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Management Accounting Information For Decision Making And Strategy Execution 6th Edition by Anthony A. Atkinson -Test Bank

 

 

Sample  Questions

 

 

Management Accounting, 6e (Atkinson et al.)

Chapter 1  How Management Accounting Information Supports Decision Making

Objective 1

࿿࿿࿿ူẢ࿿࿿࿿࿿࿿࿿࿿࿿࿿ꚴ枥࿿࿿࿿࿿࿿࿿࿿࿿࿿屚ప࿿࿿࿿࿿࿿࿿࿿࿿࿿14 Management accounting is subject to the rules formulated by standard setters such as the Financial Accounting Standards Board (FASB).
Answer: FALSE
Explanation: Financial accounting is subject to the rules of the FASB.
Diff: 1
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

࿿࿿࿿ူẢ࿿࿿࿿࿿࿿࿿࿿࿿࿿ꚴ枥࿿࿿࿿࿿࿿࿿࿿࿿࿿屚ప࿿࿿࿿࿿࿿࿿࿿࿿࿿15 Management accounting information is primarily oriented to external stakeholders, such as investors, creditors, regulators, and tax authorities.
Answer: FALSE
Explanation: Management accounting information is primarily oriented to management.
Diff: 1
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

࿿࿿࿿ူẢ࿿࿿࿿࿿࿿࿿࿿࿿࿿ꚴ枥࿿࿿࿿࿿࿿࿿࿿࿿࿿屚ప࿿࿿࿿࿿࿿࿿࿿࿿࿿16 The International Accounting Standards Board sets the guidelines used for management accounting.
Answer: FALSE
Explanation: Financial accounting must be consistent with the rules of the IASB.
Diff: 1
Terms: International Accounting Standards Board
Objective: 1
AACSB: Reflective thinking

࿿࿿࿿ူẢ࿿࿿࿿࿿࿿࿿࿿࿿࿿ꚴ枥࿿࿿࿿࿿࿿࿿࿿࿿࿿屚ప࿿࿿࿿࿿࿿࿿࿿࿿࿿17 A good management accounting system can become a source of competitive advantage for a company.
Answer: TRUE
Diff: 1
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

࿿࿿࿿ူẢ࿿࿿࿿࿿࿿࿿࿿࿿࿿ꚴ枥࿿࿿࿿࿿࿿࿿࿿࿿࿿屚ప࿿࿿࿿࿿࿿࿿࿿࿿࿿18 Management accounting information is sometimes predictive and forward looking. Answer: TRUE
Diff: 1
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

1

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
0 Management accounting has no prescribed rules about its content, how the content is to be developed, and how the content is to be presented.
Answer: TRUE
Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

1 The Federal Accounting Standards Advisory Board sets cost accounting standards for all federal government activities.
Answer: TRUE
Diff: 2
Terms: Government Accounting Standards Board
Objective: 1
AACSB: Reflective thinking

2 Management accounting measures can provide advance warnings of problems.
Answer: TRUE
Diff: 1
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

0 Information about customer satisfaction is an example of financial information. Answer: FALSE
Explanation: Information about customer satisfaction is an example of nonfinancial information.
Diff: 1
Terms: nonfinancial information
Objective: 1
AACSB: Reflective thinking

1 Management accounting information can be used for all of the following EXCEPT:
23 calculate the cost of a product or service.
24 evaluate the performance of a company.
25 project materials needs.
26 evaluate the market price of the stock. Answer: D
Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

2

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
23 Which of the following types of information are used in management accounting? A) financial information
B) nonfinancial information
C) information focused on the long term D) All of the above are correct. Answer: D
Diff: 1
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

24 Management accounting:
23 is both retrospective, providing feedback about past operations, and also prospective, incorporating forecasts and estimates about future events.
24 is primarily oriented to external stakeholders.
25 must be consistent with rules formulated by the Financial Accounting Standards Board (FASB).
26 provides information that is generally available only on a quarterly or annual basis. Answer: A
Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

13) Which of the following descriptors refer to management accounting information?
23 It is only retrospective, reporting and summarizing in financial terms the results of past decisions and transactions.
24 It is driven by rules.
25 It is prepared for shareholders.
26 It is oriented to meeting the decision making needs of employees and managers inside the organization.
Answer: D
Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

23 Which of the following would be considered management accounting information? A) Budgeted production for the year 2011.
B) Budgeted Balance Sheet.
C) Analysis of trend in stock prices.
D) Both budgeted production for the year of 2011, and the budgeted balance sheet. Answer: D
Diff: 1
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

3

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
5888 Management accounting information includes all of the following EXCEPT: A) tabulated results of customer satisfaction surveys.
B) the cost of producing a product.
C) the percentage of units produced that is defective. D) market price of the stock.
Answer: D
Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

5889 Management accounting reports might include information about:
23 customer complaints.
24 net income for the year on budgeted income statement.
25 total assets on budgeted balance sheet.
26 All of the above are correct.
Answer: D
Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

23 The person MOST likely to use management accounting information is a(n): A) banker evaluating a credit application.
B) shareholder evaluating a stock investment. C) governmental taxing authority.

