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WorksheetsQuality Management Quiz
Total questions: 119
Worksheet time: 3570secs
Which of the following is true of ISO 9000?
It is a quality management system comprising different process improvement such as six sigma and lean manufacturing.
It is mandatory for all listed companies in US to get ISO certified.
It helps companies monitor, document, and certify the elements of their production processes that lead to quality.
It is a disciplined, data-driven, and statistical approach to improve the quality of products or services by identifying and removing the causes of defects.
Which of the following best describes conformance quality?
it is the first step of a quality management system such as ISO 9000
it is the performance of a product or service according to design and product specifications
it is making the product according to design, engineering, and manufacturing specifications
it focuses on how a product meets customer needs and wants
The characteristics of a product or service meet the needs and wants of customers is most closely related to which of the following qualities?
conformance
design
performance
adaptation
The costs of quality are the costs incurred:
to enhance large scale production
to prevent the production of a low quality product
due to defective and low quality product
because of warranties, normal spoilage, abnormal spoilage, and scrap
Which of the following types of costs are incurred in precluding the production of products that do not conform to specifications?
prevention costs
appraisal costs
internal failure costs
external failure costs
An example of a nonfinancial measure for customer satisfaction is:
number of defective units shipped as a percentage of total units shipped
the cost of warranty claims by customers
liability claims incurred to the company
rework costs due to inefficiency
Which of the following is an example of a nonfinancial measure for customer satisfaction?
average manufacturing time for key products
contribution margin earned on popular products
on time delivery rates
time and effort spent on machine repairs
Which of the following is a graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time?
control chart
Pareto diagram
cause-and-effect diagram
fishbone diagrams
What is it that a statistical quality control chart does?
it shows a graph of a series of random events of a process
it plots each observation relative to specified ranges that represent the expected distribution
it plots control observations over various periods of time
it plots only those observations outside specified limits
As per control charts, random variations would most likely occur when:
there is a sudden increase in production
chance fluctuations in the speed of equipment cause defective products to be produced
defective products are produced as a result of a systematic problem
chance fluctuations in the speed of the equipment cause defective products to be produced
Managers identify the relevant costs and benefits for each solution by focusing on:
the alternative solution that will derive maximum customer satisfaction
how total costs and total revenues will change under each alternative solution related to quality improvements
how the employees of a company would be able to implement a change
how long it will take for the improved program to be fully functional
Premier Corp expects to spend $800,100 in 2020 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $60,800 in fixed appraisal costs and variable costs of $0.50 per materials units received. The new method involves $141,000 in training costs and an additional $150,100 in annual equipment rental.
Internal failure costs average $190 per failed unit of finished goods. During 2019, 4% of all completed items had to be reworked. External failure costs average $500 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
What is the net effect on appraisal costs for 2020, assuming the new receiving method is implemented and that 800,100 material units are received?
$1,520 increase
$169,750 decrease
$291,100 decrease
$4,001 increase
Premier Corp expects to spend $800,500 in 2020 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $60,500 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,000 in training costs and an additional $150,300 in annual equipment rental.
Internal failure costs average $200 per failed unit of finished goods. During 2019, 4% of all completed items had to be reworked. External failure costs average $460 per failed unit. The company's average external failures are 2% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
What would be the change in the external failure budget, if 600,500 units are used and assuming external failures are reduced by 12%?
$32,020 increase
$249,950 decrease
$662,952 decrease
$304,190 decrease
LaCrosse Products has a budget of $902,000 in 2020 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,200 in variable costs. The new method will require $40,300 in training costs and $110,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 158,000 units.
Appraisal costs for the year are budgeted at $609,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $18 per failed unit of finished goods. The internal failure rate is expected to be 2% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 2% of units sold. The new proposal will reduce this rate by 45%. Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget for prevention costs if the procedures are automated in 2020? Will management agree with the changes?
$70,100 decrease, yes
$70,100 increase, yes
$150,300 increase, no
$80,200 decrease, yes
LaCrosse Products has a budget of $910,000 in 2020 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,800 in variable costs. The new method will require $40,600 in training costs and $104,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 151,000 units.
