Chapter3

Which of the following statements referring to financial results control systems are correct?

a. In this type of results control, results are defined in financial terms

b. In financial results control systems, results are defined in monetary terms

c. In financial results control systems, results are defined in terms of accounting measures

d. Financial results control systems can define results in form of e.g. revenues, costs, profits, or returns

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and b) are correct

h. Statements a) and d) are correct

Which of the following statements referring to financial results control systems are correct?

a. In this type of results control, results are defined in financial terms

b. In financial results control systems, results are defined in monetary terms

c. In financial results control systems, results are defined in terms of accounting measures

d. Financial results control systems are often the most dominant form of control at higher organization levels

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a), b) and c) are correct

h. Statements a), b) and d) are correct

Which of the following statements referring disadvantages financial results control systems are correct?

a. Implementing financial results controls is a very complex and costly process

b. Financial results control systems are not useful for the management of complex and/or diversified firms

c. Most financial measures are imprecise

d. The cost of implementing financial results controls is often high comparing to that of other forms of management controls

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and b) are correct

h. Statements b), c) and d) are correct

Which of the following financial responsibility centers use both income statement and balance sheet line items?

a. Investment Center

b. Profit Center

c. Revenue Center

d. Cost Center

e. All of the above-named centers

f. None of the above-named centers

g. Centers a) and b)

h. Centers a) and c)

Which of the following financial responsibility centers use only balance sheet line items?

a. Investment Center

b. Profit Center

c. Revenue Center

d. Cost Center

e. All of the above-named centers

f. None of the above-named centers

g. Centers a) and b)

h. Centers a) and c)

Which of the following statements referring to profit centers are correct?

a. Profit centers are responsibility centers whose managers are held accountable for the accounting return (profits) and the investments made to generate those returns

b. Profit centers are responsibility centers whose managers are held accountable for profits which is the difference between the revenue generated and the costs of generating those revenues

c. Profit centers are responsibility centers whose managers are held accountable for generating revenues, which is a financial measure of output

d. Profit centers are responsibility centers whose managers are held accountable for some elements of cost

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements b) and c) are correct

h. Statements b), c) and d) are correct

Which of the following statements are correct?

a. Core elements of financial control systems are financial responsibility centers, planning and budgeting systems and incentive contracts

b. Four basic types of financial responsibility centers are investment, profit, revenue and cost centers

c. Financial responsibility centers are distinguishable by the financial statement line items for which managers are held accountable in each type of center

d. Revenue centers are responsibility centers whose managers are held accountable for generating revenues, which is a financial measure of output

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a), b) and d) are correct

h. Statements a), b) and c) are correct

Which of the following statements referring to cost centers are correct?

a. Cost centers are responsibility centers whose managers are held accountable for the accounting return (profits) and the investments made to generate those returns

b. Cost centers are responsibility centers whose managers are held accountable for profits which is the difference between the revenue generated and the costs of generating those revenues

c. Cost centers are responsibility centers whose managers are held accountable for generating revenues, which is a financial measure of output

d. Cost centers are responsibility centers whose managers are held accountable for some elements of cost

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and b) are correct

h. Statements a), b) and d) are correct

Which of the following centers belong to the most prominent variations of cost centers?

a. Gross Margin Center

b. Incomplete Profit Center

c. Before-Tax Profit Center

d. Complete Profit Center

e. All of the above-named centers

f. None of the above-named centers

g. Centers a) and b)

h. Centers b), c) and d)

Which of the following statements referring to transfer pricing are correct?

a. Transfer prices are used in cases when profit and/or investment centers supply products or services to other profit centers within the same firm

b. Transfer prices have multiple organizational purposes, and these purposes often conflict

c. Transfer prices have multiple organizational purposes, and these purposes do not conflict

d. Primary types of transfer prices are: market-based, marginal cost, full cost, negotiated transfer prices and variations

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a), b) and d) are correct

h. Statements a), c) and d) are correct

Which of the following types are the primary types of transfer prices?

a. Market-based transfer prices

b. Marginal and full cost transfer prices

c. Negotiated transfer prices

d. Variations (marginal costs plus a fixed lump sum fee and dual-rate transfer prices)

e. All of the above-named types

f. None of the above-named types

g. Types a), b) and d)

h. Types a) and d)

Which of the following statements referring to market-based transfer prices are correct?