D) assembly department supervisor. Answer: D
Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

24 Which of the following is NOT a function of a management accounting system? A) strategic development
B) financial reporting C) control
D) product costing Answer: B Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

4

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
19) Financial accounting:
23 focuses on the future and includes activities such as preparing next year’s operating budget.
24 does not need to comply with GAAP (generally accepted accounting principles).
25 is primarily oriented to external stakeholders, such as investors, creditors, regulators and tax authorities.
26 is prepared for the use of department heads and other employees.
Answer: C
Diff: 1
Terms: financial accounting
Objective: 1
AACSB: Reflective thinking

23 The person MOST likely to use ONLY financial accounting information is a: A) factory shift supervisor.
B) vice president of operations. C) current shareholder.
D) department manager. Answer: C
Diff: 2
Terms: financial accounting
Objective: 1
AACSB: Reflective thinking

24 Historically, management accounting innovations have been developed by: A) the International Accounting Standards Board.
B) the Cost Accounting Standards Board. C) Academic accountants.
D) Managers. Answer: D Diff: 2

Terms: management accounting
Objective: 1
AACSB: Reflective thinking

25 In general, it was not until the 1970s that management accounting systems: A) were improved because of demands by the FASB and the SEC.
B) stagnated and proved inadequate.
C) started to develop innovations in costing and performance-measurement systems due to intense pressure from overseas competitors.
D) started to address the decision-making needs of managers. Answer: C
Diff: 2
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

5

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
23) Financial accounting information:
provides a signal that something is wrong.
identifies what is wrong.
explains what is wrong.
simply summarizes information but gives no indication that anything is wrong. Answer: A
Diff: 2
Terms: financial accounting
Objective: 1
AACSB: Reflective thinking

The regulatory authority responsible for formulating rules of United States GAAP is: A) the Financial Accounting Standards Board.
B) the Cost Accounting Standards Board.
C) the Federal Accounting Standards Advisory Board. D) the International Accounting Standards Board. Answer: A
Diff: 1
Terms: financial accounting, FASB
Objective: 1
AACSB: Reflective thinking

Management accounting information is BEST described as:
providing a signal that something is wrong.
identifying and helping to explain what is wrong.
simply summarizing information, but giving no indication that anything is wrong.
measuring overall organizational performance.
Answer: B
Diff: 1
Terms: management accounting
Objective: 1
AACSB: Reflective thinking

6

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Compare and contrast the users and uses of management accounting and financial accounting.
Answer: Management accounting provides information to internal decision makers of the business such as line supervisors, division managers and top executives. Its purpose is to help managers plan, organize, control and make operating decisions by predicting future results and evaluating performance.

Financial accounting provides information to external decision makers such as investors and creditors. Its purpose is to present a fair picture of the financial condition of the company for use by these parties in making investing and credit decisions. Diff: 2

Terms: management accounting, financial accounting
Objective: 1
AACSB: Reflective thinking
MAL: This question is not available in MyAccountingLab.

27) What is the purpose of management accounting?
Answer: Management accounting gathers short-term and long-term financial and nonfinancial information to plan, coordinate, motivate, improve, control, and evaluate success factors of an organization. Management accounting converts data into usable information that supports planning, organizing, and control decision making. Diff: 2

Terms: management accounting
Objective: 1
AACSB: Reflective thinking
MAL: This question is not available in MyAccountingLab.

Objective 2

During the history of management accounting, innovations were developed to address the decision-making needs of managers.
Answer: TRUE
Diff: 2
Terms: management accounting
Objective: 2
AACSB: Reflective thinking

A key element in any organization’s strategy is to identify its target customers and to deliver what those target customers want.
Answer: TRUE
Diff: 1
Terms: strategy
Objective: 2
AACSB: Reflective thinking

7

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Management accounting innovations are usually developed by academics. Answer: FALSE
Explanation: Management accounting innovations are usually developed by management accountants in the field.
Diff: 2
Terms: management accounting
Objective: 2
AACSB: Reflective thinking

The first modern industry to develop and use large quantities of financial statistics to assess and monitor organizational performance was:
A) steel companies. B) lumber companies. C) the railroads.