Appraisal costs for the year are budgeted at $608,000. The new prevention procedures will save appraisal costs of $50,900. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 2% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 2% of units sold. The new proposal will reduce this rate by 55%. Assume all units produced are sold and there are no ending inventories.
How much will appraisal costs change assuming the new prevention methods reduce material failures by 30% in the appraisal phase?
$144,600 decrease
$63,800 increase
$50,900 decrease
$15,100 decrease
Which of the following is an advantage of COQ measures?
They help managers aggregate costs to evaluate the tradeoffs of incurring prevention costs and appraisal costs to eliminate internal and external failure costs.
They detect and provide immediate short-run feedback on whether quality-improvement efforts are succeeding.
They forecast customer satisfaction and employee satisfaction, which are useful indicators of long-run performance.
They direct attention to financial processes that help managers identify the precise problem areas that need improvement.
Which of the following is an advantage of nonfinancial measures of quality?
They help managers aggregate costs to evaluate the tradeoffs of incurring prevention costs and appraisal costs to eliminate internal and external failure costs.
They detect and provide immediate short-run feedback on whether quality-improvement efforts are succeeding.
They focus managers' attention on how poor quality affects operating income.
They direct attention to financial processes that help managers identify the precise problem areas that need improvement.
Which of the following true of nonfinancial measures of quality?
They direct attention to financial processes that help managers identify the precise problem areas that need improvement.
They focus managers' attention on how poor quality affects operating income.
They assist in problem solving by comparing costs and benefits of different quality-improvement programs and by setting priorities for cost reduction.
They provide immediate short-run feedback on whether quality-improvement efforts are succeeding.
An advantage of nonfinancial measures of quality include that they:
focus managers' attention on how poor quality affects operating income
assist in problem solving by comparing costs and benefits of different quality-improvement programs and by setting priorities for cost reduction
are useful indicators of future long-run performance
use certain statistical measures to justify their data
Which of the following is true of COQ measures?
A) They forecast customer satisfaction and employee satisfaction, which are useful indicators of long-run performance.
B) They help managers evaluate costs and benefits of incurring prevention and appraisal costs
C) They direct attention to financial processes that help managers identify the precise problem areas that need improvement.
D) They provide immediate short-run feedback on whether quality-improvement efforts are succeeding.
The amount of time from when a customer places an order for a product to when the product or service is delivered to the customer is referred to as:
manufacturing lead time
delivery time
customer-response time
a time driver
Which of the following correctly describes customer-response time?
the amount of time from when an order is ready to start on the production line to when the product or service is delivered to the customer
the amount of time it takes to deliver a completed order to a customer
the amount of time from when a customer places an order for a product or requests a service to when the product or service is delivered to the customer
the amount of time from when an order is ready to start on the production line to when it becomes a finished good
The amount of time from when an order is ready to start on the production line to when it becomes a finished good is referred to as:
manufacturing time
time driver
customer-response time
delivery time
Which of the following correctly describes manufacturing cycle time?
the amount of time it takes from when an order is ready to start on the production line to when the product or service is delivered to the customer
the amount of time it takes to deliver a completed order to a customer plus its waiting time
the amount of time it takes from when a customer places an order for a product or requests a service to when the product or service is delivered to the customer
the amount of time it takes from when an order is ready to start on the production line to when it becomes a finished good plus its waiting time
Which of the following is the mathematical expression for calculating manufacturing cycle efficiency (MCE)?
MCE = Manufacturing cycle time ÷ Value-added manufacturing time
MCE = Manufacturing time ÷ Value-added manufacturing time
MCE = Value-added manufacturing time ÷ Manufacturing cycle time
MCE = Value-added manufacturing time ÷ Manufacturing time
Which of the following reduces manufacturing cycle times and delays?
increasing the capacity of a bottleneck resource
selling of an existing equipment to save up on depreciation costs
increasing the time it takes for setups and processing
outsourcing the job to a third party
Inventory carrying costs equal the:
opportunity costs of the investment tied up in inventory and the cost of manufacturing of goods
costs of storage only
opportunity costs of the investment tied up in inventory and the relevant costs of storage
historical costs and the relevant costs of storage
Which of the following is a storage cost?
