07 REO BASIC HO-MAS Performance Evaluarion

Page 1 of 18 | MANAGEMENT ADVISORY SERVICES Handouts No.
07
PERFORMANCE EVALUATION
RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA
Performance Evaluation
RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA
ILLUSTRATIONS AND EXERCISES

RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING
THEORY
1. Internal reports prepared under the responsibility accounting approach should highlight.
a. fixed cost of production c. conversion cost
b. variable cost of production d. controllable cost
2. A company has two producing departments and one service department. Due to a scheduling error in the service
department, an unfavorable variance was created. A sound responsibility accounting system would dictate that
the variance be:
a. ignored
b. charged to the service department causing the variance and not allocated to other departments
c. allocated to both producing and service departments
d. allocated to producing departments on the basis of usage
3. The control of service departments costs at the source level is accomplished by means of:
a. predetermining service requirements in users departments
b. allocating service usage on the basis of priority needs
c. limiting the number of hours of service used
d. organizing maintenance labor
4. The rate used to distribute service hours to recipient departments is denoted by all of the following terms except:
a. sold-hour rate c. charging rate
b. burden rate d. transfer rate
5. The cost item least likely to appear in the performance report based on responsibility accounting techniques for
the supervisor of an assembly line in a large manufacturing situation is:
a. materials c. direct labor
b. repairs and maintenance d. supervisor's salary
6. Responsibility reports should posses all of the following characteristics except:

a. being issued with regularity
b. fitting the organization chart
c. being stated only in pesos for operating management
d. comparing budgeted with actual figures
7. Controllable costs are:

a. cost that fluctuate in total in response to small changes in the rate of capacity utilization
b. costs that will be unaffected by current managerial decisions
c. cost that management decides to incur in the current period to enable the company to achieve objectives
other than filling customer's orders
d. costs that are likely to respond to the amount of attention devoted to them by a specified manager
8. An accounting system in which the operations of the business are broken down into cost centers and the
control function of a supervisor or manager is emphasized is:
a. control accounting c. absorption accounting
b. budgetary accounting d. responsibility accounting
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9. In a responsibility accounting system, costs are classified into categories on the basis of:
a. prime and overhead costs
b. administrative and non-administrative costs
c. controllable and noncontrollable costs
d. direct and indirect costs
10. When used for performance evaluation, periodic internal reports based on an responsibility accounting system
should not:
a. Distinguish between controllable and noncontrollable costs
b. Be related to the organization chart
c. Include allocated fixed overhead
d. Include variances between actual and budgeted controllable costs
11. The most desirable measure of departmental performance for evaluating the departmental manager is
departmental:
a. contribution to indirect expenses
b. revenue less departmental variable expenses
c. revenue less departmental fixed expenses
d. revenue less controllable departmental expenses
12. Internal reports prepared under the responsibility accounting approach should be limited to which of the following
costs?
a. only costs properly allocable to the cost center under generally accepted accounting principles
b. only variable costs of production
c. only conversion costs
d. only controllable costs
13. Of most relevance in deciding how or which costs should be assigned to the responsibility center is the degree of;
a. variability c. avoidability
b. controllability d. causality
14 The selection of the denominator in the return on investment (ROI) formula is critical to the measure's effectiveness.
Which denominator is criticized because it combines the effects of operating decisions made at one level of the
organization with financing decisions made at another organizational level?
a. total assets available c. working capital
b. total assets employed d. shareholders' equity
15. Which one of the following items would most likely not be incorporated into the calculation of a division's investment
base when using the residual income approach for performance measurement and evaluation?
a. fixed assets employed in division operations
b. land being held by the division as a site for a new plant
c. division inventories when division management exercises control over the inventory levels
d. division accounts payable when division management exercises control over the amount of short-term credit
used
16. A segment of an organization is referred to as a service center if it has

a. responsibility for developing markets and selling the output of the organization
b. responsibility for combining the raw materials, direct labor, and other factors of production into a final output
c. authority to make decisions affecting the major determinants of profit including the power to choose its markets
and sources of supply
d. authority to provide specialized support to other units within the organization
17. The most fundamental responsibility center affected by the use of market-based transfer prices is a(n)
a. investment center c. profit center
b. cost center d. revenue center

18. A firm earning a profit can increase its return on investment by

a. increasing sales revenue and operating expenses by the same peso amount
b. decreasing sales revenues and operating expenses by the same percentage
c. increasing sales revenues and operating expenses by the same percentage
d. decreasing investment and sales by the same percentage
19. When using a contribution margin format for internal reporting purposes, the major distinction between segment
manager performance and segment performance is
a. unallocated fixed cost
b. direct variable costs of producing the product
c. direct variable cost of selling the product
d. direct fixed cost controllable by others
Questions 20 and 21 are based on the following information.

