Full Test Bank

Chapte 12 Testbank Key
1. When manage s within the va ious units of an o ganisation a e committed to aligning thei goals with the goals set by
top management, the esult is:
A. goal cong uence.
B. planning and cont ol.
C. esponsibility accounting.
D. delegation of decision making.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.03 Explain the benefits and costs of decentralisation
2. Responsibility accounting:
A. foste s goal cong uence.
B. involves using the va ious concepts and tools used by management accountants fo planning and cont ol.
C.
is used to measu e the pe fo mance of units.
D. All of the given answe s
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.04 Define responsibility centres and provide examples: cost centres, revenue centres, profit centres and investment centres
3. The biggest challenge in making a decent alised o ganisation function effectively is:
A. to ea n maximum p ofits th ough fai p actices.
B. to minimise o ganisational losses.
C. taking advantage of the specialised knowledge and skills of a manage .
D. obtaining goal cong uence among the o ganisation's autonomous manage s.
AACSB: Reflective
Difficulty: Easy
4. Which of the following is not a benefit of decent alisation?

A. Specialised info mation about the local ma kets
B. Motivation
C. Relief to uppe -level management
D. Na ow focus on the manage 's own unit
AACSB: Reflective
Difficulty: Easy
5. Delegating decision making to lowe -level manage s, the eby enabling an o ganisation to eact quickly to oppo tunities
and p oblems as they a ise, is a cha acte istic of:
A. a decent alised o ganisation.
B. a cent alised o ganisation.
C. a co po ation.
D. esponsibility accounting.
AACSB: Reflective
Difficulty: Easy
6. What is a negative consequence of decent alisation?

A. Na ow focus
B. Se vices may be duplicated
C. Suboptimal decisions may be made
AACSB: Reflective
Difficulty: Easy
7. Which of the following statements is false?

A. Goal cong uence is difficult to achieve because manage s a e often unawa e of the effects of thei decisions on the
o ganisation's units.
B. The development of pe fo mance measu es to evaluate a unit and its manage s will help achieve goal cong uence.
C. People a e natu ally conce ned with the pe fo mance of all units within the o ganisation.
D. Goal cong uence can be achieved by having a ewa d system tied to a manage 's pe fo mance.
AACSB: Reflective
Difficulty: Medium
8. Which of the following is not an example of a esponsibility cent e?

A. Co po ate cent e
B. Revenue cent e
C. P ofit cent e
D. Investment cent e
AACSB: Reflective
Difficulty: Easy
9. Which of the following manage s is held esponsible fo only the costs incu ed in the unit?
A. Cost cent e manage
B. Revenue cent e manage
C. P ofit cent e manage
D. Investment cent e manage
AACSB: Reflective
Difficulty: Easy
10. Which of the following manage s is held accountable fo the unit's p ofit and invested capital?
A. Investment cent e manage
C. P ofit cent e manage
D. Sales manage
AACSB: Reflective
Difficulty: Easy
11. Which of the following manage s is held accountable fo only the evenue att ibuted to a unit?
A. Cost cent e manage
C. Sales manage
D. Investment cent e manage
AACSB: Reflective
Difficulty: Easy
12. Which of the following manage s is held accountable fo the p ofit of the unit?
A. Revenue cent e manage
B. P ofit cent e manage
C. Investment cent e manage
D. Both B and C
AACSB: Reflective
Difficulty: Easy
13. A sales depa tment manage is an example of a:

A. cost cent e manage
B. evenue cent e manage
C. p ofit cent e manage
D. investment cent e manage
AACSB: Reflective
Difficulty: Easy
14. An example of a p ofit cent e is the:

A. painting depa tment.
B. sales depa tment.
C. company-owned estau ant in a fast-food chain.
AACSB: Reflective
Difficulty: Medium
15. The amount cha ged when one business unit sells goods o se vices to anothe business unit is called:
A. an oppo tunity cost.
B. a t ansfe p ice.
C. a standa d va iable cost.
D. a esidual p ice.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.10 Understand why organisations use transfer pricing
16. An oppo tunity cost can best be desc ibed as the:

A. p icing of goods as pe ma ket t ends.
B. di ect expenses incu ed in p oducing goods.
C. total diffe ence in cost of p oduction between two divisions.
D. the benefit that is fo egone fo one alte native in o de to pu sue anothe alte native.
Difficulty: Easy
Learning Objective: 12.12 Explain the general rule that can be used to set transfer prices
17. F ag ance Pty Ltd has two divisions: the Cologne Division and the Bottle Division. The company is decent alised and
each division is evaluated as a p ofit cent e. The Bottle Division p oduces bottles that can be used by the Cologne
Division. The Bottle Division's va iable manufactu ing cost pe unit is $2.00 and shipping costs a e $0.10 pe unit. The
Bottle Division's exte nal sales p ice is $3.00 pe unit. No shipping costs a e incu ed on sales to the Cologne Division.
The Cologne Division can pu chase simila bottles in the exte nal ma ket fo $2.50.
The Bottle Division has sufficient capacity to meet all exte nal ma ket demands in addition to meeting the demands of the
Cologne Division. Using the gene al ule, the minimum t ansfe p ice f om the Bottle Division to the Cologne Division
would be:
A. $2.00
B. $2.10
C. $2.50
D. $2.90
AACSB: Analytical
Difficulty: Medium
Learning Objective: 12.13 Determine appropriate transfer prices under a variety of scenarios
Assume the Bottle Division has no excess capacity and can sell eve ything p oduced exte nally. Using the gene al ule,
the t ansfe p ice f om the Bottle Division to the Cologne Division would be:
A. $2.10
B. $2.50
C. $2.90
D. $3.00
AACSB: Analytical
Difficulty: Medium
Assume the Bottle Division has no excess capacity and can sell eve ything p oduced exte nally. What is the maximum
amount Cologne Division would be willing to pay fo the bottles?
A. $2.00
B. $2.10
C. $2.50
D. $2.90
AACSB: Analytical
Difficulty: Medium
20. Which of the following statements about t ansfe p ices is/a e t ue?
i. When the p oducing division has excess capacity and the exte nal ma ket is impe fectly competitive, the gene al
t ansfe -p icing ule and the exte nal ma ket p ice will be the same. saiiii
ii. If the t ansfe p ice is set at the ma ket p ice, the supplying division will be indiffe ent to selling inte nally o exte nally.
iii. If the t ansfe p ice is set at the ma ket p ice, the buying division will usually pu chase goods f om inside its
o ganisation, if p oduct specifications a e met.
A. i and ii
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Medium
21. Which of the following statements about the gene al t ansfe -p icing ule is/a e t ue?
i. When the p oducing division has excess capacity, the t ansfe decision should be based on the outlay cost.
ii. When the p oducing division has no excess capacity, the oppo tunity cost is the fo egone cont ibution f om the lost sale.
iii. If the p oducing division has excess capacity o the exte nal ma ket is impe fectly competitive, the gene al ule and the
exte nal ma ket p ice will not yield the same t ansfe p ice.
A. i
B. ii
C. ii and iii
AACSB: Reflective
Difficulty: Medium
22. Which of the following statements is false, with espect to a negotiated t ansfe p ice?
A. The p ofit of each division will depend on the negotiating skills of the manage s.
B. The p ocess always esults in a spi it of coope ation and unity that is desi able th oughout an o ganisation.
C. The ma ket p ice is usually the base line fo negotiations.
D. Negotiations can lead to divisiveness and competition between pa ticipating business unit manage s.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.11 Explain the various methods that can be used to determine transfer prices
23. T ansfe p ices should not be based on actual costs because:

A. inefficient p oducing divisions have highe costs of p oduction, which would be passed on by buying divisions.
B. p oducing divisions have no incentives to cont ol costs.
C. inefficient units with high costs of p oduction have no oppo tunity fo p ofit.
D. inefficient p oducing divisions have highe costs of p oduction, which would be passed on by buying divisions AND
p oducing divisions have no incentives to cont ol costs.
AACSB: Reflective
Difficulty: Easy
24. Which of the following statements about cost-based t ansfe p ices is/a e t ue?
i. A t ansfe p ice set at standa d va iable cost plus a ma k-up p ovides an incentive fo the supplying business to make
the t ansfe .
ii. Abso ption cost-based t ansfe p ices a e good fo the company as a whole because all costs a e conside ed.
iii. T ansfe p ices should be based on standa d costs athe than actual costs since the cost of inefficiency should not be
passed on.
A. i and ii
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Medium
25. T ansfe p ices should not be based on abso ption costs as this could esult in suboptimal decisions by the:
A. pe sonnel division.
B. competitive ma ket.
C. buying division.
D. selling division.
AACSB: Reflective
Difficulty: Easy
26. Which of the following is usually achieved when the gene al t ansfe -p icing ule is implemented?
A. Ha mony
B. Pe fect competition
C. Goal cong uence
D. Cost measu ement
AACSB: Reflective
Difficulty: Easy
27. Which of the following statements is/a e t ue?

When a multinational company t ansfe s goods o se vices between business units located in diffe ent count ies:
i. the tax ates of the diffe ent count ies will have no effect on ove all company p ofits.
ii. the esult is a moving of p ofits f om one count y to anothe .
iii. the company will conside the tax ates of the diffe ent count ies when dete mining the t ansfe p ice.
A. i
B. ii
C. i and ii
D. ii and iii
AACSB: Reflective
Difficulty: Easy
28.
Ba iste Company has two divisions: A and Z. The A Division p oduces a single p oduct that can be sold to outside custome s o to the
Z Division. Sales fo ecasts, p oduction statistics and costs fo both divisions fo 2014 a e shown below:
A Division:
Z Division:
* When A Division sells to Z Division, no va iable selling costs a e incu ed by A Division.

Calculate the minimum pe unit t ansfe p ice that A Division should cha ge Z Division in 2014, using the gene al t ansfe -p icing
fo mula.
A. $6.00
B. $8.50
C. $7.26
D. None of the given answe s
AACSB: Analytical
Difficulty: Hard
29. Polly Woodside Ma itime Division pu chases f om an outside supplie fo $52 pe unit. The company's Sho e Division,
which has excess capacity, makes and sells the same pa t fo exte nal custome s at a va iable cost of $38 and a selling
p ice of $58. If Sho e Division commences sales to Ma itime Division it will (1) use the gene al ule and (2) be able to
educe the va iable cost on inte nal t ansfe s by $4. If exte nal sales a e not affected, Sho e Division should establish a
t ansfe p ice of:
A. $34
B. $38
C. $58
AACSB: Analytical
Difficulty: Easy
30. Symonds Bendigo Division pu chases f om an outside supplie fo $52 pe unit. The company's Balla at Division,
which has no excess capacity, makes and sells the same pa t fo exte nal custome s at a va iable cost of $38 and a
selling p ice of $58. If Balla at commences sales to Bendigo it will (1) use the gene al ule and (2) be able to educe the
va iable cost on inte nal t ansfe s by $4. If exte nal sales a e not affected, Balla at should establish a t ansfe p ice of:
A. $34
B. $38
C. $54
D. $58
AACSB: Analytical
Difficulty: Easy
31.
Co po ate policy at Webe Pty Ltd equi es that all t ansfe s between divisions be eco ded at va iable cost as a t ansfe p ice.
Divisional manage s have complete autonomy in choosing thei sou ces of custome s and supplie s. The Milling Division sells a p oduct
called RK2. Fo ty pe cent of the sales of RK2 a e to the P oducts Division, while the emainde of the sales a e to outside custome s.
The manage of the Milling Division is evaluating a special offe f om an outside custome fo 10 000 units of RK2 at a pe unit p ice of
$15. If the special offe we e accepted, the Milling Division would be unable to supply those units to the P oducts Division. The P oducts
Division could pu chase those units f om anothe supplie fo $17 pe unit. Annual capacity fo the Milling Division is 25 000 units. The
2014 budget info mation fo the Milling Division, based on full capacity, is p esented below.
Assuming the Milling Division manage ag ees to the special offe , what is the effect of the decision on the g oss ma gin of Webe as a
whole?
A. $20 000 dec ease

B. $50 000 dec ease
C. $30 000 inc ease
D. $50 000 inc ease
AACSB: Analytical
Difficulty: Medium
32.
Assume the company pe mits the division manage s to negotiate a t ansfe p ice. The manage s ag ee to a $15 t ansfe p ice adjusted
to sha e equally the additional g oss ma gin to Milling Division esulting f om the sale to the P oducts Division. What is the ag eed
t ansfe p ice?
A. $14.00
B. $13.50
C. $12.50
D. $10.50
AACSB: Analytical
Difficulty: Medium
33.
$15.00. If the special offe we e accepted, the Milling Division would be unable to supply those units to the P oducts Division. The
P oducts Division could pu chase those units f om anothe supplie fo $17 pe unit. Annual capacity fo the Milling Division is 25 000
units. The 2014 budget info mation fo the Milling Division, based on full capacity, is p esented below.
Assume that demand inc eases fo the Milling Division. All 25 000 units can be sold at the egula p ice to outside custome s and the
P oduct Division's annual demand declines to 5000 units. What t ansfe p ice would be calculated unde the gene al t ansfe -p icing
fo mula?
A. $18.00
B. $17.00
C. $16.00
D. $10.00
AACSB: Analytical
Difficulty: Easy
34.
Assume that demand inc eases fo the Milling Division. 20 000 units can be sold at the egula p ice to outside custome s and the
P oducts Division's annual demand emains at 10 000 units. What is the t ansfe p ice that would be calculated unde the gene al
t ansfe -p icing fo mula?
A. $12.00
B. $14.00
C. $16.00
D. $18.00
AACSB: Analytical
Difficulty: Medium
35. Nova Company has two divisions: OPA Division and LPA Division. The OPA Division manufactu es a single p oduct,
p esently ope ates at 95 pe cent of full capacity (100 000 units) and can sell all 95 000 units p oduced to outside
custome s. This p oduct is also a component used in a p oduct made by the LPA Division. OPA's full cost of p oduction is
$22.50 pe unit, including $4.50 of applied fixed ove head costs. The applied fixed ove head is calculated based on
p oduction of 95 000 units. OPA's management believes that p oduction can be aised to 100 000 units without affecting
cost behaviou . OPA's selling p ice pe unit is $30 with a 10 pe cent sales commission on outside sales. LPA is p esently
negotiating the pu chase of units f om OPA. LPA can pu chase a compa able component outside fo $29.
Using the gene al t ansfe -p icing fo mula, calculate a t ansfe p ice fo 5000 units that would be in the best inte ests of
the company as a whole.
A. $18.00
B. $22.50
C. $27.80
D. $29.00
AACSB: Analytical
Difficulty: Medium
36. Nova Company has two divisions: OPA Division and LPA Division. The OPA Division manufactu es a single p oduct,
p esently ope ates at 95 pe cent of full capacity (100 000 units) and can sell all 95 000 units p oduced to outside
custome s. This p oduct is also a component used in a p oduct made by the LPA Division. OPA's full cost of p oduction is
$22.50 pe unit, including $4.50 of applied fixed ove head costs. The applied fixed ove head is calculated based upon
p oduction of 95 000 units. OPA's management believes that p oduction can be aised to 100 000 units without affecting
cost behaviou . OPA's selling p ice pe unit is $30 with a 10 pe cent sales commission on outside sales. LPA is p esently
negotiating the pu chase of units f om OPA. LPA can pu chase a compa able component outside fo $29.
What is the minimum acceptable t ansfe p ice fo the fi st 5000 units f om the viewpoint of OPA's management?
A. $18.00
B. $22.00
C. $27.00
D. $27.80
AACSB: Analytical
Difficulty: Medium
37.
Division A t ansfe s a p ofitable subassembly to Division B, whe e it is assembled into a final p oduct. Division A is located in New
Zealand, which has a high tax ate. Division B is located in Thailand, which has a low tax ate. Ideally, (1) which type of befo e tax
income should each division epo t f om the t ansfe and (2) what type of t ansfe p ice should be set fo the subassembly?
Division A Division B Division C

Income Income P ice
A.
low low low
B.
low high low
C.
low high high
D.
high low high
AACSB: Reflective
Difficulty: Medium
38. Which of the following statements about t ansfe p icing is/a e t ue?
i. Income taxes and impo t duties a e an impo tant conside ation when setting a t ansfe p ice fo inte national companies.
ii. T ansfe p ices cannot be used by o ganisations in a se vice indust y.
iii. T ansfe p ices a e totally cost-based and not ma ket-based.
A. i
B. ii
C. i and ii
AACSB: Reflective
Difficulty: Easy
39. Hamilton has no excess capacity. If the company wishes to implement the gene al t ansfe -p icing ule, the oppo tunity
cost would be equal to: ko có công suất trống
A. ze o.
B. the di ect expenses incu ed in p oducing the goods.
C. the total diffe ence in the cost of p oduction between two divisions.
D. the cont ibution fo egone f om the lost exte nal sale.
AACSB: Reflective
Difficulty: Easy
40. Hamilton has excess capacity. If the company wishes to implement the gene al t ansfe -p icing ule, the oppo tunity
cost would be equal to: có công suất trống nhe!!!!
A. ze o.
B. the di ect expenses incu ed in p oducing the goods.
C. the total diffe ence in the cost of p oduction between two divisions.
D. the sum of the va iable cost plus the fixed cost.
AACSB: Reflective
Difficulty: Easy
41. Business unit p ofit and loss statements show:

A. p ofits fo the majo esponsibility cent es and fo the o ganisation as a whole.
B. p ofits by qua te fo the o ganisation as a whole.
C. compa ative p ofits by yea fo the o ganisation as a whole.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.06 Prepare reports that highlight the financial performance of a range of responsibility centres
42. A common cost is:
A. not easily elated to any business unit's activities.
B. avoidable.
C. employees' wages.
D. di ect labou .
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.08 Complete financial performance reports for responsibility centres, taking into account allocated costs, common costs and
variances
43. One advantage of business unit epo ts is that they make a distinction between business units and:
A. business unit manage s. sự phân biệt
B. budgets.
C. allocated costs.
D. cost objects.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.07 Explain why different financial information may be used to evaluate the performance of responsibility centres and the
performance of the managers of those centres
44. Which of the following statements about business unit epo ting is/a e t ue?
i. Business unit epo ts distinguish between costs that a e cont ollable by the business unit manage and costs that a e
beyond the influence of the business unit manage .
ii. These statements must be p esented in an abso ption-costing fo mat.
iii. Business unit epo ting shows p ofit and loss statements fo the company as a whole and fo its majo business units.
A. i and ii
B. All of the given answe s
C. i and iii
D. ii and iii
AACSB: Reflective
Difficulty: Easy
45. Business unit epo ting shows p ofit and loss statements fo the company as a whole and fo :
A. its majo business units.
B. cont ollable expenses.
C. uncont ollable expenses.
D. the cont ibution ma gin.
AACSB: Reflective
Difficulty: Easy
46.
The following info mation was taken f om the business united p ofit and loss statement of Resell Real Estate Agents fo 2014:
In addition, the company incu ed common fixed costs of $18 000. What was the business unit ma gin of the Tamwo th Division du ing
2014?
A. ($8000)
B. $4000
C. $10 000
D. $30 000
AACSB: Analytical
Difficulty: Medium
47.
The following info mation was taken f om the business unit p ofit and loss statement of Resell Real Estate Agents fo 2014:
In addition, the company incu ed common fixed costs of $18 000. Which amount should be used to evaluate the Sydney Division as
an investment of the company?
A. $25 000
B. $10 000
C. $4000
D. ($8000)
AACSB: Analytical
Difficulty: Medium
48.
Callahan Company consists of two divisions, No the n and Southe n. Du ing 2014, many of the accounting eco ds we e dest oyed in a
fi e. The managing di ecto has asked the accountant fo info mation elating to 2014. The following info mation is available to the
accountant.
In addition, the cont ibution ma gin atio fo both divisions was the same. What we e the common fixed costs (z) du ing 2014?
A. $130 000
B. $45 000
C. $70 000
D. $65 000
AACSB: Analytical
Difficulty: Medium
49. The budgeted and actual amount of a esponsibility cent e's key financial esults a e shown on a:
A. esponsibility epo t.
B. va iance epo t.
C. va iable cost epo t.
D. pe fo mance epo t.
AACSB: Reflective
Difficulty: Easy
50. The data in a pe fo mance epo t helps manage s to:
A. conside ways of imp oving thei pe fo mance.
B. use thei compute s.
C. make pe sonnel changes.
D. eliminate spending.
AACSB: Reflective
Difficulty: Easy
51. Which of the following a e cha acte istics of sha ed se vice units?
i. Head office dominates
ii. Usually st uctu ed as a cost cent e
iii. Se vices tend to be standa dised
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Medium
Learning Objective: 12.05 Understand how shared services operations and self-managed work teams can help improve organisational performance
52. Which of the following a e benefits of self-managed teams?

i. Imp oved custome se vice
ii. Inc eased goal cong uence among team membe s
iii. Inc eased cont ol by top management ove outcomes
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
53. Which of the following a e isks associated with self-managed teams?

i. Dete io ation in job satisfaction of team membe s
ii. Less oppo tunity to imp ove the quality of se vice
iii. Slowe esponse time to custome needs
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
54. Which of the following a e cha acte istics of flash epo ts?
i. P ovided daily
ii. Include both financial and non-financial info mation
iii. Comp ehensive and cove the full ange of pe fo mance c ite ia
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.09 Understand how real-time reporting can enhance management decision making
55. Which of the following might you expect to see being used as a pe fo mance measu e fo a p ofit cent e?
A. Retu n on investment
B. Actual business unit p ofit compa ed with budget business unit p ofit
C. Standa d cost va iances
D. Both etu n on investment AND standa d cost va iances
AACSB: Reflective
Difficulty: Easy
56. Which of the following might you expect to see being used as a pe fo mance measu e fo an investment cent e?
A. Retu n on investment
B. Actual business unit p ofit compa ed with budget business unit p ofit
C. Actual business unit evenue compa ed with budget business unit evenue
D. Both etu n on investment AND actual business unit evenue compa ed with budget business unit evenue
AACSB: Reflective
Difficulty: Easy
57. Which of the following might you expect to see being used as a pe fo mance measu e fo a cost cent e?
A. Retu n on investment investment center
B. Actual business unit p ofit compa ed with budget business unit p ofit profit center
C. Standa d cost va iances
AACSB: Reflective
Difficulty: Easy
58. Which of the following might you expect to see being used as a pe fo mance measu e fo a evenue cent e?
A. Actual business unit p ofit compa ed with budget business unit p ofit
B. Standa d cost va iances
C. Actual business unit evenue compa ed with budget business unit evenue
D. Both standa d cost va iances AND actual business unit evenue compa ed with budget business unit evenue
AACSB: Reflective
Difficulty: Easy
59. Which of the following statements unambiguously desc ibes the te m 'cont ibution ma gin'?
A. Cont ibution of the business unit towa ds the company's p ofits
B. Revenue minus the total manufactu ing costs of the business unit
C. Revenue minus all va iable costs of the business unit
D. Revenue minus all of the business unit's costs, whethe fixed o va iable
AACSB: Reflective
Difficulty: Easy
60.
Which of the following statements best completes this sentence? 'A cost is deemed to be cont ollable by the manage '
A. who has staff autho ity ove that cost.

B. who has line autho ity ove that cost.
C. who is next in line to the financial cont olle of the fi m.
D. who is in the best position to influence that cost in some way.
AACSB: Reflective
Difficulty: Easy
61. Which of the following statements best completes this sentence? 'The biggest challenge(s) facing all decent alised
fi ms is '
A. to eap the advantages of autonomy.
B. to attempt to ensu e goal cong uence.
C. to choose the most app op iate t ansfe p ice.
D. to eap the advantages of autonomy AND to attempt to ensu e goal cong uence.
AACSB: Reflective
Difficulty: Easy
62. Which of the following is a benefit of decent alisation? phân quyền
A. Inc eased motivation of management
B. Goal cong uence
C. Focus on the fi m as a whole
D. Suboptimal decision making
AACSB: Reflective
Difficulty: Easy
63. In a divisional co po ate o ganisation, an ideal inte -divisional t ansfe p ice should:
A. maximise the p ofits of the selling division.
B. maximise the p ofits of the co po ation.
C. ensu e goal cong uence, divisional autonomy and motivation.
AACSB: Reflective
Difficulty: Easy
64. What is the gene al ule fo setting a t ansfe p ice?

A. Additional costs of the supplying division + oppo tunity cost to the buying division
B. Additional costs of the supplying division + oppo tunity cost to the supplying division
C. Additional costs of the buying division + oppo tunity cost to the supplying division
D. Always set at full-cost-plus p ice
AACSB: Reflective
Difficulty: Easy
65. Which of the following is a p oblem with the use of a negotiated t ansfe p ice?
A. The negotiations can be ext emely time-consuming.
B. The final t ansfe p ice may be p ima ily due to an individual's supe io negotiation skills.
C. It can lead to suboptimal decisions fo the fi m.
AACSB: Reflective
Difficulty: Easy
66. Which of the following is a p oblem with the use of cost-based t ansfe p icing?
A. It does not lead to optimal decisions fo the fi m.
B. The e a e many definitions of cost-based t ansfe p icing.
C. The e a e potential goal-cong uence p oblems.
D. It does not lead to optimal decisions fo the fi m AND the e a e potential goal-cong uence p oblems.
AACSB: Reflective
Difficulty: Easy
67. Which of the following is a key p oblem with the use of ma ket-based t ansfe p ices?
A. It does not take into account the saving in cost (e.g. selling expenses, collection expenses) because of t ansfe ing
inte nally.
B. It leads to decision making that is suboptimal fo the fi m.
C. It does not p omote divisional autonomy.
D. It does not show the cont ibution of each division to ove all p ofit.
AACSB: Reflective
Difficulty: Easy
68. When the t ansfe p ice chosen by management cha ges anothe depa tment the p ice that would be cha ged to
outside custome s, this type of t ansfe p icing is called:
A. ma ginal cost t ansfe p icing.
B. cost-based t ansfe p icing.
C. ma ket-based t ansfe p icing.
D. negotiated t ansfe p icing.
AACSB: Reflective
Difficulty: Easy
69. The diffe ence between establishing a sha ed se vice unit and cent alisation sha ed se vices include:
i. cent alised se vices a e located at co po ate headqua te s; sha ed se vices a e located close to inte nal custome s.
ii cent alised se vices a e mo e efficient than sha ed se vices.
iii cent alised se vices a e evaluated based on se vice adhe ence to se vice level ag eements; sha ed se vices a e
evaluated based on budgets and co po ate objectives.
A. i and ii
B. iii
C. i
D. i and iii
AACSB: Reflective
Difficulty: Easy
70.
Which of the following info mation should be taken into account when using a negotiated t ansfe p ice method to dete mine t ansfe
p ice?
i. Exte nal ma ket p ice
ii. Savings in selling and dist ibution costs when t ansfe ing inte nally
iii. Excess capacity in the selling division
iv. Excess capacity in the buying division
A. ii and iii
B. i, ii and iii
C. ii, iii and iv
D. i, ii, iii and iv
AACSB: Reflective
Difficulty: Medium
71. When management is using pe fo mance epo ts to evaluate the economic pe fo mance of a business unit, which of
the following costs should be conside ed?
A. Any costs that a e att ibutable to the business unit
B. = belong to
Costs that a e both att ibutable to the business unit AND a e cont ollable by the business unit manage
C. Common costs and any costs that a e att ibutable to the business unit
D. Only costs cont ollable by the business unit manage
AACSB: Reflective
Difficulty: Easy
variances
72. When management is using pe fo mance epo ts to evaluate the pe fo mance of a business unit manage , which of
the following costs should be conside ed?
A. Any costs that a e att ibutable to the business unit
B. Common costs and any costs that a e att ibutable to the business unit
C. Costs cont ollable by the business unit manage , common costs, and any costs that a e att ibutable to the business
unit
D. Only costs cont ollable by the business unit manage
AACSB: Reflective
Difficulty: Easy
variances
73. F uities Ltd has two divisions, Du ian Division and Juice Division. Du ian Division has an annual capacity of 10 000
units of du ian juice concent ate. Juice Division's annual equi ement of du ian juice concent ate is 8000 units. F uities Ltd
equi es that divisions should pu chase inputs inte nally whe e available and uses a cost-plus t ansfe p ice policy, whe e
t ansfe p ice is set at va iable cost plus 25 pe cent. The efo e, Du ian Division always satisfies the demand of the Juice
Division fi st, befo e selling the emaining du ian concent ate to exte nal supplie s at the ma ket p ice of $10 pe unit. The
va iable cost of one unit of du ian juice concent ate at Du ian Division is $6.
What is the diffe ence in Du ian Division's p ofit unde the cost-plus t ansfe p ice policy and a ma ket-p ice t ansfe p ice
policy?
A. Du ian Division's p ofit is $20 000 lowe unde the cost-plus t ansfe p icing app oach.
B. Du ian Division's p ofit is $20 000 highe unde the cost-plus t ansfe p icing app oach.
C. Du ian Division's p ofit is $25 000 lowe unde the cost-plus t ansfe p icing app oach.
D. Du ian Division's p ofit is $25 000 highe unde the cost-plus t ansfe p icing app oach.
AACSB: Analytical
Difficulty: Medium
units of du ian juice concent ate. Juice Division's annual equi ement of du ian juice concent ate is 8000 units. F uities Ltd
equi es that divisions should pu chase inputs inte nally whe e available, and uses a cost-plus t ansfe p ice policy, whe e
t ansfe p ice is set at va iable cost plus 25 pe cent. The efo e, Du ian Division always satisfies the demand of the Juice
Division fi st, befo e selling the emaining du ian concent ate to exte nal supplie s at the ma ket p ice of $10 pe unit. The
va iable cost of one unit of du ian juice concent ate at Du ian Division is $6. The exte nal demand fo Du ian Division's
du ian juice concent ate is 2000 units.
What is the diffe ence in the ove all p ofit of F uities Ltd unde the cost-plus t ansfe p ice policy and a ma ket-p ice
t ansfe p ice policy?
A. F uities Ltd's p ofit is $20 000 lowe unde the cost-plus t ansfe p icing app oach.
B. F uities Ltd's p ofit is $20 000 highe unde the cost-plus t ansfe p icing app oach.
C. F uities Ltd's p ofit is $25 000 highe unde the cost-plus t ansfe p icing app oach.
D. The e is no diffe ence unde the two policies.
AACSB: Analytical
Difficulty: Medium
units of du ian juice concent ate. Juice Division's annual equi ement of du ian juice concent ate is 8000 units. The
va iable p oduction cost of one unit of du ian juice concent ate at Du ian Division is $6, but the division incu s $1
additional shipping cost pe unit when selling to exte nal supplie s. The ma ket p ice fo the division's du ian juice
concent ate is $10 pe unit, and cu ently, the exte nal demand fo Du ian Division's du ian juice concent ate is 5000 units.
Using the t ansfe p icing fo mula, Du ian Division should cha ge the Juice Division:
A. $6.00.
B. $7.13.
C. $9.00.
D. $10.00.
AACSB: Analytical
Difficulty: Medium
units of du ian juice concent ate. Juice Division's annual equi ement of du ian juice concent ate is 8000 units. The e is no
exte nal ma ket fo du ian juice concent ate; howeve , the Du ian Division can use its facilities to manufactu e p une
paste, which is a ve y popula p oduct with unlimited exte nal demand, at $13 pe unit. The va iable p oduction cost of one
unit of du ian juice concent ate at Du ian Division is $6, and the va iable p oduction cost of one unit of p une paste is $8.
Du ian division also incu s $1 additional shipping cost pe unit when selling p une paste to exte nal supplie s.
Using the t ansfe p icing fo mula, what is the pe unit oppo tunity cost of selling one unit of du ian juice concent ate to
Juice Division?
A. $0
B. $4
C. $5
D. $12
AACSB: Analytical
Difficulty: Medium
units of eithe juice concent ate o f uit paste. Usually, Du ian Division p oduces du ian juice concent ate fo the Juice
Division. Juice Division's annual equi ement of du ian juice concent ate is 8000 units. The e is no exte nal ma ket fo
du ian juice concent ate; howeve , the Du ian Division can use its facilities to manufactu e p une paste, which is a ve y
popula p oduct with unlimited exte nal demand. The ma ket p ice fo p une paste is $13 pe unit. The va iable p oduction
cost of one unit of du ian juice concent ate at Du ian Division is $6, and the va iable p oduction cost of one unit of p une
paste is $8. Du ian division also incu s $1 additional shipping cost pe unit when selling p une paste to exte nal supplie s.
Using the t ansfe p icing fo mula, what is the pe unit t ansfe p ice selling one unit of du ian juice concent ate to Juice
Division?
A. $6
B. $8
C. $10
D. $11
AACSB: Analytical
Difficulty: Hard
78. A st ategic business unit is:

A. a cost cent e.
B. eithe a evenue cent e o a p ofit cent e.
C. eithe a evenue cent e o an investment cent e.
D. eithe a p ofit cent e o an investment cent e.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.02 Describe the characteristics of effective performance measurement systems
79. Senio manage s use pe fo mance measu es to:

A. ta get thei own pe fo mance against othe manage s.
B. d ive employee goals.
C. guide the development of futu e st ategies and ope ations.
D. measu e the business plans.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.01 Describe the purposes of performance measurement systems
80. Which of the following is NOT a pe fo mance measu ement cha acte istic?
A. Simplistic
B. Timely
C. Unlimited pe fo mance measu es
D. Benchma king
AACSB: Reflective
Difficulty: Easy
81. When manage s and employees a e involved in the fo mulation and ope ation of pe fo mance measu es, this is
known as:
A. pa ticipation and cont ollability.
B. benchma king.
C. st ategy and empowe ment.
D. pa ticipation and empowe ment.
AACSB: Reflective
Difficulty: Medium
82. Companies believe that when pe fo mance measu es a e linked to incentives, they a e mo e:
A. motivating. = khích lệ = motivation
B. cong uent.
C. st ategic.
D. positive.
AACSB: Reflective
Difficulty: Easy
83. Management's ability to close the accounting books at any time is te med:
A. eal-time epo ting.
B. vi tual close.
C. flash epo ting.
D. shut-down epo ting.
AACSB: Reflective
Difficulty: Easy
84. Daily online epo ting of c itical info mation is known as:
A. eal-time epo ting.
B. vi tual close.
C. flash epo ting.
D. shut-down epo ting.
AACSB: Reflective
Difficulty: Easy
85. Pe fo mance epo ts
The pe fo mance epo ts gene ated by a esponsibility accounting system fo m a hie a chy of 'pe fo mance epo ts'.
Explain what is meant by this te m.
The pe fo mance epo ts a e tied to the o ganisational cha t. The pe fo mance epo t at each level eflects the agg egate
pe fo mance of the subo dinates that epo t to the manage at that pa ticula level. Thus, each manage eceives epo ts
that eflect thei a ea of esponsibility.
AACSB: Communication
Difficulty: Easy
variances
86. Identify and b iefly desc ibe the fou ways pe fo mance measu es can be used within a planning and cont ol system.
Pe fo mance measu es can be used to communicate the strategy and plans of the business and align employees' goals with those of
the o ganisation. Thus, a wisely designed pe fo mance measu ement system can encou age goal cong uence.
■ Manage s use pe fo mance measu es to track their own performance against targets. This feedback allows manage s at all levels of
the business to assess p og ess in achieving ta gets and to take co ective actions if necessa y. It may also indicate the need to amend
plans and ta gets when the e have been changes in the inte nal o exte nal envi onment of the business.
■ Senio manage s may use pe fo mance measu es to evaluate subordinates' performance and as the basis for rewards. Ente p ises
need a ange of pe fo mance measu es that eflect thei competitive envi onment and st ategies, to ensu e that manage s a e
motivated and ewa ded fo achieving the 'things that matte '.
■ Pe fo mance measu es may be used by senio manage s to guide them in developing future strategies and operations. Pe fo mance
measu es should not just info m manage s of the outcomes of past decisions and ope ations; they should give an indication of the
capability of the fi m to compete effectively in the futu e and point to a eas fo futu e g owth.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 12.01 Describe the purposes of performance measurement systems
87. Define goal cong uence and explain how management can change the behaviou of manage s th ough a
decent alised o ganisation.
The biggest challenge in making a decent alised o ganisation function effectively is to ensu e goal cong uence among the
o ganisation's autonomous manage s. This is an impo tant aspect of cont ol. Howeve , goal cong uence is difficult to
achieve. Manage s a e often unawa e of the effects of thei decisions on the othe pa ts of the o ganisation. Also, it is only
natu al fo people to be mo e conce ned with the pe fo mance of thei own unit than with the effectiveness of the enti e
o ganisation.
To achieve goal cong uence, the behaviou of manage s th oughout a decent alised o ganisation must be di ected
towa ds achieving o ganisational goals. One way of doing this is to develop pe fo mance ta gets and ewa d systems.
Pe fo mance ta gets p ovide di ection fo manage s of decent alised units, and a e used by co po ate management to
evaluate the pe fo mance of a unit and its manage . Rewa d systems a e often tied to a manage 's achievement of ta gets
and p ovide fu the incentives fo manage s to st ive towa ds o ganisational goals. Howeve , if the esponsibility
accounting system is not designed wisely, and the pe fo mance measu es selected a e inapp op iate, undesi able
behaviou can esult.
AACSB: Reflective
Difficulty: Medium
88.
Distinguish between sha ed se vice units and cent alised se vice units.
AACSB: Analytical
Difficulty: Medium
89. Discuss why t ansfe p ices a e effectively inte nal selling p ices in medium to la ge o ganisations and why
o ganisations have adopted this app oach.
In decent alised o ganisations goods and se vices a e often t ansfe ed between investment cent es and p ofit cent es. The amount
cha ged when one business unit sells goods o se vices to anothe business unit is called a t ansfe p ice.
Transfer prices a e effectively internal selling prices used within a decent alised o ganisation. Howeve , the level of t ansfe p ice that
is used is impo tant—the t ansfe p ice is evenue fo the supplying unit and a cost of the buying unit.
Why do organisations use transfer prices? The financial pe fo mance of an investment cent e o p ofit cent e is evaluated using some
measu e of p ofit. When goods and se vices a e t ansfe ed between business units, a t ansfe p ice will allow the selling unit to eco d
evenue to ea n a p ofit on the t ansfe , to eflect the effo t that it has expended in p oducing that p oduct. The t ansfe p ice will allow
the buying unit to eco d the cost of the t ansfe of the p oduct, which will be matched against the evenue when it eventually sells the
p oduct to the exte nal ma ket.
In situations whe e the e is a se ies of t ansfe s of p oduct between units, t ansfe p ices will allow each unit to show p ofits fo thei
effo ts— not just the unit that sells the completed p oduct to the exte nal ma ket.
The use of t ansfe p ices encou ages each unit to gene ate p ofits, and should encou age manage s of units to manage thei own unit
as if it we e a stand-alone business. The efo e, the t ansfe p icing system should ope ate in a way that does not unde mine goal
cong uence o the decent alised manage s' autonomy. Thus, a t ansfe p icing system should
esult in unit p ofits that a e a eliable and accu ate measu e of unit pe fo mance;
p ese ve and encou age autonomy within business units; and
encou age goal-cong uent behaviou .
AACSB: Reflective
Difficulty: Medium
90. If a manage we e esponsible fo a division's pe fo mance and activities, the division would have to be classified as a
cost cent e.
FALSE
AACSB: Reflective
Difficulty: Easy
91. Although sha ed se vice units a e gene ally established as p ofit cent es it is often acceptable if a ze o p ofit is
achieved.
TRUE
AACSB: Reflective
Difficulty: Medium
92. When a cont ibution ma gin fo mat is used fo epo ting, expenses a e g ouped acco ding to the functions (e.g. sales
and dist ibution, financial) ca ied out by the o ganisation.
FALSE
AACSB: Reflective
Difficulty: Easy
93. T ansfe p icing is a system established inte nally to facilitate units being set up as p ofit cent es.
TRUE
AACSB: Reflective
Difficulty: Easy
94. Se vice level ag eements a e used within o ganisations to establish which se vices a e to be p ovided and set the
t ansfe p ice fo these se vices.
TRUE
AACSB: Reflective
Difficulty: Easy
95.
When using cost-based t ansfe p ices, actual costs should be used in p efe ence to standa d costs.
FALSE
AACSB: Reflective
Difficulty: Easy
96. The costs a ising f om activities that benefit two o mo e units a e gene ally efe ed to as cont ollable costs.
FALSE
AACSB: Reflective
Difficulty: Easy
variances
97. When o ganisational st uctu es move to a flatte st uctu e, it is anticipated that the levels of management a e educed,
which in tu n allows the o ganisation to eact quicke to potential oppo tunities.
TRUE
AACSB: Reflective
Difficulty: Easy
98. When esponsibility cent es a e established as evenue cent es, one way of measu ing pe fo mance in these cent es
is to evaluate the etu n on investment.
FALSE
AACSB: Reflective
Difficulty: Easy
99. When a company manage 's behaviou is aimed at achieving the goals of an o ganisation, the company can be
confident of goal cong uence.
TRUE
AACSB: Reflective
Difficulty: Easy
100. When a manage is given esponsibility fo a business unit then they a e accountable fo all the components of the
p ofits fo that unit.
TRUE
AACSB: Reflective
Difficulty: Easy
101. Flash epo ts a e p oduced monthly, epo ting on c itical info mation.
FALSE
AACSB: Reflective
Difficulty: Easy
102. The gene al ule that gives guidance fo dete mining the app op iate cost p ice specifies the optimal t ansfe p ice as
the sum of two cost components.
TRUE
AACSB: Reflective
Difficulty: Easy
Chapte 12 Testbank Summary
Category # of Que
stions
AACSB: Analytical 21
AACSB: Communication 5
AACSB: Reflective 79
Difficulty: Easy 72
Difficulty: Ha d 2
Difficulty: Medium 28
Lea ning Objective: 12.01 Desc ibe the pu poses of pe fo mance measu ement systems 2
Lea ning Objective: 12.02 Desc ibe the cha acte istics of effective pe fo mance measu ement systems 4
Lea ning Objective: 12.03 Explain the benefits and costs of decent alisation 10
Lea ning Objective: 12.04 Define esponsibility cent es and p ovide examples: cost cent es, evenue cent es, p ofit cent 15
es and investment cent es
Lea ning Objective: 12.05 Unde stand how sha ed se vices ope ations and self-managed wo k teams can help imp ove 7
o ganisational pe fo mance
Lea ning Objective: 12.06 P epa e epo ts that highlight the financial pe fo mance of a ange of esponsibility cent es 5
Lea ning Objective: 12.07 Explain why diffe ent financial info mation may be used to evaluate the pe fo mance of espon 8
sibility cent es and the pe fo mance of the manage s of those cent es
Lea ning Objective: 12.08 Complete financial pe fo mance epo ts fo esponsibility cent es, taking into account allocated 5
costs, common costs and va iances
Lea ning Objective: 12.09 Unde stand how eal-time epo ting can enhance management decision making 4
Lea ning Objective: 12.10 Unde stand why o ganisations use t ansfe p icing 4
Lea ning Objective: 12.11 Explain the va ious methods that can be used to dete mine t ansfe p ices 10
Lea ning Objective: 12.12 Explain the gene al ule that can be used to set t ansfe p ices 3
Lea ning Objective: 12.13 Dete mine app op iate t ansfe p ices unde a va iety of scena ios 26
Chapter 13 Testbank Key
1. The return on investment can be defined as:

A. capital invested divided by total sales.
B. total sales divided by capital invested.
C. profit divided by capital invested.
D. profit divided by total sales.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.01 Calculate an investment centre's return on investment (ROI)
2. Calculate the return on investment of new equipment in the first year if:
profit = $3 000 000
invested capital = $45 000 000
increase in divisional profits = $45 000
purchase of new machine = $900 000
A. 5%
B. 6.66%
C. 1.5%
D. None of the given answers
AACSB: Analytical
Difficulty: Easy
3. The asset turnover of an organisation can be calculated as: sale revenue

A. the amount of sales revenue divided by total invested capital.
invested capital
B. total invested capital divided by sales revenue.
C. total sales revenue divided by profit.
D. profit divided by sales margin.
AACSB: Reflective
Difficulty: Easy
4. Bricker Fabrics reported a profit margin during the year of 20 per cent and an investment turnover of 40 per cent. What
was its return on investment for the year?
A. 50%
B. 20%
C. 8%
D. 2%
AACSB: Analytical
Difficulty: Easy
5. Joy Home Fashions reported a return on investment during the year of 6 per cent and a profit margin of 12 per cent.
What was the investment turnover for the year?
A. 18%
B. 50%
C. 72%
D. 20%
AACSB: Analytical
Difficulty: Easy
6. For Mildura Ltd, if the sales are $1 500 000, the invested capital $450 000 and the profit $90 000, what is the asset
turnover for the year?
A. 20%
B. 5%
C. 30%
D. 333% =1500/450
AACSB: Analytical
Difficulty: Easy
7. The following information pertains to Bingo Concrete for the year 2008:
Sales are $1 500 000
Gross margin is $600 000
Profit is $90 000
What is the profit margin for the year?
A. 40%
B. 30%
C. 20%
D. 6% 90/1500
AACSB: Analytical
Difficulty: Easy
8. For Echuca Ltd sales are $1 500 000, profit is $90 000, invested capital is $450 000 and the interest rate is 8 per cent.
What is the residual income for the year?
A. ($30 000)
B. $54 000 = 90 - (450x8%)
C. $82 800
D. $36 000
AACSB: Analytical
Difficulty: Easy
Learning Objective: 13.04 Calculate residual income (RI) for an investment centre, and describe some advantages and disadvantages of using RI to
evaluate performance
9. Holt Company Ltd determined residual income for the year of $22 000. The company's cost of capital was 12 per cent,
the investment turnover was 2.0, and capital invested was $400 000. What was Holt Company's profit during the year?
A. $26 000
B. $48 000
C. $74 000
D. $70 000
AACSB: Analytical
Difficulty: Medium
10. Fine Furnishings Pty Ltd earned residual income of $40 000 during the year. The net profit was $160 000 during the
year and the cost of capital was 12 per cent. What was the return on investment for the year?
A. 9%
B. 12%
C. 16%
D. Insufficient information to determine
AACSB: Analytical
Difficulty: Medium
11. Precious Metals Pty Ltd earned residual income of $70 000 during the year. The net profit was $250 000 during the
year and the required return was 15 per cent. What was the invested capital?
A. $1 200 000
B. $1 500 000
C. $1 400 000
D. $1 300 000
AACSB: Analytical
Difficulty: Easy
12.
Calculate the asset turnover from the following data:
A. 0.07
B. 0.67
C. 0.53
D. 0.05
AACSB: Analytical
Difficulty: Easy
13. One of the disadvantages of return on investment is that:

A. it focuses on profit only and disregards the cost of the assets.
B. it may discourage managers from investing in profitable projects.
C. it does not enable comparison of investment centres of different sizes.
D. it focuses only on long-term performance.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.02 Describe some advantages and limitations of ROI as a measure of performance of investment centres
14. The advantage of residual income as a measure of investment centre performance is:
A. it can be used to compare investment centres of different sizes.
B. it focuses on long-term performance.
C. it includes the organisation's minimum required rate of return.
D. it can be used to compare investment centres of different sizes AND it includes the organisation's minimum required
rate of return.
AACSB: Reflective
Difficulty: Easy
15. Which of the following gives a more accurate calculation of return on investment and residual income?
A. Total capital invested
B. Total assets
C. Average invested capital
D. Average cost of capital
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.05 Recognise the reasons for the various definitions of profit and invested capital that can be used in the calculation of return on
investment and residual income
16. Net book value produces a misleading increase in return on investment because:
A. investment centres with old assets will show a higher return on investment than centres with new assets.
B. investment centres with old assets will show a lower return on investment than investment centres with new assets.
C. investment centres with old assets will show an equal return on investment centres with new assets.
D. book value reflects changing market values.
AACSB: Reflective
Difficulty: Medium
17. One of the advantages of using net book value to measure invested capital is that:
A. it maintains consistency with the balance sheet prepared for external reporting purposes.
B. it allows comparison of return on investment with different companies.
C. the return on investment will increase steadily over time.
D. it maintains consistency with the balance sheet prepared for external reporting purposes AND it allows comparison of
return on investment with different companies.
AACSB: Reflective
Difficulty: Easy
18. Managers' performance in an investment centre can best be evaluated by:

A. the total revenue under their control.
B. the total capital invested in the organisation and the sizeable amount of return.
C. the profit earned during a period less all revenues.
D. those revenues, costs and investments that they can control.
AACSB: Reflective
Difficulty: Easy
19.
Which of the following statements is false?
A. Tying rewards to a profit-based measure can provide an incentive for managers to manipulate accounting results.
B. Pay systems can be used at all levels of the organisation.
C. Pay systems focus on long-term results.
D.
A pay system can include both cash and non-cash rewards.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.11 Identify the different forms of performance-related pay systems used in organisations
20. Which of the following is an example of an intrinsic reward?
A. Cash bonus
B. Personal satisfaction
C. Larger office
D. Certificate of merit
AACSB: Reflective
Difficulty: Medium
Learning Objective: 13.09 Recognise the difference between intrinsic and extrinsic sources of motivation

A. Group reward schemes help people identify with the group.
B. Group reward schemes discriminate between good and bad performers.
C. Group reward schemes avoid excessive competition between employees.
D. Group reward schemes may encourage 'freeloaders'.
AACSB: Reflective
Difficulty: Easy
22. The profitability of an investment centre can best be evaluated by:

A. the revenues, costs and investment the manager can control.
B. the total capital invested in the organisation and the sizeable amount of return.
C. the profit margin and the investment capital traceable to the investment centre.
D. the divisional contribution margin.
AACSB: Reflective
Difficulty: Easy
23. Which of the following statements is/are correct?

A. Invested capital is the assets that an investment centre has available to generate profit.
B. When evaluating an investment centre, only the profit is important.
C. Return on investment focuses on how effectively each investment centre has used its investment capital.
D. Invested capital represents the assets that an investment centre has available to generate profit AND return on
investment focuses on how effectively each investment centre has used its investment capital.
AACSB: Reflective
Difficulty: Easy
24. Which of the following is the correct mathematical expression for return on investment?
A. Sales margin  capital turnover
B. Sales margin – capital turnover
C. Sales margin  capital turnover
D. Capital turnover  sales margin
AACSB: Reflective
Difficulty: Easy
25. White Hills Ltd reported a return on investment of 12 per cent, a capital turnover of 5 and income of $180 000. What
was the company's invested capital?
A. $300 000
B. $900 000
C. $1 500 000 =180,000/12%
D. $7 500 000
AACSB: Analytical
Difficulty: Medium
26. The northern division of Aussie Estates has reported a profit of $4 million. Divisional invested capital is $2.5 million
and the imputed interest rate is 12 per cent. What is the residual income?
A. $180 000
B. $1.78 million
C. $2.15 million
D. $3 700 000 =4,000 - 2,500 x 12%
AACSB: Analytical
Difficulty: Easy
27. The Extan division of World Corporation reported a residual income of $200 000. The division had $8 million of
invested capital and a profit of $1 million. What is the imputed interest rate?
A. 7.5%
B. 10.0%
C. 12.5%
D. 20%
AACSB: Analytical
Difficulty: Easy
28. Speedy Ltd has an imputed interest rate of 12 per cent. Division Z of Speedy Ltd has invested capital of $800 000 and
a return on investment of 15 per cent. What is the residual income?
A. ($24 000)
B. $24 000 =800x(15-12)%
C. $96 000
AACSB: Analytical
Difficulty: Easy
29. Return on investment may be improved by increasing:
A. cost of goods sold and expenses.
B. sales margin and cost of capital.
C. sales revenue and cost of capital.
D. capital turnover or sales margin.
AACSB: Reflective
Difficulty: Easy
30. All the following actions will increase return on investment except:
A. an increase in sales revenues.
B. a decrease in operating expenses.
C. a decrease in the company's invested capital.
D. a decrease in the number of units sold.
AACSB: Reflective
Difficulty: Easy
31. Given that return on investment measures performance over time, the invested capital would most appropriately be
calculated by using:
A. beginning of year assets.
B. average assets.
C. total assets.
D. current assets.
AACSB: Reflective
Difficulty: Easy
32. Which of the following measures of performance is based, in part, on weighted average cost of capital?
A. Return on investment
B. Capital turnover
C. Return on sales
D. Economic value added
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.07 Evaluate and calculate economic value added (EVA®) and shareholder value added (SVA) as measures of investment centre
performance
33. Tentafield Ltd has an after tax operating income of $2.6 million, assets totalling $8 million and current liabilities totalling
$400 000. The weighted average cost of capital is 10 per cent. What is the economic value added?
A. $1 400 000
B. $1 800 000
C. $1 840 000 =2,600 - 10%(8,000 - 400)
AACSB: Analytical
Difficulty: Easy
performance
34.
The following information relates to Black's Mount Ltd:
What is its economic value added?
A. $120 000
B. $180 000
C. $240 000 =900 - 12% (6,000 -500)
D. $292 000
AACSB: Analytical
Difficulty: Easy
performance
35. Which of the following are value drivers (i.e. create value for the business)?
i. Growth
ii. Sustainability
iii. Spread
iv. Cost of capital
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
D. All of the given answers
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.06 Explain how shareholder value can be measured and used to manage performance
EVA
36. Which of the following strategies may increase economic value added?
A. Increase profit as a percentage of capital employed.
B. Borrow additional funds and invest in assets that earn more than the weighted average cost of capital.
C. Sell off assets that earn more than the weighted average cost of capital.
D.
Increase profit as a percentage of capital employed AND borrow additional funds and invest in assets that earn more than the weighted
average cost of capital.
AACSB: Reflective
Difficulty: Easy
performance
37. Shareholder value added may be defined as:

A. corporate value – market value of the company.
B. corporate value – market value of debt.
C. corporate value – present value of liabilities.
D. corporate value – current liabilities.
AACSB: Reflective
Difficulty: Easy
performance
38. Which of the following are, according to Herzberg, motivating factors?

A. Recognition
B. Working conditions
C. Relationships with colleagues
D. Recognition AND working conditions
AACSB: Analytic
Difficulty: Easy
Learning Objective: 13.10 Describe the differences between Herzberg's two-factor theory and the expectancy theory of motivation
39. Which of the following is/are, according to Herzberg, hygiene factors?

A. Recognition
B. Working conditions
C. Relationships with colleagues
D. Working conditions AND relationships with colleagues
AACSB: Analytic
Difficulty: Easy
40. Which of the following is/are an extrinsic reward? thưởng
A. Share options động lực bên ngoài
B. Job satisfaction
C. Promotion
D. Share options AND promotion
AACSB: Analytic
Difficulty: Easy
41. Which of the following is/are an intrinsic reward?

A. Share options động lực về công việc, trong/liên quan đến công việc
B. Job satisfaction
C. Promotion
D. Share options AND job satisfaction
AACSB: Analytic
Difficulty: Easy
42. Which of the following statements is/are correct when describing expectancy theory?
i. The preference that an employee has for a particular reward is called valence.
ii. Expectancy is the likelihood of achieving the performance necessary to earn the reward.
iii. An individual's perception that the effort put into a task will lead to a specific reward outcome is fundamental to
expectancy theory.
A. i and ii
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Easy
43. Which of the following are included in performance-related pay systems?

i. Share options
ii. Profit sharing
iii. Team-based bonuses
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
44. Individual reward schemes have which of the following advantages?
i. They relate to individual effort.
ii. They reward only good performers.
iii. They discourage dysfunctional competition between individuals.
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
45. For which of the following reasons are group pay systems often preferred to individual schemes?
i. They encourage teamwork.
ii. They reduce dysfunctional competition between employees.
iii. They promote equity between employees.
A. i and ii
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Easy
46. Which of the following may be implemented as targets for a group or company-wide performance reward scheme?
i. Employee absenteeism
ii. Lost-time accidents
iii. Customer satisfaction
A. i and ii
B. ii and iii
C. i and iii
AACSB: Analytic
Difficulty: Easy
47. Sunrise Dairies has a return on investment of 15 per cent. A Sunrise division, which currently has a return on
investment of 13 per cent and $750 000 of residual income, is contemplating a large investment that will (1) reduce
divisional return on investment and (2) produce residual income of $120 000. If Sunrise strives for goal congruence, the
investment:
A. should not be approved because it reduces divisional return on investment.
B. should not be approved because the division's return on investment is less than the corporate return on investment
before the investment is considered.
C. should be approved because it produces $120 000 residual income for the division.
D. should be approved because, after acquisition, the division's return on investment and residual income are both
positive numbers.
AACSB: Analytic
Difficulty: Easy
Learning Objective: 13.03 Explain how the negative behavioural incentives associated with using return on investment to evaluate performance can be
minimised
48. The Fitzroy division of Brisbane Enterprises has negative residual income of $540 000. Fitzroy's management is
considering an investment opportunity that will reduce this negative amount to $400 000. The investment:
A. should be pursued because it is attractive from divisional and corporate perspectives.
B. should be pursued because it is attractive from a divisional perspective although not from a corporate perspective.
C. should be pursued because it is attractive from a corporate perspective, although not from a divisional perspective.
D. should not be pursued because it is unattractive from a divisional perspective although it is attractive from a corporate
perspective.
AACSB: Analytic
Difficulty: Easy
49. (p. 611)
Carlton division has been stagnant for the past ve years, neither growing nor contrac ng in size and pro tability.
Investment in new property, plant and equipment has been minimal. Would the division's use of total assets (valued at
net book value) when measuring return on investment result in (1) using numbers that are consistent with those in the
balance sheet and (2) a rising return on investment over me?
Consistent with numbers on the balance sheet Produce a rising return on investment over time
A.
Yes Yes
B.
No Yes
C.
No No
D.
Yes Need more information to judge
Difficulty: Medium
50. The income calculation for a divisional manager's return on investment should be based on:
A. divisional contribution margin.
B. profit margin controllable by the divisional manager.
C. profit margin traceable to the division.
D. division income before interest and income tax.
AACSB: Reflective
Difficulty: Easy
51. Which of the following is used in the calculation of both return on investment and residual income?
A. Total shareholders' equity
B. Retained earnings
C. Invested capital
D. Cost of capital
AACSB: Reflective
Difficulty: Easy
performance
52. Which of the following statements is/are false?
i. Return on investment encourages managers to take a long-term view of corporate performance.
ii. Return on investment may encourage managers to defer the replacement of worn assets.
iii. Return on investment may encourage managers to increase expenditure on research and development.
A. i and ii
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Medium
Learning Objective: 13.02 Describe some advantages and limitations of ROI as a measure of performance of investment centres
53. A division of a firm has a net profit of $640 000 before imputed interest and a residual income of $240 000. If a rate of
10 per cent is used to compute imputed interest, calculate the division's return on investment (rounded to a whole
number).
A. 4%
B. 10%
C. 16% Invested capital = (640+240)/10% = 4,000
D. 35%
ROI = 640/4000
AACSB: Analytical
Difficulty: Easy
54. Which of the following items do not form part of the economic value added calculation?
A. Weighted average cost of capital
B.
Book value of equity
C. Market value of equity

D. Income tax rate
AACSB: Reflective
Difficulty: Easy
performance
55.
Richard's Division of Richard and Sons has the following data related to a particular period:
Calculate the amount of residual income for the period.
A. $70 000
B. $7000 = (1900-1150-673) - 700x10%
C. $77 000
D. $680 000
AACSB: Analytical
Difficulty: Easy
performance
56.
Calculate the return on investment for the period.
A. 11%
B. 10%
C. 4%
D. Always the same as the imputed interest rate
AACSB: Analytical
Difficulty: Easy
57.
Calculate the return on sales for the period.
A. 4% =profit/sale = (1900-1150-673)/1900
B. 11%
C. 40%
D. 0.4%
AACSB: Analytical
Difficulty: Easy
58.
Calculate the investment turnover (rounded) for the period.
A. 0.37 times
B. 11 times
C. 0.11 times
D. 2.7 times
=sale/capital
AACSB: Analytical
Difficulty: Easy
59. Which of the following items will be most relevant in determining the imputed interest rate for the purposes of
calculating residual income?
A. Final net profit
B. Return on investment
C. Investment turnover
D. Riskiness of investments undertaken
AACSB: Analytical
Difficulty: Easy
60. The return on investment of a division will increase if the division is able to:
A. increase return on sales and increase investment turnover.
B. increase return on sales or increase investment turnover.
C. increase sales revenue and decrease asset turnover.
D. increase return on sales and/or increase investment turnover.
AACSB: Analytical
Difficulty: Easy
61. Jasmine Dimm is a call centre manager for Tostra, a mobile phone company. Call centre operators at her call centre
are responsible for answering calls from Tostra customers. Some calls are very short, relating to simple enquiries.
However, a majority of calls tend to be longer, coming from irate customers complaining about Tostra's services. In these
calls, customers are often very emotional and sometimes even abusive. Call operators have no control over what types of
calls they get.
Jasmine has developed a new incentive system for her call centre staff. Under the new system, call centre operators are
rewarded if they achieve two performance targets: (1) the duration of 90 per cent of the calls is less than 4 minutes and
(2) 80 per cent of customers rate Tostra's 'customer service quality' as 'excellent'. Achieving these two monthly
performance targets will result in a bonus worth 20 per cent of the call operator's monthly salary.
Based on expectancy theory, the major limitation(s) of Jasmine's reward system is:
A. the incentive system lacks valence and instrumentality.
B. the incentive system lacks expectancy.
C. the incentive system lacks instrumentality.
D. the incentive system lacks expectancy and instrumentality.
AACSB: Reflective
Difficulty: Medium
are responsible for making sales calls to customers to promote Tostra's new products. Jasmine sets two performance
targets for her operators: sales and average call duration. Every 6 months, any call centre operator who can achieve both
targets goes into a random draw with a one-in-ten chance of winning a $50 supermarket giftcard.
All her call centre operators agree that these two targets are clearly specified, objectively measured and achievable with
hard work. However, the call centre operators are still unhappy with the new incentive system. According to the
expectancy theory, this is because:
A. the incentive system lacks valence and instrumentality.
B. the incentive system lacks expectancy.
C. the incentive system lacks expectancy and valence.
D. the incentive system lacks expectancy and instrumentality.
AACSB: Reflective
Difficulty: Medium
63.
A group-based reward system is appropriate when:

i. team work is important and employees need to work together to achieve organisational goals.
ii. it is easy to see individual's effort and performance.
iii it is important to discriminate between good performers and bad performers.
A. i
B. i and ii
C. i and iii
D. ii and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.12 Outline the advantages and disadvantages associated with group versus individual rewards
64. Which of the following information is required to compute SVA (shareholder value added)?
i. PV of cash flows from operations for a certain time period
ii Residual value of the business
iii EVA (economic value added)
A. i and ii
B. i and iii
C. i, ii and iii
D. i
AACSB: Reflective
Difficulty: Easy
performance
65. Which of the following is a key difference between EVA and residual income?
A. The weighted average cost of capital is used to calculate EVA, but not necessarily for residual income.
B. Net profit is used to calculate residual income but is irrelevant for EVA.
C. EVA has a long term focus, but residual income has a short term focus.
D. There is no difference between EVA and residual income.
AACSB: Reflective
Difficulty: Easy
performance
66.
The following information is available for Jittie Ltd:
The WACC for Jittie Ltd is:
A. 7.6%
B. 9.25%
C. 10.9%
D. 9.5%
AACSB: Analytical
Difficulty: Easy
performance
67.
The following information is available for Nettie Ltd:
The company tax rate is 30 per cent. WACC is:
A. 11.2%
B. 10%
C. 7.8%
D. 9.5%
AACSB: Analytical
Difficulty: Medium
performance
68. Value-based management refers to:

A. a framework for applying EVA to all business decisions.
B. a framework for making key business decisions that add economic value to the business.
C. a philosophy that management should focus on creating customer value.
D. a valuation technique that uses discounted cash flows to estimate imputed cost of capital.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.06 Explain how shareholder value can be measured and used to manage performance
69. Which of the following statements about developing reward system is incorrect?
A. The key benefit of a profit sharing plan is to encourage employees to think like owners.
B. The key benefit of gain sharing plan is to introduce equity, ensuring the employees who contribute to the business can
get a share of the gains.
C. The key benefit of an employee share plan is to reduce free-riding problems.
D. The key benefit of an individual-based incentive system is to highlight improved expectancy and instrumentality.
AACSB: Reflective
Difficulty: Medium
70. Braham Farms has a return on investment of 15 per cent. A Braham division, which currently has a return on
investment of 13 per cent and $375 000 of residual income, is contemplating a large investment that will (1) reduce
divisional return on investment and (2) produce residual income of $60 000. If Braham strives for goal congruence, the
investment:
A. should not be approved because it reduces divisional return on investment.
B. should not be approved because the division's return on investment is less than the corporate return on investment
before the investment is considered.
C. should be approved because it produces $60 000 residual income for the division.
D. should be approved because, after acquisition, the division's return on investment and residual income are both
positive numbers.
AACSB: Analytic
Difficulty: Easy
Learning Objective: 13.03 Explain how the negative behavioural incentives associated with using return on investment to evaluate performance can be
minimised
71. When employees feel that they have made a significant achievement in reaching the purpose of the task they are
working on, this has been identified (Robbins et al., 2004; Thomas, 2000) as:
A. competence.
B. progress.
C. meaningfulness.
D. choice.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 13.08 Explain how reward systems can be designed and used to enhance goal congruence
72. When employees have the opportunity in the larger scheme of things, to pursue a task that they consider worthy, this
has been identified (Robbins et al., 2004; Thomas, 2000) as:
A. competence.
B. progress.
C. meaningfulness.
D. choice.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 13.08 Explain how reward systems can be designed and used to enhance goal congruence
73. Which of the following would be considered an advantage of a group scheme?

A. Equity among employees
B. Rewarding only good performers
C. Competitiveness between employees
D. Individual identification
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.12 Outline the advantages and disadvantages associated with group versus individual rewards
74. Under a deferred payment incentive schemes managers are likely to:
A. maximise short-term profit.
B. focus on short-term plans.
C. maximise medium and long-term profits.
D. strive for short-term performance.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 13.13 Recognise the importance of the frequency and timing of the payment of incentive payments to enhance motivation and
performance
75. Providing an employee incentive scheme that offers more frequent and timely incentives will:
A. discourage employees from making performance targets.
B. continually motivate employees.
C. not impact on an employee's performance.
D. provide no indication of an employee's target achievements.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 13.13 Recognise the importance of the frequency and timing of the payment of incentive payments to enhance motivation and
performance
are responsible for answering calls from Tostra customers. Some calls are very short, relating to simple enquiries.
However, a majority of calls tend to be longer, coming from irate customers complaining about Tostra's services. For these
calls, customers are often very emotional and sometimes even abusive. The call centre operators are only responsible for
documenting the complaints and are generally unable to solve the problems for the customers.
Jasmine has developed a new reward system for her call centre staff. Under the new system, call centre operators are
rewarded with a substantial bonus (20 per cent of annual salary) if they achieve two performance targets: (1) a target set
on average call duration; and (2) a target based on 'customer service quality'. While the call centre operators working for
Jasmine all agree that these performance targets are reasonable, they are unhappy with Jasmine's overbearing
personality. Many operators are also experiencing a lot of stress when dealing with rude customers.
Discuss the limitations of Jasmine's new reward system, using the concept of intrinsic motivation and extrinsic motivation.
Extrinsic motivations are derived from outside of the individual. Intrinsic motivations are derived from the interests and
enjoyment at work. Jasmine's reward system focuses only on extrinsic rewards, namely the substantial financial bonuses.
However, because of Jasmine's overbearing personality, it is likely employees do not feel happy or satisfied working under
her. Answering calls from complaining customers are not likely to result in job satisfaction, especially if there is nothing the
operator can do to solve customers' problems. Thus, the work is unlikely to be meaningful and intrinsic motivation will be
low.
Difficulty: Hard
1. Which of the following are likely to cause some non-financial measures to be unable to be translated into financial
outcomes?
i. Reduced machine breakdowns
ii. Increased spending on new technology
iii. Improved on-time deliveries
iv. Reduced marketing effort
A. i and ii
B. i and iii
C. i and iv
D. ii and iv
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.04 Outline the limitations of relying on non-financial performance measures
2. A visual representation that assists managers to see the linkages between the balanced scorecard and the
organisation's objectives is known as a:
A. linking presentation.
B. visual scorecard.
C. organisational chart.
D. strategy map.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.06 Outline the purpose of a strategy map
3. Which of the following do traditional measurement systems include?

i. Profitability
ii. Return on investment
iii. Cost variance analysis
iv. Budget variance analysis
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.01 Explain why traditional financial performance measures alone are not sufficient for managing an organisation
4. Which of the following statements are limitations associated with traditional performance measures?
i. They may encourage short-term financial performance.
ii. They describe results not causes.
iii. They do not emphasise areas that need development for long-term goal achievement.
A. i and ii
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Easy
5. Which of the following are likely to be the result of concentration on short-term performance measures?
i. Reduced expenditure on product development
ii. Increased spending on new technology
iii. Increased employee training
iv. Reduced marketing effort
A. i and ii
B. i and iii
C. i and iv
D. ii and iv
AACSB: Reflective
Difficulty: Easy
6. All the following are methods of comparison used in performance measurement. Which are inadequate as modern
measures?
i. Standard costs
ii. Past periods
iii. Budget targets
iv. Benchmarks
A. i, ii and iv
B. ii, iii and iv
C. i, iii and iv
D. i, ii and iii
AACSB: Reflective
Difficulty: Easy
7. Which of the following statements is/are true?
A. Non-financial measures may reflect drivers of future financial performance.
B. Non-financial measures are more difficult to understand.
C. Non-financial measures are more difficult to action.
D.
Non-financial measures may reflect drivers of future financial performance AND non-financial measures are more difficult to
understand.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.02 Explain the advantages that non-financial performance measures offer over financial measures

i. Non-financial measures are only applicable when profit is not a principle goal of the firm.
ii. It is often difficult to take any action because of non-financial measures.
iii. At the operational level, it is often easier to relate to non-financial measures.
A. ii and iii
B. i and iii
C. i and ii
AACSB: Reflective
Difficulty: Easy
9. Which of the following are performance measures of delivery at the shop floor level?
i. Standard cost variances
ii. Accident reports
iii. Schedule adherence
iv. Number of units completed
A. iii and iv
B. ii and iii
C. i and iii
D. ii and iv
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.03 Select appropriate forms of operational measures to assess different areas of operational performance
10. On which of the following is the Kaplan and Norton framework for developing a balanced scorecard is based?
i. Financial perspective
ii. Customer perspective
iii. Learning and growth
iv. Internal processes
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
Difficulty: Easy
Learning Objective: 14.05 Explain the characteristics of the balanced scorecard
11. The number of products returned by customers, the number of product defects and on-time delivery are measures
related to:
A. financial perspective.
B. customer perspective.
C. internal business processes.
D. learning and growth.
AACSB: Reflective
Difficulty: Easy
12. Employee satisfaction, absenteeism and employee suggestions implemented are measures related to:
AACSB: Reflective
Difficulty: Medium
13. Performance measures, which include cost, product quality and manufacture cycle time, are related to:
D.
learning and growth.
AACSB: Reflective
Difficulty: Medium
14. Performance measures, including shareholder value, residual value and cash flow are related to:
AACSB: Reflective
Difficulty: Easy
15. (p. 642) Which of the following are used by most successful organisa ons when evalua ng performance?
Financial performance measures Non-financial performance measures
A.
No Yes
B.
Yes No
C.
Yes Yes
D.
To a limited degree only Yes
AACSB: Reflective
Difficulty: Easy
16. An increasingly popular approach that integrates financial and customer performance measures with measures in the
areas of internal operations and innovation is known as:
A. the integrated performance measurement tool.
B. the balanced scorecard.
C. integrated efficiency.
D. benchmarking.
AACSB: Reflective
Difficulty: Easy
17. Southern Cruises Ltd, which operates in a very competitive marketplace, is considering four categories of
performance measures: (i) profitability (ii) customer satisfaction (iii) efficiency and quality and (iv) innovation. The
company assigns one manager to each ship in its fleet to oversee the ship's general operations. If Southern Cruises Ltd
desired to adopt a balanced scorecard approach, which measures should it use in the evaluation of managers?
A. i and ii
B. ii and iii
C. i, ii and iv
AACSB: Reflective
Difficulty: Easy
18. Measures that monitor the progress towards the organisation's goals are called:
A. lead indicators.
B. lag indicators.
C. benchmark indicators. monitor the progress --> lag indicator
D. progress indicators.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.07 Demonstrate the cause-and-effect linkages between measures in a strategic performance measurement system
19. Measures that monitor the factors that drive outcomes are called:
A. lead indicators.
B. lag indicators.
C. benchmark indicators.
D. cause and effect indicators.
AACSB: Reflective
Difficulty: Easy
20. Market share may be a lead indicator from:

A. a financial perspective.
B. a customer perspective.
AACSB: Reflective
Difficulty: Medium
21. Market share may be a lag indicator from:

A. a financial perspective.
B. a customer perspective.
AACSB: Reflective
Difficulty: Medium
22. Elements that derive from the competitive strategy and are essential to the success of the organisation are called:
A. key performance indicators.
B. critical success factors.
C. key performance factors.
D. critical success drivers.
AACSB: Reflective
Difficulty: Easy
23. On which of the following does a balanced scorecard approach focus on?
A. Strategic objectives
B. Critical success factors
C. Performance measures at all levels of the business
AACSB: Reflective
Difficulty: Easy
24. The ultimate performance measure is expressed in financial terms; however, it is often difficult to relate non-financial
measures to financial outcomes. Which of the following may be reasons for apparent success in improving non-financial
measures not translating into financial improvement?
A. Failure to utilise freed-up resources
B. Identifying incorrect critical success factors
C. Incorrect design of performance measures
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.10 Explain why improving non-financial performance may not always lead to improved financial performance
25. Which of the following may result in failure to utilise the freed up resources flowing from improved performance?
A. Difficulty in disposing of excess equipment
B. Inability to increase sales to take up the idle capacity
C. Imbalance between resources made idle and those required for increasing activity levels
AACSB: Reflective
Difficulty: Easy
26. The essential element of a Du Pont chart is that it:

A. includes financial measures.
B. includes key performance indicators.
C. includes key performance drivers.
D. identifies linkages between A, B and C.
AACSB: Reflective
Difficulty: Easy
27. Which of the following statements is/are true?
i. A Du Pont chart includes lag indicators for revenue measures.
ii. A Du Pont chart includes lead indicators for costs.
iii. A Du Pont chart fails to show any relationship between cost and invested capital.
iv. A Du Pont chart clearly shows the relationship between lead indicators and invested capital.
A. i, ii and iii
B. ii, iii and iv
C. i, ii and iv
AACSB: Reflective
Difficulty: Easy
28. The steps to be taken in the benchmarking process are:

i. establishing performance goals.
ii. identifying functions or activities to be benchmarked.
iii. implementing plans.
25413
iv. data collection and analysis.
v. selecting benchmark partners.
What is the correct sequence of these steps?
A. i, ii, iii, iv and v
B. ii, v, iv, i and iii
C. iii, ii, i, v and iv
D. ii, v, i, iv and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.12 Describe the basic steps of benchmarking and explain how benchmarking can improve competitiveness
cải thiện
29. The extent to which a business needs to improve to reach best practice is termed:
A. performance target.
B. performance goal.
C. performance gap.
D. performance driver.
AACSB: Reflective
Difficulty: Easy
30. Benchmarking that involves comparison with firms with similar interests and technologies is termed:
A. competitive benchmarking.
B. industry benchmarking.
C. process benchmarking.
D. external benchmarking.
AACSB: Reflective
Difficulty: Easy
31. Benchmarking that involves comparison with best practices that occur in any industry is termed:
A. internal benchmarking.
AACSB: Reflective
Difficulty: Easy
32. Normalisation is used to remove the effects of factors outside the control of the organisation in:
A. competitive benchmarking.
AACSB: Reflective
Difficulty: Easy
33. Which is the easiest form of benchmarking to establish?

A. Competitive benchmarking
B. Internal benchmarking
C. Industry benchmarking
D. Process benchmarking
AACSB: Reflective
Difficulty: Easy
34. An important concern for all companies in competitive markets is to access competitors' costs. It is clear that
competitors will not willingly supply cost data and thus other sources need to be explored. Which of the following may be
used to identify competitors' costs?
A. Publicly available data such as sales volume, market share and product mix
B. Industry databases
C. Company reports and analyses from stockbrokers
AACSB: Reflective
Difficulty: Easy
35.
Which of the following performance measures would be classified as a lag indicator for a coachline company whose objective was to
improve profitability?
A. Number of new passengers each month

B. Profitability of each trip
C. Cost of diesel fuel
D. Average ticket cost per kilometre
AACSB: Reflective
Difficulty: Medium
Learning Objective: 14.08 Formulate a strategy map and a balanced scorecard for an organisation
36. One of the signs that a firm's performance measurement system is inadequate is when performance measures show
improvement but this is not translated into profit. In which of the following circumstances may this occur?
i. Resources freed up through improvements may not have been utilised to improve profitability.
ii. Factors being measured are not critical success factors.
iii. Too many similar measures are used.
iv. There is a time lag between improved performance and improved profitability.
A. i, ii and iii
B. ii, iii and iv
C. i, ii and iv
D. i, iii and iv
AACSB: Reflective
Difficulty: Easy
37. Which of the following would be classified as a lead indicator for a bus company where customer satisfaction was their
objective?
A. Customer satisfaction measure
B. Number of new passengers per month
C. Number of bus accidents
D. Number of regular customers retained
AACSB: Reflective
Difficulty: Medium
Learning Objective: 14.08 Formulate a strategy map and a balanced scorecard for an organisation
38. In which of the following sectors has the balanced scorecard been widely used?
A. Not-for-profit
B. All of the sectors use balanced scorecards
C. Government
D. Business
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.09 Explain why balanced scorecard implementations are not always successful
39. According to the Du Pont chart, Return on Investment (ROI) links directly to:
A. Profit and revenues.
B. Revenues and costs.
C. Invested capital and revenues.
D. Profit and invested capital.
AACSB: Reflective
Difficulty: Medium
40. Organisations that aim to become and remain world-class will strive for:
A. continuous improvement. phấn đấu
B. greater profitability.
C. increased investment.
D. market leadership.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 14.11 Describe how continuous improvement can be built into a performance measurement system
41. Which of the following statements most correctly completes the following sentence that identifies some of the
limitations of traditional management accounting? 'Traditional management accounting focuses on '
A. financial performance measures, labour-related activity measures and cost elimination.
B. financial performance measures, volume-related activity measures and cost control.
C. non-financial performance measures, labour-related activity measures and cost elimination.
D. financial performance measures, labour-related activity measures, cost elimination, volume-related activity measures
and cost control.
AACSB: Reflective
Difficulty: Medium
42. Which of the following statements is most correct about the selection of performance measures?
A. The key stakeholders are the owners of the firm and therefore financial performance measures will always be the most
crucial.
B. In today's environment, firms are likely to have an appropriate mix of both financial and non-financial performance
measures.
C. In the modern manufacturing environment, it is likely that non-financial performance measures will replace financial
performance measures.
D. Because of the focus on critical success factors, it is likely that non-financial performance measures will replace
financial performance measures.
AACSB: Reflective
Difficulty: Easy
43. Assuming you must choose one measure only, which of the following non-financial performance indicators would most
likely be chosen to measure employee satisfaction?
A. Number of repeat orders
B. Percentage of absenteeism % vắng mặt
C. Number of complaints about service
D. Percentage of idle time
AACSB: Reflective
Difficulty: Easy
likely be chosen to measure quality?
B. Percentage of absenteeism
C. Machine downtime
AACSB: Reflective
Difficulty: Easy
likely be chosen to measure satisfaction with delivery?
B. Percentage of absenteeism
C. Number of complaints about service
D. Units produced
AACSB: Reflective
Difficulty: Easy
likely be chosen to measure productivity?
A. Units produced per month
B. Number of repeat orders
C. Percentage of absenteeism
AACSB: Reflective
Difficulty: Easy
likely be chosen as a measure of the production process?
B. Percentage of idle time thời gian nhàn rỗi
C. Percentage of absenteeism
D. Number of complaints about service
AACSB: Reflective
Difficulty: Easy
48. Which of the following non-financial indicators measures product availability?

A. Number of overdue deliveries
B. Percentage of stock outs
C. Downtime/total time
D. Percentage of warranty claims
AACSB: Reflective
Difficulty: Easy
49. Which of the following statements about performance measures is most correct and complete?
A. Most financial performance measures are lead indicators.
B. Most financial performance measures are lag indicators.
C. All non-financial performance measures are lead indicators.
D. All non-financial performance measures are lag indicators.
AACSB: Reflective
Difficulty: Medium
50. From the following statements about benchmarking, select the incorrect statement.
A. Benchmarking involves working towards best practice.
B. Benchmarking requires selection of a benchmarking partner.
C. Benchmarking requires measuring against another firm in exactly the same type of business.
D. Benchmarking involves continuous improvement.
AACSB: Reflective
Difficulty: Medium
51. What items or perspectives are measured in the balanced scorecard?

A. A firm can choose to measure whatever items it considers important
B. Financial and customer
C. Internal business
D. Learning and growth
AACSB: Reflective
Difficulty: Medium
52. A firm using the balanced scorecard has included among its strategies 'to improve bottom-line profit we need to
improve working conditions'. Which of the following statements best describes the evaluation of the firm's success in
implementing the strategy?
A. It is impossible to determine whether the strategy has been successful.
B. The only way to measure success is to survey employees.
C. A number of performance evaluation measures will need to be put in place, but even with favourable results on those
measures, the firm cannot conclude that the profit resulted from the improvement in working conditions.
D. If managers can observe employees' motivation they will have a good idea of the success or otherwise of the strategy.
AACSB: Reflective
Difficulty: Medium
53. Benchmarking exercises are most likely to focus on:

A. production activities of the firm.
B. activities of the firm that are reported in financial performance measures.
C. factors which are identified as critical success factors for the firm.
D. items the firm has identified as one of its 'weaknesses' in a SWOT analysis.
AACSB: Reflective
Difficulty: Easy
54. Which of the following comments best describes the appropriate application of benchmarking to a medium-sized
Australian company with a range of products and services specifically designed for local conditions and demands?
A. In the absence of a valid basis for comparison, benchmarking is unlikely to be informative in this case.
B. Benchmarking should be based on world best practice for the nearest equivalent organisation.
C. Efforts should be made to compare particular activities and processes with similar processes elsewhere, allowing for
differences in the business environment.
D. The use of benchmarking may inhibit originality in meeting the special features and unique needs of the firm's market.
AACSB: Reflective
Difficulty: Medium
55. The management accountant at Kaster Furniture Makers decides to include the following measures on their balanced
scorecard (BSC): customer satisfaction, rework costs, on-time delivery, average shopfloor personnel qualification and
sales growth in local markets. These measures belong to which BSC perspectives?
A.
Financial perspective Internal business process perspective

Sales growth in the local markets On-time delivery, customer satisfaction
Customer perspective Learning and growth perspective
Rework costs, average shopfloor personnel qualification
B.
Sales growth in the local markets Rework costs
On-time delivery, customer satisfaction Average shopfloor personnel qualification
C.
Rework costs On-time delivery
Sales growth in the local markets, customer satisfaction Average shopfloor personnel qualification
D.
Sales growth in the local markets; Rework costs On time delivery; Average shopfloor personnel qualification
Customer satisfaction
AACSB: Reflective
Difficulty: Medium
56. The internal business process perspective of a balanced scorecard may contain which of the following set of
performance measures?
A. Sales force efficiency, percentage of warranty claims, number of employees completed internal training
B. Defect costs, employee satisfaction rating, number of customer complaints
C. Sales force efficiency, scrap costs, percentage of machine downtime
D. Number of incorrect deliveries to customers, production cycle time, profit margin
AACSB: Reflective
Difficulty: Medium
57. Which of the following is the most appropriate lead indicator in relation to 'customer satisfaction rating'?
A. Market share
B. Number of customer complaints
C. Percentage of on-time delivery
D. Sales growth
AACSB: Reflective
Difficulty: Medium
58. Which of the following is the most appropriate lag indicator in relation to 'customer satisfaction rating'?
A. Sales growth
C. Percentage of employees with tertiary qualifications
D. Percentage of on-time delivery
AACSB: Reflective
Difficulty: Medium
59. Which of the following is the most appropriate lag indicator in relation to 'percentage of products passed final quality
inspection'?
A. Percentage of machine downtime
C. Percentage of on-time delivery
D. Number of employees who completed quality training
AACSB: Reflective
Difficulty: Medium
60. Which of the following about a strategic performance measurement system (SPMS) is incorrect?
A. It is a system that focuses on translating a strategy into financial and non-financial measures.
B. SPMS requires linking performance measures in cause-and-effect relationships.
C. SPMS always require the development of a strategy map first, followed by a balanced scorecard.
D. SPMS can be used by non-profit organisations.
AACSB: Reflective
Difficulty: Medium
61. Which of the following statements about the DuPont chart is incorrect?
A. It shows that return on investment can be decomposed into profit and costs.
B. It identifies lead indicators of revenue.
C. It identifies lead indicators of costs.
D. Its underlying assumption is that return on investment is the 'ultimate' goal.
AACSB: Reflective
Difficulty: Medium
62.
The balanced scorecard requires measures to 'cascade down' an organisation, this means:
A. Managers should start with the lag indicators and work downwards to identify lead indicators.
B. Managers should start with the lead indicators and work downwards to identify lag indicators.
C. Managers should produce reports that are highly aggregated and then allow users to 'drill down' each measure to find
more specific details. This avoids information overload.
D. Managers should ensure that objectives, performance measures and targets of organisational units and individual
managers are reflective of the objectives, performance measures and targets at the higher organisational levels.
AACSB: Reflective
Difficulty: Medium
63. Echo Beetle is an interior design and renovation management firm. The customer perspective of Echo Beetle's
balanced scorecard contain these two measures: (1) client satisfaction rating and (2) percentage of projects completed
on-time. Which of the following are the most appropriate measures on Echo Beetle's internal business process
perspective?
A. Adherence to project schedule (%), number of projects that passed internal quality inspection
B. Machine down time, productivity
C. Product defects, number of customer complaints
D. Time employees spent on training, cost per project
AACSB: Reflective
Difficulty: Hard
64. Which of the following is not a limitation of a non-financial measure?

A. Managers find it difficult to select measures because there is a wide choice of non-financial measures.
B. Managers find that some non-financial measures, such as customer satisfaction rating, lack integrity and are hard to
verify.
C. Non-financial measures are often too simplistic, such that managers find it hard to draw meaningful conclusions from
examining non-financial measures.
D. Non-financial measures do not always 'translate' to financial outcomes.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 14.04 Outline the limitations of relying on non-financial performance measures
1. Which of the following terms relate to e-commerce?

i. B2B
ii. C2B
iii. B2C
iv. EDI
A. i, ii and iii
B. ii, iii and iv
C. i, ii and iv
D. i, iii and iv
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.01 Describe supply chain management and how e-commerce technologies can be used to enhance performance
2. Which of the following activities does B2B include?

i. Purchasing and procurement
ii. Customer service
iii. Supplier management
iv. Inventory management
A. i, ii and iii
B. ii, iii and iv
C. i, ii and iv
AACSB: Reflective
Difficulty: Easy
3. Which of the following is a supplier cost?

i. Inwards inspection
ii. Outwards inspection
iii. Expediting raw material deliveries
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.04 Use activity-based approaches to determine the total costs of dealing with and managing suppliers
4. Which of the following are examples of inventory holding costs?
i. Inwards inspection
ii. Rental
iii. Opportunity cost
iv. Insurance
A. i, ii and iii
B. ii, iii and iv
C. i, ii and iv
D. i, iii and iv
AACSB: Reflective
Difficulty: Easy
5. Which of the following are examples of delivery costs?

i. Receiving
ii. Inwards inspection
iii. Opportunity cost
A. i and ii
B. ii and iii
C. All of the given answers
AACSB: Reflective
Difficulty: Easy
6. A valuable method of assessing supplier performance is to use a supplier performance index. This index is calculated
by:
A. total purchase price  total supplier costs
B. total supplier costs  total purchase price
C. average purchase price  average supplier costs
D. average supplier costs  average purchase price
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.05 Select measures to evaluate supplier performance
7. Which of the following are performance measures used by firms to assess their own performance in relation to
suppliers?
i. Percentage of orders processed by electronic means
ii. Number of expedited orders
iii. Response time to customer queries
iv. Reduction in the number of suppliers
A. i, ii and iii
B. ii, iii and iv
C. i, ii and iv
AACSB: Reflective
Difficulty: Medium
8. What types of businesses usually hold significant quantities of inventory?
A. Manufacturing and wholesale
B. Wholesale and retail
C. Manufacturing, wholesale and retail
D. Retail, manufacturing and service
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.06 Explain the principles underlying traditional inventory management and use the EOQ formula to calculate the optimal order
quantity
9. An example of an ordering cost is:

A. security.
B. time spent finding suppliers.
C. idle workers.
D. costs of disrupted production.
AACSB: Reflective
Difficulty: Easy
quantity
10. An example of a carrying cost is:

A. warehouse security.
B. time spent finding suppliers.
C. additional machinery set-ups.
D. transportation costs.
AACSB: Reflective
Difficulty: Easy
quantity
11. An example of a shortage cost is: CP lưu trữ

A. time spent finding suppliers.
B. idle workers.
C. transportation costs.
D. foregone interest on working capital.
AACSB: Reflective
Difficulty: Easy
quantity
12. What kind of costs are transportation and receiving costs?
A. Ordering costs
B. Shortage costs
C. Carrying costs
D. Production costs
AACSB: Reflective
Difficulty: Easy
quantity
13. Which of the following are shortage costs?

A. Cost of disrupted production
B. Lost sales resulting in unsatisfied customers
C. Loss of quantity discounts on purchases.
AACSB: Analytical
Difficulty: Easy
quantity
14. Specialty Manufacturing requires 5400 gadgets per year for production. The firm decides to order 120 gadgets at a
time. The costs of ordering are $50 per order and carrying costs per gadget are $2. Annual ordering costs are:
A. $1296.
B. $2250.
C. $2940.
D. $2000.
AACSB: Analytical
Difficulty: Easy
quantity
time. The costs of ordering are $50 per order and carrying costs per gadget are $2. Annual carrying costs are:
A. $288.
B. $240.
C. $140.
AACSB: Analytical
Difficulty: Easy
quantity
time. The costs of ordering are $50 per order and carrying costs per gadget are $2. The annual cost of the inventory policy
is:
A. $2370.
B. $1365.
C. $1584.
D. $2490.
AACSB: Analytical
Difficulty: Easy
quantity

i. The economic order quantity determines the optimum order size for individual inventory items.
ii. The economic order quantity cannot be used in a manufacturing organisation.
iii. The economic order quantity minimises the sum of the ordering and carrying costs.
A. i
B. ii
C. i and iii
AACSB: Reflective
Difficulty: Easy
quantity
18. The economic order quantity model:

A. determines ordering costs.
B. determines total costs involved in holding inventory.
C. is a mathematical tool for determining the order quantity that minimises the costs of ordering and holding inventory.
D. is a mathematical tool for determining shortage and ordering costs.
Difficulty: Easy
quantity
19.
Firm A has the following information:
What is the economic order quantity for Firm A?
A. 2000 =căn (2x10000x200/1)

B. 3000
C. 1133
D. 1414
AACSB: Analytical
Difficulty: Easy
quantity
20.
A firm has the following stock and carrying costs:
The economic order quantity is:
A. 490 units.
B. 346 units.
C. 424 units.
D. 692 units.
AACSB: Analytical
Difficulty: Easy
quantity
21. Lead time is:

A. the amount of time it takes to place an order.
B. the length of time it takes for goods to be received after an order is placed.
C. the length of time it takes for an item, in inventory, to be sold.
D. the length of time it takes to sell goods.
AACSB: Reflective
Difficulty: Easy
quantity
22. The reorder point is calculated by:
A. average usage  safety stock + lead time.
B. average usage  safety stock  lead time.
C. average usage  lead time + safety stock.
D. safety stock  lead time + average usage.
AACSB: Reflective
Difficulty: Easy
quantity
23. Artwright Graphics uses a special-purpose paper in 80 per cent of its jobs. The paper is purchased in l00-sheet
packages at a cost of $100 per package. Management estimates the cost of placing and receiving a typical order to be
$15 and the annual cost of carrying a package in inventory is $1.50. The firm uses 2600 packages each year and
production is constant all year. The lead time to receive an order is one week. No safety stock is kept. The reorder point
for the paper is:
A. 100 units.
B. 25 units.
C. 50 units.
D. 203 units.
AACSB: Analytical
Difficulty: Medium
quantity
24. James Bond Pty Ltd uses 960 tonnes of a particular chemical each year. Monthly usage fluctuates between 70 tonnes
and 90 tonnes. The lead time for each order is six weeks and the economic order quantity is 160 tonnes. The safety stock
for Bond's chemical would be:
A. 10 tonnes.
B. 20 tonnes.
C. 30 tonnes.
AACSB: Analytical
Difficulty: Medium
quantity
25. The Wonderlust Retail Company Ltd experiences relatively constant demand of 24 000 units per year for one of its
products. The product, a coffee-making machine, costs the firm $30. Placing an order costs $200 and annual carrying
costs are $2 per unit. The firm works 200 days per year and desires a safety stock of 300 units. The lead time for an order
is 15 working days. The economic order quantity for Wonderlust is:
A. 1549.
B. 3098.
C. 2191.
D. 2221.
AACSB: Analytical
Difficulty: Easy
quantity
26. Which of the following is not an assumption underlying economic order quantity?
A. Demand is known and constant.
B. The order is delivered as needed.
C. On average one-half of inventory is in stock at any one time.
D. Acquisition cost per unit is constant.
AACSB: Reflective
Difficulty: Easy
quantity
27. Which of the following statements regarding a just-in-time (JIT) system are true?
i. Materials are purchased and goods are produced only as required.
ii. Employees are highly skilled at single tasks in order to maintain quality control.
iii. A JIT system is characterised by small lot sizes.
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.07 Discuss the rationale underlying JIT systems, as well as their key features
28. A firm that uses a just-in-time purchasing philosophy probably:

A. has few suppliers.
B. has minimal inspection of purchased items at the receiving point.
C. uses an electronic data interchange (EDI) ordering system.
AACSB: Reflective
Difficulty: Medium
29. Which of the following statements about just-in-time purchasing, compared with traditional purchasing systems, is/are
true?
A. Quality control by the supplier is more crucial.
B. Adherence to delivery schedules by the suppliers is more crucial.
C. Vendors can be dropped or added quickly.
D. Quality control by the supplier is more crucial AND adherence to delivery schedules by the suppliers is more crucial.
important
AACSB: Reflective
Difficulty: Easy
30. Which of the following statements regarding the pull method is/are true?
i. Goods are produced in each manufacturing stage only as they are needed at the next stage.
ii. This method reduces work-in-process inventory.
iii. This method reduces inventory handling and its associated non-value-added cost.
A. i and ii
B. i and iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
31. A withdrawal kanban is used in conjunction with:

A. activity-based costing.
B. facilitating quick and inexpensive set-ups of machines.
C. initiating production in a preceding production stage.
D. measuring the correlation between a cost driver and a cost pool.
AACSB: Reflective
Difficulty: Easy
32. Which of the following costs should be included in customer profitability analysis?
i. Product costs
ii. Distribution
iii. Customer servicing
iv. Finished goods inspection costs
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
D. i, ii and iv
AACSB: Reflective
Difficulty: Medium
Learning Objective: 15.09 Use activity-based methods to undertake customer profitability analysis
33. Which of the following are customer costs at the market level?
i. Market research
ii. Regular sales calls
iii. Advertising campaigns
iv. Market development
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
AACSB: Reflective
Difficulty: Medium
34. Which of the following are customer costs at the customer level?
i. Regular sales calls
ii. Customer inquiries
iii. Acceptance of sales order
iv. Provision of samples to customers
A. i, ii and iii
B. i, iii and iv
C. i, ii and iv
AACSB: Reflective
Difficulty: Medium
35. Which of the following is an appropriate way to analyse customer profitability?

A. The cost of servicing a customer calculated as a percentage of the customer's gross margin.
B. The cost of servicing a customer as a percentage compared to company or industry norms.
C. The cost of servicing a customer calculated as a percentage of the customer's gross margin, examined over several
years.
AACSB: Reflective
Difficulty: Medium
36. Which of the following can have a negative impact on a customer's profitability?
A. Number of required sales contacts (phone calls, visits etc.)
B. Accounts receivable collection time
C. Purchase order amendments
AACSB: Reflective
Difficulty: Easy
37. Under a backflush costing system, conversion costs are:

A. applied to finished goods inventory.
B. applied to manufacturing overhead only.
C. applied directly to cost of goods sold.
D. applied to finished goods inventory OR applied directly to cost of goods sold.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.12 Recognise the difference between backflush costing and traditional costing, and account for cost flows using backflush
costing
38. Under a backflush costing system, the journal entry to purchase raw materials on account is:
A. debit work in process and credit accounts payable.
B. debit raw materials and credit cash.
C. debit raw and in-process inventory and credit accounts payable.
D. debit cost of goods sold and credit accounts payable.
AACSB: Reflective
Difficulty: Easy
costing
39. Which of the following statements regarding backflush costing is false?

A. Backflush costing is simpler and less expensive than traditional product costing.
B. Backflush costing provides more-detailed information than a job order costing system.
C. When using backflush costing, a cost-benefit decision needs to be made.
D. It is only likely to be used in an environment where production-related inventories are kept low.
AACSB: Reflective
Difficulty: Easy
costing

A. Just-in-time (JIT) is limited to manufacturing firms.
B. One feature of JIT production is demand-pull.
C. Downstream workstations are the driving force of JIT production.
D. JIT involves eliminating non-value-added activities.
AACSB: Reflective
Difficulty: Easy
41. The reason a just-in-time system focuses on the control of inventories is because:
A. they drive production lead times.
B. they are an expensive capital item for most firms.
C. they are what customers want.
D. they have non-value-added characteristics.
AACSB: Reflective
Difficulty: Medium
42. Select the best answer. Backflush costing is appropriate when:
A. both just-in-time (JIT) and activity-based costing (ABC) have been implemented.
B. JIT purchasing has been implemented.
C. both JIT production and JIT purchasing have been implemented.
D. reduced set-up times have resulted from JIT's introduction.
AACSB: Reflective
Difficulty: Easy
costing
43. Select the statement that best completes the following sentence for all possible scenarios: 'Considering the entire
value chain is important for management accounting in today's competitive environment because '
A. the value chain actually extends back to suppliers and forward to customers.
B. production is only one very small part of the value chain.
C. traditional systems have focused on the engineered costs of production rather than the discretionary costs of the other
aspects of the value chain.
D. the study of all aspects and linkages in the chain may provide opportunities for cost reduction that are not evident when
focusing on one aspect only.
AACSB: Reflective
Difficulty: Medium
44. The analysis of the cost of products purchased and associated customer driven costs is known as:
A. customer profitability analysis.
B. supplier cost analysis.
C. customer cost analysis.
D. product contribution analysis.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.08 Explain how customer relationship management (CRM) can be used to create long-term relationships with customers
45. Customer value is an important part of activity-based management and it enables an organisation to achieve both cost
reduction and improved customer value through the use of which of the following?
i. Identifying major opportunities for cost reduction.
ii. Determining root causes of these costs.
iii. Developing programs to eliminate the causes of these costs.
iv. Introducing performance measures to monitor the effect of these programs.
A. i, ii and iv
B. i, ii and iii
C. ii, iii and iv
D. All the given answers
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.08 Explain how customer relationship management (CRM) can be used to create long-term relationships with customers
46. Time-based management is concerned with the elimination of idle time, which generates non-value-added costs in
which of the following circumstances?
A. The buildup of inventories
B. Loss of customers
C. Delay in sales revenue generation
AACSB: Reflective
Difficulty: Medium
Learning Objective: 15.11 Explain how time-based management can be used to manage time drivers, cost and other sources of customer value
47. Customer response time may be defined as:

A. time between receipt of the customer order and placing that order in production.
B. time between customer placing an order and customer receiving the completed order.
C. time between receipt of order and delivery to customer.
D. time between receipt of order and production commencing.
AACSB: Reflective
Difficulty: Easy
48. The production lead time may be defined as:

A. the duration of the production process.
B. time between receipt of order and when production commences.
C. time between receipt of order and completion of manufacture.
D. time between when the order is received by production and the goods being ready for delivery.
Difficulty: Easy
49.
The following dates apply to a specific order processed by Hamilton Ltd:
What is the production lead time?
A. 4 days
B. 7 days
C. 10 days
D. 11 days
AACSB: Analytical
Difficulty: Medium
50.
What is the customer response time?
A. 21 days
B. 7 days
C. 10 days
D. 13 days
AACSB: Analytical
Difficulty: Medium
51.
What is the order receipt time?
A. 4 days
B. 7 days
C. 13 days
D. 21 days
AACSB: Analytical
Difficulty: Medium
52.
What is the waiting time?
A. 4 days
B. 7 days
C. 10 days
D. 13 days
AACSB: Analytical
Difficulty: Medium
53.
What is the production time?
A. 4 days
B. 10 days
C. 13 days
D. 21 days
AACSB: Analytical
Difficulty: Medium
54. Break-even time may be defined as:
A. the time from commencement of production of a new product to the point where sufficient profit has been generated to
repay the original investment.
B. the time from the original concept to the point where sufficient profit has been generated to repay the original
investment.
C. the time from the first delivery to a customer of a new product to the point where sufficient profit has been generated to
repay the original investment.
AACSB: Reflective
Difficulty: Easy
55. The break-even time has which of the following characteristics?

i. It cannot be established until after the product development cycle is completed.
ii. It encourages incremental projects.
iii. It discourages major projects that take a long time.
iv. It measures cash flow not profit.
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
AACSB: Reflective
Difficulty: Easy
56.
Nonsuch Ltd wishes to know the break-even point on its product, ADV, and provides the following data.
What is the break-even point in years?
A. 3
B. 4
C. 5
D. 6
AACSB: Analytical
Difficulty: Medium
57. Average cycle time is estimated by:
A. production time  value of goods produced.
B. total processing time  total number of units produced.
C. total processing time  number of good units produced.
D. number of good units produced  total processing time.
AACSB: Reflective
Difficulty: Easy
58.
GoGo Furniture needs to purchase glass panes to make glass top coffee tables. Last year GoGo Furniture had two suppliers, BolBol
and TolTol. Based on last year's experience with these two suppliers, GoGo provides you with the following supplier related information:
What is the total amount of order-level costs relating to BolBol?
A. $1050
B. $4050
C. $6300
D. $7050
AACSB: Analytical
Difficulty: Medium
59.
GoGo Furniture needs to purchase glass panes to make glass top coffee tables. Last year GoGo Furniture has two suppliers, BolBol
and TolTol. Based on last year's experience with these two suppliers, GoGo provides you with the following supplier related information:
The total costs of ownership of BolBol and TolTol are, respectively:
A. BolBol $10 050; TolTol $4050

B. BolBol $15 050; TolTol $6050
C. BolBol $50 300; TolTol $120 600
D. BolBol $65 050; TolTol $126 050
AACSB: Analytical
Difficulty: Medium
60.
GoGo Furniture needs to purchase glass panes to make glass top coffee tables. Last year GoGo Furniture has two suppliers, BolBol
and TolTol. Based on last year's expernece with these two suppliers, GoGo provides you with the following supplier related information:
The supplier performance index of BolBol and TolTol are, respectively:
A. BolBol 0.30; TolTol 0.05

B. BolBol 1.20; TolTol 1.03
C. BolBol 1.30; TolTol 1.05
D. BolBol 1.51; TolTol 0.40
AACSB: Analytical
Difficulty: Medium
61. Doron Ltd has just computed the supplier performance index (SPI) of the company's two suppliers, Xema and Zetta.
Xema's SPI is 2.11 and Zetta's SPI is 0.99. Which of the following statements is correct?
A. Xema is a preferred supplier because it has a higher SPI than Zetta.
B. Xema is a preferred supplier because its SPI is greater than 1.0.
C. Both suppliers are considered poor quality suppliers, because their SPI is higher than 0.50.
D. The SPI indices suggest that for every $1 purchase price, Doron has to incur $2.11 supplier activity costs for Xema and
$0.99 activity costs for Zetta.
AACSB: Reflective
Difficulty: Medium
62.
GoGo Furniture has collected the following customer-related information:
The total order level cost is:
A. $6000
B. $16 000
C. $24 500
D. $29 000
AACSB: Analytical
Difficulty: Medium
63.
The total customer level cost is:
A. $8500
B. $18 500
C. $30 500
D. $35 500
AACSB: Analytical
Difficulty: Medium
64.
The total market level cost is:
A. $8500
B. $17 000
C. $21 500
D. $27 000
AACSB: Analytical
Difficulty: Medium
65. Which of the following set of measures are appropriate in monitoring 'customer retention'?
A. Proportion of sales from existing customers, number of repeat purchases, sales growth from customers using loyalty
cards
B. Customer satisfaction rating, number of repeat purchases, customer acquisition costs
C. Customer satisfaction rating, sales growth from customers using loyalty cards, customer profitability per quarter
D. Proportion of sales from existing customers, market share, profit attributable to customers in the 21-30 age group
AACSB: Reflective
Difficulty: Medium
Learning Objective: 15.10 Measure customer performance and understand the relationships between various customer performance measures
66. Which of the following is a likely cause for a longer-than-expected production lead time?
A. The order was received later than expected.
B. The delivery truck has broken down on the way to the customer.
C. The order was lost after the customer sent it to the company.
D. There was excessive idle time in the production process.
AACSB: Reflective
Difficulty: Medium
67. A customer has placed an order with Cyborg Computers for a custom-made computer. However, as a result of a
system error, the order was lost. It took the sales representative three days to locate the order again. Once the order was
located, the sales representative sent the order to the production department. This error is likely to negatively affect which
of the following?
A. Production lead time and delivery time
B. Customer response time and order receipt time
C. Customer response time and delivery time
D. Order receipt time and delivery time
AACSB: Reflective
Difficulty: Medium
68. A formal agreement between organisations with the intention to share resources is known as a:
A. collaborative arrangement.
B. mutual agreement.
C. strategic alliance.
D. common objective.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.02 Recognise the value of creating collaborative relationships with suppliers
69. A firm is likely to develop collaborative relationships with suppliers to help minimise supplier and inventory-related
costs when the strategic focus of the firm is:
A. growth leadership.
B. differentiation strategy.
C. segmentation strategy.
D. cost leadership.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 15.02 Recognise the value of creating collaborative relationships with suppliers
70. When selecting new suppliers, which of the following would not be part of the selection criteria?
A. Supplier performance history
B. Cheapest price
C. Communication systems
D. Geographical location
AACSB: Reflective
Difficulty: Medium
Learning Objective: 15.03 Explain the criteria that may be used to select suppliers
71. The activity where there is an additional cost incurred by a buying firm as the result of a quality problem is known as:
A. a supplier level activity.
B. an order level activity.
C. a unit level activity.
D. an organisation level activity.
AACSB: Reflective
Difficulty: Medium
72.
If the total supplier activity costs were $74 000; price per unit was $1.70; and total units purchased were 12 000, the supplier
performance index would be:
A. 6.166.
B. 10.483.
C. 5.223.
D. 3.627.
AACSB: Reflective
Difficulty: Easy
73. The core customer measure at which an organisation attracts and wins new customers is known as customer:
A. acquisition.
B. satisfaction.
C. retention.
D. profitability.
AACSB: Reflective
Difficulty: Easy
74. Identify and define the five core customer measures. To support your answer, provide an example for each core
measure.
AACSB: Reflective
Difficulty: Medium
Chapter 16 Testbank
Student: ___________________________________________________________________________
1. Which statement is incorrect?
A. Total quality management (TQM) relates only to the manufacturing processes.

B. TQM is customer-driven.
C. TQM focuses on the flow of activity across the organisation.
D. Continuous improvement is a key element of TQM.
2. Which of the following is not a type of cost of quality?
A. External failure cost

B. Productive inefficiency cost
C. Prevention cost
D. Appraisal cost
3. Internal failure costs refer to costs incurred:
A. in determining whether defects exist

B. because defective products or services are delivered to customers
C. in determining customer demand
D. when defective products or services are detected before leaving the business
4. External failure costs refer to costs incurred:
A. in preventing defects
B. in determining whether defects exist
C. because defective products or services are delivered to customers
5. Appraisal costs refer to costs incurred:
C. because defective products or services are delivered to customers
D. in determining customer demand
Downloaded by Dinh Ha (dtnh081099@gmail.com)

6. Prevention costs refer to costs incurred:
7. Quality of conformance refers to:
A. the degree to which the product meets its design specifications

B. the extent to which the actual product is designed for its intended use
C. an ideal that can never be attained
D. a cost control that is achievable
8. In order to have a high-quality finished product:
A. appraisal costs must exceed external failure costs

B. the product's design specifications must meet customers' expectations
C. the product must meet the standards of its design
D. the product's design specifications must meet customers' expectations AND the product must meet the standards
of its design
A. Quality of design and quality of conformance are both important concepts in the measurement of excellence.
B. Quality of design is the degree to which a product meets design specifications.
C. Quality of conformance is the degree to which a product conforms to customer expectations.
D. All of the given answers.
A. Cost of quality reports analyse quality costs as a percentage of total sales.

B. An increase in quality costs indicates deterioration in quality performance.
C. There can be interactions between the quality costs.
D. The traditional view of quality costs is that total quality costs can be minimised by driving the defect rate down to
the acceptable quality level.

11. A series of pictures that shows the flow of activities that make up a process is called:
A. Pareto analysis
B. A process flow chart
C. A fishbone diagram
D. An Ishikawa diagram
12. Appraisal costs in quality programs are incurred:
A. to value the fixed assets of the firm

B. to detect which production units do not conform to specifications
C. to value ending work in process
D. by external appraisers to value the costs of external failures
13. Which of the following is not a characteristic of total quality management?
A. A focus primarily on internal customers

B. All members of the organisation are responsible for quality measures
C. Statistical process control
D. Continuous improvement measures

14. The following are the expected quality costs for a firm for a selected period.
Calculate the amount of prevention costs.
A. $32 000
B. $29 000
C. $31 000
D. $33 000

Calculate the amount of appraisal costs.
A. $10 500
B. $9000
C. $11 000
D. $8500

Calculate the amount of internal failure costs.
A. $5000
B. $7500
C. $8500
D. $9500

Calculate the amount of external failure costs.
A. $33 000
B. $37 500
C. $42 000
D. $37 000
18. Consider a situation where an activity-based costing system is in use rather than a conventional volume-based
costing system. Which of the following statements is/are true?
A. The use of activity-based costing eliminates the need to consider qualitative factors.
B. When an activity-based costing system is used, facility level costs will have to be analysed differently to the way
they would be under a traditional volume-based costing system.
C. When an activity-based costing system is used, unit level costs will have to be analysed differently to the way they
would be under a traditional volume-based costing system.
D. None of the given answers.
19. Which of the following are contemporary approaches to managing costs?
A. Life cycle costing

B. Target costing
C. Both life cycle costing and target costing
D. Neither life cycle costing nor target costing

20. Which of the following statements is/are true in relation to activity-based management (ABM)?
i. ABM is primarily concerned with customer value.
ii. Activity-based costing is the primary source of data for ABM.
iii. ABM is primarily concerned with the control of inputs.
A. i and ii
B. i and iii
C. ii and iii
21. Which of the following activities are non-value-added activities?

i. Inspect work in process
ii. Process sales orders
iii. Repair drilling machine
iv. Move raw material to the work station
A. i, iii and iv
B. i, ii and iv
C. i, ii and iii
D. ii, iii and iv
22. Which of the following activities are value-added activities?

i. Preventive maintenance
ii. Repairs to machinery
iii. Move work-in-process inventory between machines
iv. Process receivables
A. i and ii
B. iii and iv
C. i and iv
D. ii and iv

ĐÚng i. Determining the cause of non-value-added activities requires cost driver analysis.
ii. Building activities into processes will quickly identify the causes of non-value-added activities.
iii. Identifying root cause cost drivers is sufficient to enable non-value-added activities to be eliminated.
A. i and ii
B. ii and iii
C. i and iii

24. Which of the following are possible root-cause cost drivers?
i. Complexity
ii. Defects produced
iii. Plant layout
iv. Inadequate employee training
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
25. Which of the following is a possible cause of a firm's reluctance to implement activity-based management (ABM)?
i Employee resistance to change.
ii. Lack of understanding of the benefits of ABM.
iii. Significant resources required.
iv. Focus is on value-added activities.
A. i, ii and iii
B. i, ii and iv
C. ii, iii and iv
D. i, iii and iv
26. Which of the following statements about re-engineering is/are true?

i. Re-engineering is the complete redesign of a process in an attempt to find new creative ways to accomplish
objectivity.
ii. Re-engineering involves more of a ‘giant leap' then the concept of activity-based management.
iii. Re-engineering may entail high risks.
A. i and ii
B. i and iii
C. ii and iii

27. The following steps are required to implement business process re-engineering.
i. Establish goals
ii. Reorganise work flow
iii. Prepare a business process map
iv. Implementation
What is the correct order for these steps?
A. i, ii, iii and iv

B. i, iii, ii and iv
C. iii, i, ii and iv
D. ii, iii, i and iv
28. Which of the following do conventional costing systems ignore?

i. Production costs
ii. Design costs
iii. Development costs
iv. Marketing and customer service costs
A. i, ii and iii
B. i, ii and iv
C. ii, iii and iv
D. i, iii and iv
29. If the target selling price is $120 and the target profit margin is a 40 per cent mark-up on cost, what is the target
cost?
A. $48
B. $72
C. $85.70
D. $34.30
30. Carwell has introduced a new product with a target price of $150 and a target cost of $90. What is the target
percentage margin on sales?
A. 20%
B. 33.3%
C. 40%
D. 50%

31. Orwell is about to introduce a new product and has established a target cost of $144 and a target margin on sales of
40 per cent. What is the target price?
A. $200
B. $225
C. $240
D. $280
32. Cartel Ltd has introduced a new product with a target price of $240 and a profit requirement of 33.3 per cent on
sales. What is the target cost?
A. $120
B. $160
C. $180
D. $200
33. Beaufort Ltd is introducing a new range of products. It has established that the target selling prices of the three
products are $120, $150 and $210. Beaufort requires a profit mark-up on cost of 33.3 per cent for all its products.
What percentage of the target prices is the target cost in each case?
A. 50%
B. 60%
C. 66.7%
D. 75%
34. In the process of target costing, where is the concentration of effort required to have the greatest impact on cost
savings?
i. Product design
ii. Process design
iii. Production costs
iv. After sales costs
A. i and ii
B. ii and iii
C. i and iii
D. ii and iv

35. The following four tasks take place in the concept known as target costing.
i. Value engineering
ii. Establish a target price
iii. Establish a target cost
iv. Establish a target profit
Which of the following correctly depicts the sequence of these tasks?
A. iii, i, iv and ii
B. ii, iv, iii and i
C. ii, iii, i and iv
D. iii, ii, i and iv
36. When we consider the life cycle sequence of a product, the majority of costs for a typical product have been
committed by the end of:
A. product planning
B. design and development
C. customer support
D. production
37. Which of the following are considerations in determining a target selling price?
i. Customer expectations
ii. Competitors' actions
iii. Product cost
iv. Strategic objectives
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
D. i, ii and iv
38. Given the current design and resources, the cost that a new product could be manufactured for, including upstream
and downstream costs, is known as:
A. target cost
B. allowable cost
C. current cost
D. strategic cost

39. A systematic approach in analysing the product and process design, with the aim of eliminating any non-value-added
elements, to achieve the target cost is known as:
A. component level target costs

B. value engineering
C. strategic cost reduction
D. cost reduction objective
40. Which of the following are key features of target costing?

i. Cross functionality
ii. Market price driven
iii. Focus on customer value
iv. Based on life cycle management
A. i, ii and iii
B. i, iii and iv
C. i, ii and iv
41. Which of the following time drivers contribute to non-value-added activities?

i. Poor quality
ii. Efficient inventory management hiệu suất quản lí HTK
iii. Bottlenecks in production
iv. Poorly structured delivery processes
A. i, ii and iii
B. i, iii and iv
C. i, ii and iv
42. What management approaches might be used to overcome the problem of poorly structured production processes?
i. Value analysis to identify and remove non-value-added activities.
ii. Implement continuous improvement processes.
iii. Process re-engineering.
A. i
B. i and iii
C. iii

43. The contemporary management tool that focuses on restrictions that limit a firm's ability to maximise long-run profit is
commonly known as:
A. linear progression
B. constraint manipulation
C. theory of constraints bắt ép
D. game theory
44. The theory of constraints focuses on:
A. idle time
B. poor quality
C. cost reduction
D. bottlenecks
45. Which of the following methods may be used to overcome bottlenecks?

i. Increase manpower training
ii. Increase overtime
iii. Reduce work in process
iv. Additional plant and equipment
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
D. i, ii and iv
46. Throughput accounting uses which of the following measures of the effects of bottlenecks?
i. Financial measures of inventory
ii. Financial measures of throughput
iii. Non-financial measures of throughput
iv. Operating expenses
A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
D. i, ii and iv

47. When throughput increases with no change in operating expenses or inventory levels, then:
A. profit and return on investment will increase and cash flow will decrease
B. profit will increase and return on investment and cash flow will decrease
C. profit, return on investment and cash flow will increase
D. profit and cash flow will increase and return on investment will decrease
48. When inventory decreases with no change in throughput or operating expenses, then:
A. profit will increase and return on investment and cash flow will decrease
B. profit, return on investment and cash flow will increase
C. profit and cash flow will increase and return on investment will decrease
D. profit, return on investment and cash flow will decrease
49. The removal of bottlenecks has which of the following benefits?

i. Increases customer value
ii. Reduces costs
iii. Improves quality
iv. Increases profitability
A. ii, iii and iv

B. i, iii and iv
C. i, ii and iv
50. Which of the following statements is consistent with target costing?
A. It does not consider market share or sales volume.

B. Market prices are used to determine product costs.
C. Product design has little or no regard to the long-run manufacturing costs.
D. It is described as a reactive costing strategy, rather than a proactive costing strategy.
51. Which of the following statements is not specifically related to product life cycle costing?
A. It considers that costs in areas such as design, marketing and customer service should be included in the true
cost of the product.
B. Costs are accumulated in responsibility centres, with managers of each centre being accountable for costs,
revenues or return on investment.
C. Cost is more effectively managed by more attention to design of the process rather than effort spent on correcting
an out-of-control process.
D. The amount of cash generated depends in part on the stage of the product life cycle.

52. From a customer perspective, a value-added cost is one which:
A. increases the value of the product to the customer

B. the firm has determined is essential in the production of the product
C. on which the firm must focus
D. increases the value of the product to the customer, and the customer is prepared to pay for the added value
53. From the following list of costs for a kitchen manufacturer, determine the amount of value-added cost.
A. $57 000
B. $54 000
C. $58 000
D. $59 000
54. From the following list of costs, determine the amount of non-value-added cost.
A. $17 000
B. $18 000
C. $16 000
D. $8000

55. There are certain features of traditional management accounting. Which of the following is/are not a focus of life
cycle costing?
A. Annual profit calculations

B. Focus on production costs only
C. Calculation of cost variances
D. Annual profit calculations AND focus on production costs only
56. Which of the following statements best describes performance measurement in line with continuous improvement?
A. Firms select relevant performance measures.

B. The measure will keep changing over time.
C. The measure will keep improving over time.
D. The firm targets an area to improve, moving the target until the desired outcome is achieved. The firm is then
likely to target another area for improvement.
57. Assume a production process that typically moves the following number of products through its five processes:
Assuming there is room for improvement in all processes, in what order of processes would the firm apply the theory
of constraints to remove the bottlenecks?
A. 4 first, and then any order

B. 2, 1, 3, 5, 4
C. Work must be carried out in order of the physical flow of activities, i.e. 1, 2, 3, 4, 5
D. 4, 5, 3, 1, 2
58. Which of the following stages are considered in a product's life cycle?
i Preliminary design
ii. Product pricing
iii. Product decline
A. i and ii
B. i and iii
C. ii and iii
D. i

59. Assuming one answer only can be chosen, which of the following is a non-value-added activity for a manufacturing
firm?
A. Machining a metal plate in the factory.

B. Packing finished product into cartons for delivery.
C. Moving partly finished production to storage.
D. Inserting a warranty-card and instruction booklet into the boxed product.
60. Six sigma refers to:
A. business improvement methodology that involves rigours data analysis

B. The amount of quality deviation that is considered acceptable in total quality management
C. The formal quality accreditation relating to a series of standards recognised by an international quality setting
agency
D. The six key features of total quality management
61. Lazy Linda Kitchen Appliances has just begun the development of a new energy saving, voice-activated toaster. The
accountant, Linda Rest, is preparing a life cycle budget. Which of the following costs should be included?
i. The salaries of the designers dedicated to the design of the new toaster.
ii. The committed costs associated with the acquisition of a new machine which manufacturers the voice recognition
component of the toaster.
iii. The cost of producing the new toasters.
iv. The costs associated with establishing a distribution network for the new product.
A. i, ii and iii
B. i, iii and iv
C. ii and iii
D. All of these costs should be included

62. Lazy Linda Kitchen Appliances manufacturers small kitchen appliances like toasters and blenders. Last month Lazy
Linda recorded the following quality costs:
Lazy Linda's total external failure cost was:
A. $6000
B. $9000
C. $12 000
D. $15 000

Lazy Linda's total appraisal cost was:
A. $5000
B. $9500
C. $12 000
D. $18 000

Lazy Linda's total prevention cost was:
A. $5000
B. $11 000
C. $14 000
D. $15 500

Lazy Linda's total internal failure cost was:
A. $9500
B. $7500
C. $5000
D. $2000
66. Lazy Linda Ltd manufactures small kitchen appliances. One of the non-value added activities identified by the
production manager is ‘reworking the electrical component in a toaster'. Which of the following is a likely root cause
cost driver?
A. The number of products requiring rework.

B. The quality of the completed toaster.
C. The quality of the electrical wiring purchased from suppliers.
D. Idle labour hours.

67. Three processes are involved in the manufacturing of Product X. First, the components go through the Machining
Process, then the Assembling Process, and finally the Packaging Process. The hourly production capacity of the
three processes is 500 units, 600 units and 800 units respectively. How many units of Product X can be produced in
one hour?
A. 500 units
B. 600 units
C. 800 units
D. 633 units
68. Three processes are involved in the manufacturing of Chemical Z. First, the raw mixture goes through the Mixing
Process, then the Heating Process, and finally the Bottling Process. The hourly production capacity of the three
processes is 400 units, 600 units and 400 units respectively. Assume that a recent process improvement has
resulted in a 20 per cent increase in the capacity of the Bottling Process. This process improvement will:
A. Increase the production of Chemical Z by 80 units per hour

B. Increase the production of Chemical Z by 120 units per hour
C. Increase the production of Chemical Z by 200 units
D. Have no effect on the production level per hour
69. Which of the following statements about throughput accounting is false?
A. Throughput accounting is criticised for being short-term focus

B. Under throughput accounting, operating expenses are not relevant
C. Throughput accounting measures the financial effects of bottlenecks
D. Under throughput accounting, inventory is considered undesirable
70. Business process re-engineering is a radical approach to managing costs that involves a complete rethink of the
processes undertaken to achieve major improvements in cost and quality.
True False
71. When a company uses an activity-based management system to reduce costs, the first step in the process is to
determine the real causes of the costs.
True False
72. Quality costs – failure, prevention and appraisal – can be graphed to determine the acceptable quality level of a firm.
True False

73. One way to manage throughput efficiently is to use a theory of constraints approach in an attempt to identify and
remove bottlenecks in the system of production.
True False
74. If a company has quality accreditation (e.g. ISO 9000), the company is then known to practice total quality
management.
True False
75. One approach to cost reduction is to undertake value engineering where an analysis of design and production takes
place with an aim to identify and eliminate non-value-adding activities.
True False
76. Cost drivers and a process perspective, are two of the main differences between contemporary and conventional
approaches to cost management.
True False
77. A target selling price can be calculated by deducting the target margin from the target cost.
True False
78. If a firm needs to identify the root cause cost drivers of activities, the firm needs to undertake a thorough cost driver
analysis.
True False

1. Which statement is incorrect?

(p. 758)
Total quality management (TQM) relates only to the manufacturing processes.

B. TQM is customer-driven.
C. TQM focuses on the flow of activity across the organisation.
D. Continuous improvement is a key element of TQM.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 16-11 Describe the key features of a total quality management system
2. Which of the following is not a type of cost of quality?

(p. 755)
A. External failure cost

Productive inefficiency cost
C. Prevention cost
D. Appraisal cost
Difficulty: Easy
Learning Objective: 16-10 Describe the four types of quality costs, and prepare and interpret cost of quality reports
3. Internal failure costs refer to costs incurred:

(p. 755)
A. in determining whether defects exist

when defective products or services are detected before leaving the business
Difficulty: Easy
4. External failure costs refer to costs incurred:

(p. 755)
because defective products or services are delivered to customers
Difficulty: Easy

1. Which of the following statements regarding price is/are true?

i. Prices are determined by the market, subject to the constraint that costs must be covered in the long run.
ii. Prices are based on costs, subject to the constraint that customers and competitors will exert an influence.
ii. A balance of market forces and cost is important when making pricing decisions.
A. i
B. ii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20.01 List and describe the major influences on pricing decisions
2. Which of the following is not an issue when making a pricing decision?

A. Legal issues like collusion and oligopolies.
B. Political considerations
C. Environmental regulations
D. Competition
AACSB: Reflective
Difficulty: Easy
3. The demand curve is also called the:

A. total revenue curve.
curve: đường cong
B. marginal revenue curve.
C. average revenue curve.
D. marginal cost curve.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20.02 Explain and use the economic profit-maximising pricing model
4. The curve that shows the relationship between sales price and quantity sold is called the:
A. marginal revenue curve.
B. average cost curve.
C. demand curve.
D. revenue curve.
AACSB: Reflective
Difficulty: Easy
5. The marginal revenue curve:
A. shows the changes in total revenue that accompany a change in quantity sold.
B. shows the relationship between sales price and units sold.
C. shows the relationship between sales revenue and quantity.
D. shows the average price at which any particular quantity can be sold.
AACSB: Reflective
Difficulty: Easy
6. Which of the following statements is false regarding price elasticity? tìm câu SAI
A. The impact of price changes on sales volume is defined as price elasticity.
B. Demand is elastic if a price increase has a large negative impact on sales volume.
C. Demand is elastic if price changes have no impact on sales quantity. elastic: đàn hồi, dãn ra
D. Demand is inelastic if price changes have little or no impact on sales quantity.
AACSB: Reflective
Difficulty: Easy
7. Which of the following statements regarding the profit maximising model is/are true?
i. The profit maximising model is limited because a firm's demand and marginal revenue are difficult to discern.
ii. The marginal revenue and marginal cost model is valid for all forms of market.
iii. Costing systems are not usually designed to measure the marginal changes in cost incurred as production and sales
increase unit by unit.
A. i
B. ii and iii
C. iii
D. i and iii
AACSB: Reflective
Difficulty: Easy
8. (p. 953)
In the economic pro t-maximising pricing model, how do the total revenue and total cost curves generally behave?
Total revenue Total cost
A.
Upward sloping at increasing rate Upward sloping at decreasing rate
B.
Upward sloping at increasing rate Upward sloping at constant rate
C.
Upward sloping at decreasing rate Upward sloping, rate decreases, then
increases
D.
Downward sloping at constant rate Downward sloping, then upward sloping
AACSB: Reflective
Difficulty: Easy
9. (p. 953)
In the economic pro t-maximising pricing model, how do the marginal revenue and marginal cost curves generally
behave?
Marginal revenue Marginal cost
A.
Downward sloping Downward sloping
B.
Downward sloping Horizontal (zero slope)
C.
Downward sloping U-shaped
D.
Upward sloping U-shaped
AACSB: Reflective
Difficulty: Easy
10. Managers base prices on product costs due to many reasons. Which of the following is not one of the reasons?
A. Most companies sell many products and services and cost-based pricing provides a simple and direct approach.
B. Cost-based pricing provides a good starting point for managers.
C. The cost of a product or service provides a lower limit or floor, below which the price cannot be set in the long run.
D. Cost-based pricing is useful for standard cost analysis.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20.03 Explain value-based, economic-value and cost-price pricing strategies, and use these methods to calculate prices
11. Which of the following represents the cost-based pricing formula?

A. Price = cost + (mark-up %  cost)
B. Price = cost + mark-up %
C. Price = mark-up %  cost
D. Price = cost + (mark-up % + cost)
AACSB: Reflective
Difficulty: Easy
12. Which of the following is not an advantage of the variable cost pricing formula?
A. Variable cost analysis is consistent with cost volume profit analysis.
B. Variable cost data does not require the allocation of common fixed costs to individual product lines.
C. Variable costs help managers understand the profit implications of changes in price.
D. It is cost effective to use because it is required for external reporting.
AACSB: Reflective
Difficulty: Medium
13. If the average invested capital is $300 000 and the target return on investment is 20 per cent, what is the target
profit?
A. $50 000 target profit = invested capital x target return on investment
B. $60 000 =300000 x 20%
C. $70 000
D. $75 000
AACSB: Analytical
Difficulty: Easy
14. Which of the following formulas represents the mark-up percentage on full cost?
A. Mark-up % = target profit / (annual volume  total cost per unit)
B. Mark-up % = target profit  total cost per unit
C. Mark-up % = target profit  annual volume
D. Mark-up % = (target profit  total cost per unit) / annual volume
AACSB: Reflective
Difficulty: Easy
15. If the target profit is $60 000 for an annual volume of 480 units, the total annual fixed costs are $168 000 and the total
variable cost per unit is $450, then what is the mark-up percentage on total variable cost?
A. 15.6%
B. 13.5%
C. 105.6% = (60+168)/(450x480)
D. 115.6%
AACSB: Analytical
Difficulty: Easy
16. If the target profit is $60 000 for an annual volume of 480 units, the total annual fixed costs are $168 000 and the total
variable cost per unit is $450, then what is the mark-up percentage on full cost?
A. 15.6%
B. 13.5%
C. 105.6%
D. 51.4%
AACSB: Analytical
Difficulty: Easy
17. Which of the following statements regarding cost-plus pricing is/are true?
A. Cost-plus pricing formulas incorporate both fixed and variable costs.
B. Cost-plus pricing formulas establish a starting point in setting prices.
C. Cost-plus pricing formulas are useful for updating prices for existing products.
AACSB: Reflective
Difficulty: Medium
18. Which of the following statements about prices is false?

A. Prices must cover all costs and a normal profit margin.
B. A variable cost-plus pricing formula requires a higher mark-up percentage than a total cost-plus pricing formula.
C. Different definitions of cost base, each combined with a different mark-up percentage, will result in the same price for a
product or service.
D. If prices are set close to variable manufacturing costs, the firm will generally earn a higher profit margin.
AACSB: Reflective
Difficulty: Medium
19. Which of the following statements regarding absorption cost pricing formulas is/are true?
i. Absorption cost pricing formulas provide a justifiable price that tends to be perceived as equitable by all parties.
ii. Since absorption cost information is necessary for external reporting, it is cost effective to use it for pricing.
iii. Absorption cost-plus pricing formulas generally will result in a higher mark-up percentage than variable manufacturing
cost formulas.
A. i and ii
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Medium
20. Consider the following statements regarding cost-plus pricing formulas.

i. Full cost pricing formulas have the advantage of keeping the manager's attention focused on covering total costs.
ii. With cost-plus pricing formulas, management must consider market conditions and likely actions of competitors.
iii. Variable cost-plus formulas have the advantage of not obscuring important information about cost behaviour.
Which of the above statements is/are true?
A. i
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Easy
21. (p. 956)
Sample Company reported the following costs during 2008 for the manufacture and sale of 2000 units:
The average amount of capital invested in the product line during the year was $500 000 and the targeted return on investment was 20
per cent. If Sample's price per unit was $245 and the mark-up percentage was 53 per cent, what pricing formula was used by the
company?
A. Total variable cost-plus

B. Variable manufacturing cost-plus
C. Absorption cost-plus
D. Time and materials cost-plus
AACSB: Analytical
Difficulty: Hard
22. (p. 956)
Tots N Style Pty Ltd has the following data concerning a decorator playpen it manufactures:
If the company uses cost-plus pricing based on variable manufacturing costs, determine the mark-up percentage used by the company
to obtain a price of $105.
A. 350%
B. 300%
C. 250%
D. 200%
AACSB: Analytical
Difficulty: Easy
23. (p. 956)
If the company uses cost-plus pricing based on total variable costs, determine the mark-up percentage used by the company to obtain
a price of $105.
A. 150%
B. 300%
C. 250%
D. 200%
AACSB: Analytical
Difficulty: Easy
24. (p. 956)
If the company uses cost-plus pricing based on absorption costs, determine the mark-up percentage used by the company to obtain a
price of $120.
A. 140%
B. 118%
C. 71%
D. 243%
AACSB: Analytical
Difficulty: Easy
25. (p. 956)
If the company uses cost-plus pricing based on full cost, determine the mark-up percentage used by the company to obtain a price of
$105.
A. 100%
B. 75%
C. 50%
D. 25 %
AACSB: Analytical
Difficulty: Easy
26. (p. 956)
The Houston Company manufactures office equipment. They are ready to introduce a new line of desktop copiers. The following data
concerns the copiers:
If the company uses cost-plus pricing based on variable manufacturing cost, what price must the company charge when the mark-up
percentage is 200 per cent?
A. $585
B. $450
C. $630
D. $540
AACSB: Analytical
Difficulty: Easy
27. (p. 956)
If the company uses cost-plus pricing based on total variable cost, what price must the company charge when the mark-up percentage
is 150 per cent?
A. $360
B. $525
C. $600
D. $495
AACSB: Analytical
Difficulty: Easy
28. (p. 956)
If the company uses cost-plus pricing based on absorption cost, what price must the company charge when the mark-up percentage is
120 per cent?
A. $459
B. $420
C. $759
D. $594
AACSB: Analytical
Difficulty: Easy
29. (p. 956)
If the company uses cost-plus pricing based on full cost, what price must the company charge when the mark-up percentage is 40 per
cent?
A. $462
B. $567
C. $600
D. $513
AACSB: Analytical
Difficulty: Easy
30. (p. 956)
Silco Pty Ltd manufactures various lines of computer equipment. They are planning to introduce a line of laptop computers in January
2008. Current plans call for the production and sale of 1000 computers with estimated production costs as follows.
The average amount of capital invested in the laptop computer line is $900 000 and Silco's target return on investment for the line is 18
per cent. What price must Silco charge if the company uses cost-plus pricing based on full cost?
A. $868
B. $900
C. $1192
D. $1930
AACSB: Analytical
Difficulty: Easy
31. (p. 956)
per cent. What is the mark-up percentage if the company uses cost-plus pricing based on full cost?
A. 116.7%
B. 15.7%
C. 121.6%
D. 58.9%
AACSB: Analytical
Difficulty: Easy
32. (p. 956)
per cent. If Silco uses cost-plus pricing based on absorption cost, determine the mark-up percentage the company must use.
A. 21.6%
B. 15.7%
C. 29.5%
AACSB: Analytical
Difficulty: Easy
33. (p. 956)
per cent. What price must Silco charge if the company uses cost-plus pricing based on total variable cost?
A. $1930
B. $712
C. $1192
D. $1030
AACSB: Analytical
Difficulty: Easy
34. (p. 956)
per cent. What is the mark-up percentage if the company uses cost-plus pricing based on total variable cost?
A. 116.7%
B. 142.7%
C. 121.6%
D. 58.9%
AACSB: Analytical
Difficulty: Easy
35. (p. 960)
Town and Country Auto Repair uses time and material pricing. The Body Shop has the following cost data.
Determine the time charge per hour.
A. $18.00
B. $35.00
C. $25.50
D. $40.00
AACSB: Analytical
Difficulty: Easy
Learning Objective: 20.04 Determine prices using the time and material pricing approach
36. (p. 960)
Determine the amount needed to be added to each dollar of material cost to obtain the material charge.
A. $0.48
B. $0.08
C. $0.06
D. $0.10
AACSB: Analytical
Difficulty: Easy
37. (p. 960)
If a particular job takes 10 hours in labour and $500 in materials, determine the price charged for the job.
A. $775
B. $850
C. $390
D. $890
AACSB: Analytical
Difficulty: Hard
38. An approach to pricing in which two charges are determined, one charge for labour used on the job and another
charge for the materials used on the job, is called:
A. time and material pricing.
B. variable cost pricing.
C. competitive bidding.
D. absorption cost pricing.
AACSB: Reflective
Difficulty: Easy
39. Which of the following statements about time and material pricing is/are true?
i. The labour charge includes the direct cost of the employee's time.
ii. The labour charge includes a charge to cover various overhead costs.
iii. The labour charge includes a handling charge for material.
A. i
B. i and ii
C. i and iii
AACSB: Reflective
Difficulty: Easy
40. Which of the following statements about time and material pricing is/are true?
i. The material charge includes the direct cost of the employee's time.
ii. The material charge includes the direct cost of materials used.
iii. The material charge includes a charge for material handling and storage.
A. ii
B. iii
C. ii and iii
AACSB: Reflective
Difficulty: Easy
41. How are the time charges calculated?

A. Hourly labour cost
B. Hourly labour cost + annual overhead
C. Hourly labour cost + [annual overhead (excluding material handling and storage) / annual labour hours] + hourly charge
to cover profit margin
D. Hourly labour cost + hourly charge to cover profit margin
AACSB: Reflective
Difficulty: Easy
42. (p. 960)
Econo Auto Repair estimates the following costs for 2014.
What material charge formula would be used to include a charge for the handling and storage of material on every job?
A. Cost of material only

B. Cost of material + $2 per labour hour
C. Cost of material + $0.05 per $1 of material
D. Cost of material + $0.50 per labour hour
AACSB: Analytical
Difficulty: Easy
43. Which of the following statements about competitive bidding is/are true?
A. In a competitive bidding situation, the criterion to select the contractor is always based solely on the design
specifications of the job.
B. Competitive bidding occurs when two or more companies submit a sealed bid for a product, service or project to a
potential buyer.
C. From the perspective of the bidder, quantitative factors are more important than qualitative factors in competitive
bidding situations.
D. In a competitive bidding situation, the criterion to select the contractor is always based solely on the design
specifications of the job AND competitive bidding occurs when two or more companies submit a sealed bid for a product,
service or project to a potential buyer.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20.07 Select and analyse relevant information and set prices in special order or competitive bid situations
44. If a firm has excess capacity, which of the following is a sensible bidding strategy?
A. Set a price to cover all costs.
B. Base the bid on the incremental costs incurred because the job will contribute toward covering the company's fixed
costs and profit.
C. Base the bid solely on direct labour hours.
D. Common fixed costs must be allocated to individual jobs before preparing the bid.
AACSB: Reflective
Difficulty: Easy
45. Which of the following statements about competitive bidding is/are true?
i. The higher the price that is bid, the greater the profit, if the firm gets the contract.
ii. Bidding a higher price increases the probability of obtaining the contract.
iii. A company bidding low enough to ensure the acceptance of a contract may have bid too low to make an acceptable
profit on the job.
A. i
B. ii
C. i and iii
AACSB: Reflective
Difficulty: Easy
46. Under competitive bidding when a company has no excess capacity, the bid price would normally include:
A. only the incremental costs of the job.
B. only the variable costs of the job plus a modest contribution margin.
C. the full cost of the job including capacity-producing costs.
D. the full cost of the job excluding capacity-producing costs.
AACSB: Reflective
Difficulty: Easy
47. Which of the following statements regarding the manufacture of new products is/are true?
i. Uncertainties about the potential market for the product pose problems when pricing these products.
ii. Uncertainties regarding obstacles that will be encountered in manufacturing these products pose pricing problems.
iii. Uncertainties about production costs will not influence pricing decisions because these types of products are generally
sold in a non-competitive market.
A. i
B. iii
C. i and ii
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20.06 Discuss the issues involved in the strategic pricing of new products
48. Price skimming is when:

A. the initial product price is set low and is kept constant.
B. the initial product price is set high giving high short-term profits; then the price is slowly lowered.
C. the initial high product price is set high and raised.
D. the initial product price is set low and raised.
AACSB: Reflective
Difficulty: Easy
49. What term describes a pricing strategy in which the initial price is set relatively low for a new product in order to gain a
large market share?
A. Penetration pricing
B. Target pricing
C. Designed pricing
D. Market share pricing
AACSB: Reflective
Difficulty: Easy
50. The pricing strategy that results in greater initial sales volume but lower unit profits is called:
A. skimming pricing.
B. target pricing.
C. predatory pricing.
D. penetration pricing.
AACSB: Reflective
Difficulty: Easy
51. (p. 967)
The Mixed-Up Floor Company Ltd makes two products, carpet polish and floor deodoriser. Operating information from the previous year
is:
Fixed costs of $20 000 per year are presently allocated evenly between both products. If the product mix were to change, total fixed
costs would remain the same. Calculate the contribution margin per machine hour for floor deodoriser.
A. $4.00
B. $2.00
C. $3.00
D. $0.25
AACSB: Analytical
Difficulty: Easy
Learning Objective: 20.09 Select and analyse relevant information for tactical and long-term product mix decisions
52. (p. 967)
The Mixed-Up Floor Co. Ltd makes two products, carpet polish and floor deodoriser. Operating information from the previous year is as
follows.
Fixed costs of $20 000 per year are presently allocated evenly between both products. If the product mix were to
change, total xed costs would remain the same. Assuming everything produced for either product can be sold, how
many units of each product should be produced and sold if machine hours are limited to 10 000?
Carpet polish Floor deodoriser
A.
10 000 units 0 units
B.
5 000 units 10 000 units
C.
8 000 units 4000 units
D.
0 units 20 000 units
AACSB: Analytical
Difficulty: Medium
53. Contribution margin per machine hour can be calculated by dividing:

A. machine hours required per unit by sales margin per unit.
B. contribution margin per unit by machine hours required per unit.
C. total contribution margin per unit by total sales revenue per unit.
D. total machine hours required by total contribution margin.
AACSB: Reflective
Difficulty: Easy
54. Linear programming is used by decision makers when there are:
A. limited resources for labour.
B. scarce resources for machine hours.
C. scarce resources for both labour and machine hours.
D. multiple scarce resources.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20.10 Use linear programming in short-term (tactical) product mix decisions
55. Linear programming is useful:

A. when there is only one product.
B. when there are many products.
C. only when an activity-based costing system is in use.
D. when there is only one constraint.
AACSB: Reflective
Difficulty: Easy
56. In linear programming, the objective function is typically based on:

A. the selling price of the products.
B. the variable cost of the products.
C. the full cost of the products.
D. the contribution margin of the products.
AACSB: Reflective
Difficulty: Easy
57. In linear programming, a constraint represents:

A. the objective function.
B. the contribution margin per unit.
C. the limitations faced by the firm.
D. the break-even level of activity.
AACSB: Reflective
Difficulty: Easy
58. Which of the following statements regarding product cost distortion and product pricing is/are true?
A. Product cost distortions will have a more serious impact on product pricing if the market prices are a major factor in
setting prices.
B. Product cost distortions will have a more serious impact if cost-plus pricing is a major tool for determining prices.
C. If product costs are distorted, it will not be possible to determine the market price.
D. Product cost distortions will have a more serious impact if cost-plus pricing is a major tool for determining prices AND if
product costs are distorted, it will not be possible to determine the market price.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20.05 Explain how product cost distortions can undermine a firm's pricing policy
59. Which of the following statements about product-cost distortions and product pricing is/are true?
i. Under traditional volume-based product costing systems, high volume and relatively simple products are often
overcosted while low volume and complex products are undercosted.
ii. The use of a traditional volume-based product costing system may result in significant cost distortions among product
lines.
iii. Overpricing high-volume products can lead to pricing errors.
A. i and ii
B. ii and iii
C. i and iii
AACSB: Reflective
Difficulty: Easy
60.
The Competition and Consumer Act 2010 (Cwlth) is legislation that:
A. restricts certain types of commercial activities, including pricing.

B. restricts employee benefits.
C. describes loan procedures.
D. generally allows the use of price-fixing contracts.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 20.08 Describe the regulations that impose restrictions on pricing
61. Which of the following statements about price-fixing contracts is/are true?
i. Price-fixing contracts are prohibited where they have the effect of substantially lessening competition.
ii. Price-fixing contracts are a means of quoting different prices for different customers.
iii. Price-fixing contracts result in controlling the prices of goods or services.
A. i
B. ii and iii
C. i and iii
D. iii
AACSB: Reflective
Difficulty: Easy
62. What is predatory pricing?

A. Quoting a very low level price to all customers
B. Quoting market prices to different customers for different goods and services
C. Quoting higher prices to different customers for the same goods or services
D. Quoting different prices to a customer, depending on the quantity of goods or services demanded
AACSB: Reflective
Difficulty: Easy
63. One of the consequences of traditional methods of overhead allocation combined with cost-based pricing is that:
A. low-volume products can be overpriced.
B. high-volume products can be underpriced.
C. simple products can be underpriced.
D. high-volume products can be overpriced.
AACSB: Reflective
Difficulty: Easy
64. One of the advantages of activity-based costing (ABC) over traditional methods of overhead allocation, when
combined with cost-based pricing, is that ABC avoids the problem of:
A. low-volume products being underpriced.
B. low-volume products being overpriced.
C. high-volume products being underpriced.
D. complex products being overpriced.
AACSB: Reflective
Difficulty: Easy
65. (p. 967)
The managing director of H Limited is setting the production plan for the next financial year. H has a shortage of skilled labour and
wishes to maximise the profitability of the company. H manufactures three products X, Y and Z. There is 200 000 hours of skilled labour
available in the year at a cost of $10 per hour. The following information relates to each product.
Assuming all relevant information is provided, in what order should H manufacture its products to maximise profit in the current year?
A. Z then X
B. X then Z
C. X, Y then Z
AACSB: Analytical
Difficulty: Easy
66. A firm produces products X, Y and Z with contribution margins of $4, $5 and $10 respectively. The firm has only 5000
machine hours available for a particular period. Machine hours required for each of the products are 1, 1 and 5 hours
respectively. Demand for the products is 1000 for X, 3000 for Y and 2000 for Z. How many units of each product will the
firm produce?
A. 2000 Z
B. 1000 X, 3000 Y, 2000 Z
C. 3000 Y, 1000 X, 200 Z
D. 2000 Z, 3000 Y
AACSB: Analytical
Difficulty: Hard
67. (p. 967)
C Limited manufactures specialist medical equipment. Recruitment and training of manufacturing staff is difficult and C's operations
management estimates that only 160 000 hours of labour at a rate of $50 per hour will be available in the next financial year. The
following details relate to C's planned production of three products X, Y and Z for the next 12 months.
To maximise profits the products C should manufacture are:
A. Y then Z.
B. Y then Z, then X.
C. X then Z.
D.
X then Z, then Y.
AACSB: Analytical
Difficulty: Medium
68. Karl's Kitchens is experimenting with different vinegars for sale on the domestic market. The contribution margins per
carton for three types V1, V2 and V3 are $120, $100 and $150 respectively. The firm is constrained in terms of labour
hours, and the labour hours required per carton of each type of vinegar is 2 hours, 1.5 hours and 3 hours respectively.
Assume the firm has 2240 available labour hours per month, and the monthly demand is 1200 cartons of V1, 800 cartons
of V2 and 300 cartons of V3. What is the product mix that will maximise profit?
A. 800 V2, 520 V1
B. 300 V3, 670 V2
C. 1 200 V1, 800 V2, 300 V3
D. 1 120 V1
AACSB: Analytical
Difficulty: Hard
69. A firm employs average assets of $600 000 and calculates its mark-up on full cost based on a desired return on
investment of 20 per cent. Expected production is 10 000 units, and the full cost per unit is $80. What is the mark-up
percentage?
A. 20%
B. 120%
C. 15%
D. 25%
AACSB: Analytical
Difficulty: Easy
70. A firm employs average assets of $600 000 and calculates its mark-up on full cost based on a desired return on
investment of 20 per cent. Expected production is 10 000 units, and the full cost per unit is $80. If the firm changed its
pricing policy and determined in future to calculate its mark-up based on absorption cost, which of the following
statements (if any) is correct about the firm's new mark-up percentage?
A. The mark-up percentage will be lower.
B. The mark-up percentage will be higher.
C. Because the price charged will be the same, there will be no change in the mark-up percentage.
AACSB: Reflective
Difficulty: Medium
71. A firm has excess capacity, and has received an order for 50 000 units at $20 each over and above its normal
production activity of 600 000 units. To meet this order, new equipment at a cost of $200 000 would have to be bought,
and this equipment would have to be scrapped after the order had been filled. The firm currently sells for $50 per unit, has
variable costs of $15.80, and fixed costs of $600 000. What is the additional profit (loss) for the firm if it accepts the
order?
A. Loss of $10 000
B. Profit of $40 000
C. Loss of $40 000
D. Profit of $10 000
AACSB: Analytical
Difficulty: Medium
72. A firm has excess capacity, and has received an order for 50 000 units at $20 each over and above its normal
production activity of 600 000 units. To meet this order, new equipment at a cost of $200 000 would have to be bought,
and this equipment would have to be scrapped after the order had been filled. The firm currently sells for $50 per unit, has
variable costs of $15.80, and fixed costs of $600 000. Assuming the firm had been aggressively seeking the business of
the customer who requested the special order, what would be the minimum price that the firm would be prepared to
charge?
A. $15.80
B. $50
C. $27.80
D. $19.80
AACSB: Analytical
Difficulty: Medium
73. Which of the following statements is not correct? Linear programming is a technique designed to recognise specifically
that:
A. the choice of the optimal mix involves a cost-benefit trade-off.
B. firms will focus on the products with the highest contribution margin.
C. there may be more than one production constraint.
D. products compete with each other for limited resources.
AACSB: Reflective
Difficulty: Easy
74. The optimal decision in the linear programming model depends on:
A. the intersection of the constraint lines.
B. the slope of the objective function.
C. the slope of the objective function combined with all constraints.
D. the feasible region interact with the smallest constraint.
AACSB: Reflective
Difficulty: Easy
75. Which of the following describes, most accurately, what the area of feasible solutions on the linear programming graph
represents?
A. The area bordered by the intersection of the two constraint lines.
B. The area bordered by the intersection of all constraint lines.
C. The area on the graph that contains all possible combinations of products, including the optimal combination.
D. The area bordered by the intersection of all constraint lines AND the area on the graph that contains all possible
combinations of products, including the optimal combination.
AACSB: Reflective
Difficulty: Easy
76. (p. 956)
Waverly Ltd produces commercial grade washing machines. The Karewasher is currently selling for $2000 per unit. The company
wants to introduce a new model, Supawasher, which uses less water per load. The comparative life-time costs of the two models are as
follow:
The economic value of a Supawasher (ignore time value of money) is:
A.
$300.
B.
$2300.
C.
$2900.
D.
$4900.
AACSB: Analytical
Difficulty: Medium
77. Avocado Ltd produces small electronic components for kitchen appliances. This year it expects to produce 10 000
units of component X. The variable manufacturing cost of component X is $2 per unit and the variable selling and
administrative cost of component X is $3 per unit. In addition, to produce component X Avocado Ltd incurs annual fixed
manufacturing cost of $50 000 and annual fixed selling and administrative cost of $60 000. If the target profit is $2 per
unit, and using cost plus pricing approach, the mark up percentage based on total variable costs is:
A. 260%.
B. 80%.
C. C.63.6%.
D. 12.5%.
AACSB: Analytical
Difficulty: Medium
78. Avocado Ltd produces small electronic components for kitchen appliances. This year it expects to produce 10 000
units of component X. The variable manufacturing cost of component X represents 50% of its total costs. The target profit
is $2 per unit. Using the cost-plus pricing approach based on total costs, the selling price per unit of component X is $20.
If Avocado Ltd decides to change its cost-plus pricing approach to base the mark up percentage on variable
manufacturing costs, the selling price for each unit of component X will be:
A. $10.
B. $20.
C. $30.
D. Not enough information is provided.
AACSB: Analytical
Difficulty: Medium
79.
Gossip Goose (GG) and Tabloid Chicks (TC) are two magazines renowned for their reporting of unverifiable entertainment news.
Steven Hassaloff is the marketing director of GG, and Jasmine Trotter is the advertising manager of TC. Steven and Jasmine met at the
local pub one day and decided to both sell their magazines at the same lower-than-average price ($3), in order to increase their market
shares and lower the level of competitive pressure in the market. Steven and Jasmine's agreement is an example of:
A. resale price maintenance, and is illegal.

B. resale price maintenance and is legal only when both parties reach an agreement in the absence of coercion.
C. price-fixing and is illegal.
D. price-fixing and is legal only when both parties reach an agreement in the absence of coercion.
AACSB: Reflective
Difficulty: Easy
80. It is illegal for companies to offer different prices to different customers for the same goods or services, except:
A. where the company is trying to meet a competitor's price.
B. where the company's corporate vision explicitly states this is a company policy.
C. where the company is pursuing a cost leadership strategy.
D. There is no exception: predatory pricing is always illegal.
AACSB: Reflective
Difficulty: Easy
81. Which of the following is not prohibited by the ACCC?

A. Preventing entry of other corporations into the market
B. Preventing other corporations in competing in the market
C. Taking advantage of a company's market power to bulk purchase in order to eliminate or substantially damage a
competitor
D. All of the above are acts prohibited by ACCC
AACSB: Reflective
Difficulty: Medium
82.
Gossip Goose (GG) is a magazine renowned for their reporting of unverifiable entertainment news. Dee Hassaloff is the marketing
director of GG. Recently, Hassaloff decided to lower the price of GG to $2 in order to drive out some of the smaller competitors.
Hassaloff's behaviour is best described as an example of:
A. skimming pricing.
B. penetration pricing.
C. predatory pricing.
D. discriminatory discounting.
AACSB: Reflective
Difficulty: Easy
83. (p. 967)
Avocado Ltd produces small electronic components for kitchen appliances. Two of its products are Component Y and Component Z.
The selling price of Component Y is $15, and the selling price of Component Z is $20. The variable cost per unit for Component Y is $8
and the variable cost per unit of Component Z is $11. The machine hour requirement and demand for the two products are:
Avocado Ltd's production capacity is 6500 machine hours per month. The optimal product mix is:
A.
1000 units X, 1500 units Y.
B.
C.
D.
AACSB: Analytical
Difficulty: Easy
84. (p. 967)
Avocado Ltd produces small electronic components for kitchen appliances. Two of its products are Component Y and Component Z.
The selling price of Component Y is $15, and the selling price of Component Z is $20. The variable cost per unit for Component Y is $8
and the variable cost per unit of Component Z is $11. The machine hour requirement and demand for the two products are:
Both Component Y and Component X have to undergo the machining process first, followed by a manual polishing labour process.
Avocado Ltd's capacity is 6500 machine hours and 6500 labour hours. The top priority of Avocado Ltd in terms of managing constraints
is to:
A.
increase advertising to stimulate greater demand for Component Z.
B.
train employees to improve productivity in relation to polishing.
C.
invest in additional machines.
D.
lower the price of Component Y to simulate demand.
AACSB: Analytical
AACSB: Reflective
Difficulty: Medium
85. Value-based pricing refers to:

A. a pricing strategy that takes into account the costs and benefits experienced by the customer that extend beyond the
initial purchase price.
B. a pricing strategy where customers' perceptions of value guide the price.
C. a pricing strategy where prices are determined based on net value of each component of a product or service.
D. a pricing strategy based on a labour and material pricing formula.
AACSB: Reflective
Difficulty: Easy
86. When a prestigious company engages in a price cutting campaign to gain market share, this can negatively impact
their:
A. product quality and profitability.
B. product quality and market demand.
C. product's image and profitability.
D. product's image and market demand.
AACSB: Reflective
Difficulty: Medium
87. Managers must have an understanding of customers' preferences as these flow through to all aspects of the:
A. pricing strategies.
B. product/service creation.
C. marketing strategies.
D. competitors' strategies.
AACSB: Reflective
Difficulty: Medium
88. The total revenue curve:

B. shows the relationship between sales price and units sold.
C. shows the relationship between total revenue and quantity sold.
AACSB: Reflective
Difficulty: Easy
89. The total cost curve:

B. shows the relationship between total cost and units produced and sold.
C. shows the relationship between sales revenue and quantity.
AACSB: Reflective
Difficulty: Easy
90.
A company that caries hundreds or thousands of product lines that require regular price updates is likely to implement:
A. time and material pricing.

B. target costing and pricing.
C. absorption cost pricing.
D. cost-plus pricing.
AACSB: Reflective
Difficulty: Easy
91. Skimming pricing will lead to a much lower acceptance of a new product and
A. higher unit costs.
B. lower unit costs.
C. higher unit profits.
D. lower unit profits.
AACSB: Reflective
Difficulty: Easy
92. Influences on pricing decisions

Two of the major influences on pricing decisions are customer demand and the actions of competitors.
i. What are the other two major influences?
ii. Briefly describe customer demand and actions of competitors.
iii. In the text example, Sydney Sailing Supplies faced the question of defining its own products narrowly as sailing
supplies or more broadly as boating supplies. Explain why these definitions could influence how the management of
Sydney Sailing Supplies views either 'customer demand or actions of competitors'.
i. Two major influences on pricing decisions are product costs and political, legal and image-related issues.
ii. Customer demand refers to the number of units that customers wish to obtain as a function of several variables
including price, design features, quality etc.
'Actions of competitors' refers to the actions that other sellers of products may take in response to initiatives by our firm.
These actions include, but are not limited to, changes in price, selling terms, quality, customer service after sale and
variety within the product line.
iii. If the product line is viewed narrowly as sailing supplies, then customer demand is viewed narrowly as relating to those
customers who are already committed to sailing. However, a wider view would suggest that customer demand be viewed
as not consisting solely of people who are committed to sailing, but rather as people who may change their consumption
to other types of boating activities such as canoes and small motorboats.
In a similar fashion, the actions of competitors may be viewed narrowly as the actions of other firms that produce sailing
supplies or may be viewed broadly as the actions of firms that produce items for canoes or for small motorboats. If the
narrow view is taken, the company is not fully taking into account customers' or competitors' actions, which may influence
their sales, market share and profits.
AACSB: Reflective
Difficulty: Medium
93. Balance of market forces and cost-based pricing
i. 'Product costs are critical in setting prices, for all costs must be covered in order to make a profit.' Evaluate this
statement.
ii. 'Product costs set a ceiling and prices of competitors set a floor for the prices of our products.' Evaluate this statement.
i. The influence of customer demand and actions of competitors cannot be ignored. No profit will be made if a product is
priced to cover costs, but at a level above either a competitor's price or a customer's willingness to sacrifice other
consumption opportunities in order to obtain this product.
ii. The reverse of this statement makes more sense: our product costs set a floor on selling prices. If our firm cannot cover
costs in the long term, the products should not be made. Likewise, the prices of competitors represent an upper limit on
our prices unless there are characteristics of our product that make it attractive to customers in spite of the additional cost.
AACSB: Reflective
Difficulty: Medium
94. Total and marginal relationships in the economic profit maximising model
The following questions explore the relationships between total and marginal functions in the economic profit maximising
(EPM) model.
i. The total revenue function rises over the range of operating activity portrayed in the text. Why does the marginal
revenue function decrease?
ii. The total cost function increases over the relevant range of activity. Why does the marginal cost function exhibit its
complex behaviour?
iii. In the EPM model, what is the profit maximising level of volume? Explain.
i. The total revenue function is increasing at a decreasing rate; consequently, the rate of change in marginal revenue is
negative.
ii. The marginal cost function decreases initially reflecting economies of scale achieved at relatively low levels of activity.
However, at relatively high levels of activity, the marginal cost function increases due to diseconomies of scale exhibited in
the sharply rising total cost function at these levels of activity.
iii. The profit maximising level of volume is at the intersection of the marginal cost and marginal revenue functions. To the
left of this volume, additional sales will generate greater revenue than the incremental costs; to the right of this volume,
the opposite is true.
AACSB: Reflective
Difficulty: Easy

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Chapte 12 Testbank Key

is used to measu e the pe fo mance of units.

D. All of the given answe s

4. Which of the following is not a benefit of decent alisation?

6. What is a negative consequence of decent alisation?

7. Which of the following statements is false?

8. Which of the following is not an example of a esponsibility cent e?

13. A sales depa tment manage is an example of a:

14. An example of a p ofit cent e is the:

16. An oppo tunity cost can best be desc ibed as the:

23. T ansfe p ices should not be based on actual costs because:

27. Which of the following statements is/a e t ue?

* When A Division sells to Z Division, no va iable selling costs a e incu ed by A Division.

A. $20 000 dec ease

Division A Division B Division C

41. Business unit p ofit and loss statements show:

52. Which of the following a e benefits of self-managed teams?

53. Which of the following a e isks associated with self-managed teams?

A. who has staff autho ity ove that cost.

64. What is the gene al ule fo setting a t ansfe p ice?

78. A st ategic business unit is:

79. Senio manage s use pe fo mance measu es to:

1. The return on investment can be defined as:

3. The asset turnover of an organisation can be calculated as: sale revenue

Calculate the asset turnover from the following data:

13. One of the disadvantages of return on investment is that:

18. Managers' performance in an investment centre can best be evaluated by:

Which of the following statements is false?

A pay system can include both cash and non-cash rewards.

21. Which of the following statements is false?

22. The profitability of an investment centre can best be evaluated by:

23. Which of the following statements is/are correct?

The following information relates to Black's Mount Ltd:

What is its economic value added?

37. Shareholder value added may be defined as:

38. Which of the following are, according to Herzberg, motivating factors?

39. Which of the following is/are, according to Herzberg, hygiene factors?

41. Which of the following is/are an intrinsic reward?

43. Which of the following are included in performance-related pay systems?

Book value of equity

C. Market value of equity

Calculate the amount of residual income for the period.

Calculate the return on investment for the period.

Calculate the return on sales for the period.

Calculate the investment turnover (rounded) for the period.

A group-based reward system is appropriate when:

The following information is available for Jittie Ltd:

The WACC for Jittie Ltd is:

The following information is available for Nettie Ltd:

The company tax rate is 30 per cent. WACC is:

68. Value-based management refers to:

73. Which of the following would be considered an advantage of a group scheme?

3. Which of the following do traditional measurement systems include?

8. Which of the following statements is/are false?

learning and growth.

Financial performance measures Non-financial performance measures

20. Market share may be a lead indicator from:

21. Market share may be a lag indicator from: