1. Performance evaluation in most firms is applied at:

1. Performance evaluation in most firms is applied at:

A. Many different levels from top management down to individual production and sales employees.

B. All levels of production, but only top levels of sales.

C. Top and mid-management levels only.

D. Lower and mid-management levels only.

E. The mid-management level only.

2. Risk aversion is by:

A. Lack of a strategic emphasis in decision making.

B. Use of non-strategic performance measurement systems.

C. Presence of uncertainty in a manager’s environment.

D. A manager’s inability to deal with stress.

3. The process by which managers at all levels in the firm gain information about the performance of tasks within the firm and judge that performance against pre-established criteria is:

A. Performance measurement.

B. Employee inspection.

C. Goal congruence.

D. Managerial evaluation.

E. Management control.

4. Operational control has a management-by-exception approach in contrast to management control, which is more consistent with:

A. The management-by-incentives approach.

B. The management-by-objectives approach.

C. The “hands off” approach.

D. A non-quantitative set of measures.

E. A non-qualitative set of measures.

5. A strategic business unit (SBU) consists of a well-defined set of controllable operating activities over/about which the SBU manager is:

A. Knowledgeable.

B. Responsible for strategy.

C. Responsible for strategy and execution.

D. Responsible for strategy, execution, and performance.

6. The objectives of management control of the manager include:

A. Cost, quality, and functionality.

B. Management by objectives.

C. Management by exception.

D. Motivation, incentive and fairness.

E. Identification, response and performance.

7. The principal-agent economic model applied to employment contracts deals primarily with the two management performance aspects of:

A. Rights and duties.

B. Uncertainty and lack of observability.

C. Performance and reward.

D. Controllability and responsibility.

E. Risk and motivation.

8. The “risk-averse” manager will be improperly biased to:

A. Seek out decisions with uncertain outcomes.

B. Make risky decisions.

C. Avoid decisions with uncertain outcomes.

D. Maximize his or her own risk and minimize the company’s risk.

E. Use resources beyond his/her control.

9. In properly developing formal systems at the team level that will have the desired impact on employees’ performance, the management accountant should recognize any existing informal systems and:

A. Make plans to eliminate these informal systems.

B. Simply formalize them into the system being developed.

C. Try to eliminate them prior to system development.

D. Not let these “culture” aspects affect system development.

E. Try to capture valued “culture” aspects in the formal system.

10. The common factor among control systems in hiring practices, promotion policies, and strategic performance measurement is:

A. Management sets expectations for desired employee performance.

B. Employee-determined expectations for desired employee performance.


C. Coordination of activities.

D. Communication of results.

11. Among the benefits of centralized management in a firm is (are):

A. Effective goal congruence.

B. Utilization of top management expertise.

C. Effective participation by all levels of management.

D. A higher level of motivation for divisional managers.

12. The benefits of decentralized management in a firm include all the following except:

A. Ability of SBU managers to use their local knowledge effectively.

B. Ability of SBU managers to make more timely decisions.

C. Motivation provided by the freedom and responsibility of a decentralized environment.

D. Improved coordination among divisional managers.

13. The need for coordination between the production and the selling function will impact the choice of:

A. Profit, cost or revenue center.

B. Manager for the firm.

C. Formal or informal control systems.

D. Profitability goal for the firm.

E. Control measures to prevent fraud.

14. By not distinguishing between direct and indirect costs in their performance reporting, many companies:

A. Generate more useful control potential for managers.

B. Can cause poor decision-making.

C. Focus on long-term results.

D. Focus on short-term results.

E. Clearly distinguish between controllable and non-controllable costs.

15. As a strategic issue, “budget slack” could represent a:

A. Very minor issue in most firms.

B. Self-correcting problem over several operating periods.

C. Problem only in a decentralized management environment.

D. Lower overall level of expected performance than is achievable.

E. Significant increase in the relative risk aversion of managers.

16. “Outsourcing” a cost center is often done to:

A. Reduce cost and obtain strategic focus.

B. Increase control over a strategic resource.

C. Reduce the firm’s contractual relationships.

D. Shift costs within remaining cost centers.

17. Cost allocation of service department costs to production departments make the evaluation and control processes in the production departments:

A. Simpler.

B. More complex.

C. Forthright and fair.

D. Less efficient.

E. Counter productive.

18. From a strategic standpoint, profit centers tend to:

A. Free the center manager from concerns about markets.

B. Place more cost emphasis on rush orders.

C. Provide incentive for coordination among managers of different units.

D. Focus managers on cost control rather than revenue generation.

E. All of the above answers are correct.

19. The contribution by profit center (CPU) expands the contribution margin income statement by distinguishing:

A. Variable and fixed costs.

B. Short-term and long-term fixed costs.

C. Controllable and non-controllable fixed costs.

D. Noncontrollable and untraceable fixed costs.

E. Net income and contribution margin.

20. The main concept of the balanced scorecard is that, to evaluate the SBU’s progress to strategic success, a business must use all of the followingexcept:

A. Both financial and non-financial measures.

B. Value chain analysis.

C. Attend to customer satisfaction needs.

D. Multiple measures for a comprehensive evaluation.

21. In a non-profit organization, you are more likely to see:


A. Cost centers.

B. Revenue centers.

C. Profit centers.

D. Investment centers.

22. The evaluation by upper-level managers of the performance of mid-level managers is:

A. Performance evaluation.

B. Operational control.

C. Goal congruence.

D. Principal-agent model.

E. Management control.

23. The evaluation of operating level employees by mid-level managers is:

A. Performance evaluation.

B. Operational control.

C. Goal congruence.

D. Principal-agent model.

E. Management control.

24. The manager acting independently in such a way as to simultaneously achieve top management’s objectives is:

A. Performance evaluation.

B. Operational control.

C. Goal congruence.

D. Principal-agent model.

E. Management control.

25. A model that has been used to better understand the key elements that contracts must have in order to achieve the desired objectives is the:

A. Performance evaluation.

B. Operational control.

C. Goal congruence.

D. Principal-agent model.

E. Management control.

26. Order-filling costs:

A. Include samples.

B. Cannot often be effectively managed as an engineered-cost center.

C. Usually have a relatively clear relationship to sales volume.

D. Include commissions.

27. Controllable margin is determined by subtracting short-term controllable fixed costs from the:

A. Long-term controllable fixed cost.

B. Contribution margin.

C. Variable costs.

D. Fixed costs.

E. Variable costs and fixed costs.

28. An employment contract is an agreement between the manager and top management designed to provide incentives for the manager to act:

A. Independently to achieve top management’s objectives.

B. Consistently with that of other managers.

C. Independently to achieve the manager’s objectives.

D. Independently to achieve the customer’s objectives.

29. The least common type of SBU in a retail firm is the:

A. Profit center.

B. Cost center.

C. Revenue center.

D. Investment center.

30. Which one of the following is a drawback of decentralization?

A. Uses local knowledge only.

B. May hinder coordination among independent SBUs.

C. Provides better management control.

D. Provides goal congruence.

E. Offers an efficient method of performance evaluation.

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