labor cost
materials handling
direct material
overhead cost
When manufacturing cycle increases:
sunk costs will decrease
opportunity costs will increase
opportunity costs will decrease
inventory carrying costs will increase
Longer manufacturing cycle times can result in:
lower revenues and higher inventory carrying costs
higher opportunity costs and low profit margins
lower opportunity costs and high profit margins
higher revenues and lower inventory carrying costs
Among different types of costs associated with inventory, the costs of obtaining purchase approvals are:
purchasing costs
ordering costs
stockout costs
carrying costs
Among different types of costs associated with inventory, the incoming freight charges of inventories are:
purchasing costs
ordering costs
stockout costs
carrying costs
Among different types of costs associated with inventory, the opportunity cost of the investment tied up in inventory is a(n):
purchasing cost
ordering cost
stockout cost
carrying cost
The costs that result from theft of inventory are:
shrinkage costs
external failure costs
stockout costs
costs of quality
The costs that result when a company runs out of a particular item for which there is a customer demand are:
shrinkage costs
shortage costs
stockout costs
EOQ estimation costs
Which of the following statements is true of the economic order quantity decision model?
The economic order quantity increases with higher demand and higher carrying costs and decreases with higher ordering costs.
The simplest version of the economic order quantity model assumes there are only ordering costs, carrying costs, stockout costs, and purchasing costs.
It assumes the purchase order lead time is not known with certainty.
The larger the order quantity, the lower the annual relevant ordering costs and the higher the annual relevant carrying costs.
Which of the following is the correct mathematical expression to calculate annual relevant ordering costs?
Demand in units for a specified period / (Relevant ordering cost per purchase order × Size of each order)
Size of each order × Relevant ordering cost per purchase order / Demand in units for a specified period
(Demand in units for a specified period / Size of each order) × Relevant ordering cost per purchase order
(Demand in units for a specified period - Size of each order) × Relevant ordering cost per purchase order
Under economic-order-quantity decision model, which of the following is an assumption of the model?
the quantity ordered can vary at each reorder point
demand, ordering costs, and carrying costs are uncertain
the purchasing cost per unit is affected by the order quantity
the same quantity is ordered at each reorder point
The following information applies to Krynton Company, which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.
Annual demand (weekly demand = 1/52 of annual demand) 59,000 units
Orders per year 60
Lead time in days 20 days
Cost of placing an order $140
3,120 units
3,233 units
983 units
2,950 units
The economic order quantity model completely ignores:
carrying costs
ordering costs
stockout costs
the size of a purchase order
Which of the following costs is a relevant inventory carrying cost of carrying inventory?
The lost contribution margin on future sales forgone as a result of customer dissatisfaction in product quality.
The lost contribution margin on sales forgone because of the shortage of inventory.
The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.
The costs of shrinkage.
For inventory carrying costs, which of the following statements is true of the relevant opportunity cost of capital of inventory?
It is the return received by investing capital in inventory rather than elsewhere.
It is calculated as the per-unit costs of carrying inventory divided by the required rate of return.
It is the return foregone by investing capital elsewhere rather than in inventory.
It is calculated as the required rate of return multiplied by the per-unit costs of acquiring inventory including the purchase price, incoming freight, and incoming inspection.
Which of the following statements is true of relevant inventory costs?
The salaries paid to clerks, stock keepers, and materials handlers are relevant carrying costs if they are unaffected by changes in inventory levels.
The costs of expediting an order from a supplier are relevant incremental costs of stockouts.
Warehouse rent, warehouse workers' salaries and costs of insurance,that change with the quantity of inventory held are irrelevant carrying costs.
Those ordering costs that change with the number of orders placed are irrelevant ordering costs.
The annual relevant carrying costs of inventory consists of the sum of the:
relevant ordering costs and the relevant costs of quality
relevant ordering costs plus the relevant opportunity costs of capital
relevant incremental costs plus the relevant opportunity costs of capital
relevant incremental costs plus the relevant ordering costs
Which of the following costs is a relevant inventory stockout cost?
