.
$650,000
b.
$900,000
c.
$525,000
d.
$400,000
30. Refer to the Pennington Products information above. What is the segment margin ratio of the R-200
product line?
a.
50%
b.
30%
c.
60%
d.
20%
31. Refer to the Pennington Products information above. What is the company’s overall net income?
a.
$1,260,000
b.
$ 510,000
c.
$1,010,000
d.
$ 760,000
NARRBEGIN: Fun-Town Amusement
Fun-Town Amusement Center
Fun-Town Amusement Center offers a variety of family entertainment. The amusement center consists
of three separate divisions: miniature golf, arcade, and laser tag. The following information in
available regarding each of these divisions for the year just ended:
Miniature
Golf
Arcade
Laser Tag
$225,000
$500,000
$300,000
50,000
100,000
75,000
30,000
40,000
35,000
Common fixed costs of $60,000 are divided equally among the divisions.
NARREND
32. Refer to the Fun-Town Amusement Center information above. The segment margin for the miniature
golf division is:
a.
$175,000
b.
$145,000
c.
$125,000
d.
$ 85,000
33. Refer to the Fun-Town Amusement Center information above. The segment margin for the arcade
division is:
a.
$300,000
b.
$400,000
c.
$360,000
d.
$340,000
34. Refer to the Fun-Town Amusement Center information above. The segment margin ratio for the laser
tag division is:
a.
63.33%
b.
56.67%
c.
75.00%
d.
84.44%
NARRBEGIN: WSR Inc.
WSR Inc.
WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented
income statements for these two products are as follows:
Sodas
Chips
Sales
$800,000
$900,000
Variable expenses
200,000
315,000
Contribution margin
600,000
585,000
Traceable fixed expense
120,000
160,000
Segment margin
$480,000
$425,000
WSR’s management is considering a special advertising campaign that will run during a major sporting
event. The advertising campaign is expected to cost $30,000 and only one product can be featured. In-
house marketing studies show that the campaign could increase sales of the soda division by $200,000
or increase sales of the chips division by $275,000.
NARREND
35. Refer to the WSR Inc. information above. What will be the overall net effect on the company’s total
profits if the advertising focuses on sodas?
a.
Increase of $170,000
b.
Increase of $150,000
c.
Increase of $120,000
d.
Increase of $200,000
36. Refer to the WSR Inc. information above. What will be the overall net effect on the company’s total
profits if the advertising focuses on chips?
a.
Increase of $148,750
b.
Increase of $275,000
c.
Increase of $178,750
d.
Increase of $245,000
37. Refer to the WSR Inc. information above. Which of the following statements is true regarding which
product the advertising campaign should feature?
a.
Overall company profits will be higher by $45,000 if the campaign features chips rather
than soda.
b.
Overall company profits will be higher by $28,750 if the campaign features chips rather
than soda.
c.
Overall company profits will be higher by $13,750 if the campaign features chips rather
than soda.
d.
Overall company profits will be higher by $26,250 if the campaign features soda rather
than chips.
38. The rate of return generated by an investment center’s assets is called:
a.
residual income.
b.
economic value added.
c.
return on investment.
d.
segment margin ratio.
39. Return on investment (ROI) is calculated by:
a.
multiplying the margin by the turnover.
b.
dividing the margin by the turnover.
c.
dividing the turnover by the margin.
d.
adding the margin and the turnover.
40. A company has computed that their “margin” is .18. Which of the following statements is the best
interpretation of these results?
a.
$.18 of every $1 invested in assets is net profit.
b.
$.18 of every $1 made in sales is profit.
c.
Every $1 invested in assets generates $.18 in sales revenue.
d.
Every $1 invested in assets generates $.18 of segment margin.
41. A company has computed that their “asset turnover” is 3. Which of the following statements is the best
interpretation of these results?
a.
For every $3 of sales, $1 of net profit is generated.
b.
For every $3 invested in assets, $1 in net profit is generated.
c.
For every $1 invested in assets, $3 in sales are generated.
d.
For every $3 invested in assets, $1 in sales are generated.
Managerial ACCT Test Bank Chapter 11 10
42. When defining net operating income for return on investment (ROI) purposes, which of the following
items should not be included?
a.
Sales revenue
b.
Cost of goods sold
c.
Interest expense
d.
Salaries expense
43. Hardcastle Ltd. had sales of $3,000,000 and net operating income of $800,000. Operating assets during
the year averaged $1,500,000. The manager of Hardcastle is considering the purchase of a new
machine which is expected to increase average operating assets by 5%. If the new machine is
purchased, the company’s new return on investment (ROI) would be:
a.
190.5%
b.
52.5%
c.
196.9%
d.
50.8%
44. Bryan Manufacturing had sales of $4,000,000 and net operating income of $700,000. Operating assets
during the year averaged $600,000. The manager of Hardcastle is considering the purchase of a new
machine which is expected to increase average operating assets by 8%. If the new machine is
purchased, the company’s new return on investment (ROI) would be:
a.
126.0%
b.
16.2%
c.
108.0%
d.
92.6%
45. For the current year, Winston Inc. reported sales of $800,000 and an asset turnover of 2. The rate of
return on average invested assets was 20%. The company’s margin for the year was:
a.
10%
b.
40%
c.
25%
d.
50%
NARRBEGIN: Carson Inc.
Carson Inc.
Carson Inc. had the following information available at the end of its current year:
Sales
$2,000,000
Net operating income
500,000
Average operating assets
1,200,000
NARREND
46. Refer to the Carson Inc. information above. What was Carson’s return on investment (ROI) for the
year?
a.
2.4%
b.
41.7%
c.
25.0%
d.
166.7%
47. Refer to the Carson Inc. information above. What was Carson’s margin for the year?
a.
2.4%
b.
41.7%
c.
25.0%
d.
166.7%
48. Refer to the Carson Inc. information above. What was Carson’s asset turnover for the year?
a.
2.4
b.
.417
c.
.25
d.
1.7
49. Astin Ltd. requires all of its divisions to maintain a return on investment (ROI) of at least 25%. Over
the past several years, one of Astin’s divisions has consistently had the following information:
Sales
$2,000,000
Net operating income
500,000
In order to achieve the company’s ROI goals, this division should do which of the following?
a.
Maintain average operating assets of $2,000,000 or more.
b.
Maintain average operating assets of $2,000,000 or less.
c.
Maintain average operating assets of $125,000 or more.
d.
Maintain average operating assets of $125,000 or less.
50. All else being equal, which of the following items would increase a company’s return on investment
(ROI)?
a.
A decrease in net income.
b.
An increase in fixed costs.
c.
A decrease in average operating assets.
d.
A decrease in sales volume.
51. Which of the following statements regarding ROI computations is true?
a.
Net income after interest and taxes is most frequently used as the measure of income in the
ROI formula.
b.
The fair market value of assets without regard to depreciation is used as a measure of
operating assets in the ROI formula.
c.
Assets used in the ROI formula are generally measured as an average of beginning and
end of period numbers.
d.
All assets, including those that are idle or held for resale, are included in the ROI formula.
52. Residual income:
a.
is most useful as a way to compare individual divisions of different sizes.
b.
is the amount of income earned in excess of a predetermined minimum rate of return on
assets.
c.
should not be used as a way to evaluate the manager of an investment center.
d.
is often called economic value added (EVA).
53. Residual income:
a.
is an alternative to ROI for manager performance evaluation..
b.
is the amount of income earned in excess of a predetermined minimum level of return on
assets.
c.
is equal to ROI − (Average operating assets Minimum required rate of return)
d.
both A and B .
54. Which of the following statements comparing ROI and residual income is correct?
a.
ROI is more useful as a performance measure for a single investment center.
b.
Residual income is a better comparative measure than ROI.
c.
ROI and residual income are equally good performance measures for a single investment
center.
d.
Residual income is more useful as a performance measure for a single investment center.
55. Which of the following is the correct formula to compute residual income?
a.
Average operating assets − Net operating income
b.
Average operating assets − (Net operating income Minimum required rate of return)
c.
Net operating income Minimum required rate of return
d.
Net operating income − (Average operating assets Minimum required rate of return)
56. Duncan Ltd. has the following information available for one its divisions in the current year:
Sales revenue
$6,000,000
Operating expenses
3,800,000
Average operating assets
2,000,000
Duncan requires each of its divisions to generate a minimum return of 25%. What is this division’s
residual income?
a.
$ 200,000
b.
$1,450,000
c.
$1,700,000
d.
$5,500,000
57. Shannon Pharmaceuticals has the following information available for one of its divisions in the current
year:
Sales revenue
$10,000,000
Operating expenses
4,500,000
Average operating assets
4,000,000
The company requires each of its divisions to generate a minimum return of 30%. What is this
division’s residual income?
a.
$1,500,000
b.
$4,300,000
c.
$2,350,000
d.
$8,800,000
58. ABC Inc. has the following information available for one of its divisions:
Average operating assets
$5,000,000
Return on investment (ROI)
40%
Sales
$8,000,000
If ABC requires a minimum return on its investments of 25%, what is their residual income?
a.
$1,950,000
b.
$4,500,000
c.
$6,750,000
d.
$ 750,000
59. When comparing two different investment alternatives, which of the following measures for each
alternative would be the best to use?
a.
Return on investment
b.
Residual income
c.
Net income
d.
Contribution margin ratio
60. Grayson & Sons, a local car dealership, has three separate divisions: car repair, new car sales, and used
car sales. The company has decided to implement a new system for evaluating the performance of its
three division managers and the bonuses they receive. The following information is available with
respect to each division for the current year:
Car Repair
New Car Sales
Used Car Sales
Operating income
$2,000,000
$ 8,000,000
$3,000,000
Operating assets
3,000,000
18,000,000
8,000,000
In order to receive a bonus, a division manager must have an ROI greater than 50% and residual
income in excess of $1,400,000. If management uses a minimum required rate of return of 18%, which
division manager(s) would be eligible to receive a bonus?
a.
Car repair only
b.
New car only
c.
Used car only
d.
Car repair, new car, and used car
61. Which of the following situations is most likely to pose a problem for companies that use return on
investment (ROI) as a measure of a manager’s performance?
a.
Managers may be encouraged to purchase more operating assets than they otherwise
should.
b.
Managers may be discouraged from purchasing operating assets that could improve
overall profitability.
c.
Managers may be discouraged from reducing their division’s costs.
d.
Managers may be discouraged from paying off debt in order to reduce interest costs.
62. Which of the following forms of manager compensation most likely encourages managers to take a
long-term view of how their performance ties in with the long-term goals of a company?
a.
Year-end cash bonus
b.
Base salary
c.
Stock options
d.
Use of a company car
63. Which of the following statements about managerial compensation is correct?
a.
Compensating managers with year-end cash bonuses always motivates managers to do
what is best for the company as a whole.
b.
From a manager’s standpoint, cash compensation is always preferable over stock-based
compensation.
c.
Manager compensation should always be either cash-based or stock-based.
d.
Stock-based manager compensation does not guarantee a future cash benefit to managers.
64. Which of the following statements about stock-based managerial compensation is correct?
a.
It may cause dysfunctional behavior in the short-run as managers try to drive up the
company’s stock price.
b.
Exercising the option as soon as it is granted will leave the manager better off from a cash
standpoint.
c.
Stock options are always guaranteed to increase in value over time.
d.
Managers always prefer to receive stock options instead of year-end bonuses.
65. Which of the following statements about the balanced scorecard approach is true?
a.
The four perspectives of the balanced scorecard revolve around measures of quality,
productivity, efficiency and timeliness, and marketing success.
b.
The balanced scorecard approach requires looking at performance from four different but
related perspectives: financial, customer, internal business, and learning and growth.
c.
The balanced scorecard approach integrates financial and nonfinancial performance
measures.
d.
All of these are true.
66. Which of the following statements regarding the balanced scorecard approach is false?
a.
Because of changing technology, global competition, and an increased awareness of the
need to focus on customer needs, nonfinancial and qualitative performance measures have
become an integral component of effective managerial decision making.
b.
The balance scorecard approach integrates both financial and nonfinancial performance
measures.
c.
The balanced scorecard approach requires looking at performance from four different but
related perspectives: financial, customer, internal business, and learning and growth.
d.
The balance scorecard approach is not as useful for performance measurement as
traditional accounting measures.
67. Which of the following statements about the balanced scorecard approach is true?
a.
It helps management focus on only nonfinancial measures of performance.
b.
It helps management focus on critical success factors which may be financial and
nonfinancial in nature.
c.
It helps management ignore short-term operating performance in favor of long-term
operating performance.
d.
It helps management focus on only financial measures of performance.
68. Which of the following statements about the balanced scorecard approach is false?
a.
It requires managers to focus on financial measures more than nonfinancial measures.
b.
It looks at performance from the following perspectives: financial, customer, internal
business, and learning and growth.
c.
It helps balance short-term operating performance with long-term strategies.
d.
It recognizes that traditional measures of performance are often not adequate to fully
assess a company’s performance.
69. Which of the following statements is true regarding more traditional measures of financial
performance?
a.
They often look at a company’s performance from four different but related perspectives:
financial, customer, internal business, and learning and growth.
b.
They are often superior to measuring a company’s performance than the balanced
scorecard approach.
c.
Performance problems are often not captured in as timely a fashion as with the balanced
scorecard approach.
d.
They tend to focus on nonfinancial rather than financial measures of performance.
70. Which of the following is not one of the perspectives that is usually examined under the balanced
scorecard approach?
a.
Learning and growth perspective
b.
Internal business perspective
c.
Creditor perspective
d.
Customer perspective
71. The balanced scorecard approach looks at a company’s performance from four perspectives. Those
perspectives are:
a.
prevention, appraisal, internal, and external.
b.
customer, creditor, stockholder, and manager.
c.
financial, customer, internal business, and learning and growth.
d.
manufacturing cycle time, throughput, appraisal, and environmental.
72. Which of the following questions would the financial perspective of the balanced scorecard attempt to
answer?
a.
How does the company continue to improve, learn, and grow?
b.
How do customers view the company?
c.
Which business processes must the company excel in?
d.
How does the company create value for its stakeholders?
73. Which of the following questions would the internal business perspective of the balanced scorecard
attempt to answer?
a.
How does the company continue to improve, learn, and grow?
b.
How do customers view the company?
c.
Which business processes must the company excel in?
d.
How does the company create value for its stakeholders?
74. Which of the following questions would the learning and growth perspective of the balanced
scorecard attempt to answer?
a.
How does the company continue to improve and learn?
b.
How do customers view the company?
c.
Which business processes must the company excel in?
d.
How does the company create value for its stakeholders?
75. Which of the following questions would the customer perspective of the balanced scorecard attempt to
answer?
a.
How does the company continue to improve and learn?
b.
How do customers view the company?
c.
Which business processes must the company excel in?
d.
How does the company create value for its stakeholders?
76. Return on investment (ROI) is a measure of performance under which perspective of the balanced
scorecard?
a.
Internal business
b.
Customer
c.
Financial
d.
Learning and growth
77. Residual income would be a measure of performance under which perspective of the balanced
scorecard?
a.
Internal business
b.
Customer
c.
Financial
d.
Learning and growth
78. Determining the market share for a company’s product would be a measure of performance under
which perspective of the balanced scorecard?
a.
Internal business
b.
Customer
c.
Financial
d.
Learning and growth
79. Determining customer loyalty would be a measure of performance under which perspective of the
balanced scorecard?
a.
Internal business
b.
Customer
c.
Financial
d.
Learning and growth
80. Throughput would be a measure of performance under which perspective of the balanced scorecard?
a.
Internal business
b.
Customer
c.
Financial
d.
Learning and growth
81. Increasing information systems capabilities would be a critical success factor found in which
perspective of the balanced scorecard?
a.
Internal business
b.
Customer
c.
Financial
d.
Learning and growth
82. Which perspective links the critical success factors of the other perspectives and ensures an
environment that supports and allows the objectives of the other perspectives to be achieved?
a.
Financial perspective
b.
Learning and growth perspective
c.
Internal business perspective
d.
Customer perspective
83. Which of the following is least likely to be a critical success factor within the financial perspective of
the balanced scorecard?
a.
increasing ROI
b.
decreasing operating costs
c.
decreasing residual income
d.
increasing segment margin
84. Which of the following is least likely to be a critical success factor within the internal business
perspective of the balanced scorecard?
a.
increasing throughput
b.
increasing productivity
c.
increasing non-value-added time
d.
increasing manufacturing cycle efficiency (MCE)
85. A system of improvement based on a series of gradual and often small improvements is called:
a.
throughput.
b.
kaizen.
c.
manufacturing cycle efficiency.
d.
centralization.
86. Which of the following statements about kaizen is false?
a.
Employee empowerment will allow kaizen to occur more easily.
b.
It requires active participation by all of a company’s employees.
c.
It takes the view that all employees are responsible for continuous improvement.
d.
It consists of major changes that require large investments on the part of the company.
87. Which of the following statements regarding “quality” is true?
a.
Over the past 20 years or so, the demand by customers for quality products and services at
an affordable price has drastically changed the way companies do business.
b.
Improving quality increases sales through higher customer satisfaction and demand,
reduces costs, and increases the long-term profitability of companies.
c.
Companies have focused on improving the quality of the products or the services they sell
through a variety of initiatives, such as total quality management (TQM), market-driven
quality, and strategic quality management.
d.
All of these are true.
88. Which of the following statements regarding “quality” is false?
a.
Quality is often defined as meeting or exceeding customers’ expectations.
b.
Quality requires that a product be reliable and durable and that these features be provided
at a competitive price.
c.
Studies have found that companies that spend less on quality costs have higher operating
income than those companies who spend more on quality costs.
d.
Improving quality often falls under the customer perspective of the balanced scorecard.
89. Which of the following is generally not one of the classifications of quality costs?
a.
Appraisal (detection) costs
b.
Prevention costs
c.
Internal control costs
d.
External failure costs
90. Which of the following statements about prevention costs is true?
a.
Prevention costs are generally incurred after problems occur.
b.
Design and engineering costs are not properly considered prevention costs.
c.
Generally, companies find that the incurrence of prevention costs reduces long-run
product failure costs.
d.
None of these are true.
91. Which types of quality costs are incurred to eliminate quality problems before they occur?
a.
Appraisal (detection) costs
b.
Prevention costs
c.
External failure costs
d.
Internal failure costs