1) ________ is the logical integration of techniques to gather and report data for planning and control

decisions and to evaluate performance.

A) An internal control system
B) A quality control system
C) A financial reporting system
D) A management control system
2) A management control system includes the techniques to gather and use information to ________.
A) motivate employee behavior
B) evaluate performance
C) make planning and control decisions
D) all of the above
3) Which of the following is NOT a characteristic of a management control system?
A) A management control system aids and coordinates the process of decision making.
B) A management control system encourages the use of only short-term goals.
C) A management control system motivates individuals throughout the organization to act in concert.
D) A management control system measures and evaluates performance.
4) What is the first step in designing a management control system?
A) evaluating management's performance
B) establishing organizational goals
C) preparing financial statements
D) differentiating between profit centers and cost centers

5) What is the first and most basic component in a management control system?
A) the organization's long-range budget
B) the organization's goals
C) the stockholders' goals
D) the manager's personal desires
6) ________ are characteristics or attributes that managers must achieve to drive the organization toward
its goals.
A) Nonfinancial performance measures
B) Targets
C) Key success factors
D) Objectives
7) Which of the following statements about performance measures is FALSE?
A) Organizational goals without performance measures do not motivate managers.
B) Every performance measure used to evaluate employees should be consistent with organizational
goals.
C) An ideal management control system should include at least one performance measure related to
every goal.
D) Performance measures become more specific at higher levels of the organization.
8) A hotel has the following organizational goal: Increase customer satisfaction of overnight guests by
50%. Which is the best performance measure of the organizational goal?
A) number of new employees trained
B) turnover rate of hotel employees
C) overall rating on guest satisfaction survey
D) percent of guests paying by credit card

9) A management control system is a logical integration of techniques to gather and report data and to
evaluate performance. T or F
10) The purpose of performance measures is to set direction and to motivate managers.
T or F
11) The following information is available for Wildwood Consulting Company and its two offices:
Euclid
Royal
Office
Office
Net sales
$250,000
$400,000
Fixed costs:
Controllable by division manager
78,000
48,000
Controllable by others
4,000
8,000
Variable costs:
Cost of merchandise sold
30,000
120,000
Operating expenses
15,000
60,000
Unallocated costs were $152,000.
Required:
A) Compute the contribution margin for the Euclid office.
B) Compute the contribution controllable by the manager of the Royal Office.
C) Compute the contribution by segment for the Euclid office.
D) Compute the income before taxes for the company as a whole. Extra credit

12) ________ is the process by which organizations concentrate decision making within a particular
location or group.
A) Management by objective
B) Balanced scorecard
C) Decentralization
D) Centralization
13) Which of the following statements is NOT a benefit of decentralization?
A) Lower-level managers are able to make faster and better decisions on local decisions than higher-level
managers.
B) By delegating decision-making authority to local managers, higher-level managers free up time to deal
with larger issues and fundamental strategy.
C) Local managers who are given more authority often have greater motivation and job satisfaction.
D) Managers in decentralized units may spend time negotiating transfer prices for goods transferred
between units.

14) The decentralization of organizations has several disadvantages that include ________.
A) lower level managers can make faster decisions than higher level managers.

B) innovative ideas are less likely to be shared in decentralized organizations.

C) local managers are given the opportunity to develop decision making skills so they can move up in the
organization.
D) higher level managers are given more time to pursue strategy issues.
15) A firm is a good candidate for decentralization if ________.
A) segments buy from the same suppliers
B) segments sell to the same customers
C) there is frequent transferring of products between segments
D) an organization's segments are relatively independent of each other
16) ________ is the delegation of decision-making power to segment managers of an organization.
A) Goal congruence
B) Segment autonomy
C) Managerial effort
D) Segment contribution

17) Decentralization may increase a firm's costs because ________.