Edith Carolina, president of the Deed Corporation, requires a minimum return on investment of 8% for any project to
be undertaken by her company. The company is decentralized and leaves investment decisions up to the discretion
of the division managers as long as the 8% return is expected to be realized. Michael Sanders, manager of the
Cosmetics Division, has had a return on investment of 14% for his division for the past 3 years and expects the
division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics
which is expected to have a return on investment of 12%.
20. If the Deed Corporation evaluates managerial performance using residual income based on the corporate minimum
required rate of return, what will be the preference for taking on the proposed cosmetics line by Edith Carolina
and Michael Sanders?
Carolina Sanders
a. accept reject
b. reject accept
c. accept accept
d. reject reject
21. If the Deed Corporation evaluates managerial performance using return on investment, what will be the
preference for taking on the proposed cosmetics line by Edith Carolina and Michael Sanders? (use the same
choices for #20)
22. The least complex segment or area of responsibility for which costs are allocated is a(n)
a. profit center c. cost center
b. investment center d. hybrid center
23. Which one of the following statements pertaining to the return on investment (ROI) as a performance measurement
is incorrect?
a. When the average age or assets differs substantially across segments of a business, the use of ROI may
not be appropriate.
b. ROI relies on financial measures that are capable of being independently verified while other forms of
performance measures are subject to manipulation.
c. The use of ROI may lead managers to reject capital investment projects that can be justified by using discounted
cash flow models.
d. The use of ROI can lead managers to emphasize divisional ROI over the profitability of the parent organization.
24. The budgeting process that uses management by objectives and input form the individual manager is an example
of the application of
a. flexible budgeting c. responsibility accounting
b. human resource management d. capital budgeting

25. A successful responsibility accounting reporting system is dependent upon

a. the correct allocation of controllable variance costs
b. identification of the management level at which all costs are controllable
c. the proper delegation of responsibility and authority
d. a reasonable separation of costs into their fixed and variable components since fixed costs are not controllable
and must be eliminated from the responsibility report
26. The imputed interest rate used in the residual income approach to performance evaluation can best be described
as the
a. average lending rate for the year being evaluated
b. historical weighted-average cost of capital for the company
c. target return on investment set by the company's management
d. marginal after-tax cost of capital on new equity capital
27. One approach to measuring divisional performance is return on investment. Return on investment is expressed
as operating income
a. minus imputed interest charged for invested capital
b. divided by fixed assets
c. divided by current assets
d. divided by total assets
28. Fairmount Inc. uses an accounting system that charges costs to the managers who has been delegated the
authority to make the decisions incurring the costs. For example, if the sales manager accepts a rush order that
will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager
because the authority to accept or decline the rush order was given to the sales manger. This type of accounting
system is known as
a. responsibility accounting c. reciprocal allocation
b. functional accounting d. transfer pricing
29. An appropriate transfer price between two divisions of the Stark Company can be determined from the following
data:
Fabricating Division:
Market price of subassembly P50
Variable cost of subassembly P20
Excess capacity (in units) 1,000
Assembling Division:
Number of units needed 900
What is the natural bargaining range for the two divisions?

a. between P20 and P50 c. P50 is the only acceptable price
b. between P50 and P70 d. P20 is the only acceptable price
30. Sherman Company uses a performance reporting system that reflects the company's decentralization of decision
making. The departmental performance report shows one line of data for each subordinate who reports to the
group vice president. The data resented show the actual costs incurred during the period, the budgeted costs,
and all variances from budget for that subordinate's department. Sherman is using a type of system called
a. contribution accounting c. flexible budgeting
b. cost-benefit accounting d. responsibility accounting

31. REB Service Co. is a computer service center. For the month of May 20x9, REB had the following operating
statistics:
Sales P450,000
Operating income 25,000
Net profit after taxes 8,000
Total assets 500,000
Shareholders' equity 200,000
Cost of capital 6%
Based on the above information, which one of the following statements is correct? REB has a
a. return on investment of 4% c. return on investment of 1.6%
b. residual income of P(5,000) d. residual income of P(22,000)
32. In responsibility accounting, a center's performance is measured by controllable costs. Controllable costs are best
described as including
a. direct materials and direct labor
b. only those costs that the manager can influence in the current time period
c. only discretionary costs
d. incremental and fixed costs
33. Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n)
a. profit center c. operating unit
b. revenue center d. investment center
34. Which of the following assertions refer to responsibility accounting?