The costs of obsolescence and costs of insurance that change with the quantity of inventory held.
The return forgone by investing capital in inventory rather than elsewhere.
The lost contribution margin on sales forgone as a result of customer dissatisfaction due to unavailability of goods.
The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.
Which of the following statements is true of just-in-time (JIT) purchasing?
In JIT purchasing, the optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and carrying costs.
JIT purchasing is guided solely by the EOQ model because that model emphasizes the tradeoff between relevant carrying and ordering costs.
In JIT purchasing, raw materials (or goods) are purchased so that products are delivered just as needed for production or sales.
Only disadvantage of JIT purchasing is the higher level carrying and inspection costs.
Which of the following is NOT a reason why a company would adopt JIT purchasing practices?
high shrinkage costs
low ordering costs
low carrying costs of inventory
reliable supply chains
Just-in-time purchasing is the buying of goods or materials for production in a way that they are delivered in small orders directly to the production floor based on:
economic order quantity
annual monthly purchasing budgets
production schedules
sales forecasts
Which of the following term is defined as: "the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers"?
customer list
enterprise requirements plan (ERP)
material requirements plan (MRP)
supply chain
Sharing sales information throughout the supply chain leads to which of the following?
larger stockouts
increased manufacturing of products not immediately needed by retailers
fewer manufacturing orders that had to be expedited
higher inventories held by each company in the supply chain
A push-through system that manufactures finished goods for inventory on the basis of demand forecasts and produces a master schedule for quantity and timing of units to be produced.
just-in-time purchasing
materials requirements planning
relevant total costs
economic order quantity
A demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line is referred to as:
just-in-time production
materials requirements planning
relevant total costs
economic order quantity
Which of the following statements best defines a just-in-time production system?
a push-through system that manufactures finished goods for inventory on the basis of demand forecasts
a push-through system in which each component in a production line is produced immediately as needed by the next step in the production line
a demand-pull system that manufactures finished goods for inventory on the basis of demand forecasts
a demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line
Which of the following statements best defines a materials requirements planning system?
a demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line
a push-through system that manufactures finished goods for inventory on the basis of demand forecasts
a demand-pull system that manufactures finished goods for inventory on the basis of demand forecasts
a push-through system in which each component in a production line is produced immediately as needed by the next step in the production line
A system that emphasizes lean production techniques, low quantities of inventory, and close coordination among production workstations is called:
economic order quantity production
just-in-time production
materials requirements planning production
push-through system
A grouping of all the different types of equipment used to make a given product is referred to as:
total quality management
materials requirements planning
manufacturing cells
economic order quantity
Which of the following statements best defines manufacturing cells?
They are manufacturing areas that use a "push-through" approach whereby finished goods are manufactured on the basis of demand forecasts.
They are manufacturing centers which focuses on production of a single product and in which workers focus on master one skill so as to be efficient and effective in their work.
They are work areas with different types of equipment grouped together to make related products and to minimize handling costs.
They are production centers positioned in various areas throughout a production facility, close to the associated talent (direct laborers) in which goods are manufactured only after receiving customer orders.
Which of the following terms is defined as the time required to get equipment, tools, and materials ready to start production?
setup time
delivery time
manufacturing-cycle time
product design time
Which of the following statements best defines setup time?
It is the time required to manufacture an item, including order preparation time, inspection time, and customer delivery time.
It is the time required to get equipment, tools, and materials ready to start the production of a component or product.
It is a time or period ranging from the time when a customer orders goods to the time when they are delivered to the customer.
It is the time required to create a new product to be sold by a business to its customers.
An order is received by a company and then spends 1 day in assembly and 3 days in finishing before being stored in the warehouse. On average, the units are stored for 3 days before being shipped to a customer. Which of the following measures would be true?
work-in-process time of 7 days
manufacturing cycle time of 4 days
pass-through time of 6 days
manufacturing cycle time of 7 days
Which of the following involves the process of making decisions for significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities?
A) capital budgeting
B) working capital management
C) master budgeting
D) capitalization
Which of the following is a stage of the capital budgeting process that indicates potential capital investments that agree with an organization's strategy?
