MBA 620 2-2 Memo: Performance Evaluation
| 2026 Update with complete solutions -
SNHU.
Practice Question Bank & Answer Rationale
THIS PACK CONTAINS
98 exam-style multiple-choice questions. Each question includes the correct answer and a complete rationale
for focused revision.
COVERAGE
This exam assesses mastery of performance evaluation concepts, including variance analysis, balanced
scorecard, ROI/RI, transfer pricing, and nonfinancial performance measures, within the context of an MBA
managerial accounting course.
STUDY GUIDE
Recommended duration: 3 hours. Passing target: 80%.
HIGHP - Page 1 of 33
,1. A company uses a standard cost system. The materials price variance is $5,000
unfavorable, and the materials quantity variance is $3,000 favorable. The actual quantity
purchased equals the actual quantity used. Which of the following is the most likely
explanation for these variances?
[ ] A. The company purchased lower-quality materials at a higher price, leading to less waste.
[ ] B. The company purchased higher-quality materials at a higher price, leading to less waste.
[ ] C. The company purchased lower-quality materials at a lower price, leading to more waste.
[ ] D. The company purchased higher-quality materials at a lower price, leading to more waste.
CORRECT: B. The company purchased higher-quality materials at a higher price, leading to less
waste.
An unfavorable price variance means the actual price exceeded the standard price, indicating higher-cost
materials. A favorable quantity variance means less material was used than standard, suggesting higher
quality that reduces waste. Thus, higher-quality materials at a higher price best explains both variances.
Other options contradict the variance signs or the quality-waste relationship.
2. Which of the following is the most appropriate performance measure for the learning
and growth perspective of the balanced scorecard?
[ ] A. Employee satisfaction index
[ ] B. Customer retention rate
[ ] C. Return on investment
[ ] D. Defect rate
CORRECT: A. Employee satisfaction index
The learning and growth perspective focuses on employee capabilities, information systems, and
organizational climate. Employee satisfaction is a leading indicator of this perspective. Customer retention is
a customer perspective measure, ROI is a financial measure, and defect rate is an internal process measure.
3. A division has operating income of $500,000, invested capital of $2,000,000, and a
required rate of return of 12%. What is the division's residual income?
[ ] A. $260,000
[ ] B. $240,000
[ ] C. $300,000
[ ] D. $200,000
CORRECT: A. $260,000
Residual income = Operating income - (Required rate of return × Invested capital) = $500,000 - (0.12 ×
$2,000,000) = $500,000 - $240,000 = $260,000. The other options result from miscalculating the required
return or using the wrong formula.
HIGHP - Page 2 of 33
,4. In a decentralized organization, which transfer pricing method is most likely to lead to
goal congruence when the selling division has excess capacity?
[ ] A. Market price
[ ] B. Full cost plus markup
[ ] C. Variable cost
[ ] D. Negotiated price
CORRECT: C. Variable cost
When the selling division has excess capacity, the opportunity cost of transferring internally is zero, so the
minimum transfer price is the variable cost. Using variable cost ensures the selling division is not worse off
and the buying division is motivated to purchase internally, promoting goal congruence. Market price or full
cost would be too high and could lead to suboptimal decisions.
5. A company's balanced scorecard includes a measure of 'percentage of sales from new
products.' This measure is most likely part of which perspective?
[ ] A. Financial
[ ] B. Customer
[ ] C. Internal business process
[ ] D. Learning and growth
CORRECT: C. Internal business process
The percentage of sales from new products reflects the success of innovation processes, which is a key
component of the internal business process perspective. It is not a direct financial measure, nor a customer
or learning and growth measure.
6. Which of the following is a limitation of using return on investment (ROI) as a divisional
performance measure?
[ ] A. It encourages managers to invest in all projects that exceed the cost of capital.
[ ] B. It may lead managers to reject profitable investments that would lower the division's ROI.
[ ] C. It ignores the investment base entirely.
[ ] D. It cannot be used to compare divisions of different sizes.
CORRECT: B. It may lead managers to reject profitable investments that would lower the division's
ROI.
ROI can lead to suboptimization because managers may reject projects that earn more than the required rate
of return but less than the division's current ROI, as accepting them would reduce the division's overall ROI.
This is a well-known limitation. Option A is incorrect because ROI may discourage such investments. Option
C is false; ROI uses invested capital. Option D is false; ROI is a ratio and can compare divisions of different
sizes.