(1) Costs and revenues are identified with individuals for better control and performance appraisal
(2) Performance reports under this concept includes variances of actual amounts versus plan
(3) third parties who are external users are the main recipients of information
(4) Only expenses which are directly under the control of managers should ideally be charged to them
a. Assertions 1, 2, and 4 only
b. Assertions 1 and 4 only
c. Assertions 1 and 2 only
d. All four assertions
35. Among the management accounting concepts is controllability which means

a. It is necessary at all times to identify the responsibility which means results areas of the individuals within
the organization
b. Management accounting must ensure that flexibility is maintained in assembling and interpreting information
c. Management accounting identified elements or activities which management can or cannot influence, and
seeks to arrest risks and sensitivity factors
d. Accounting information must be of such quality that confidence can be placed in it
36. In responsibility accounting, there are two (2) types of reports distinguished as to goals or objectives
a. Trend analysis reporting and comparative reporting
b. Responsibility performance reporting and information reporting
c. Operations reporting and financial condition reporting
d. Horizontal reporting and vertical reporting
37. Which of these are among the qualities of a good report under the concept of responsibility accounting?
1. It should be consistent inform and content for each issue
2. It should be prompt, timely and regularly issued
3. It should easily understood by users as to the contents, their significance, and how to use them
4. It should be able to pinpoint who is to blame as a prerequisite to explain variances
5. It should highlight efficiencies and inefficiencies
6. It should be comparative and analytical
7. It should be comprehensive as to include all details that can possibly be contained in the report
a. All except 4 and 7 c. All except 4, 5, and 6
b. All seven statements d. Statements 1, 2, 3, 4, and 7 only

38. Profit centers

a. Have responsibility for controlling costs as well as revenues.
b. Control and report costs only
c. Are the same as investment centers
d. Measure income and relate that income to their invested capital
39. In responsibility accounting a center's performance is measured by controllable costs. Controllable costs are
best described as including
a. Differential costs.
b. Only those costs that the manager can influence in the current time period.
c. Incremental and fixed costs.
d. Only discretionary cost.
40. Boomster, Inc. generated the following results for the period just ended:
Sales P1.0 million
Net income 0.1 million
Capital investment 0.5 million
To arrive at the return on investment, the following should be used.
a. ROI = (5/10) x (10/1) c. ROI = (5/10) x (1/10)
b. ROI = (10/5) x (10/1) d. ROI = (10/5) x (1/10)
PROBLEMS WITH MCQS

1. The supervisor of Department 9 purchases supplies, authorizes repairs and maintenance service, and hires labor
for the department. Various costs for the month of January are given below:
A Sales salaries and commissions
B Salary, supervisor of Dept. 9
C Factory heat and light
D General office salaries
E Depreciation, factory
F Supplies, Dept. 9
G Repairs and maintenance, Dept. 9
H Factory insurance
I Labor cost, Dept. 9
J Salary of factory superintendent
Required:
a. List the costs that can be controlled by the supervisor of Department 9.
b. List the costs that can be directly identified with Department 9.
c. List the cost that will have to be allocated to the factory departments.
d. List the costs that do not pertain to factory operations.
2. The following information were provided to you by Texas Co.'s division. This division operates as a profit center
and sells its components to other widget semi-conductor manufacturers. The present price of P50 per conductor is
the basis for negotiation with the manufacturing division, which has been purchasing 500,000 units per year from
other sources. The external price is P48 per conductor due to the large number purchased.
The conductor division had adequate capacity to provide the needs of the manufacturing division. However, the
manufacturing division does not want to pay the full price for P50. The conductor's unit cost is presented below.
Direct materials P20
Direct labor 14
Variable overhead 6
Fixed overhead (per unit based on capacity of 4,000,000 units) 4
Total cost P44
Compute for; a) list price; b) market price; c) full cost price; & d)minimum price
Compute for the minimum transfer price if there is no idle capacity and if idle capacity is only 300,000 units.
Which range is appropriate for intercompany transfer?

