MANAGEMENT INFORMATION
QUESTIONS ON CHAPTER-8 (PERFORMANCE EVALUATION)
1. Explain the feedback control system for a production department (You may refer to
the 6 steps illustrated at page-185 of your manual).
2. Explain an example of budget bias.
3. Explain the term ‘Decentralisation of decision making processes’. What type of
organisation would be suitable for implementation of such?
4. What is a profit centre and an investment centre? What are the principal
performance measures for an investment centre?
5. How is residual income of an investment centre calculated? Why is RI a more
flexible approach to risk assessment compared to other measures e.g. ROI?
6. A company that is seeking to increase ROI should attempt to decrease:
A) sales.
B) turnover.
C) margin.
D) average operating assets.
7. Which of the following would be an argument for the use of net book value in the
computation of operating assets in return on investment calculations?
A) It allows the manager to replace old, worn- out equipment with a minimum
adverse impact on ROI.
B) It allows ROI to decrease over time as assets get older.
C) It is consistent with how plant and equipment items are reported on the balance
sheet.
D) It eliminates both age of equipment and method of depreciation as factors in ROI
computations.
8. Halsne Incorporated has assets that total €1,400,000; net income for the period of
€350,000 and total sales of $2,500,000. What is the return on investment for the
current period?
a. 12%.
b. 466%.
c. 25%
d. 56%
9. Cory Enterprise has an imputed cost of capital of 15%. If the assets for the Aplet
division are €750,000 and the division income was €200,000, what was the residual
income for the Aplet division?
a. €87,500
b. €112,500
c. €30,000
d. €200,000
10. Giacomo Manufacturing’s Cable division has an investment opportunity. Average
capital employed is €2,500,000, projected sales total €3,750,000 and the projected
income is €500,000. If Giacomo has an imputed cost of capital of 18% and cable
division’s current ROI is 22%, calculate the ROI and RI of the new project. Would
the cable division manager accept the investment opportunity? Will his decision be a
goal congruent decision? Explain.
11. The Balanced Scorecard describes four perspectives that need to be balanced for
companies to become and remain competitive. Which perspective places more
emphasis on investing in employees?
a. Financial.
b. Customer.
c. Internal business processes.
d. Learning & growth.
12. Lispon Industries has a balanced scorecard with the following measurement:
Number of new product introductions. Which of the following strategic objectives
would this measurement relate to?
a. Lispon will improve our customer relations through expansion of customer
relation’s management.
b. Lispon will increase revenues through more competitive pricing of high volume
products.
c. Lipson will attract more customers through a broader and more diverse product line.
d. Lipson will retain the best talented people through empowerment, work teams, and
above average industry compensation packages.
13. Triple K Construction has the following strategic objective: We will meet the
completion dates on all new construction projects beginning in the year 2003.
Which of the following measurements provides the best fit with this strategic
objective?
a. Percentage of projects completed on time
b. Total number of projects in progress
c. Construction cost to revenue ratio
d. Overall customer satisfaction index
14. Davisons Limited is a national chain of food retailers. Suggest three performance
measures Davisons management could use under each of the four balanced scorecard
perspective.
15. The Sydney Manufacturing Company uses a fixed budget of 80,000 direct labour
hours, with planned overhead cost of $400,000 for variable overhead and $120,000
for fixed overhead. Under a flexible budget with 100% capacity of 100,000 labour
hours, the variable and fixed costs at 100% capacity would be:
a. $400,000 and $120,000
b. $500,000 and $120,000
c. $400,000 and $150,000
d. $500,000 and $150,000
16. Mcgahen Medical Clinic measures its activity in terms of patient-visits. Last
month, the budgeted level of activity was 1,080 patient-visits and the actual level of
activity was 990 patient-visits. The clinic's director budgets for variable overhead
costs of $3.30 per patient-visit and fixed overhead costs of $10,600 per month. The
actual variable overhead cost last month was $3,380 and the actual fixed overhead
cost was $8,780. In the clinic's flexible budget performance report for last month,
what would have been the variance for the total overhead cost?
17. Flexy Company manufactures monitors. Following budgeted standards are
provided for the month of March 2005:
Average selling price per monitor $400 per unit
Total direct material cost per monitor $80 per unit
Direct manufacturing labor
Direct manufacturing labor cost per hour $25 per hour
Direct manufacturing labor hour 0.6 hours per unit
Direct marketing cost per unit $250 per unit
Fixed overhead $80,000 per month
Sales of 1,500 units are budgeted for March.
Actual March results are as follows:
Unit sales totalled 80% of plans
Actual average selling price declined to $385
Actual direct manufacturing labor cost is $ 25 per hour
Actual direct manufacturing labor hour is 700 hours
Actual total direct material cost per unit $80
Actual direct marketing costs were $230 per unit
Fixed overhead costs were $77,000
Calculate total volume variance and total expenditure variance.