a. They are appropriate to use when a non-competitive external market for internally traded goods/services exists

b. They are useful in a situation where a perfectly (or at least highly) competitive external market for internally traded goods/services exists

c. Usually firms use quasi market-based transfer prices that deviate from the observed market prices

d. The deviations from the observed market prices occurring by quasi market-based transfer prices allow for adjustments that reflect differences between internal and external sales

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a), c) and d) are correct

h. Statements b), c) and d) are correct

Which of the following statements represent disadvantages of marginal cost transfer prices?

a. A fundamental disadvantage of marginal cost transfers comes from the fact that marginal cost transfers provide poor information for evaluating the economic performance of either the selling or buying profit centers

b. A fundamental disadvantage of marginal cost transfers comes from the fact that marginal cost transfers provide poor information for evaluating the economic performance of exclusively selling profit center

c. A fundamental disadvantage of marginal cost transfers comes from the fact that marginal cost transfers provide poor information for evaluating the economic performance of exclusively buying profit center

d. The usage of marginal cost transfers does not cause any disadvantage

e. All of the above-named statements

f. None of the above-named statements

g. Statements b) and c)

h. Statements a), b) and c)

Which of the following statements referring to planning and budgeting are correct?

a. The major output of a planning and budgeting system is a written plan that clarifies objectives of the organization

b. The major output of a planning and budgeting system is a written plan that clarifies strategies of the organization

c. The major output of a planning and budgeting system is a written plan that clarifies performance targets of the organization

d. The major output of a planning and budgeting system is a written plan that clarifies objectives, strategies and performance targets of the organization

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and b) are correct

h. Statements a) and c) are correct

Which of the following functions can be stated as main purposes of planning and budgeting systems?

a. Planning

b. Coordination

c. Top Management Oversight

d. Motivation

e. All of the above-named functions

f. None of the above-named functions

g. Functions a) and c)

h. Functions a), b) and c)

Which of the following statements referring to strategic planning are correct?

a. Strategic planning typically involves developing a vision, mission and objectives of the organization

b. Strategic planning typically involves developing an understanding of the organization’s present position, its strength/weaknesses, opportunities/risks

c. Strategic planning covers a time horizon of 1 to 3 or 5 years into the future

d. Strategic planning covers a time horizon of 3 to 5 or 10 years into the future

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a), b) and c) are correct

h. Statements a), b) and d) are correct

Which of the following statements referring to strategic planning are correct?

a. Developing of vision or mission and objectives for the organization as a whole

b. Developing of an understanding of the organization’s present position, its strengths and weaknesses, opportunities and risks.

c. Developing of an agreement about the types of activities or businesses the organization should and should not pursue.

d. Developing of a strategy for each of the core activities or businesses the organization has decided to pursue

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a), b) and c) are correct

h. Statements a), b) and d) are correct

Which of the following statements referring to capital budgeting are correct?

a. Capital budgeting involves the preparation of a short-term financial plan

b. Capital budgeting involves the identification of specific action programs over the next few years and specification of the resources each action program will consume

c. Capital budgeting covers a time horizon of 3 to 5 or 10 years into the future

d. Capital budgeting covers a time horizon of 1 to 3 or 5 years into the future

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and c) are correct

h. Statements b) and d) are correct

Which of the following statements are correct?

a. Highly achievable targets decrease manager’s commitment to achieve the targets

b. The cost of a lack of commitment to achieve budget targets are low

c. Highly achievable budget targets increase the costs of needed interventions from higher management levels

d. Highly achievable budget targets increase the risk of gameplaying

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a), b) and c) are correct

h. Statements a) and d) are correct

Which of the following statements referring to types of financial performance targets are correct?

a. Financial performance targets can be: model-based, historical and negotiated targets fixed vs. flexible targets and internal vs. external targets

b. Fixed targets do not vary over a given period

c. Performance targets can be externally focused, e.g. using benchmarks

d. Financial targets are fixed in most firms

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and b) are correct

h. Statements a), b) and c) are correct

Which of the following statements are correct?

a. The relationship between target difficulty and motivation is fairly consistent, linear relationship

b. The relationship between target difficulty and motivation is fairly consistent, non-linear relationship

c. Motivation is highest when performance targets are challenging, but achievable

d. Motivation is highest when there are high levels of difficulty with regards to performance targets

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and d) are correct

h. Statements b) and c) are correct

Which of the following features represent advantages of highly achievable targets?

a. Increased management commitment

b. Protection against optimistic projections

c. Reduced costs of interventions and reduced gameplaying

d. Higher manager achievement

e. All of the above-named features

f. None of the above-named features

g. Features a) and c)

h. Features a), c) and d)

Which of the following statements are correct?

a. The term “incentives” refer primarily to things that employees’ value (positive) rewards

b. Rewards (positive and negative) are always monetary

c. Typically, organizations rely on just a single form of rewards, that is monetary rewards

d. Typically, organizations rely on just a single form of rewards, that is nonmonetary rewards

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and d) are correct

h. Statements b) and c) are correct

Which of the following benefits are the types of management control benefits?

a. informational Benefits.

b. Motivational Benefits.

c. Attraction of personnel.

d. Retention of personnel.

e. All of the above-named benefits.

f. None of the above-named benefits.

g. Benefits a), b) and d).

h. Benefits a), b) and c.