A) identify projects stage
B) make predictions stage
C) obtain information stage
D) implement the decision, evaluate performance, and learn stage
Which of the following is a stage of the capital budgeting process during which a plant manager is queried for assembly time?
A) make decisions by choosing among alternatives stage
B) obtain information stage
C) make predictions stage
D) implement the decision, evaluate performance, and learn stage
Which of the following is a stage of the capital budgeting process that forecasts all potential cash flows attributable to the alternative projects?
A) identify projects stage
B) make decisions by choosing among alternatives stage
C) implement the decision, evaluate performance, and learn stage
D) make predictions stage
Which of the following is a stage of the capital budgeting process that determines which investment
yields the greatest benefit and the least cost to an organization?
A) make decisions by choosing among alternatives stage
B) make predictions stage
C) identify projects stage
D) implement the decision, evaluate performance, and learn stage
Upon which of the following items does discounted cash flow methods for capital budgeting focus?
A) cash inflows and required rate of return
B) operating income and required rate of return
C) operating income and cost of capital
D) working capital and cost of capital
Which of the following methods utilizes discounted cash flows when analyzing potential capital expenditures?
Methods:
1. Accrual accounting rate-of-return
2. Internal Rate of Return (IRR)
3. Payback Period
4. Net Present Value (NPV)
A) 1 only
B) 1 and 2
C) 1 and 3
D) 2 and 4
Net present value is calculated using which of the following?
A) internal rate of return
B) required rate of return as a discount rate
C) risk-free rate
D) predetermined overhead cost rate
Which of the following capital budgeting methods uses discounted cash flows?
A) accrual accounting rate-of-return method
B) net present value method
C) projected income method
D) payback method
Which of the following methods is described as follows: "It calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the required rate of return"?
A) payback method
B) accrual accounting rate-of-return method
C) internal rate of return
D) net present value method
Which of the following methods is described as the method that measures the time it will take to recoup, in the form of future cash inflows, the total dollars invested in a project?
A) the accrued accounting rate-of-return method
B) the payback method
C) the internal rate-of-return method
D) the book-value method
The net initial investment for a piece of construction equipment is $2,500,000. Annual cash inflows are expected to increase by $600,000 per year. The equipment has a(n) 8-year useful life. What is the payback period?
Explanation: D) $2,500,000 / $600,000 = 4.17 years
A) 8.00 years
B) 5.58 years
C) 4.17 years
D) 3.17 years
The payback method of capital budgeting approach to an investment decision:
A) considers cash flows over the life of the investment
B) assumes that cash flows occur uniformly throughout the year
C) considers time value of money
D) ignores the initial investment
The payback method of capital budgeting approach to an investment decision:
A) assigns greater weights to cash flows in the early years
B) does not consider cash flows that occur after the payback period
C) considers time value of money
D) ignores the initial investment
Malive Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $219,000. The annual cost savings if the new machine is acquired will be $35,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be zero. Malive Park is assuming no tax consequences. Malive Park has a 12% required rate of return. What is the payback period for the investment?
Explanation: D) PB = $219,000 / $35,000 = 6.3 years.
A) 5.3 years
B) 6.3 years
C) 5.0 years
D) 12.5 years
) Which of the following methods of capital budgeting divides the average annual accrual accounting income of a project by a measure of the investment in it?
A) net present value
B) internal rate of return
C) payback method
D) accrual accounting rate of return
Accrual accounting rate of return is calculated by dividing:
A) net initial investment by an increase in expected average annual after-tax operating income
B) an increase in expected average annual after-tax operating income by the net initial investment
C) an increase in expected average annual cash flow by the net initial investment
D) net initial investment by an increase in expected average annual cash flow
Which of the following is the numerator in the mathematical expression for accrual accounting rate-of-return (AARR)?
A) increase in expected average investment
B) increase in expected average annual after-tax operating income
C) increase in expected average cash flow
D) increase in expected net initial investment
AARR indicates the average rate at which:
A) a dollar of investment generates after-tax operating income
B) a dollar of after-tax cash flow generates net income
C) a dollar of investment generates a positive cash flow
D) a dollar of after-tax non-operating income generates net income
Which of the following statements is true of accrual accounting rate of return (AARR) method and internal rate of return (IRR) method?
