OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 12: Balanced Scorecard and Other Performance Measures
Principles of Accounting, Volume 2: Managerial Accounting
Chapter 12: Balanced Scorecard and Other Performance Measures
Multiple Choice
1. LO 12.1 Components of the organization that are demotivating for purposes of performance
management are known as ________.
A. business goals
B. strategic plans
C. uncontrollable factors
D. incentives
Solution
C. Evaluating a manager on the outcome of decisions over which he or she has no control, or
uncontrollable factors, will be demotivating.
2. LO 12.1 When managerial accountants design an evaluation system that is based on criteria
for which a manager is responsible, and it is structured to encourage managers to make decisions
that will meet the goals of the company as well as their own personal job goals, the framework
used is ________.
A. a controllable factors framework
B. an uncontrollable factors framework
C. a strategic plan framework
D. a responsibility accounting framework
Solution
D. Managerial accountants must design a responsibility accounting framework in which the
evaluation system is based on criteria for which a manager is responsible and is structured to
encourage managers to make decisions that will meet the goals of the company as well as their
own personal job goals.
3. LO 12.1 Goal congruence in well-designed performance measurement systems best explains a
congruence between ________.
A. employees and the company
B. strategic plans and the future
C. decisions and outcomes
D. feedback and measurement
Solution
A. This aligning of goals between a corporation’s strategy and a manager’s personal goals is
known as goal congruence.
4. LO 12.1 Responsibility accounting holds managers responsible for ________.
A. all costs charged to their subunit
B. all costs charged to their subunit plus a share of company-wide fixed costs
C. only the costs that they can control
D. only the costs that they have personally approved
Solution
C. For responsibility accounting to achieve desired goals, managers should be held responsible
only for the costs they can control.
5. LO 12.1 Performance measures are only useful if ________.
A. there are both controllable and uncontrollable factors to evaluate managers
Page 1 of 21
,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 12: Balanced Scorecard and Other Performance Measures
B. manager reward systems are designed by the chief financial officer prior to
implementation
C. all of the measures used are accounting numbers
D. there is a baseline against which to compare the measured results
Solution
D
6. LO 12.2 Which of the following is not a characteristic of a good performance measurement
system?
A. timely
B. consistent
C. based on activities over which managers have no control or influence
D. uses both long- and short-term performances and standards
Solution
C. A characteristic of a good performance measurement system is that it is based on activities
over which managers have control or influence, so that activities such as actual financial results
compared with budgeted results or standards will be relevant for measurement.
7. LO 12.2 A good performance measurement system will align the goals of management with
________.
A. the goals of the city manager and the mayoral staff
B. the goals of the corporation, and both parties will benefit
C. the priorities of the stockholders as listed at the annual meeting
D. the investment department’s response to the annual audit
Solution
B. A good performance measurement system will align the goals of management with the goals
of the corporation, and both parties will benefit. This is basic strategic management. Instructor
note: this assessment can lead to a discussion about the other answer options and how strategic
management can be used to set either the goals of management or the goals of the corporation.
8. LO 12.2 What should an organization do if performance measures change?
A. Make sure that the manager being evaluated is aware of the measurement change, as this
may affect his or her decision-making.
B. Make sure that the manager benefits without the corporation also benefitting.
C. Make sure that there are significant overriding opportunities for each manager, if the
manager is unaware of the change.
D. Obtain customer surveys on the change before communicating the change to the
manager.
Solution
A. It is best to keep the performance targets stable for a time period and not have moving targets,
but if performance measurement plans change, the manager’s input in the design should be
included. In any event, when measures are changed, it is imperative that the manager being
evaluated is aware of the measurement change, as this may affect his or her decision-making.
9. LO 12.2 A good performance measurement system will include which of the following?
A. short-term goals
B. long-term goals
C. short-term and long-term goals
D. no goals at all
Solution
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, OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 12: Balanced Scorecard and Other Performance Measures
C. It is important that a good performance measurement system includes both short- and long-
term goals.
10. LO 12.2 Without proper performance measures, goal congruence is almost impossible to
achieve and will likely lead to ________.
A. more stable targets
B. decreased defects
C. lost profits and dissatisfied employees
D. employees satisfied with the status quo
Solution
C. Without proper performance measures, goal congruence is almost impossible to achieve and
will likely lead to lost profits and dissatisfied employees.
11. LO 12.3 Dixon Construction Materials has collected this information:
Based on this information, what is the EVA for the project?
A. $100,000
B. $10,000
C. $450,000
D. ($110,000)
Solution
B. ($300,000 – $90,000) – ($2,500,000 × 8%) = $10,000
12. LO 12.3 The cost of equity is ________.
A. the interest associated with debt
B. the rate of return required by investors to incentivize them to invest in a company
C. the weighted average cost of capital
D. equal to the amount of asset turnover
Solution
B. The cost of equity is the rate associated with what the shareholders expect the corporation to
earn in order for that shareholder to maintain ownership in the company.
13. LO 12.3 Which of the following measures the profitability of a division relative to the size of
its investment in capital assets?
A. residual income (RI)
B. sales margin
C. return on investment (ROI)
D. economic value added (EVA)
Solution
C. Answers will vary. Responses may address that ROI is used to compare the efficiency of
investments and can be used to determine if an investment is a sound decision.
14. LO 12.3 The capital structure of Ridley Enterprises is: Debt 40%, Equity 60%. The cost of
debt is 13%, and the cost of equity is 16.5%. What is the weighted average cost of capital for
Ridley Enterprises?
A. 14.4%
B. 15.1%
C. 16.2%
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Chapter 12: Balanced Scorecard and Other Performance Measures
Principles of Accounting, Volume 2: Managerial Accounting
Chapter 12: Balanced Scorecard and Other Performance Measures
Multiple Choice
1. LO 12.1 Components of the organization that are demotivating for purposes of performance
management are known as ________.
A. business goals
B. strategic plans
C. uncontrollable factors
D. incentives
Solution
C. Evaluating a manager on the outcome of decisions over which he or she has no control, or
uncontrollable factors, will be demotivating.
2. LO 12.1 When managerial accountants design an evaluation system that is based on criteria
for which a manager is responsible, and it is structured to encourage managers to make decisions
that will meet the goals of the company as well as their own personal job goals, the framework
used is ________.
A. a controllable factors framework
B. an uncontrollable factors framework
C. a strategic plan framework
D. a responsibility accounting framework
Solution
D. Managerial accountants must design a responsibility accounting framework in which the
evaluation system is based on criteria for which a manager is responsible and is structured to
encourage managers to make decisions that will meet the goals of the company as well as their
own personal job goals.
3. LO 12.1 Goal congruence in well-designed performance measurement systems best explains a
congruence between ________.
A. employees and the company
B. strategic plans and the future
C. decisions and outcomes
D. feedback and measurement
Solution
A. This aligning of goals between a corporation’s strategy and a manager’s personal goals is
known as goal congruence.
4. LO 12.1 Responsibility accounting holds managers responsible for ________.
A. all costs charged to their subunit
B. all costs charged to their subunit plus a share of company-wide fixed costs
C. only the costs that they can control
D. only the costs that they have personally approved
Solution
C. For responsibility accounting to achieve desired goals, managers should be held responsible
only for the costs they can control.
5. LO 12.1 Performance measures are only useful if ________.
A. there are both controllable and uncontrollable factors to evaluate managers
Page 1 of 21
,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 12: Balanced Scorecard and Other Performance Measures
B. manager reward systems are designed by the chief financial officer prior to
implementation
C. all of the measures used are accounting numbers
D. there is a baseline against which to compare the measured results
Solution
D
6. LO 12.2 Which of the following is not a characteristic of a good performance measurement
system?
A. timely
B. consistent
C. based on activities over which managers have no control or influence
D. uses both long- and short-term performances and standards
Solution
C. A characteristic of a good performance measurement system is that it is based on activities
over which managers have control or influence, so that activities such as actual financial results
compared with budgeted results or standards will be relevant for measurement.
7. LO 12.2 A good performance measurement system will align the goals of management with
________.
A. the goals of the city manager and the mayoral staff
B. the goals of the corporation, and both parties will benefit
C. the priorities of the stockholders as listed at the annual meeting
D. the investment department’s response to the annual audit
Solution
B. A good performance measurement system will align the goals of management with the goals
of the corporation, and both parties will benefit. This is basic strategic management. Instructor
note: this assessment can lead to a discussion about the other answer options and how strategic
management can be used to set either the goals of management or the goals of the corporation.
8. LO 12.2 What should an organization do if performance measures change?
A. Make sure that the manager being evaluated is aware of the measurement change, as this
may affect his or her decision-making.
B. Make sure that the manager benefits without the corporation also benefitting.
C. Make sure that there are significant overriding opportunities for each manager, if the
manager is unaware of the change.
D. Obtain customer surveys on the change before communicating the change to the
manager.
Solution
A. It is best to keep the performance targets stable for a time period and not have moving targets,
but if performance measurement plans change, the manager’s input in the design should be
included. In any event, when measures are changed, it is imperative that the manager being
evaluated is aware of the measurement change, as this may affect his or her decision-making.
9. LO 12.2 A good performance measurement system will include which of the following?
A. short-term goals
B. long-term goals
C. short-term and long-term goals
D. no goals at all
Solution
Page 2 of 21
, OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 12: Balanced Scorecard and Other Performance Measures
C. It is important that a good performance measurement system includes both short- and long-
term goals.
10. LO 12.2 Without proper performance measures, goal congruence is almost impossible to
achieve and will likely lead to ________.
A. more stable targets
B. decreased defects
C. lost profits and dissatisfied employees
D. employees satisfied with the status quo
Solution
C. Without proper performance measures, goal congruence is almost impossible to achieve and
will likely lead to lost profits and dissatisfied employees.
11. LO 12.3 Dixon Construction Materials has collected this information:
Based on this information, what is the EVA for the project?
A. $100,000
B. $10,000
C. $450,000
D. ($110,000)
Solution
B. ($300,000 – $90,000) – ($2,500,000 × 8%) = $10,000
12. LO 12.3 The cost of equity is ________.
A. the interest associated with debt
B. the rate of return required by investors to incentivize them to invest in a company
C. the weighted average cost of capital
D. equal to the amount of asset turnover
Solution
B. The cost of equity is the rate associated with what the shareholders expect the corporation to
earn in order for that shareholder to maintain ownership in the company.
13. LO 12.3 Which of the following measures the profitability of a division relative to the size of
its investment in capital assets?
A. residual income (RI)
B. sales margin
C. return on investment (ROI)
D. economic value added (EVA)
Solution
C. Answers will vary. Responses may address that ROI is used to compare the efficiency of
investments and can be used to determine if an investment is a sound decision.
14. LO 12.3 The capital structure of Ridley Enterprises is: Debt 40%, Equity 60%. The cost of
debt is 13%, and the cost of equity is 16.5%. What is the weighted average cost of capital for
Ridley Enterprises?
A. 14.4%
B. 15.1%
C. 16.2%
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