Which of the following statements are correct?

a. Monetary incentives are provided solely through salary increases

b. The target can be cumulative over the long-term incentive planning period or it can be stipulated as an end-of period target

c. Some companies implement consecutive (end-to-end) long-term incentive plans, other opt for overlapping performance cycles

d. Entity-based long-term incentive plans provide rewards based on changes in the value of the company or the value of the company’s stock

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements b) and c) are correct

h. Statements b), c) and d) are correct

Which of the following statements are correct?

a. Stock options can be granted “at the money”, “in the money” or “out of the money” (“underwater”)

b. The idea behind stock option plans is that employees only benefit when the stock price goes up, so stock option motivates employees to increase their company’s stock price

c. Stock option grants represent a potential future issuance of shares, which creates dilution and puts a downward pressure on stock prices, they generate “windfall compensation”

d. Entity-based long-term incentive plans provide rewards based on changes in the value of the company or the value of the company’s stock

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and d) are correct

h. Statements a), b) and c) are correct

Which of the following statements referring to monetary incentives are correct?

a. Salary incentives, short-term and long-term incentives are primary ways to provide monetary incentives

b. Stock Option Plans, Restricted Stock Plans and Performance Stock or Option Plans are examples of long-term incentives

c. Stock Option Plans, Restricted Stock Plans and Performance Stock or Option Plans are forms of equity-based long-term incentive plans

d. Stock Option Plans, Restricted Stock Plans and Performance Stock or Option Plans are forms of entity-based long-term incentive plans

e. All of the above-named statements are correct

f. None of the above-names statement is correct

g. Statements a), b) and c) are correct

h. Statements a), b) and d) are correct

Which of the following statements are correct?

a. The link between rewards and the bases on which they are awarded is often determined by a rewards-results or incentives-performance function

b. Companies can either set a lower or an upper cutoff

c. A lower cutoff means that no extra rewards are provided for any additional performance above the cutoff

d. An upper cutoff means that in case not reaching the cutoff no rewards are provided at all

e. All of the above-named statements are correct

f. None of the above-named statement is correct

g. Statements a) and b) are correct

h. Statements b), c) and d) are correct

For which of the following reasons are the reasons why upper cutoffs can be considered?

a. Concern that the high incentive payments might not be deserved because of windfall gains

b. Concern that employees will be unduly motivated to take actions to increase current period performance at the expense of the long-term

c. Desire to keep total compensation somewhat consistent over time

d. Concern about a possibly faulty plan design

e. All of the above-named reasons

f. None of the above-named reasons

g. Reasons a) and c)

h. Reasons b) and c) are correct

For which of the following reasons can lower cutoffs be considered?

a. Concern that the high incentive payments might not be deserved because of windfall gains

b. Concern that employees will be unduly motivated to take actions to increase current period performance at the expense of the long-term

c. Desire not to pay hierarchically subordinate employees more than hierarchically higher employees or managers, thus maintaining vertical compensation equity

d. Desire to keep total compensation somewhat consistent over time and concern about a possibly faulty plan design

e. All of the above-named reasons

f. None of the above-named reasons

g. Reasons a) and b)

h. Reasons a), c) and d)

Which of the following criteria must be considered when evaluating an incentive system?

a. The rewards should be valued and large enough to have an impact

b. The rewards should be understandable and timely

c. The rewards should be durable and cost efficient

d. The rewards should be irreversible

e. All of the above-named criteria

f. None of the above-named criteria

g. Criteria a), b) and c)

h. Criteria a), b) and d)

Which of the following criteria must be considered when evaluating an incentive system?

a. The rewards should not be valued

b. The rewards should be understandable and large enough to have an impact

c. The rewards should be reversible and cost efficient

d. The reward should be timely and durable

e. All of the above-named criteria

f. None of the above-named criteria

g. Criteria b), c) and d)

h. Criteria a), b) and c)