A) AARR method calculates the return in absolute terms, whereas IRR method calculates the result in terms of percentage.
B) The AARR method calculates the return using operating-income numbers after considering accruals and taxes, whereas the IRR method calculates the return using after-tax cash flows and the time value of money.
C) The AARR method calculates the return considering the time value of money, whereas the IRR method calculates the return ignoring the time value of money.
D) The AARR method considers cash flows, whereas the IRR method considers operating income.
Which of the following is a component of net-initial-investment cash flows?
A) original cost of an old equipment
B) initial working capital investment
C) depreciation cost
D) after-tax cash flow from operations
The galaxy Corporation disposes a capital asset with an original cost of $220,000 and accumulated depreciation of $111,000 for $50,000. The company's tax rate is 40%. Calculate the after-tax cash inflow from the disposal of the capital asset.
Explanation: C) ($220,000 - $111,000) = $109,000; $109,000 - $50,000 = $59,000 loss; $59,000 × 0.4 = $23,600 tax savings from loss plus $50,000 proceeds = $73,600
A) $23,600
B) ($23,600)
C) $73,600
D) $109,000
The Golden Shades Corporation disposes a capital asset with an original cost of $300,000 and accumulated depreciation of $130,000 for a salvage price of $45,000. Golden Shades's tax rate is 30%. Calculate the after-tax cash inflow from the disposal of the capital asset.
Explanation: D) ($300,000 - $130,000) = $170,000; $170,000 - $45,000 = $125,000 loss; $125,000 × 0.3 = $37,500 tax savings from loss plus $45,000 proceeds = $82,500
A) $37,500
B) $125,000
C) $45,000
D) $82,500
The Ambitz Corporation has an annual cash inflow from operations from its investment in a capital asset of $38,000 (excluding the deprecation) each year for seven years. The corporation's income tax rate is 40%. Calculate the total after-tax cash inflow from operations for seven years.
Explanation: C) $38,000 × 7 = $266,000; $266,000 × (1 - 0.4) = $159,600 net cash flow
A) $266,000
B) $266,003
C) $159,600
D) $38,000
The Venoid Corporation has an annual cash inflow from operations from its investment in a capital asset of $18,000 (excluding depreciation) each year for eight years. The corporation's income tax rate is 40%. Calculate the total after-tax cash inflow from operations for eight years.
Explanation: B) $18,000 × 8 = $144,000; $144,000 × (1 - 0.4) = $86,400 net cash flow
A) $144,000
B) $86,400
C) $57,600
D) $18,000
Which of the following statements is true of a post-investment audit?
A) It encourages managers to overstate the expected cash inflows from projects and accept projects they should reject.
B) It helps managers avoid optimistic estimate errors.
C) It does not help senior management to recognize problems in the implementation of the project.
D) It provides managers with feedback about the performance of a project to determine if any variance from expectations were the result of the overly optimistic estimates of because of implementation issues.
Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is referred to as:
A) the audit trail
B) management control
C) a post-investment audit
D) a cost-benefit analysis
Post-investment audits:
A) result in managers to overstate the expected cash inflows from projects and accept projects they should reject
B) provide management with feedback about the performance of a project
C) include obtaining appropriation requests so that the funding will be authorized to purchase the equipment
D) are usually not feasible in a large project because the cost accounting system does not collect actual costs at the same level of detail as the initial plans had
The reason to have a post-investment audit is:
A) they encourage mid-level managers to make overly optimistic estimates during the early stages of the capital budgeting process
B) they help alert senior management to problems in the implementation of projects
C) they analyze by calculating contribution-margin
D) they help in calculating present value
As a discounted cash flow method does not report good operating income results in the project's early years, managers are tempted to not use discounted cash flow methods even though the decisions based on them would be in the best interests of the company as a whole over the long run.