HIGHP - Page 3 of 33
, 7. A company has a labor rate variance of $8,000 favorable and a labor efficiency variance
of $12,000 unfavorable. Which of the following is the most likely cause?
[ ] A. Using higher-skilled workers who work faster than standard.
[ ] B. Using lower-skilled workers who are paid less but work slower.
[ ] C. Using higher-skilled workers who are paid more but work faster.
[ ] D. Using lower-skilled workers who are paid more but work slower.
CORRECT: B. Using lower-skilled workers who are paid less but work slower.
A favorable labor rate variance means the actual rate was lower than standard, suggesting lower-skilled (and
lower-paid) workers. An unfavorable efficiency variance means more hours were used than standard,
consistent with lower-skilled workers being slower. Thus, lower-skilled workers paid less but working slower
best explains both variances.
8. Which of the following statements about the balanced scorecard is true?
[ ] A. It focuses solely on financial metrics to evaluate performance.
[ ] B. It links performance measures to the organization's strategy across four perspectives.
[ ] C. It is a tool used only for external financial reporting.
[ ] D. It eliminates the need for nonfinancial measures.
CORRECT: B. It links performance measures to the organization's strategy across four perspectives.
The balanced scorecard translates an organization's mission and strategy into a comprehensive set of
performance measures across four perspectives: financial, customer, internal business process, and learning
and growth. It does not focus solely on financial metrics, is not for external reporting, and does not eliminate
nonfinancial measures; rather, it integrates them.
9. A company uses a standard cost system. The variable overhead efficiency variance is
$2,000 unfavorable. Which of the following is the most likely cause?
[ ] A. The actual variable overhead rate was higher than standard.
[ ] B. More machine hours were used than standard for the actual output.
[ ] C. Less machine hours were used than standard for the actual output.
[ ] D. The actual variable overhead cost was lower than standard.
CORRECT: B. More machine hours were used than standard for the actual output.
The variable overhead efficiency variance measures the difference between the actual hours and the
standard hours allowed for actual output, multiplied by the standard variable overhead rate. An unfavorable
variance means more hours were used than standard. The rate variance, not the efficiency variance, is
affected by the actual rate.
HIGHP - Page 4 of 33
| 2026 Update with complete solutions -
SNHU.
Practice Question Bank & Answer Rationale
THIS PACK CONTAINS
98 exam-style multiple-choice questions. Each question includes the correct answer and a complete rationale
for focused revision.
COVERAGE
This exam assesses mastery of performance evaluation concepts, including variance analysis, balanced
scorecard, ROI/RI, transfer pricing, and nonfinancial performance measures, within the context of an MBA
managerial accounting course.
STUDY GUIDE
Recommended duration: 3 hours. Passing target: 80%.
HIGHP - Page 1 of 33
,1. A company uses a standard cost system. The materials price variance is $5,000
unfavorable, and the materials quantity variance is $3,000 favorable. The actual quantity
purchased equals the actual quantity used. Which of the following is the most likely
explanation for these variances?
[ ] A. The company purchased lower-quality materials at a higher price, leading to less waste.
[ ] B. The company purchased higher-quality materials at a higher price, leading to less waste.
[ ] C. The company purchased lower-quality materials at a lower price, leading to more waste.
[ ] D. The company purchased higher-quality materials at a lower price, leading to more waste.
CORRECT: B. The company purchased higher-quality materials at a higher price, leading to less
waste.
An unfavorable price variance means the actual price exceeded the standard price, indicating higher-cost
materials. A favorable quantity variance means less material was used than standard, suggesting higher
quality that reduces waste. Thus, higher-quality materials at a higher price best explains both variances.
Other options contradict the variance signs or the quality-waste relationship.
2. Which of the following is the most appropriate performance measure for the learning
and growth perspective of the balanced scorecard?
[ ] A. Employee satisfaction index
[ ] B. Customer retention rate
[ ] C. Return on investment
[ ] D. Defect rate
CORRECT: A. Employee satisfaction index
The learning and growth perspective focuses on employee capabilities, information systems, and
organizational climate. Employee satisfaction is a leading indicator of this perspective. Customer retention is
a customer perspective measure, ROI is a financial measure, and defect rate is an internal process measure.
3. A division has operating income of $500,000, invested capital of $2,000,000, and a
required rate of return of 12%. What is the division's residual income?
[ ] A. $260,000
[ ] B. $240,000
[ ] C. $300,000
[ ] D. $200,000
CORRECT: A. $260,000
Residual income = Operating income - (Required rate of return × Invested capital) = $500,000 - (0.12 ×
$2,000,000) = $500,000 - $240,000 = $260,000. The other options result from miscalculating the required
return or using the wrong formula.
HIGHP - Page 2 of 33
,4. In a decentralized organization, which transfer pricing method is most likely to lead to
goal congruence when the selling division has excess capacity?
[ ] A. Market price
[ ] B. Full cost plus markup
[ ] C. Variable cost
[ ] D. Negotiated price
CORRECT: C. Variable cost
When the selling division has excess capacity, the opportunity cost of transferring internally is zero, so the
minimum transfer price is the variable cost. Using variable cost ensures the selling division is not worse off
and the buying division is motivated to purchase internally, promoting goal congruence. Market price or full
cost would be too high and could lead to suboptimal decisions.
5. A company's balanced scorecard includes a measure of 'percentage of sales from new
products.' This measure is most likely part of which perspective?
[ ] A. Financial
[ ] B. Customer
[ ] C. Internal business process
[ ] D. Learning and growth
CORRECT: C. Internal business process
The percentage of sales from new products reflects the success of innovation processes, which is a key
component of the internal business process perspective. It is not a direct financial measure, nor a customer
or learning and growth measure.
6. Which of the following is a limitation of using return on investment (ROI) as a divisional
performance measure?
[ ] A. It encourages managers to invest in all projects that exceed the cost of capital.
[ ] B. It may lead managers to reject profitable investments that would lower the division's ROI.
[ ] C. It ignores the investment base entirely.
[ ] D. It cannot be used to compare divisions of different sizes.
CORRECT: B. It may lead managers to reject profitable investments that would lower the division's
ROI.
ROI can lead to suboptimization because managers may reject projects that earn more than the required rate
of return but less than the division's current ROI, as accepting them would reduce the division's overall ROI.
This is a well-known limitation. Option A is incorrect because ROI may discourage such investments. Option
C is false; ROI uses invested capital. Option D is false; ROI is a ratio and can compare divisions of different
sizes.
HIGHP - Page 3 of 33
, 7. A company has a labor rate variance of $8,000 favorable and a labor efficiency variance
of $12,000 unfavorable. Which of the following is the most likely cause?
[ ] A. Using higher-skilled workers who work faster than standard.
[ ] B. Using lower-skilled workers who are paid less but work slower.
[ ] C. Using higher-skilled workers who are paid more but work faster.
[ ] D. Using lower-skilled workers who are paid more but work slower.
CORRECT: B. Using lower-skilled workers who are paid less but work slower.
A favorable labor rate variance means the actual rate was lower than standard, suggesting lower-skilled (and
lower-paid) workers. An unfavorable efficiency variance means more hours were used than standard,
consistent with lower-skilled workers being slower. Thus, lower-skilled workers paid less but working slower
best explains both variances.
8. Which of the following statements about the balanced scorecard is true?
[ ] A. It focuses solely on financial metrics to evaluate performance.
[ ] B. It links performance measures to the organization's strategy across four perspectives.
[ ] C. It is a tool used only for external financial reporting.
[ ] D. It eliminates the need for nonfinancial measures.
CORRECT: B. It links performance measures to the organization's strategy across four perspectives.
The balanced scorecard translates an organization's mission and strategy into a comprehensive set of
performance measures across four perspectives: financial, customer, internal business process, and learning
and growth. It does not focus solely on financial metrics, is not for external reporting, and does not eliminate
nonfinancial measures; rather, it integrates them.
9. A company uses a standard cost system. The variable overhead efficiency variance is
$2,000 unfavorable. Which of the following is the most likely cause?
[ ] A. The actual variable overhead rate was higher than standard.
[ ] B. More machine hours were used than standard for the actual output.
[ ] C. Less machine hours were used than standard for the actual output.
[ ] D. The actual variable overhead cost was lower than standard.
CORRECT: B. More machine hours were used than standard for the actual output.
The variable overhead efficiency variance measures the difference between the actual hours and the
standard hours allowed for actual output, multiplied by the standard variable overhead rate. An unfavorable
variance means more hours were used than standard. The rate variance, not the efficiency variance, is
affected by the actual rate.
HIGHP - Page 4 of 33