D) automobile companies. Answer: C
Diff: 2
Terms: financial information
Objective: 2
AACSB: Reflective thinking

Which of the following companies is a service company?
Lands’ End
Schwinn Bicycles
Orkin Pest Control
British Petroleum Answer: C
Diff: 1
Terms: service companies
Objective: 2
AACSB: Reflective thinking

6) Historically, service companies have:
operated in less competitive environments than manufacturing companies.
enjoyed global customer demand.
used management accounting information in much the same way as manufacturing companies.
competed by managing costs to provide the best service at the lowest price. Answer: A
Diff: 2
Terms: service companies
Objective: 2
AACSB: Reflective thinking

8

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
7) The Hawthorne study revealed that:
individuals alter their behavior when they know they are being studied.
groups alter their behavior when they know they are being studied.
People react when they are being measured.
All of the above are correct.
Answer: D
Diff: 2
Terms: nonfinancial information, Hawthorne study
Objective: 2
AACSB: Reflective thinking

_______ helped develop the Plan-Do-Check-Act (PDCA) cycle. A) Hawthorne
B) Deming. C) Carnegie D) Ford Answer: D Diff: 2

Terms: plan-do-check-act cycle
Objective: 2
AACSB: Reflective thinking

Describe the steps in the PDCA cycle.
Answer: The Plan step of the PCDA cycle defines the organization’s purpose and selects the focus and scope of its strategy. The Do step of the PDCA cycle involves the implementation of a chosen course of action. In this setting, management accounting information gets communicated to front-line and support employees to inform their daily decisions and work activities. The check step in the PDCA cycle includes two components — measuring and monitoring ongoing performance and taking short-term actions based on the measured performance. In the Act step of the PDCA cycle, managers take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products. Diff: 3

Terms: plan-do-check-act cycle
Objective: 2
AACSB: Reflective thinking
MAL: This question is not available in MyAccountingLab.

9

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
What role has the increasingly competitive business environment played in the development of management accounting?
Answer: The competitive environment has changed dramatically. There has been a deregulation movement in North America and Europe during the 1970s and 1980s that changed the ground rules under which service companies operate.
In addition, organizations encountered severe competition from overseas companies that offered high-quality products at low prices. There has been an improvement of operational control systems such that information is more current and provided more frequently. Employees need better management accounting information and accurate and timely information to improve the activities they perform and to make decisions. Employees also want innovations in management accounting information. Nonfinancial information has become a critical feedback measure. Finally, the focus of many firms is now on measuring and managing activities.
Diff: 3
Terms: financial accounting, management accounting
Objective: 2
AACSB: Reflective thinking
MAL: This question is not available in MyAccountingLab.

Objective 3

At the highest level strategic planning involves choosing a strategy that provides the best fit between the organization’s environment and its internal resources in order to achieve the organization’s objectives.
Answer: TRUE
Diff: 2
Terms: strategy
Objective: 3
AACSB: Reflective thinking

Quality is the degree of conformance between what the customer is promised and what the customer receives.
Answer: TRUE
Diff: 1
Terms: quality
Objective: 3
AACSB: Reflective thinking

Government and nonprofit organizations, as well as profit-seeking enterprises, are feeling the pressures for improved performance.
Answer: TRUE
Diff: 1
Terms: government and nonprofit organizations
Objective: 3
AACSB: Reflective thinking

10

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Management accounting information allows managers to compare actual and planned costs and to identify areas and opportunities for process improvement.
Answer: TRUE
Diff: 1
Terms: management accounting
Objective: 3
AACSB: Reflective thinking

Management accounting can provide information on customer satisfaction.
Answer: TRUE
Diff: 2
Terms: management accounting
Objective: 3
AACSB: Reflective thinking

6) Planning activities include all of the following EXCEPT:
estimate the cost and profit consequences from a course of action.
evaluating the quality of the service provided.
projecting labor requirements.
budgeting.
Answer: B
Diff: 2
Terms: plan-do-check-act cycle
Objective: 3
AACSB: Reflective thinking

The most important factor in successful organizations is: A) weaknesses.
B) competition. C) strategy.

D) definition of quality. Answer: C
Diff: 2
Terms: strategy
Objective: 3
AACSB: Reflective thinking

A key element of any organization’s strategy is identifying: A) its potential shareholders.
B) its target customers. C) competitor’s products. D) employee needs. Answer: B
Diff: 3
Terms: strategy
Objective: 3
AACSB: Reflective thinking

11

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Explain the role of management accounting in helping an enterprise develop and implement its strategy.
Answer: The organization needs management accounting information to help implement the strategy, allocate resources for the strategy, communicate the strategy, and link employees and operational processes to achieve the strategy. As the strategy gets executed, management accounting information provides feedback about where it is working and where it is not, and guides actions to improve the performance from the strategy..
Diff: 2
Terms: management accounting, strategy
Objective: 3
AACSB: Reflective thinking
MAL: This question is not available in MyAccountingLab.

