Subject : Enterprise Performance Management

Semester : III (Common)

Options

ID
1

Question
A company that uses a separate transfer price for each division in
a single transaction is employing

b
Full cost pricing

Market-based pricing

Negotiation

The market

Cost-based pricing

Variable-cost pricing

If the selling subunit is operating at full capacity and can sell

everything produced either internally or externally, it will only be
willing to use a transfer price set by

Which transfer pricing method will preserve the subunit

autonomy?

Bob is the manager of the Beta division. He is accountable for

only the sales generated by the division. Beta is a(n)

Profit centre

Cost centre

When a perfectly competitive market exists and the firm uses

market-based transfer pricing, the firm can achieve all of the
following except for

Subunit performance
evaluation

Goal congruence

An example of an external financial measure is

contribution margin

An example of an internal non-financial piece of information is

All of the following are common economic performance measure

except for

Which one of the following performance evaluation methods is

widely known as the DuPont method or profitability analysis

10

When economic value added is used as the performance measure,

value is only created if the after-tax operating income exceeds

operating income

stock prices
number of defective
units

residual income

return on sales

Return on investment

Economic value added

investment

working capital

11

Which of the performance evaluation methods takes into

consideration tax effects

12

The method of asset valuation measurement that causes the value

of the investment to decrease as the assets age is the

13

A manager who is responsible for receivables and stock would

most likely be considered in charge of a(n)

14

Responsibility accounting embraces more than the concept of

controllability. Which of the following, however, is not a focus of
responsibility accounting?

Residual income

Economic value added

historical cost

current cost

cost centre

profit centre

Behavior

Information

To recognise the
interrelationship of
accounting systems.

To emphasise that
human factors are
crucial aspects of
budgeting.

15

Why are responsibility accounting and budgeting linked?

16

Which of these is an example of an internally generated nonfinancial piece of information

Operating income

Stock price

17

Customer satisfaction ratings are an example of __________

information

external financial

internal non-financial

18

It is not a step in designing an accounting-based performance

measure

Choosing a performance
measure that aligns with
top managements
financial goals

Choosing a target level

of performance

19

It refers to the resources or assets used to generate income

Expenses

Profit

20

The __________ approach to performance measure does not

include investment as an element

economic value added

residual income

21
22

Income divided by Investment is the formula for the __________

performance measure
Revenues divided by investment is referred to as

return on investment

economic value added

residual income

return on sales

income

return on sales

revenues

cash

return on sales

economic value added

power

control

23

When all other components are held constant, reducing

__________ will cause the return on investment to increase

24

Residual income is the difference between __________ and the

required rate of return times the investment.

25

When evaluating overall aggregate performance __________ does

not focus on both the earned income and investment

26

The freedom for managers at lower levels of an organisation to

make decisions is known as

27

A responsibility centre where the manager is accountable for both

revenues and costs is a __________ centre

investment

cost

28

When one subunit of the firm sells to another subunit of the firm,
the charge for the product between the subunits is known as the

revenue

transfer price

29

When the external price charged to outside customers is chosen as

the transfer price, the transfer price is said to be

distressed

cost-based

30

When the managers and organisations interests are aligned such

that the managers best choice is also the best choice for the
organisation, __________ has been achieved

full costing

negotiation

31

Which transfer price is the outcome of the bargaining process

between a selling subunit and a buying subunit

market-based

negotiated

32

The minimum transfer price a selling subunit with excess capacity

will accept is the

fixed costs

market-based price

33

When excess capacity exists in a selling subunit and the buying

subunit has alternative suppliers, the pricing method that will
retain the strongest division autonomy is the __________ transfer
price.

34

Greater responsiveness to local needs is a

35

__________ is not a key property of a management control system

36

Which one of the following is not one of the Balanced Scorecards

marketing and advertising
four generic perspectives

internal business
processes

37

Which one of the following is a lag performance indicator

return on capital
employed

38

39

40

Which one of the following statements is true

variable cost

full costing

decentralisation benefit

centralisation benefit

Making organisation
planning and control
decisions

Guiding manager and

employee behaviour

output per employee

Balanced Scorecards can Balanced Scorecards can

be used in Not-for-Profit only be updated on an
organisations
annual basis
cannot be used in
conjunction with
budgetary control
systems

Which of the following statements is false? Balanced scorecards:

are one type of

performance dashboard

Which of the following statements is correct

One fundamental idea of

balanced scorecards is to
The fundamental idea of
increase the number of
balanced scorecards is to
performance indicators
create corporate strategy.
used to manage the
business.

