CHAPTER 12. Performance
Measurement, Compensation questions
with answers.
1. An example of performance measure based on external financial information would be ANS -b. stock
prices
2. which of the following does NOT describe the three steps in designing an accounting-based
performance measure (ie. Choose, Define, Target)?
a. the issues in each step are interdependent
b. the decision maker will often proceed through the steps several times before deciding on one or more
performance measure(s)
c. The answers to the questions raised at each step depend on top management's beliefs about the
organization
d. The steps are not appropriate for non-accounting based performance measurement ANS -d. The
steps are not appropriate for non-accounting based measurement
3. James Jessmore is a manager at a local bank. Jame's management style is best described as
entrepreneurial - he is risk neutral. Wynetta George is a customer service representative who reports to
James. Wynetta is risk averse. In designing a compensation package for Jame and Wynetta, which type
of compensation arrangement should be emphasized more? ANS -b. James: Performance -based
Wynetta: Straight Salary
4. Moral hazard is best described in contexts in which ANS -c. an employee prefers to exert less effort
than desired by the owner because the effort cannot be accurately monitored and enforced.
5. Which of the following statements about performance measurement is most reasonable: ANS -d.
Compared to multi-unit firm that uses market-bawsed transfer prices, a multi-unit firm that has set its
transfer prices to minimize global taxes should use more subjective performance evaluation and rely less
on accounting based measures of performance.
6. The return on investment was ANS -c. 11%
Measurement, Compensation questions
with answers.
1. An example of performance measure based on external financial information would be ANS -b. stock
prices
2. which of the following does NOT describe the three steps in designing an accounting-based
performance measure (ie. Choose, Define, Target)?
a. the issues in each step are interdependent
b. the decision maker will often proceed through the steps several times before deciding on one or more
performance measure(s)
c. The answers to the questions raised at each step depend on top management's beliefs about the
organization
d. The steps are not appropriate for non-accounting based performance measurement ANS -d. The
steps are not appropriate for non-accounting based measurement
3. James Jessmore is a manager at a local bank. Jame's management style is best described as
entrepreneurial - he is risk neutral. Wynetta George is a customer service representative who reports to
James. Wynetta is risk averse. In designing a compensation package for Jame and Wynetta, which type
of compensation arrangement should be emphasized more? ANS -b. James: Performance -based
Wynetta: Straight Salary
4. Moral hazard is best described in contexts in which ANS -c. an employee prefers to exert less effort
than desired by the owner because the effort cannot be accurately monitored and enforced.
5. Which of the following statements about performance measurement is most reasonable: ANS -d.
Compared to multi-unit firm that uses market-bawsed transfer prices, a multi-unit firm that has set its
transfer prices to minimize global taxes should use more subjective performance evaluation and rely less
on accounting based measures of performance.
6. The return on investment was ANS -c. 11%