Objective 4

Quality expert, W. Edwards Deming, helped develop and disseminate the plan-do-check-act (PDCA) cycle.
Answer: TRUE
Diff: 2
Terms: plan-do-act cycle
Objective: 4
AACSB: Reflective thinking

Many organizations start the planning stage by re-affirming or updating its mission statement. Answer: TRUE
Diff: 2
Terms: plan-do-check-act cycle
Objective: 4
AACSB: Reflective thinking

Operating profit is an example of nonfinancial information.
Answer: FALSE
Explanation: Operating profit is an example of financial information.
Diff: 1
Terms: financial information
Objective: 4
AACSB: Reflective thinking

The check step in the PDCA cycle includes two components — measuring and monitoring ongoing performance and taking short-term actions based on the measured performance. Answer: TRUE
Diff: 2
Terms: plan-do-check-act cycle
Objective: 4
AACSB: Reflective thinking

12

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Which of the following best represents the Plan step in the Plan-Do-Check-Act (PDCA) cycle?
A) Take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products..
B) Measure and monitor ongoing performance and take short-term actions based on the measured performance.
C) Define the organization’s purpose and select the focus and scope of its strategy. . D) Implement the chosen course of action.
Answer: C
Diff: 2
Terms: plan-do-check-act cycle
Objective: 4
AACSB: Reflective thinking

Which of the following best represents the Do step in the Plan-Do-Check-Act (PDCA) cycle?. A) Take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products.
B) Measure and monitor ongoing performance and take short-term actions based on the measured performance.
C) Define the organization’s purpose and select the focus and scope of its strategy. D) Implement the chosen course of action.
Answer: D
Diff: 2
Terms: plan-do-check-act cycle
Objective: 4
AACSB: Reflective thinking

Which of the following best represents the Check step in the Plan-Do-Check-Act (PDCA) cycle?
A) Take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products.
B) Measure and monitor ongoing performance and take short-term actions based on the measured performance.
C) Define the organization’s purpose and select the focus and scope of its strategy. D) Implement the chosen course of action.
Answer: C
Diff: 2
Terms: plan-do-check-act cycle
Objective: 4
AACSB: Reflective thinking

13

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Which of the following best represents the Act step in the Plan-Do-Check-Act (PDCA) cycle? A) Take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products.
B) Measure and monitor ongoing performance and take short-term actions based on the measured performance.
C) Define the organization’s purpose and select the focus and scope of its strategy. D) Implement the chosen course of action.
Answer: A
Diff: 2
Terms: plan-do-check-act cycle
Objective: 4
AACSB: Reflective thinking

How the customer is treated at the time of the purchase is an example of the __________
element of the value proposition. A) functionality and features B) industry standards

C) quality D) service Answer: D Diff: 2
Terms: nonfinancial information
Objective: 4
AACSB: Reflective thinking

Managers of service departments need all of the following information EXCEPT:
efficiency data on work performance.
quality data on work performance.
profitability data of the whole company.
profitability data of the service department. Answer: C
Diff: 2
Terms: financial information, nonfinancial information
Objective: 4
AACSB: Reflective thinking

14

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
A national company manufactures a line of modern furniture. Information MOST useful to the employee who assembles the furniture includes:
A) a daily report comparing the actual time it took to assemble a piece of furniture to the standard time allowed.
B) a monthly report on the proportion of furniture pieces assembled with defects. C) the number of furniture pieces sold this month.
D) revenue per employee. Answer: A
Diff: 2
Terms: financial information, nonfinancial information
Objective: 4
AACSB: Reflective thinking

A national company manufactures a line of modern furniture. Information MOST useful to the top executive includes:
A) individual job summaries of materials used.
B) monthly financial reports on the company’s profitability by product line. C) time reports submitted by each employee.
D) scheduled downtime for routine maintenance on machines. Answer: B
Diff: 2
Terms: financial information, nonfinancial information
Objective: 4
AACSB: Reflective thinking

A quarterly report disclosing declining market share information is MOST useful to:
a front-line employee.
the manager of operations.
the chief executive officer.
the accounting department. Answer: C
Diff: 2
Terms: financial information
Objective: 4
AACSB: Reflective thinking

A weekly report comparing machine time used to available machine time is information LEAST useful to:
A) a front-line employee.
B) the manager of operations. C) the chief executive officer. D) the accounting department. Answer: C
Diff: 1
Terms: financial information, nonfinancial information
Objective: 4
AACSB: Reflective thinking

15

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
A daily report on the number of quality units assembled by each employee is information MOST useful to:
A) a front-line assembly worker. B) the accounting department. C) the chief executive officer. D) the personnel department. Answer: A
Diff: 2
Terms: nonfinancial information
Objective: 4
AACSB: Reflective thinking

Which of the following would be MOST helpful for a top manager of a company?
profitability report of the company
information to monitor hourly and daily operations
number of customer complaints
operating expense summary reported by department Answer: A
Diff: 2
Terms: financial information, nonfinancial information
Objective: 4
AACSB: Reflective thinking

A law firm would use management accounting information for all of the following decisions

EXCEPT:
A) staffing needs.
B) performance evaluation of staff. C) budgeted purchases of supplies. D) location of annual holiday party. Answer: D
Diff: 2
Terms: financial information, nonfinancial information
Objective: 4
AACSB: Reflective thinking

Management accounting can play a critical role in the service industry because of all the following reasons EXCEPT:
A) firms must be especially sensitive to the timeliness and quality of customer service. B) many employees have very little contact with customers.
C) customers immediately notice defects and a delay in service. D) dissatisfied customers may never return.
Answer: B
Diff: 2
Terms: management accounting
Objective: 4
AACSB: Reflective thinking

16

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
The following information pertains to three divisions of Marine Industrial Coatings, Inc.

(amounts in millions):

Chemical

Retail Paint

Industrial
Sales

$16,000

$30,000

$120,000
Operating Income

$4,000

$6,000

$40,000
Investment

$320,000

$660,000

$2,000,000

What is the return on investment for the Chemical Division? A) 1.25%
B) 2.25% C) 25.0% D) 50.00% Answer: A Diff: 2
Terms: return on investment
Objective: 4
AACSB: Analytical skills

Which division is more profitable based on ROI?
Chemical
Retail paint
Industrial
Both Chemical and Retail paint are more profitable than Industrial. Answer: C
Diff: 3
Terms: return on investment
Objective: 4
AACSB: Analytical skills

What is the Return on Sales for the Retail paint division? A) 2%
B) 4.5% C) 20% D) 45% Answer: C Diff: 2
Terms: return on sales
Objective: 4
AACSB: Analytical skills

17

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
For improving operational efficiencies and customer satisfaction, nonfinancial information
is:
A) critical. B) moderate.
C) infrequently used. D) unnecessary. Answer: A
Diff: 2
Terms: nonfinancial information
Objective: 4
AACSB: Reflective thinking

Nonfinancial information might be used for all of the following EXCEPT:
improve product quality.
reduce cycle times.
satisfy customers’ needs.
All of the above are used. Answer: D
Diff: 2
Terms: nonfinancial information
Objective: 4
AACSB: Reflective thinking

Is financial accounting or management accounting more useful to an operations manager? Why?
Answer: Management accounting is more useful to an operations manager because management accounting reports operating results by department or unit rather than for the company as a whole, it includes financial as well as nonfinancial data such as the number or percent of on-time deliveries and cycle times, and it includes quantitative as well as qualitative data such as the type of rework that was needed on defective units. It also provides information to control operations; it measures and evaluates existing systems to identify problems.
Diff: 3
Terms: financial accounting, management accounting
Objective: 4
AACSB: Reflective thinking
MAL: This question is not available in MyAccountingLab.

18

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
25) Give two examples of financial information and nonfinancial information.
Answer: Financial information includes amounts that can be expressed in dollar amounts such as sales, net income, and total assets. It also includes ratios prepared using financial information such as the percentage increase in sales, return-on-sales, and return-on-investment.

Nonfinancial information includes measures that are not expressed in dollar amounts. For example, nonfinancial measures of customer satisfaction include the number of repeat customers or ranked estimates of satisfaction levels. Nonfinancial measures of production quality include percent of on-time deliveries, the number of defects, and production yield. Diff: 3
Terms: financial information, nonfinancial information
Objective: 4
AACSB: Reflective thinking
MAL: This question is not available in MyAccountingLab.