41

Which one of the following responsibility centres has independent

control of its sales income and its fixed assets

42

Revenue centre

Profit centre

Which one of the following is most suitable for evaluating the

performance of a manager in charge of a division

Contribution

Divisional pre-tax profit

43

Which one of the following is the formula for Residual Income

(RI)

Profit before tax +

notional interest charge

Profit before tax

notional interest charge

44

Which one of the following does not describe a type of transfer

pricing

Target-based

Administered

45

Which of the following statements regarding flaws suffered by

financial measures is not correct

46

If return on investment is a measure used on the balanced

scorecard, under which perspective would it be listed

Financial perspective

Customer perspective

47

The a description of an organization's values, definition of its

responsibilities to stakeholders, and identification of its major
strategies is known as a

business-level strategy

business model

48

The description of how different levels and employees in the

organization must perform for the organization to achieve its goals
is a

business-level strategy

business model

49

What term is used to describe a set of performance targets and

results that show how well an organization performed in meeting
its objectives relating to its stakeholders

business-level strategy

business model

50

What term is used to describe the continuous process of measuring

a company's own products, services, and activities against
competitors' performance

Balanced scorecard

Business-level strategy

They do little to
motivate employees to
They are hard to quantify.
improve accounting
profits.

outlay cost for producing

the goods.

opportunity cost of not

selling to the outside
market.

Sunk cost

Transfer cost

Choose the asset that in NOT an intangible asset from the list
below

Investments in stock of
another company

High-quality processes

Investment center managers are responsible for

costs and investments

revenues

The biggest problem with market-based transfer prices is that

they do not allow both

parties to calculate unit
incomes

they require too much

negotiation

56

When is goal congruence achieved

When managers of
subunits throughout the
organization strive to
achieve goals set up by
top management

When managers of
subunits strive to
achieve goals that will
benefit their particular
subunits

57

Which of the following is a broad managerial approach consistent

with an emphasis on obtaining goal congruence

Management by crisis

Management by
objectives

ROI can undermine goal

congruence.

Residual income distorts

comparison between
investment centers of
different sizes.

51

If an intermediate market exists, the general rule is that the

optimal transfer price should be the

52

What should be added to the opportunity cost of the resource at

the point of transfer to obtain the general principle transfer price
that leads managers to make decisions in a firm's best interest

53
54

55

58

Which of the following statements is true

What are the possibilities of the bases used for determining a

division's invested capital

Total assets

Total productive assets

60

A performance report can be used for which of the following

Reporting actual and

budgeted cost differences
for a single subunit

Reporting actual and

budgeted costs
differences for several
subunits

61

Which of the following is the proper focus of a responsibilityaccounting system

To determine who is
responsible for
unfavorable variances

To determine who is in
the best position to
explain variances

62

The behavioral effects of responsibility-accounting systems

can be significant.

can encourage
cost/benefit analyses
among managers.

The payback period

Internal rate of return

Greater than the cut-off

value

Less than the cut-off

value

NPV

IRR

It uses net income instead

of cash flows

The pattern of income

has no impact on the
book rate of return

The discount rate that

makes the NPV equal to
zero

The difference between

the cost of capital and
the present value of the
cash flows

59

63

Which of the following investment rules does not use the time
value of the money concept

The payback period rule accepts all projects for which the
64 payback period is
Which of the following capital budgeting methods has the value
65 additive property
The disadvantages of the book rate of return method is/are
66

The IRR is defined as

67

Profitability index is the ratio of

68
All of the following influence capital budgeting cash flows
69 EXCEPT
70

In proper capital budgeting analysis we evaluate incremental

A capital investment is one that

71

In estimating "after-tax incremental operating cash flows" for a

project, you should include all of the following EXCEPT

Present value of cash

Net present value cash
flow to initial investment flow to initial investment
accelerated depreciation

salvage value

accounting income

cash flow

has the prospect of longterm benefits

has the prospect of

short-term benefits

sunk costs

opportunity costs

Funds spent last year to

renovate a building that
could be used to house a
new project that is
currently being evaluated.

Installation costs
necessary to use a
machine that was just
purchased.

included in; financing

excluded from; financing

72

What is an example of a capitalized expenditure

73

74

Interest payments, principal payments, and cash dividends are

__________ the typical budgeting cash-flow analysis because they
are ________ flows.

Which of the following is not a part of capex process

75

Evaluation and selection Approval and control of

of those proposals
capital expenditures.

Options
c

Answer

Negotiated pricing

Dual pricing

Variable costing

Cost plus a mark-up

Full-cost pricing

Negotiated pricing

Revenue centre

Investment centre

Management effort

Price monopoly

product cost

net income

cost of goods sold

stock prices

return on investment

customer satisfaction

Residual income

Return on sales

cost of investing capital

sales

Return on sales

Return on investment

net book value

gross book value

revenue centre

investment centre

Knowledge

Control

To recognise the roles of

To emphasise the
coordination and
planning and control
communication.
function of management.

Defect rate

Customer satisfaction
rate

external non-financial

internal financial

Choosing a customer to
evaluate the performance

Choosing the timing of

the feedback

Revenues

Investment

return on sales

return on investment

return on sales

residual income

investment turnover

return on investment

revenues

investment

investment

income

return on investment

residual income

decentralisation

centralisation

profit

revenue

intermediate product

product cost

market-based

negotiated

goal congruence

profit minimisation

variable cost

full cost

incremental costs

full cost

market-based

negotiated

decentralisation cost

management drawback

Gathering and using

information

Supporting political
actions

financial

innovation and learning

number of complaints number of training hours

received from customers
per employee

Balanced Scorecards
always have four
perspectives

Balanced Scorecards are

a feedback mechanism

can be cascaded to
different levels/parts of
organisations

can be used to produce

strategy maps

Organisations sometimes
Balanced scorecards
use a traffic-light system always report using the
on their balanced
same time periods as the
scorecard to help them
financial accounting
prioritise their activities.
system.

Investment centre

Cost centre

Controllable profit

Profit before head office

charges

Net cash flow for year +

notional interest charge

Net cash flow for year

notional interest charge

Cost-based

Negotiated

They are not effective in

getting managers'
attention.

They are useful in

identifying operational
problems.

Learning and growth

perspective

Internal business
perspective

mission statement

balanced scorecard

mission statement

balanced scorecard

mission statement

balanced scorecard

Benchmarking

Internal calibration

market price.

variable costs associated

with producing the
product.

Outlay cost

Variable cost

Employee skills and

motivation

Loyal and profitable

customer relationships

revenues and investments

costs, revenues, and

investments

market prices seldom

exist

they do not provide the

proper economic
guidance

When managers of
subunits are directed
toward achieving goals
for their subunits

When responsibilityaccounting systems give

managers of subunits
complete autonomy

Management through goal

Just-in-time philosophy
congruence

Residual income does not

provide a perfect measure
All of the above are true.
of investment center
performance.

Total assets less current

liabilities

All of the above

Reporting actual and

budgeted cost differences
between cost centers

All of the above

The presentation of useful

information

Both (B) and (C)

can motivate desirable

actions by upper-level
management.

can do all of the above.

Net present value

All of the above use the

time value concept

Is positive

An integer

Payback period

Discounted payback
period

There is no clear-cut
decision rule

All of the above

The discount rate used in

the NPV method

The discount rate used in

the discounted payback
period method

Net present value of cash

flow to IRR

Present value of cash

flow to IRR

tax rate changes

method of project
financing used

earnings

operating profit

is only undertaken by
large corporations

applies only to
investment in fixed
assets

changes in working
capital resulting from the
project, net of
spontaneous changes in
current liabilities

effects of inflation

The necessary increase in

inventories needed to
All of the above are
support a project that is examples of capitalized
currently being
expenditures.
implemented.

included in; operating

excluded from; operating

Arranging Finance for

capex

Post-completion audit of
investment projects.