A) lower level managers duplicate services that may be less expensive if centralized
B) information costs rise as top management needs additional reports to learn about decentralized units
C) lower level managers may make decisions that are not in the best interests of the firm as a whole
D) all of the above
18) Decentralization is the delegation of freedom to make decisions. T or F
19) The lower in the organization that the freedom to make decisions exists, the greater the centralization.
T or F
20) The increasing sophistication of telecommunications facilitates decentralization in organizations.
Answer: T or F

21) Segment autonomy means that the activities of segment managers are directed by top managers.
Answer: T or F
22) When compared to a decentralized organization, there are really no advantages to a centralized
organization. T of F
23) The Nicholson and Cage Divisions are in the same company. Currently the Cage Division buys a part
from the Nicholson Division for $82 per unit. The Nicholson Division wants to increase the price of the
part to $100 per unit. Cage Division can buy the part for $94 from an outside supplier. The cost data for
the part obtained from the Nicholson Division is below:
Direct materials
Direct labor
Variable indirect production
Fixed indirect production

$25.50
32.50
22.50
9.60

If Nicholson does not provide the parts to Cage, it will save one-fourth of the fixed indirect production
costs. The Nicholson Division has excess capacity but no alternative uses of the facilities.
Required:
A) From the standpoint of the company as a whole, should Cage Division continue to buy the part from
Nicholson Division?
B) From the standpoint of Cage Division only, should Cage Division continue to buy the part from
Nicholson Division?

24) Long-term planning for making investments that require large amounts of resources is called
________.
A) operating budgeting
B) capital budgeting
C) strategic analysis
D) sensitivity analysis
25) The phases of capital budgeting do NOT include ________.
A) a post-audit of the investment
B) the selection of the investment to undertake
C) the identification of potential investments
D) awarding bonuses to managers for good investment decisions
26) In the capital budgeting process, accountants are NOT involved in ________.
A) identifying potential investments
B) choosing which investments to make
C) gathering data to aid the investment decision
D) follow-up monitoring of investments
27) The minimum desired rate of return on an investment is sometimes referred to as ________.

A) the discount rate

B) the hurdle rate
C) the required rate of return
D) all of the above
28) In net present value analysis, the minimum desired rate of return for an investment project depends
on the ________ of a proposed project.
A) expected return
B) desired return
C) risk
D) payback period
29) The higher the risk of an investment project, the ________ for the project.
A) lower the minimum desired rate of return
B) higher the minimum desired rate of return
C) lower the expected rate of return
D) higher the expected rate of return
30) The net present value method computes the present value of all ________ using a minimum desired
rate of return.
A) expected future cash inflows
B) expected future cash outflows
C) expected future cash inflows and expected future cash outflows
D) past cash inflows
31) Using the net present value method, mangers sum the present values of all expected future cash flows
from the project and ________.
A) add the initial investment
B) subtract the initial investment
C) ignore the initial investment
D) add the depreciation expense
32) If the net present value of an investment project is positive, then the project is ________. If the net
present value of an investment project is negative, then the project is ________.
A) ignored; accepted
B) desirable; undesirable
C) unacceptable; acceptable
D) rejected; accepted
33) Accepting a project with a ________ NPV makes the firm worse off financially because the cost of the
investment exceeds the ________.
A) positive; present value of future benefits
B) negative; present value of future cash flows
C) negative; present value of present cash flows
D) positive; present value of present cash flows

34) Bryant Company has obtained the following data about a possible planned investment:
Cost
Terminal salvage value in 8 years
Additional annual revenues for 8 years
Additional annual cash expenses for 8 years
Estimated useful life in years
Minimum desired rate of return
Present value of ordinary annuity, 10%, 8 periods
Present value of one, 10%, 8 periods

$270,000
$10,000
$250,000
$200,000
8
10%
5.3349
0.4665

The company uses straight-line depreciation method. Ignore income taxes.

Required:
A) Compute the net present value of the investment.
B) Compute the payback period.
35) Jesse Company has obtained the following data about a possible planned investment:
Cost
Terminal salvage value in 10 years
Additional annual revenues for 10 years
Additional annual cash expenses for 10 years
Estimated useful life in years
Minimum desired rate of return
Present value of ordinary annuity, 10%, 10 periods
Present value of one, 10%, 10 periods
Income tax rate

$300,000
0
$250,000
$200,000
10
10%
6.1446
0.3855
40%

The company uses the straight-line depreciation method for taxes.

Required:
A) Compute the net present value of the investment.
B) Compute the net present value of the investment if the terminal salvage value is estimated to be $50,000
in 10 years.

36)
Research Project Six Sigma.
In our lecture on Chapter 9 we discussed Six Sigma.
I.

The text mentions four companies that use Six Sigma: Motorola, General
Electric, 3M Dow Chemical.

Go to the website for each of these companies and find out what they have to say
about Six Sigma efforts.

II.

Find a Financial Services Firm that uses Six Sigma. And discuss how they are
using Six Sigma.

III.

Describe the levels of Six Sigma, and indicate what local institutions are
offering Six Sigma Training.