3. The receipt of raw materials used in the manufacture of products and the shipping of finished goods to customers
is under the control of the warehouse supervisor, whose time is spent approximately 60% on receiving and 40%
on shipping activities. Separate staffs for these operations are employed. The labor-related costs for the
warehousing function are as follows:
Warehouse supervisor's salary P40,000
Receiving clerks' wages 75,000
Shipping clerks' wages 55,000
Employee benefit costs (30% of wage and salary costs) 51,000
The company employs a responsibility accounting system for performance-reporting purposes. Costs are
classified as period or product costs. What is the total of labor-related costs reported as product costs under
the control of the warehouse supervisor?
4. The following is a summarized income statement of Car Co.'s profit center No. 4 for March:
Contribution margin P70,000
Period expenses:
Manager's salary P20,000
Facility depreciation 8,000
Corporate expense allocation 5,000 (33,000)
Profit center income P37,000
Which of the following amounts is most likely subject to the control of the profit center's manager?
5. A and B are autonomous divisions of a corporation. They have no beginning or ending inventories, and the number
of units produced is equal to the number of units sold. Following is financial information relating to the two divisions.
A B
Sales P150,000 P400,000
Other revenue 10,000 15,000
Direct materials 30,000 65,000
Direct labor 20,000 40,000
Variable factory overhead 5,000 15,000
Fixed factory overhead 25,000 55,000
Variable selling and admin. 15,000 30,000
Fixed selling and admin. 35,000 60,000
Central corporate expenses (allocated) 12,000 20,000
What is the total contribution to corporate profits generated by each division before allocation of central
corporate expenses?
What is the contribution margin of the two divisions?
6. The following information pertains to Quest Co.'s Gold Division for the current year:
Sales P311,000
Variable cost 250,000
Traceable fixed costs 50,000
Average invested capital 40,000
Imputed return on investment rate 10%
What were the divisions return on investment and residual income?

7. Rain Manufacturing Company has the following information:

Moving time, 8 days
Inspection time, 2 days
Processing time, 10 days
Storage time, 30 days
Wait time, 20 days
What is the total amount of value-added time in days?
What is the total amount of non-value added time in days?
What is the product’s throughput time in days?
What is the manufacturing cycle efficiency?
What is the delivery cycle time?
8. The Hot Corporation reported the following information for its Baguio Division:
Revenues P1,000,000
Operating costs 600,000
Taxable income 200,000
Operating assets 500,000
Income is defined as operating income.
What is the investment turnover ratio?

What is the return on sales?
What is the return on investment?
9. Fedor Company has two sources of funds: long-term debt with market and book value of P10 million issued at an
interest rate of 12%, and equity capital that has a market value of P8 million (book value of P4 million). Fedor has profit
centers in the following locations with the following operating incomes, total assets, and total liabilities. The cost of equity
capital is 12% while the tax rate is 25%
Operating income Assets Current liabilities
Tarlac P 960,000 P4 million P200,000
Quezon 1,200,000 P8 million 600,000
Manila 2,040,000 P12 million 1,200,000
What is the EVA for Tarlac?

A. P255,740 B. P327,460 C. P392,540 D. P720,000
What is the EVA for Quezon?
A. P135,580 B. P220,000 C. P234,000 D. P305,000
What is the EVA for Manila?
10. Jones Products manufactures home cleaning products. The company has two divisions, Bleach and Cleanser.
Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures.
The following information is provided for the year:
Assets Income
Book Current Book Current
Value Value Value Value
Bleach 225,000.00 300,000.00 150,000.00 155,000.00
Cleanser 450,000.00 250,000.00 100,000.00 105,000.00
The company is currently using a 15% required rate of return

What is Bleach’s ROI based on book values?
What is Cleanser’s ROI based on current values?
What are Bleach’s and Cleanser’s residual income based on book values, respectively?
A) P116,250; P32,500
B) P110,000; P67,500
C) P67,500; P110,000
D) P37,500; P116,250

11. Canon Company has two divisions, A and B. During March, the contribution margin in A was P30,000. The
contribution margin ratio in B was 40%, its sales were P125,000, and its segment margin was P32,000. The common
fixed expenses in the company were P40,000, and the company's net operating income was P18,000. The segment
margin for Division A was:
A) P26,000 B) P32,000 C) P8,000 D) P58,000
12. Clique Inc. consists of two districts, X and Y. The company as a whole had sales of P400,000, a contribution
margin ratio of 25% and a combined segment margin totaling P35,000. District X had sales of P90,000 during
May, a contribution margin ratio of 45%, and a segment margin of P16,000. If the net operating income of
Clique Inc. for May is P12,000, the traceable fixed expenses in District Y must have been:
A) P23,000 B) P24,500 C) P49,000 D) P40,500
13. Pizza Company has two product lines, L and M. Line L has sales of P100,000 during March, a segment
margin ratio of 19%, and traceable fixed expenses of P20,000. The company as a whole had a contribution
margin ratio of 25% and P105,000 in total contribution margin. Based on this information, total variable
expenses for product M must have been:
A) P61,000 B) P176,000 C) P315,000 D) P254,000
14. Julia Company has two stores, P and Q. During April, Store P had a segment margin of P8,000 and variable
expenses equal to 65% of sales. Traceable fixed expenses for Store Q were P18,000. Bennett Company as a
whole had a contribution margin ratio of 40%, a combined segment margin of P20,000, and sales of
P180,000. Given this data, the sales for store Q were:
A) P157,143 B) P60,000 C) P30,000 D) P120,000
15. Cole Corporation has two divisions: the Pants Division and the Blouse Division. The corporation's net
operating income is P10,700. The Pants Division's divisional segment margin is P76,100 and the Blouse
Division's divisional segment margin is P42,300. What is the amount of the common fixed expense not
traceable to the individual divisions?
A) P86,800 B) P107,700 C) P53,000 D) P118,400
16. Kylo Corporation has two divisions: the North Division and the South Division. The corporation's net operating
income is P93,200. The North Division's divisional segment margin is P223,200 and the South Division's
divisional segment margin is P15,900. What is the amount of the common fixed expense not traceable to the
individual divisions?
A) P316,400 B) P145,900 C) P109,100 D) P239,100
17. Freddie Corporation has two divisions: the Girl Products Division and the Boy Products Division. The Girl
Products Division's divisional segment margin is P34,300 and the Boy Products Division's divisional segment
margin is P86,700. The total amount of common fixed expenses not traceable to the individual divisions is
P95,600. What is the company's net operating income?
A) P216,600 B) P121,000 C) P25,400 D) (P121,000)
18. Peter Corporation has two divisions: the Zoe Division and the Candy Division. The Zoe Division has sales of
P230,000, variable expenses of P131,100, and traceable fixed expenses of P63,300. The Candy Division has
sales of P540,000, variable expenses of P307,800, and traceable fixed expenses of P120,700. The total
amount of common fixed expenses not traceable to the individual divisions is P119,200. What is the
company's net operating income?
A) P147,100 B) P331,100 C) P27,900 D) P211,900

19. Given the following data:

Return on investment .................................... 25%
Sales ............................................................. P100,000
Average operating assets ............................. P40,000
Turnover ....................................................... 2.5
Minimum required rate of return .................... 18%
Margin on sales............................................. 10%
The residual income would be:

A) P2,800 B) P0 C) P6,000 D) P8,000
20. Given the following data:

Average operating assets .................. P250,000
Total liabilities .................................... P100,000
Sales .................................................. P600,000
Contribution margin............................ P150,000
Net operating income ......................... P30,000
Return on investment (ROI) would be:

A) 5% B) 12% C) 25% D) 60%
21. Last year a company had sales of P400,000, a turnover of 2.4, and a return on investment of 36%. The
company's net operating income for the year was:
A) P144,000 B) P120,000 C) P80,000 D) P60,000
22. Cabot Company had the following results during June: net operating income, P2,500; turnover, 4; and ROI,
20%. Cabot Company's average operating assets were:
A) P50,000 B) P200,000 C) P12,500 D) P10,000
23. The following information pertains to the Gold Division of X Company

Sales .................................................. P311,000
Variable expenses ............................. P250,000
Traceable fixed expenses .................. P50,000
The Gold Division's return on investment is:

A) 10.00% B) 13.33% C) 27.50% D) 30.00%
24. The following information relates to last year's operations at the Music Division of Show-time Corporation:
Minimum required rate of return ...................... 15%
Return on investment (ROI) ............................ 18%
Sales ............................................................... P810,000
Turnover (on operating assets) ....................... 5 times
What was the Music Division's net operating income last year?
A) P24,300 B) P29,160 C) P145,800 D) P162,000
25. The following information is available on Company B:

Sales ............................................................... P90,000
Net operating income ...................................... P3,600
Average operating assets ............................... P30,000
Stockholders’ equity ........................................ P25,000
Minimum required rate of return ...................... 10%
Company B's residual income would be:

A) P1,100 B) P5,400 C) P360 D) P600

26. The following information relates to last year's operations at the Bike Division of Travelers Co..:
Residual income ................................ P12,000

Net operating income ......................... P60,000
Sales .................................................. P300,000
What was the Bike Division's minimum required rate of return last year?
A) 12% B) 4% C) 15% D) 20%
27. Division A makes a part that it sells to customers outside of the company. Data concerning this part appear
below:
Selling price to outside customers .................. P75
Variable cost per unit ...................................... P50
Total fixed costs .............................................. P400,000
Capacity in units.............................................. 25,000
Division B of the same company would like to use the part manufactured by Division A in one of its products.
Division B currently purchases a similar part made by an outside company for P70 per unit and would
substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has
ample excess capacity to handle all of Division B's needs without any increase in fixed costs and without
cutting into outside sales of the part. What is the lowest acceptable transfer price from the standpoint of the
selling division?
A) P75 B) P66 C) P16 D) P50
BALANCED SCORECARD- Illustrations

1. Pardun Corporation's management keeps track of the time it takes to process orders. During the most recent
month, the following average times were recorded per order:
Days
Wait time .................... 15.6
Inspection time ........... 0.8
Process time .............. 1.6
Move time .................. 0.7
Queue time ................ 3.9
Required:
a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time.
2. During the most recent month at Luinstra Corporation, queue time was 4.5 days, inspection time was 0.8 day,
process time was 1.9 days, wait time was 5.1 days, and move time was 0.7 day.
Required:
a. Compute the throughput time.
b. Compute the manufacturing cycle efficiency (MCE).
c. What percentage of the production time is spent in non-value-added activities?
d. Compute the delivery cycle time.
3. Rintharamy Corporation's management reports that its average delivery cycle time is 25.2 days, its average
throughput time is 7.6 days, its manufacturing cycle efficiency (MCE) is 0.25, its average move time is 0.9
day, and its average queue time is 4.0 days.
Required:
a. What is the wait time?
b. What is the process time?
c. What is the inspection time?

Exercises
1. The most common strategic-based performance management system is
a. variance analysis with standard costs as benchmarks.
b. the balanced scorecard.
c. financial budgets.
d. all of these.
2. The balanced scorecard

a. is an activity-based responsibility accounting model that measures operating activities.
b. is a financial-based responsibility accounting model that focuses on the financial
performance of units, rewarding performance with static financial-oriented standards.
c. is a strategic-based financial reporting system that balances assets with liabilities and
owner's equity.
d. is a strategic-based performance management system that identifies objectives and
measures from a financial perspective, customer perspective, process perspective, and
learning and growth perspective.
3. In the financial perspective, economic value added would be an appropriate measure for
a. revenue growth.
b. cost reduction.
c. improving asset utilization.
d. risk management.
4. In the customer perspective, objectives and measures that drive the creation of customer value are
a. customer survey ratings.
b. post-purchase cost.
c. on-time deliveries.
d. all of these.
5.Increasing customer value occurs when

a. the customer receives more benefits.
b. the customer perceives a greater gap between benefits and sacrifice.
c. customer costs are reduced.
d. none of these.
6. In the Balanced Scorecard system, core objectives and measures

a. are common across all organizations.
b. are common across all scorecard perspectives.
c. are common across departments.
d. none of these.
7. From the customer perspective, which of the following might be considered a core objective rather than a
performance value?
a. decrease price
b. increase customer retention
c. improve image
d. improve product quality
8. From the customer perspective, which of the following might be an appropriate measure for improving product
quality?
a. customer profitability
b. cost per customer
c. percentage of returns
d. number of patents pending

9. The time it takes to produce one unit of product is called

a. velocity.
b. delivery time.
c. cycle time.
d. turnover.
10. Cycle time is

a. the time it takes to collect the account after the sale.
b. the time it takes to turn inventory over.
c. the time it takes to deliver the product after it is sold.
d. the time it takes to produce one unit of product.
11. The number of units that can be produced in a given period of time is called
a. velocity.
b. cycle time.
c. turnover.
d. efficiency.
12. Delivery performance can be improved by

a. decreasing cycle time.
b. increasing cycle time.
c. decreasing velocity.
d. increasing turnover.
13. At the beginning of 20X1, Peters Company installed a JIT purchasing and manufacturing system. The following
information has been gathered about one of the company's products:
Theoretical annual capacity 2,000
Actual production 1,800
Production hours available 500
Actual conversion cost per hour P7
The theoretical velocity per hour is

a. 4.0 units.
b. 3.6 units.
c. 1.1 units.
d. 1.0 units.
14. At the beginning of 20X1, Peters Company installed a JIT purchasing and manufacturing system. The following
information has been gathered about one of the company's products:
Production hours available 500
Actual conversion cost per hour P7
What is the ideal conversion cost per unit?

a. P0.9 per unit.
b. P1.75 per unit.
c. P25.50 per unit.
d. P28 per unit.
15. A manufacturing cell has the theoretical capability of producing 40,000 microchips per quarter. The conversion
cost per quarter is P25,000. There are 4,000 production hours available within the cell per quarter.
a. 25.00 units.
b. 16.00 units.
c. 10.00 units.
d. 2.24 units.

16. Harris, Inc., manufactures a product that experiences the following activities:
Processing (three departments) 60 hours
Moving (four moves) 15 hours
Inspection time 45 hours
Storage time (before delivery) 120 hours
The MCE for the product is
a. 0.33.
b. 0.27.
c. 0.25.
d. 0.18.
17. A manufacturing cell has the theoretical capability of producing 40,000 microchips per quarter. The conversion
cost per quarter is P25,000. There are 4,000 production hours available within the cell per quarter. The theoretical
cycle time per unit in minutes is
a. 0.625 minutes.
b. 6.000 minutes.
c. 8.400 minutes.
d. 37.500 minutes.
18. Roberts, Inc., manufactures a product that experiences the following activities:
Processing (three departments) 18 hours
Moving (four moves) 2 hours
Inspection time 14 hours
Storage time (before delivery) 26 hours
The MCE for the product is

a. 0.48.
b. 0.45.
c. 0.42.
d. 0.30.
19. At the beginning of 20X1, Smith Company installed a JIT purchasing and manufacturing system. The following
information has been gathered about one of the company's products.
Production hours available 2,000
Actual cost per unit P28

a. 1.8 units.
b. 2.0 units.
c. 0.5 units.
d. 0.55units.
20. At the beginning of 20X1, Smith Company installed a JIT purchasing and manufacturing system. The following
information has been gathered about one of the company's products.
Production hours available 2,000
Conversion cost per hour P28
What is the ideal conversion cost per unit?

a. P14 per unit.
b. P15.55 per unit.
c. P56 per unit
d. P50.90 per unit.

21. Which of the following is NOT a major enabling factor of the learning and growth perspective?
a. customer attributes
b. information system capabilities
c. employee attitudes
d. employee capabilities
22. The perspective that defines the capabilities needed by the organization to create long-term improvement is the
a. financial perspective.
b. customer perspective.
c. process perspective.
d. learning and growth perspective.
23. Which of the following would NOT be a core outcome measure for employee capabilities?
a. employee satisfaction ratings
b. number of employees
c. employee turnover
d. employee productivity
24. Which of the following would be considered a lead measure for employee capabilities?
a. employee satisfaction
b. employee turnover
c. employee productivity
d. number of training hours
25. The learning and growth perspective has three major objectives. Which of the following is an objective of the
learning and growth process?
a. increase the number of new products
b. increase customer acquisition
c. increase motivation and alignment
d. improve asset utilization
26. Which of the following might be a measure of employee motivation, empowerment, and alignment?
a. process efficiency
b. suggestions per employee
c. customer satisfaction
d. units product cost
27. Which of the following would not be an outcome measure?

a. net income
b. market share
c. return on investment
d. training hours
28. The critical performance measures of the Balanced Scorecard have some special properties. Which of the
following is NOT one of those properties?
a. scorecard measures are linked by cause-and-effect relationships
b. performance measures are derived from strategy
c. benchmarking plays a critical role
d. performance measures should be balanced between outcome and lead measures

PRODUCTIVITY- Illustration
1. Rose Automotive Company manufactures fuel-injection system. It manufactured and sold 60,000 units in 20X8 and
64,000 units in 20X9 at P25 per unit. In 20X8 the firm used 75,000 pounds of alloy X-45 at P7.20 per pound and spent
10,000 direct labor-hours at an hourly wage rate of P30. In 20X9 the firm used 89,600 pounds of alloy X-45 at P6.80
per pound and spent 10,847 direct labor hours at an hourly rate of P32. The total amount for all other expenses
remains the same at P450,000 each year. The CEO was disappointed that while the total sales increased, the
P195,616 operating income earned in 20X9 is only 93% of the amount earned in 20X8, which was P210,000.
Compute for the following

a. the operational partial productivity of direct material for 20X8 and 20X9
b. the operational partial productivity of direct labor for 20X8 and 20X9
c. the financial partial productivity of the direct material for 20X8 and 20X9
d. the financial partial productivity of the direct labor for 20X8 and 20X9
e. the total productivity for 20X8 and 20X9 as measured in both units and sales pesos
f. the decrease in productivity in 20X9 as measured in both units and sales pesos
g. Compute and analyze price and quantity variances for both materials and labor.
2. Schroeder Forging Co. has provided the following information for last year:
Metal input in tons 14,000 @ P10 per ton
Labor hours 5,000 @ P30 per hour
Overhead cost P125,000
Finished goods, in tons 10,000 @ P60 selling price
Required: Calculate the partial productivity for:

a. Metal
b. Labor
c. Total productivity
3. Paro Products Co. has provided the following information for last year:
Materials P150,000
Labor 45,000
Overhead 117,000
Production in units 8,000 with P45/ units selling price
Required:
a. Calculate the total factor productivity measure.
4. Spooner Metalworks Co. has provided the following information for last year:
Materials 21,000 units @ P12/ unit
Labor 8,000 hours @ 25/ hour
Overhead P165,000
Production 12,000 units with P70/unit selling price
Required: Calculate the partial productivity for:

a. Materials
b. Labor
c. Calculate the total factor productivity measure.
Exercises
1. The Lutsen Machining Co has the following information for last year
Tons of metal input 28,000
Labor hours 10,000
Overhead costs P125,000
Tons of output produced 20,000
The partial productivity for metal is

A. 2.800 B. 1.400 C. 0.714 D. 0.526

2. The Lutsen Machining Co has the following information for last year
Tons of metal input 28,000
Labor hours 10,000
The partial productivity for labor is

A, 2.800 B. 2.000 C. 0.526 D. 0.500
3. The Cascade Machining Co has the following information for last year
Feet of metal input 150,000
Labor hours 12,000
The partial productivity for metal is
A. 0.040 B. 0.080 C. 12.500 D. 25.000
4. The Cascade Machining Co has the following information for last year
Feet of metal input 150,000
Labor hours 12,000
A. 12.500 B. 2.000 C. 0.500 D. 0.120
5. The Thunder Mining Co has the following information for last year
Labor hours 12,000
A. 1.000 B. 0.069 C. 14.58 D. 12.00
6. The Berdle Mining Co has the following information for last year
Labor hours 112,000
Tons of output produced 1,575,000
A. 1.120 B. 0.071 C. 14.06 D. 112.00
7. The Brindle Milling Co has the following information for last year
Material input 13,112,000
Yards of output produced 1,575,000
The partial productivity for materials is
A. 0.12 B. 1.31 C. 8.33 D. 15.75
8. The Baxter Milling Co has the following information for last year
The partial productivity for materials is
A. 0.131 B. 0.191 C. 0.686 D. 5.236
9. The Albertville Co has the following information for last year

Labor hours 112,000
The partial productivity for material is
A. 1.136 B. 0.288 C. 0.263 D. 3.802

10. The Albertville Co has the following information for last year
Labor hours 112,000
A. 0.097 B. 0.256 C. 3.906 D. 10.313
11. Brimson Forging Co. has provided the following information for last year:
Tons of metal input 10,000 @ P10/ton
Labor hours 5,000 @ P20/hour
Tons of forging produced 8,000 @ selling price of P60/ton
The total factor productivity measure is:
A. P480,000 B. P375,000 C. 1.28 D. 0.78
12. Toimi Toolworks Co. has provided the following information for last year:
Tons of metal input 20,000 @ P15/ton
Labor hours 15,000 @ P30/hour
Tons of forging produced 16,000 @ selling price of P75/ton
A. 1.231 B. 1.600 C. 2.167 D. 3.250
13. Palo Products has provided the following information for last year:
Gallons input 10,000 @ P15/gallon
Labor hours 5,000 @ P20/ hour
Gallons finished 8,000 @ selling price of P55/ gallon
A. 1.25 B. 1.60 C. 15.63 D. 1.17
14. Scottso Enterprises has provided the following information for last year:
Material costs P225,000
Labor costs P 85,000
Product produced 32,000 @ selling price of P22 each
A. 1.003 B. 1.134 C. 0.882 D. 0.362
15. Paro Products Co. has provided the following information for last year:
Material costs P150,000
Labor costs P 45,000
Product produced 8,000 @ selling price of P45 each
A. P150,000 B. P312,000 C. 1.154 D. 0.832
--- END OF HANDOUTS ---

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Page 1 of 18 | MANAGEMENT ADVISORY SERVICES Handouts No.

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

ILLUSTRATIONS AND EXERCISES

6. Responsibility reports should posses all of the following characteristics except:

7. Controllable costs are:

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

16. A segment of an organization is referred to as a service center if it has

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

18. A firm earning a profit can increase its return on investment by

Questions 20 and 21 are based on the following information.

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

25. A successful responsibility accounting reporting system is dependent upon

What is the natural bargaining range for the two divisions?

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

34. Which of the following assertions refer to responsibility accounting?

35. Among the management accounting concepts is controllability which means

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

38. Profit centers

PROBLEMS WITH MCQS

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

What is the contribution margin of the two divisions?

What were the divisions return on investment and residual income?

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

7. Rain Manufacturing Company has the following information:

Income is defined as operating income.

What is the investment turnover ratio?

What is the EVA for Tarlac?

The company is currently using a 15% required rate of return

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

19. Given the following data:

The residual income would be:

20. Given the following data:

Return on investment (ROI) would be:

23. The following information pertains to the Gold Division of X Company

The Gold Division's return on investment is:

25. The following information is available on Company B:

Company B's residual income would be:

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

Residual income ................................ P12,000

BALANCED SCORECARD- Illustrations

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

2. The balanced scorecard

5.Increasing customer value occurs when

6. In the Balanced Scorecard system, core objectives and measures

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

9. The time it takes to produce one unit of product is called

10. Cycle time is

12. Delivery performance can be improved by

The theoretical velocity per hour is

What is the ideal conversion cost per unit?

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

The MCE for the product is

The theoretical velocity per hour is

What is the ideal conversion cost per unit?

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

27. Which of the following would not be an outcome measure?

RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

Compute for the following

Required: Calculate the partial productivity for: