Chapter 12 - Organizational Structure and Performance Measurement
Chapter 12
Organizational Structure and Performance Measurement
True / False Questions
2. The return on investment can ordinarily be improved by either increasing sales, reducing
expenses, or reducing operating assets, assuming each of the other factors remain unchanged.
4. The use of return on investment as a sole performance measure may lead managers to make
decisions that are not in the best interests of the company.
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Chapter 12 - Organizational Structure and Performance Measurement
6. An investment centre has the highest level of responsibility from a performance
management perspective.
8. Return on investment can provide information as to the benefits that managers can obtain
by reducing their investments in current and fixed assets.
10. A key feature of the balanced scorecard performance measurement system is that the
different dimensions are linked together.
11. In performing return on investment calculations, it is safe to assume that total assets from
the balance sheet may be used in all calculations.
12. Centralized organizations normally include multiple business segments.
13. Profit centre managers are authorized to make decisions about pricing, production,
operations and capital acquisitions.
14. Cost centre managers are often evaluated by comparing actual costs under their control
against budgeted or standard costs using variance analysis.
15. For purposes of determining the costs to be included in each segment's performance
evaluations, in general common fixed costs should be allocated to each segment and traceable
fixed costs should not be assigned to segments.
16. In looking at ROI, turnover measures management's ability to control operating expenses
in relation to sales.
18. Multidimensional performance systems such as the balanced scorecard are appropriate for
not-for-profit organizations but not for commercial businesses.
Multiple Choice Questions
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Chapter 12 - Organizational Structure and Performance Measurement
21. The balance scorecard approach usually includes all the following categories of measures
except:
A. direct material measures.
B. internal business process measures.
C. financial measures.
D. learning and growth measures.
22. During Cummings most profitable year its net income was $25,000. What is the ROI if
the investment was $50,000?
A. 28%.
B. 50%.
C. 51%.
D. 63%.
23. In 2003 the real estate market experienced an all-time high revenue with a net income of
$45 billion with investment of $10 billion. What is the ROI for the real estate industry?
A. 4.5.
B. 5.44.
C. 6.22.
D. 14.2.
24. Keeping all other factors constant, which of the following would not cause an increase in
the ROI?
A. Increase in liabilities.
B. Increase in sales.
C. Reduction in expenses.
D. Reduction in operating assets.
25. Turnover is computed by dividing average operating assets into:
A. invested capital.
B. total assets.
C. net operating income.
D. sales.
27. In computing the margin in a ROI analysis, which of the following is used in the
denominator?
A. Sales.
B. Net operating income.
C. Average operating assets.
D. Residual income.
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Chapter 12 - Organizational Structure and Performance Measurement
28. Which of the following is not an operating asset?
A. Cash.
B. Inventory.
C. Plant equipment.
D. Common stock.
29. Which of the following is not an operating asset?
A. cash.
B. inventory.
C. plant equipment.
D. investment in another company.
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Chapter 12 - Organizational Structure and Performance Measurement
30. Assuming that sales and net operating income remain the same, a company's return on
investment will:
A. increase if average operating assets increase.
B. decrease if average operating assets decrease.
C. decrease if turnover decreases.
D. decrease if turnover increases.
31. All other things being equal, a company's return on investment (ROI) would generally
increase when:
A. average operating assets increase.
B. sales decrease.
C. operating expenses decrease.
D. operating expenses increase.
32. If sales and average operating assets remain the same, a company's return on investment
will:
A. increase if net operating income increases.
B. decrease if net operating income decreases.
C. increase if margin decreases.
D. decrease if margin increases.
33. A company's return on investment is the:
A. margin divided by turnover.
B. margin multiplied by turnover.
C. turnover divided by average operating assets.
D. turnover multiplied by average operating assets.
34. Net operating income is defined as:
A. sales minus variable expenses.
B. sales minus variable expenses and traceable fixed expenses.
C. contribution margin minus traceable and common fixed expenses.
D. net income plus interest and taxes.
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