Performance Management

Which balanced scorecard perspective focuses on employee training and development?

Return on investment (ROI) is calculated as:

Residual income is calculated as:

A division has operating income of $500,000 and invested capital of $2,000,000. What is its ROI?

Economic Value Added (EVA) differs from residual income primarily because EVA:

Transfer pricing at market price is most appropriate when:

The DuPont formula decomposes ROI into:

A manager rejects a project with a positive NPV because it would lower the division's ROI. This is an example of:

In a balanced scorecard, 'cycle time reduction' is a measure in which perspective?

Which performance measure best aligns manager behavior with shareholder value creation?

Which of the following is one of the four perspectives of the balanced scorecard?

A cost center manager is primarily responsible for controlling which of the following?

Which type of responsibility center has a manager accountable for both revenues and costs?

In the balanced scorecard, customer satisfaction surveys and customer retention rates are examples of measures in which perspective?

What does ROI stand for in performance measurement?

Which of the following best describes benchmarking?

An investment center manager is held accountable for which of the following?

Which transfer pricing method uses the price that an outside buyer would pay for the product on the open market?

Key performance indicators (KPIs) are best described as:

If a division has operating income of $200,000 and average operating assets of $1,000,000, what is the ROI?

Goal congruence in performance management means that:

Which of the following is a financial measure in the balanced scorecard?

A revenue center manager is primarily responsible for:

In the DuPont formula, ROI is decomposed into which two components?

Residual income is calculated as:

A strategy map in the balanced scorecard is used to:

Which of the following transfer pricing methods is most likely to lead to goal congruence when an external market exists?

What does EVA stand for?

Which balanced scorecard perspective focuses on how an organization can sustain its ability to change and improve?

A stretch target is best described as:

Which of the following is a non-financial measure?

In a cost-based transfer pricing system, the transfer price is set at:

Which of the following measures would most likely appear in the internal business process perspective of the balanced scorecard?

If a company's required rate of return is 10% and a division has operating income of $150,000 with invested capital of $1,000,000, what is the residual income?

Management compensation plans tied to performance metrics are designed to:

Which of the following is NOT a type of responsibility center?

The profit margin component of the DuPont formula is calculated as:

Which of the following best describes a negotiated transfer price?

Internal benchmarking involves comparing performance against:

The asset turnover component of the DuPont formula is calculated as:

Division A has sales of $5,000,000, operating income of $500,000, and average operating assets of $2,500,000. Using the DuPont formula, what is the asset turnover?

A division has operating income of $600,000 and invested capital of $4,000,000. The company's weighted average cost of capital is 12%. What is the EVA?

Which of the following situations best illustrates suboptimization?

A company wants to improve its ROI. According to the DuPont analysis, which of the following actions would NOT directly improve ROI?

Division B currently has an ROI of 18%. The company's required rate of return is 12%. A new project is available with an expected ROI of 15%. Under ROI-based evaluation, the division manager would likely:

Which advantage does residual income have over ROI as a performance measure?

A balanced scorecard strategy map would show a causal chain such as:

Division X produces a component at a variable cost of $30 per unit and a full cost of $45 per unit. The market price for the component is $50. Division X has excess capacity. What is the minimum transfer price Division X should accept?

When a selling division is operating at full capacity and can sell all it produces externally, the minimum transfer price should be:

A division has sales of $8,000,000, a profit margin of 8%, and average operating assets of $4,000,000. What is the division's ROI?

Which of the following is a primary reason for using non-financial measures alongside financial measures in performance evaluation?

A compensation plan that pays managers a bonus based on achieving a target EVA encourages managers to:

Competitive benchmarking involves:

Which of the following is a limitation of the balanced scorecard?

A division manager is considering a new investment of $500,000 that would generate annual operating income of $70,000. The division currently has operating income of $400,000 and invested capital of $2,000,000. The company's cost of capital is 10%. What is the effect on the division's residual income if the investment is accepted?

Which KPI would best measure the effectiveness of a company's new product development process?

In a dual transfer pricing system:

Which of the following would be classified under the internal business process perspective of the balanced scorecard?

A company uses a cost-plus transfer pricing method with a 20% markup on full cost. If the full cost per unit is $80, what is the transfer price?

An ROI-based evaluation system is most likely to cause goal incongruence when:

Which type of benchmarking compares a specific function or process against best-in-class companies regardless of the industry?

Division C has net operating profit after taxes (NOPAT) of $1,200,000, invested capital of $8,000,000, and WACC of 10%. What is the EVA?

A division has the following data: Sales = $10,000,000; Operating Income = $1,500,000; Average Operating Assets = $6,000,000. What is the profit margin and asset turnover?

Which of the following is an example of a leading indicator in the balanced scorecard?

A stock option plan for senior executives is most effective when it:

A company sets a stretch target of reducing product defect rates from 3% to 0.5% within two years. This type of target is best characterized as:

Which of the following correctly describes the relationship between EVA and residual income?

Transfer pricing policies are important because they affect all of the following EXCEPT:

A balanced scorecard with a measure of 'number of patents filed' would place this metric in which perspective?

When a multinational company uses transfer pricing to shift profits to a lower-tax jurisdiction, this is most directly related to which management concern?

Division Y has an ROI of 22% and is evaluated using residual income with a 14% required rate of return. A new project offers an ROI of 17%. The division manager should:

A balanced scorecard initiative tracking 'time to market for new products' falls under which perspective?

A company evaluates its divisions using ROI. Division A has ROI = 25%, Division B has ROI = 15%. Division B has invested capital of $10 million and Division A has $2 million. Which division generates more residual income if the cost of capital is 10%?

The general transfer pricing rule states that the minimum transfer price equals:

A key criticism of using only financial measures in performance evaluation is that:

Which of the following describes the economic value added (EVA) adjustment for research and development costs?

Which of the following best describes a balanced scorecard 'lag' indicator in the customer perspective?

A division is considering replacing old equipment with new equipment. The old equipment has a book value of $200,000 and a market value of $50,000. In evaluating the decision, the book value of the old equipment is:

An effective management compensation plan should include which of the following features?

A division manager receives a bonus based on achieving a target ROI of 15%. The division currently has an ROI of 14.5%. Which of the following actions might the manager take to reach the target that could harm the organization long-term?

Division P has sales of $20,000,000, operating income of $2,400,000, and average operating assets of $12,000,000. Management sets a goal to increase ROI to 25% by improving the profit margin while keeping sales and assets constant. What profit margin is needed?

Division S produces a component with a variable cost of $40, fixed cost allocation of $15 per unit (based on 100,000 units capacity), and a market price of $65. The division operates at 80% capacity. Division T wants to purchase 10,000 units. What is the range of acceptable transfer prices?

Company XYZ uses EVA for performance evaluation. Division A has the following data: Revenue = $50M, Operating expenses = $42M, Tax rate = 30%, Invested capital = $30M, WACC = 11%. After capitalizing $2M in R&D (amortized over 5 years, year 1), what is the adjusted EVA?

A division produces Product Q at a variable cost of $50 and sells it externally for $80. The division is at full capacity. An internal division wants to buy 5,000 units. The selling division would save $5 per unit in shipping on internal transfers. What is the minimum acceptable transfer price?

A company has three divisions with the following data. Division A: Operating Income $900K, Assets $5M. Division B: Operating Income $1.6M, Assets $10M. Division C: Operating Income $500K, Assets $2M. The cost of capital is 12%. Rank the divisions by EVA from highest to lowest.

A division currently has an ROI of 20% with average operating assets of $5,000,000. The division manager is considering disposing of an underperforming asset with a book value of $500,000 that generates operating income of $60,000 per year. If the asset is disposed of (assume no gain/loss), what will be the new ROI?

In the DuPont analysis, a company has an ROI of 18% and an asset turnover of 3.0. If the company increases its profit margin by 2 percentage points while asset turnover decreases by 0.5, what is the new ROI?

Division M transfers 20,000 units to Division N. Division M's variable cost is $25, fixed cost is $10 per unit, and normal markup is 30% on full cost. The external market price is $52. Division M operates at 70% of its 40,000-unit capacity. If the transfer price is set at variable cost plus 40% of the difference between market price and variable cost, what is the transfer price?

A company implements a balanced scorecard with the following cause-and-effect chain: Employee skills training leads to reduced process defects, which leads to improved on-time delivery, which leads to increased customer retention, which leads to revenue growth. If the company invests $500,000 in training and achieves a 2% defect reduction but sees no improvement in on-time delivery, management should:

A multinational company has a division in Country A (tax rate 35%) and a division in Country B (tax rate 15%). The division in Country A sells components to Country B at a cost of $100 per unit. If the market price is $150, by how much per unit would the company's total tax expense decrease if it used the market price instead of cost?

Division Alpha has the following annual data: Sales $15M, Variable costs $9M, Fixed costs $3M, Average operating assets $12M. The weighted average cost of capital is 10%. The division is considering a project that would increase sales by $3M, variable costs by $1.8M, fixed costs by $200K, and require additional assets of $4M. Should the project be accepted based on residual income analysis?

A compensation plan pays a manager a base salary of $200,000 plus a bonus of 8% of residual income. The division has operating income of $3,000,000, invested capital of $15,000,000, and a required rate of return of 14%. What is the manager's total compensation?

Two divisions can trade internally. The selling division has a variable cost of $35 and can sell externally at $60. The buying division currently pays $58 to an outside supplier. The selling division operates at full capacity. For the company as a whole, should the transfer occur internally?

A balanced scorecard implementation reveals that while customer satisfaction scores have increased significantly, financial performance has not improved. Which of the following is the most likely explanation?

Division R wants to improve its ROI from 15% to 20%. Current data: Sales = $12M, Average Operating Assets = $8M, Operating Income = $1.2M. If the division can only change its asset base (holding sales and income constant), what level of average operating assets is required?

A company evaluates three potential investments for a division with a current ROI of 22% and a cost of capital of 13%. Investment 1: ROI = 24%, RI = $50K. Investment 2: ROI = 18%, RI = $200K. Investment 3: ROI = 14%, RI = $80K. Under residual income evaluation, the manager should accept:

A company uses the DuPont system and finds that its ROI has declined from 20% to 16% over two years. Profit margin remained at 8%, but asset turnover decreased. What was the asset turnover in each year?

A bonus plan pays managers 5% of EVA above a threshold of $500,000, with a bonus bank that defers 40% of the earned bonus to future periods. In Year 1, EVA is $2,000,000. In Year 2, EVA drops to $300,000. What is the bonus paid in Year 2?

A division has two products. Product X has a contribution margin of $20 per unit and uses 4 hours of machine time. Product Y has a contribution margin of $15 per unit and uses 2.5 hours of machine time. The division has 10,000 machine hours available and uses machine utilization as a KPI. To maximize total contribution margin, how should the division allocate its machine hours?

A company is designing a management compensation plan. The CEO proposes tying 100% of the bonus to EVA. The board is concerned about potential unintended consequences. Which of the following is the most valid concern?