TRUE
FALSE
A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n):
A) balanced scorecard
B) financial report scorecard
C) goal-congruence report
D) investment success report
Customer-satisfaction measures are an example of the:
A) goal-congruence approach
B) balanced scorecard approach
C) financial report scorecard approach
D) investment success approach
An example of a performance measure with a long-time horizon is:
A) direct materials efficiency variances
B) overhead spending variances
C) number of new patents developed
D) quality of room service
Average number of repeat visits in a spa unit is a ________ measure on a balanced scorecard.
A) customer perspective
B) financial perspective
C) learning-and-growth perspective
D) internal-business-process perspective
Which of the following steps in designing an accounting-based performance measure includes decisions such as defining assets as total assets or net assets in the calculation of return on assets?
A) choosing performance measures that align with top management's financial goals
B) choosing the time horizon of each performance measure
C) choosing the details for each performance measure
D) choosing a target level of performance
Which of the following steps in designing an accounting-based performance measure includes decisions such as defining assets as total assets or net assets in the calculation of return on assets?All of the following are ways to calculate different versions of ROI except:
A) Revenues/Total Assets
B) Return on sales × investment turnover
C) Income/Investments
D) Operating Income/Revenues × Revenues/Total Assets
The return on investment is usually considered the most popular approach to measure performance because:
A) it blends all the ingredients of profitability into a single percentage
B) once determined, there is no need to use it with other measures of performance
C) it throws light on the company's working capital
D) it measures the cash balance of the company in the most efficient manner
Return on investment can be increased by:
A) increasing current assets
B) increasing return on sales
C) decreasing revenues
D) increasing the debt portion of the capital
The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.
A) Balanced Scorecard
B) Residual-Income
C) DuPont
D) Economic Value Added
) Aaron Corp's net income is $30,000. What is the amount of the investment if the return on investment is 30%?
Explanation: C) Return on investment = 0.3 = $30,000 / Investment; Investment = $100,000.
A) $60,000
B) $70,000
C) $100,000
D) $130,000
Home Decor Inc., manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2020:
The company is currently using a 15% required rate of return.
What are Bleach's and Cleanser's return on investment based on book values, respectively?
Explanation: D)
Book value ROI:
Bleach: $135,000 / $325,000 = 42%
Cleanser: $125,000 / $410,000 = 30%
A) 30%; 42 %
B) 49%; 34 %
C) 34%; 49%
D) 42%; 30%
Home Decor Inc., manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2020:
The company is currently using a 15% required rate of return.
What are Bleach's and Cleanser's return on investment based on current values, respectively?
Explanation:
C) Current ROI:
Bleach: $170,000 / $315,000 = 54%
Cleanser: $115,000 / $360,000 = 32%
A) 43%; 24%
B) 24%; 43%
C) 54%; 32%
D) 32%; 54%
Home Decor Inc., manufactures home cleaning products. The company has two divisions, Bleach and Cleanser. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2020:
The company is currently using a 14% required rate of return.
What are Bleach's and Cleanser's residual incomes based on book values, respectively?
Explanation:
A) Book value RI:
Bleach: $130,000 - ($300,000 × 0.14) = $88,000
Cleanser: $110,000 - ($415,000 × 0.14) = $51,900
A) $88,000; $51,900
B) $115,200; $78,900
C) $51,900; $88,000
D) $78,900; $115,200
Carriage Incorporated manufactures horse carriages. The company has two divisions, Wheels and Assembly. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2020:
The company is currently using a 13% required rate of return.
What are Wheels' and Assembly's return on investment based on book values, respectively?
Explanation: B)
Book value ROI:
Wheels: $120,000 / $505,000 = 24%
Assembly: $165,000 / $780,000 = 21%
A) 27%; 12%
B) 24%; 21%
C) 12%; 27%
D) 21%; 24%
Carriage Incorporated manufactures horse carriages. The company has two divisions, Wheels and Assembly. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2020:
The company is currently using a 14% required rate of return.
What are Wheels' and Assembly's return on investment based on current values, respectively?
Explanation: D)
Book value ROI:
Wheels: $150,000 / $580,000 = 26%
Assembly: $190,000 / $1,300,000 = 15%
A) 15%; 26%
B) 30%; 21%
C) 21%; 30%
D) 26%; 15%
When managers set and measure target levels of performance and feedback:
A) the historical-cost-based accounting measures are usually adequate for evaluating economic returns on new investments
B) the historical-cost ROIs cannot be used to evaluate current performance
C) the timing of feedback is not dependent on the sophistication of the organization's information technology
D) how critical the information is for success of the organization and the management level receiving the feedback
Historical-cost-based accounting measures are usually inadequate for evaluating economic returns on new investments and, in some cases, create disincentives for expansion.
TRUE
FALSE
Managers must negotiate and tailor a budget to the particular subunit, accounting system, and performance measures to obtain useful results.
TRUE
FALSE
Evaluating performance on the basis of continuous improvements in EVA makes the initial method of calculating the measure critically important.
Explanation: A popular way to establish targets is to set continuous improvement targets. If a company is using EVA as a performance measure, the firm can evaluate operations on the year-to-year changes in EVA, rather than on absolute measures of EVA. Evaluating performance on the basis of improvements in EVA makes the initial method of calculating the measure less important.
TRUE
FALSE
Inflation clouds the real economic returns on an asset and:
A) makes variable-cost-based ROI higher
B) makes historical-cost-based ROI lower.
C) makes historical-cost-based ROI higher
D) makes variable-cost-based ROI lower
Which of the following statements is true?
A) The economic, legal, political, social, and cultural environments differ across countries.
B) The import quotas and tariffs remain the same across all countries according to the standards set by United Nations.
C) The advances in telecommunications and transportation, the availability of materials and skilled labor does not differ significantly across countries.
D) The fixed rate policy is followed across all countries to avoid price fluctuations and inflation.
________ would be an uncontrollable factor that a firm would need to consider when evaluating the return on investment of an international division.
A) Manager's experience
B) Manager's compensation
C) Pricing decisions
D) Custom duties
In performance evaluations:
A) managers should use the swap exchange rate prevailing at the end of a financial period
B) managers should use the average exchange rate prevailing at the end of a financial period
C) managers should use the exchange rate prevailing on the date the assets were acquired
D) managers should use the exchange rate prevailing at the end of a financial period
Ventaz Corp. purchased assets for its overseas branch for $16,000. The rate of conversion at the time of purchase of asset was $1.400 / Euro. If the company evaluates a project's ROI based on its initial costs and its operating income and does that in the foreign currency, what value of assets in Euros to be used to calculate the ROI if the rate current conversion rate is $1.513 / Euro and the average rate being $1.409 / Euro?
Explanation: A) Value of assets = $16,000 / 1.400 = 11,429 Euros.
A) 11,429 Euros
B) 10,575 Euros
C) 11,356 Euros
D) 22,400 Euros
Which of the following is true of rewarding managers on the basis of residual income?
A) Managers are paid a fixed amount for his services regardless of the risk involved.
B) Managers' efforts are easily measured.
C) Managers taking less risk should be rewarded more since more risk can lead to huge losses.
D) Managers' rewards are dependent on their own efforts and other local economic factors.
Which of the following describes a situation in which an employee prefers to exert less effort than the effort the owner desires because the employee's effort cannot be accurately monitored and enforced?
A) goal incongruence
B) moral hazard
C) performance report variance
D) incentive report variance
An important reality to be aware of when designing performance measurement and award systems is that:
A) managers can influence performance that is impacted by economic factors
B) there are tradeoffs between creating incentives and imposing risk on a manager
C) managers can exert significant influence over matters related to regulatory restrictions and limitations
D) there is really no distinction between a subunit's performance and the performance of that subunit's manager
Sensitive performance measures:
A) the salary component of the managers
B) are not affected by managers' performance and fail to induce them to improve
C) motivate the manager as well as limit the manager's exposure to risk, reducing the cost of providing incentives.
D) increases the exposure of credit
Which of the following is true of performance measurement?
A) Preferred performance measures do not change much with changes in factors that are beyond manager's control.
B) Sensitive performance measures increases the cost of providing incentives.
C) Less-sensitive performance measures induce managers to improve.
D) Managers' performances should be evaluated based on the financial measures such as residual income and economic value added.