Objective 5

The design and introduction of new measurements and systems must be accompanied by an analysis of the behavioral and organizational reactions to the measurements.
Answer: TRUE
Diff: 2
Terms: nonfinancial information
Objective: 5
AACSB: Reflective thinking

People react when they are being measured, and they react to the measurements..
Answer: TRUE
Diff: 2
Terms: measurements
Objective: 5
AACSB: Reflective thinking

Information is never neutral; just the act of measuring and reporting information affects the individuals involved.
Answer: TRUE
Diff: 2
Terms: financial information, nonfinancial information
Objective: 5
AACSB: Reflective thinking

19

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
The act of simply measuring and reporting information on certain processes: A) focuses the attention of employees on those processes that are being measured. B) diverts the employee’s attention to other activities that are not being measured. C) disproves the saying “What gets measured gets managed.”
D) has no effect on employee behavior. Answer: A
Diff: 2
Terms: nonfinancial information
Objective: 5
AACSB: Reflective thinking

Which statement below is FALSE?
“What gets measured gets managed.”
People react to measurements.
Employees spend more attention on those variables that are not getting measured.
“If I can’t measure it, I can’t manage it.”
Answer: C
Diff: 2
Terms: financial information, nonfinancial information
Objective: 5
AACSB: Reflective thinking

When a change is introduced, employees tend to: A) embrace the change.
B) be indifferent to the change. C) exhibit no change in behavior. D) resist the change.
Answer: D
Diff: 1
Terms: nonfinancial information
Objective: 5
AACSB: Reflective thinking

The introduction of a new management accounting system is MOST likely to motivate UNWANTED employee behavior when it is used for:
A) evaluation. B) planning.
C) decision making.
D) coordinating individual efforts. Answer: A
Diff: 2
Terms: nonfinancial information
Objective: 5
AACSB: Reflective thinking

20

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Management accountants are MOST likely to feel outside pressure to influence the numbers favorably when the information is used for:
A) budgeting.
B) compensation and promotions. C) continuous improvement.
D) product costing. Answer: B
Diff: 2
Terms: financial information, nonfinancial information
Objective: 5
AACSB: Ethical reasoning

Fostering a culture of high ethical standards includes all of the following EXCEPT:
following the good example set by senior management.
communicating to employees a belief system that inspires and promotes commitment to the organization’s core values.
following the general examples set by front-line employees.
communicating to all employees a boundary system that states what actions will not be tolerated.
Answer: C
Diff: 2
Terms: nonfinancial information
Objective: 5
AACSB: Ethical reasoning

10) The Institute of Management Accountants (IMA):
is a professional organization of management accountants.
is a professional organization of financial accountants.
issues standards for management accounting.
a professional organization of management accountants that issues standards for management accounting.
Answer: D
Diff: 2
Terms: Institute of Management Accountants
Objective: 5
AACSB: Reflective thinking

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11) Discuss the potential behavior implications of performance evaluation.
Answer: As measurements are made on operations and, especially, on individuals and groups, the behavior of the individuals and groups are affecte.D
People react to the measurements being made. They will focus on those variables or the behavior
being measured and spend less attention on variables and behavior that are not measured.
Managers and employees may take unexpected and undesirable actions to influence the score on
performance measure. For example, managers may skip discretionary expenses in order to
increase their bonus.
Diff: 3
Terms: performance evaluation
Objective: 5
AACSB: Ethical reasoning
MAL: This question is not available in MyAccountingLab.

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Management Accounting, 6e (Atkinson et al.)

Chapter 2  The Balanced Scorecard and Strategy Map

Objective 1

Database and information systems are physical assets which create distinctive value for companies.
Answer: FALSE
Explanation: Database and information systems are intangible assets
Diff: 1
Terms: database and information systems
Objective: 1
AACSB: Reflective thinking

The roles of performance measurement systems in organizations include all of the following

EXCEPT:
A) motivate employees to help the organization achieve its strategic objectives. B) help managers with resource allocation.
C) create value from intangible assets as well as their physical and financial assets. D) communicate the company’s strategic objectives.
Answer: C
Diff: 1
Terms: performance measurement systems
Objective: 1
AACSB: Reflective thinking

Many intangible assets:
do not appear on the balance sheet since it is difficult to place a reliable financial value on them.
should be evaluated with ROI and other performance measures.
can be measured and managed with current financial control systems.
are unimportant because they have no physical substance.
Answer: A
Diff: 2
Terms: intangible assets
Objective: 1
AACSB: Reflective thinking

1

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Intangible assets that are currently reported on the balance sheet include: A) loyal and profitable customer relationships.
B) organizational culture.
C) employee skills and motivation.
D) the cost of a patent giving exclusive rights to a process. Answer: D
Diff: 1
Terms: intangible assets
Objective: 1
AACSB: Reflective thinking

The saying “what gets measured gets done” refers to measuring performance: A) so that appropriate disciplinary actions can be taken.
B) to ensure that employees perform equally in all dimensions of their jobs. C) so that essential tasks get accomplished.
D) to ensure that the ethical code of conduct is also being enforced. Answer: C
Diff: 1
Terms: performance measurement
Objective: 1
AACSB: Reflective thinking

Give at least two examples of intangible assets. Are intangible assets critical for success? Explain.
Answer: Yes, business has moved from the industrial age into the information age where knowledge-based intangible assets create value and are critical for success. Examples include loyal and profitable customer relationships, high-quality processes, innovative products and services, employee skills and motivation, and database and information systems.
Diff: 2
Terms: intangible assets
Objective: 1
AACSB: Analytical skills
MAL: This question is not available in MyAccountingLab.

2

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Objective 2

The financial perspective addresses which processes must we excel at to meet our customer and shareholder expectations.
Answer: FALSE
Explanation: The learning and growth perspective addresses which processes must we excel at to meet our customer and shareholder expectations
Diff: 2
Terms: learning and growth perspective
Objective: 2
AACSB: Reflective thinking

The Balance Scorecard measures organizational performance across five different but linked perspectives.
Answer: FALSE
Explanation: The Balanced Scorecard (see Exhibit 2-3) measures organizational performance across four different but linked perspectives that are derived from the organization’s mission, vision, and strategy.
Diff: 1
Terms: balanced scorecard
Objective: 2
AACSB: Reflective thinking

The learning and growth perspective addresses what employee capabilities, information systems, and organizational capabilities we need to continually improve.
Answer: TRUE
Diff: 1
Terms: learning and growth perspective
Objective: 2
AACSB: Reflective thinking

The customer perspective of the Balanced Scorecard focuses on excellence in processes which satisfy customers.
Answer: FALSE
Explanation: The process perspective of the Balanced Scorecard focuses on excellence in processes which satisfy customers
Diff: 2
Terms: process perspective
Objective: 2
AACSB: Reflective thinking

An important financial metric in the Balanced Scorecard is return on investment.
Answer: TRUE
Diff: 2
Terms: balanced scorecard
Objective: 2
AACSB: Reflective thinking

3

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Important measures in the customer perspective usually include the percentage of repeat customers and growth in sales to existing customers.
Answer: TRUE
Diff: 2
Terms: customer perspective
Objective: 2
AACSB: Reflective thinking

The use of multiple-performance measures in the Balanced Scorecard would be expected to lead to all of the following EXCEPT:
A) more extensive use of financial measures such as cost and profit. B) employees recognizing the various dimensions of their work.

C) the use of new performance measures such as customer satisfaction and employee morale. D) group-level performance measures.
Answer: A
Diff: 1
Terms: balanced scorecard
Objective: 2
AACSB: Reflective thinking

The Balanced Scorecard’s objectives are in balance when:
debits equal credits.
financial performance measurements are less than the majority of the performance measurements.
the measurements are fair.
the measurements reflect an improvement over the previous year.
Answer: B
Diff: 2
Terms: balanced scorecard
Objective: 2
AACSB: Reflective thinking

The Balanced Scorecard is said to be “balanced” because it measures: A) short-term and long-term objectives.
B) financial and nonfinancial objectives. C) internal and external objectives.
D) All of the above are correct. Answer: B
Diff: 1
Terms: balanced scorecard
Objective: 2
AACSB: Reflective thinking

4

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
________ translate(s) an organization’s mission, vision, and strategy into a comprehensive set of performance measures that provide the framework for implementing its strategy.

A) Critical success factors B) The value proposition C) Objectives
D) The Balanced Scorecard Answer: D
Diff: 1
Terms: balanced scorecard
Objective: 2
AACSB: Reflective thinking

The ________ perspective of the Balanced Scorecard asks, “How is success measured by our shareholders?”
A) learning and growth B) customer
C) financial D) shareholder Answer: C Diff: 2
Terms: financial perspective
Objective: 2
AACSB: Reflective thinking

The ________ perspective of the Balanced Scorecard focuses on creating value for customers.
A) Value B) Financial C) Stakeholder D) Customer Answer: D Diff: 1
Terms: customer perspective
Objective: 2
AACSB: Reflective thinking

Measures of employees’ skills and capabilities are included in the ________ perspective of the Balanced Scorecard.
A) financial B) internal C) customer

D) learning and growth perspective Answer: D
Diff: 1
Terms: learning and growth perspective
Objective: 2
AACSB: Reflective thinking

5

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
A chain of cause-and-effect relationships that appropriately link the four balanced scorecard perspectives is:
A) a high return on investment causes customer loyalty that results in skilled production workers that improve process quality.
B) skilled production workers help to produce process quality that results in customer loyalty that helps to increase return on investment.
C) customer loyalty results in a high return on investment that results in the ability to attract skilled production workers that improve process quality.
D) improved process quality results in a high return on investment that causes customer loyalty that results in the ability to attract skilled production workers.
Answer: B
Diff: 2
Terms: balanced scorecard
Objective: 2
AACSB: Reflective thinking

Defect rates for products and yield percentages in manufacturing are measures of quality included in the ________ perspective of the Balanced Scorecard.
A) financial B) production C) process D) internal Answer: C Diff: 2

Terms: process perspective
Objective: 2
AACSB: Reflective thinking

If a performance measure in the customer perspective of the Balanced Scorecard was customer loyalty, then a driver from the process perspective would MOST likely be:
A) implementing cutting-edge technology. B) repeat sales.
C) high-quality production processes. D) increased profits.
Answer: C
Diff: 2
Terms: customer perspective
Objective: 2
AACSB: Reflective thinking

6

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
If process perspective measure from the Balanced Scorecard was shorter cycle times, then a driver from the learning and growth perspective would MOST likely be to:
A) lower cost of acquiring materials.
B) achieve just-in-time supplier capability. C) offer a complete product line.
D) expand product offerings. Answer: B
Diff: 3
Terms: process perspective
Objective: 2
AACSB: Reflective thinking

What is the primary purpose of the Balanced Scorecard?
Answer: The primary purpose of the Balanced Scorecard is to translate an organization’s vision,
mission, and strategy into a set of performance measures that put that strategy into action with
clearly-stated objectives, measures and target.
Diff: 3
Terms: balanced scorecard
Objective: 2
AACSB: Analytical skills
MAL: This question is not available in MyAccountingLab.

Objective 3

A properly constructed Balanced Scorecard tells the story of a business unit’s strategy. Answer: TRUE
Diff: 1
Terms: balanced scorecard
Objective: 3
AACSB: Reflective thinking

Strategy creates a competitive advantage by positioning the company in its external environment where its internal resources and capabilities deliver something to its customers better than or different from its competitors.
Answer: TRUE
Diff: 1
Terms: strategy
Objective: 3
AACSB: Reflective thinking

7

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
3) Which of the following statements is true?
Vision and mission statements set the general direction for the organization.
Strategy is a concise, internally-focused statement of how the organization expects to compete and deliver value to customers.
Mission is a concise, externally-focused statement that expresses how the organization wants to be perceived by the external world.
Vision is about selecting the set of activities to create a sustainable difference in the marketplace.
Answer: A
Diff: 2
Terms: strategy
Objective: 3
AACSB: Reflective thinking

The purpose of the Balanced Scorecard is BEST described as helping an organization: A) develop customer relations.
B) mobilize employee skills for continuous improvements in processing capabilities, quality, and response times.
C) introduce innovative products and services desired by target customers.
D) translate an organization’s mission, vision, and strategy into a set of performance measures that help to implement the strategy.
Answer: D
Diff: 2
Terms: balanced scorecard
Objective: 3
AACSB: Reflective thinking

The FIRST step in developing strategic objectives for the Balanced Scorecard is:
defining the long-run financial objectives.
identifying the target customer.
articulating the organization’s vision.
select objectives for the customer value proposition. Answer: A
Diff: 2
Terms: strategy, objectives
Objective: 3
AACSB: Reflective thinking

8

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Dakota Corporation plans to grow by offering a hand held application, the Pocket Analyst 2, which is superior and unique from the competition. Dakota believes that putting additional resources into R&D and staying ahead of the competition with technological innovations is critical to implementing its strategy.

6) Dakota’s value proposition is:
product innovation and leadership.
lowest total cost.
complete customer solutions.
employees recognizing customer needs. Answer: A
Diff: 3
Terms: value proposition
Objective: 3
AACSB: Reflective thinking

To further Dakota’s strategy, measures on the Balanced Scorecard would MOST likely include:
A) shorter cycle times. B) manufacturing quality. C) yield.
D) lowest cost supplier. Answer: B
Diff: 3
Terms: strategy
Objective: 3
AACSB: Reflective thinking

Splashdown Corporation manufactures water toys. It plans to grow by producing high-quality water slides at a low cost that are delivered in a timely manner. There are a number of other manufacturers who produce similar water slides. Splashdown believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy.

Splashdown’s value proposition is: A) product innovation and leadership. B) complete customer solutions.

C) employees recognizing customer needs. D) lowest total cost.
Answer: D
Diff: 3
Terms: value proposition
Objective: 3
AACSB: Reflective thinking

9

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
To further the company’s strategy, measures on the balanced scorecard would MOST likely include:
A) number of process improvements. B) first to market.
C) longer cycle times.