Cost Management
Cost Management
Cost Management
1.
profit centers.
investment centers.
cost centers.
all of the above.
ANSWER:
2.
investment center
revenue center
profit center
cost center
ANSWER:
EASY
ANSWER:
EASY
ANSWER:
5.
4.
EASY
Which of the following responsibility centers may be evaluated on the basis of residual
income?
a.
b.
c.
d.
3.
EASY
A company has set a target rate of return of 16% for its investment center. An investment
center manager in this company would
a.
acquire assets that would increase divisional income by more than 16%.
19-1
19-2
Performance
b.
c.
d.
Chapter 19
sell all assets that do not generate divisional income of more than 16%.
acquire assets that would increase sales by more than 16%.
acquire any technologically advanced assets that would cause costs to be reduced
by 16% or more.
ANSWER:
6.
c.
d.
EASY
The Statement of Cash Flows may be superior to the cash budget as a performance
evaluation measure because
a.
b.
c.
d.
cash flows are shown on the accrual basis on the cash budget.
the cash budget does not include capital investments.
cash flows are arranged by activity.
of all the above reasons.
ANSWER:
MEDIUM
The Statement of Cash Flows indicates the cash inflows and outflows from
a.
b.
c.
d.
ANSWER:
9.
EASY
and the sub-unit should be evaluated on the basis of the same costs and revenues.
should only be evaluated on the basis of variable costs and revenues of the subunit.
should be evaluated on all costs and revenues that are controllable by the manager
should be evaluated on all costs and revenues that can be directly traced to the
sub-unit.
ANSWER:
8.
7.
EASY
Division A's investment in a new project will raise the overall organization's return on
investment if
a.
b.
the return on investment on the new project exceeds the target return of the overall
organization.
the return on investment on the new project exceeds the return on investment of
Division A.
Chapter 19
c.
d.
the return on investment on the new project exceeds the overall organization's
return on investment.
Division A's return on investment exceeds the return on investment of the overall
organization.
ANSWER:
10.
EASY
11.
EASY
ABC Corp. is composed of three operating divisions. Overall, the ABC Corp. has a return
on investment of 20%. A Division has a return on investment of 25%. If ABC Corp.
evaluates its managers on the basis of return on investment, how would the A Division
manager and the ABC Corp. president react to a new investment that has an estimated
return on investment of 23%?
a.
b.
c.
d.
A Division manager
accept
accept
reject
reject
ANSWER:
12.
19-3
EASY
a.
b.
c.
d.
Asset Turnover
Yes
Yes
No
No
ANSWER:
Profit Margin
on Sales
Yes
No
No
Yes
EASY
19-4
Performance
13.
Chapter 19
ANSWER:
14.
c.
d.
MEDIUM
A sub-unit of an organization is evaluated on the basis of its ROI. If this sub-units sales
and expenses both increase by $30,000, how will the following measures be affected?
a.
b.
c.
d.
ROI
increase
indeterminate
no change
no change
ANSWER:
Assert turnover
increase
increase
increase
decrease
Profit margin
increase
decrease
decrease
no change
MEDIUM
a.
b.
c.
d.
Residual
income
yes
no
yes
yes
ANSWER:
17.
EASY
increased by the same dollar amount as expenses and total assets increased.
remained the same and expenses were reduced by the same dollar amount that
total assets increased.
decreased by the same dollar amount that expenses increased.
and expenses increased by the same percentage that total assets increased.
ANSWER:
16.
Return on investment (ROI) is a term most often used to express income earned on assets
invested in a business unit. A company's return on investment would increase if sales
a.
b.
15.
Net cash
flow
yes
yes
no
no
c
EASY
Chapter 19
a.
b.
c.
d.
contribution margin.
inventory turnover.
assets invested.
average assets employed.
ANSWER:
18.
MEDIUM
ANSWER:
EASY
ANSWER:
21.
EASY
ANSWER:
20.
Presently, the Alligator Division of Animal Crackers Co. has a profit margin of 30%. If
total sales rise by $100,000, both the numerator and the denominator of the profit margin
will increase. The net result will be
a.
b.
c.
e.
19.
19-5
EASY
residual income.
return on investment.
throughput.
profit.
ANSWER:
EASY
19-6
Performance
22.
Chapter 19
income to sales.
income to assets.
sales to income.
sales to assets.
ANSWER:
23.
EASY
profit centers.
cost centers.
investment centers.
revenue centers.
ANSWER:
EASY
ANSWER:
26.
EASY
ANSWER:
25.
24.
EASY
ANSWER:
MEDIUM
Chapter 19
27.
ANSWER:
28.
EASY
ANSWER:
EASY
ANSWER:
31.
EASY
long-term
short-term
qualitative
profit center
ANSWER:
30.
29.
19-7
EASY
Revenue
yes
yes
Investment
no
yes
Profit
yes
yes
19-8
Performance
c.
d.
Chapter 19
no
no
ANSWER:
32.
EASY
All other things being equal, an increase in sales price would increase
a.
b.
c.
d.
asset turnover.
profit margin.
residual income.
all of the above.
ANSWER:
EASY
ANSWER:
35.
EASY
ANSWER:
34.
yes
no
33.
yes
yes
MEDIUM
ANSWER:
EASY
Chapter 19
36.
19-9
The information below relates to costs, revenues, and assets anticipated for 1999 in B
Division of BVD Corp:
Sales
Variable costs
Average assets employed
Fixed costs
$ 4,000,000
75% of sales
$12,000,000
0
How would each of the following measures be affected if sales rise by $5,000 in X
Division?
a.
b.
c.
d.
ROI
increase
increase
increase
no change
ANSWER:
37.
EASY
100%
4%
25%
2%
ANSWER:
EASY
ROI
RI
EVA
All of the above
ANSWER:
39.
Profit margin
increase
increase
no change
increase
A division of Lucky Co. reported a return on investment of 20% for a recent period. If
the division's asset turnover was 5, its profit margin must have been
a.
b.
c.
d.
38.
Asset turnover
increase
no change
increase
no change
EASY
$1,800,000
10%
$ 270,000
15%
10%
19-10
Performance
c.
d.
Chapter 19
25%
20%
ANSWER:
MEDIUM
$150,000
$100,000
$250,000
$ 50,000
ANSWER:
41.
MEDIUM
What was the target rate of return in the American Fruit Company for 1998?
a.
b.
c.
d.
10%
15%
25%
5%
ANSWER:
42.
MEDIUM
If the manager of Apple Division is evaluated based on return on investment, how much
would she be willing to pay for an investment that promises to increase net segment
income by $50,000?
a.
b.
c.
$ 50,000
$ 333,333
$1,000,000
Chapter 19
d.
$ 500,000
ANSWER:
43.
19-11
MEDIUM
ANSWER:
EASY
Compute EVA assuming the cost of capital is 10% and the tax rate is 40%.
a.
b.
c.
d.
$ 90,000
$ 150,000
$0
$ (60,000)
ANSWER
45.
MEDIUM
25%
20%
15%
10%
ANSWER:
46.
$2,000,000
25%
200,000
20%
MEDIUM
If Alphabet Co. evaluates its managers on the basis of return on investment, the manager
of T Division would invest in a project costing $100,000 only if it increased net segment
income by at least
a.
b.
c.
d.
$10,000.
$15,000.
$20,000.
$25,000.
19-12
Performance
Chapter 19
ANSWER:
MEDIUM
47. A Corp. has a target return of 15%. If a prospective investment has an estimated return on
investment of 20%, and a residual income of $10,000, what is the estimated cost of the
investment?
a.
b.
c.
d.
$200,000
$ 66,667
$ 50,000
The answer can't be determined from this information.
ANSWER:
48.
15%
12%
25%
27%
ANSWER:
MEDIUM
In the X Division of S Co., 1998 segment income exceeded 1998 residual income by
$15,000. Also for 1998, return on investment exceeded the target rate of return by 10%.
What was the level of investment in the X Division for 1998?
a.
b.
c.
d.
$ 15,000
$100,000
$150,000
An answer can't be determined from this information.
ANSWER:
50.
MEDIUM
49.
DIFFICULT
BAD Co. has established a target rate of return of 16% for all divisions. In 1998, Division
D generated sales of $10,000,000 and expenses of $7,500,000. Total assets at the
beginning of the year were $5,000,000 and total assets at the end of the year were
$7,000,000. For 1998, what was Division Ds return on investment ?
a.
b.
20.83 %
35.71 %
Chapter 19
c.
d.
41.67 %
50.00 %
ANSWER:
51.
MEDIUM
BAD Co. has established a target rate of return of 16% for all divisions. In 1998, Division
D generated sales of $10,000,000 and expenses of $7,500,000. Total assets at the
beginning of the year were $5,000,000 and total assets at the end of the year were
$7,000,000. For 1998, what was Division Ds residual income?
a.
b.
c.
d.
$ 960,000
$1,380,000
$1.540,000
$1,700,000
ANSWER:
52.
MEDIUM
Bagel Division of Pita Company reported the following results for 1999:
Sales
Expenses
Total assets (1/1/99)
Total assets (12/31/99)
$8,000,000
6,250,000
5,000,000
5,400,000
68%
35%
32%
22%
ANSWER:
53.
19-13
MEDIUM
Bagel Division of Pita Company reported the following results for 1999:
Sales
Expenses
Total assets (1/1/99)
Total assets (12/31/99)
$8,000,000
6,250,000
5,000,000
5,400,000
1.538
2.97
0.650
1.20
ANSWER:
MEDIUM
19-14
Performance
54.
Chapter 19
Pasta Division of We Make Italian, is evaluated based on residual income generated. For
1998, the Division generated a residual income of $2,000,000 and net income of
$5,000,000. The target rate of return for all divisions of We Make Italian is 20%. For
1998, what was the return on investment for Pasta Division?
a.
b.
c.
d.
40%
13%
20%
33%
ANSWER:
55.
c.
d.
EASY
subject to manipulation.
dependent on accounting information.
effective in the pursuit of organizational goals.
subjective.
ANSWER:
EASY
non-financial
financial
quantitative
qualitative
ANSWER:
58.
MEDIUM
ANSWER:
57.
56.
EASY
Non-financial performance measures (NFPMs) are better than financial measures in that
NFPMs
Chapter 19
a.
b.
c.
d.
ANSWER:
59.
b.
c.
d.
EASY
ANSWER:
EASY
Which type of financial measure better predicts the direction of future cash flows?
a.
b.
c.
d.
Non-financial Measures
yes
yes
no
no
ANSWER:
62.
EASY
ANSWER:
61.
60.
19-15
Financial Measures
yes
no
no
yes
EASY
a.
b.
Quality
no
yes
Technical
Excellence
no
no
Manufacturing
Efficiency
no
no
Manufacturing
Effectiveness
yes
no
19-16
Performance
c.
d.
Chapter 19
yes
yes
ANSWER:
63.
EASY
EASY
ANSWER:
EASY
throughput.
cash flows.
asset turnover.
profit margin.
ANSWER:
66.
yes
yes
profitability
costs
market
sales
ANSWER:
65.
yes
no
Which of the following is not one of the four areas of performance measurements
mentioned in the text?
a.
b.
c.
d.
64.
yes
yes
EASY
throughput.
process yield.
return on investment.
productive capacity.
ANSWER:
EASY
Chapter 19
67.
ANSWER:
68.
EASY
ANSWER:
EASY
When inventory sits idle in a department, this would not affect the department's
a.
b.
c.
d.
processing time.
throughput.
process quality yield.
dollar days.
ANSWER:
EASY
ANSWER:
72.
71.
EASY
residual income.
net cash flow.
return on investment.
throughput.
ANSWER:
70.
69.
19-17
EASY
Holding total production in units constant, as the proportion of defective units to total
units declines, all of the following measures will be affected, except
19-18
Performance
a.
b.
c.
d.
Chapter 19
ANSWER:
73.
EASY
Which of the following would not be an appropriate cost driver to measure internal
failure?
a.
b.
c.
d.
design error
product failure
machine reliability
operator error
ANSWER:
EASY
When assessing performance, one way to compensate for differences among divisions of a
multinational organization would be for the parent company to
a.
b.
c.
d.
ANSWER:
76.
EASY
ANSWER:
75.
74.
MEDIUM
Chapter 19
a.
b.
c.
d.
ANSWER:
77.
EASY
The following information is made available for June, what is the throughput per hour?
Good units manufactured
Value-added hours of manufacturing time
Total units manufactured
Total hours of manufacturing time
a.
b.
c.
d.
EASY
The following information is made available for June, what is the process quality yield?
Good units manufactured
Value-added hours of manufacturing time
Total units manufactured
Total hours of manufacturing time
a.
b.
c.
d.
40,000
20,000
50,000
30,000
50%
75%
80%
125%
ANSWER:
79.
40,000
20,000
50,000
30,000
ANSWER:
78.
19-19
EASY
One of the products manufactured by I Can Fly TOO, Company is a plastic disk. The
information below relates to the Disk Production Department:
Good units produced
Units started in production
200,000
250,000
19-20
Performance
Chapter 19
425
400
300
75%
44%
80%
125%
ANSWER:
80.
EASY
One of the products manufactured by I Can Fly TOO, Company is a plastic disk. The
information below relates to the Disk Production Department:
Good units produced
Units started in production
Processing time (budgeted hours)
Processing time (total hours)
Value-added processing time
200,000
250,000
425
400
300
470 units
500 units
625 units
667 units
ANSWER:
81.
MEDIUM
One of the products manufactured by I Can Fly TOO, Company is a plastic disk. The
information below relates to the Disk Production Department:
Good units produced
Units started in production
200,000
250,000
Chapter 19
425
400
300
588
625
667
833
ANSWER:
82.
financial measures
environmental measures
business process measures
personnel measures
ANSWER:
EASY
ANSWER:
MEDIUM
ANSWER:
85.
84.
MEDIUM
83.
EASY
Internal
yes
no
no
yes
External
no
yes
yes
yes
Monetary
no
yes
no
yes
Non-monetary
yes
no
yes
yes
19-21
19-22
Performance
Chapter 19
ANSWER:
86.
c.
d.
records the variances between budgeted and actual revenues and expenses.
can be used at multiple organizational levels by redefining the categories and
measurements.
is most concerned with organizational financial solvency and business processes.
all of the above.
ANSWER:
MEDIUM
ANSWER:
EASY
ANSWER:
89.
88.
MEDIUM
A balanced scorecard
a.
b.
87.
EASY
ANSWER:
EASY
Chapter 19
90.
Market share
Customer retention
Percentage of sales from new products
Investment in intellectual capital
ANSWER:
91.
MEDIUM
Which of the following would not normally affect the compensation strategy of a firm?
a.
b.
c.
d.
organizational goals
location of firm
competition
number of subsidiaries
ANSWER:
EASY
on a periodic basis.
based on results achieved.
using ESOPs.
on a piece rate basis.
ANSWER:
94.
EASY
ANSWER:
93.
92.
19-23
EASY
19-24
Performance
Chapter 19
ANSWER:
95.
ANSWER:
EASY
Merit pay is
a.
b.
c.
d.
ANSWER:
EASY
Contingent pay
a.
b.
c.
d.
ANSWER:
99.
EASY
ANSWER:
98.
97.
EASY
Which of the following steps in the performance reward plan model comes before the
others listed?
a.
b.
c.
d.
96.
EASY
Chapter 19
ANSWER:
100.
monthly salary
cafeteria plan
profit sharing
pensions
ANSWER:
EASY
profit sharing
pensions
piece rate
merit pay
ANSWER:
EASY
piece rate
health insurance
pensions
profit sharing
ANSWER:
103.
102.
EASY
Which of the following pay plans encourages the improvement of the overall company's
well-being?
a.
b.
c.
d.
101.
19-25
EASY
ANSWER:
MEDIUM
19-26
Performance
104.
Chapter 19
A pay plan that gives an employee cash or stock equal to the difference between some
specified stock price and the quoted market price at some future time period is
a.
b.
c.
d.
ANSWER:
105.
EASY
contingent pay
profit sharing
cafeteria plans
stock appreciation rights
ANSWER:
MEDIUM
ANSWER:
107.
106.
EASY
ANSWER:
EASY
Chapter 19
108.
ANSWER:
109.
profit sharing.
an employee stock option plan.
contingent pay.
monthly salary.
ANSWER:
EASY
health insurance
piece rate
hourly wages
pensions
ANSWER:
MEDIUM
shirker(s).
raider(s).
expatriate(s).
none of the above.
ANSWER:
113.
EASY
ANSWER:
112.
111.
EASY
A pay plan that does not encourage the overall company good is
a.
b.
c.
d.
110.
EASY
19-27
19-28
Performance
a.
b.
c.
d.
Chapter 19
ANSWER:
114.
MEDIUM
The average compensation level for manufacturing employees was shown in the text as
being highest in
a.
b.
c.
d.
Japan.
Britain.
the United States.
Germany.
ANSWER:
115.
MEDIUM
Expatriate employees
a.
b.
c.
d.
ANSWER:
MEDIUM
SHORT ANSWER/PROBLEMS
1.
Chapter 19
b.
c.
d.
e.
19-29
How is it measured?
How is the measurement different than that of RI?
Why is EVA a better performance measure of RI?
What is the major problem with using EVA as a long-term performance measure?
ANSWER:
a.
b.
c.
d.
e.
2.
What items affect comparability of different divisions within the same company on the
basis of EVA, ROI and RI?
ANSWER:
a.
b.
c.
3.
19-30
Performance
Chapter 19
extent to which they operationally define, and are consistent with, corporate goals) and are
intended to be major focal points for managers.
MEDIUM
4.
What are some of the major problems associated with accrual-based accounting
performance measures?
ANSWER:
There are two major problems with accrual-based accounting numbers. The first problem
is that they can be easily manipulated by managers. For example, the timing of end of
period transactions can be accelerated or delayed to affect performance measures.
Secondly, accounting measures cannot capture all corporate goals. Accounting measures
are particularly inappropriate to measure qualitative changes in the workforce, qualitative
changes in products, and achievement of social and non-monetary objectives.
Additionally, accounting measures reflect only a short-term perspective of operations
rather than a long-range goal orientation.
MEDIUM
5.
What distinct advantage does a return on investment measure have over a residual income
measure? Explain.
ANSWER:
The advantage of ROI measure over RI is that ROI facilitates a comparison of
organizational sub-units of differing sizes. Because ROI is a performance measure that
automatically scales for size, large and small sub-units can be compared to each other
(subject to all the factors that should be considered when two units in different industries,
different geographical areas, etc. are compared).
MEDIUM
6.
Chapter 19
7.
19-31
8.
9.
19-32
Performance
Chapter 19
Deep Sea Division is one of the operating units of Global Treasure Hunters Inc.. Some of this
division's 1998 operating results follow:
Sales
Profit margin
Target return
Residual income
10.
$3,000,000
10%
15%
$
60,000
What was the segment income of Deep Sea Division for 1998?
ANSWER:
Segment income = Profit Margin * Sales = .10 * $3,000,000 = $300,000
EASY
11.
What was the return on investment in the Deep Sea Division for 1998?
ANSWER:
ROI = Segment Income/Assets
Segment Income = $3,000,000 * .10 = $300,000
Assets = ($300,000 - $60,000)/.15 = $1,600,000
ROI = $300,000/$1,600,000 = 18.75%
MEDIUM
$10,000,000
1,500,000
6,000,000
How much net segment income is the new project expected to produce?
ANSWER:
the total of the new segment income = .22($6,000,000+$1,000,000) =
.22($7,000,000) = $1,540,000
the portion of the total segment income that is produced by the new project =
Chapter 19
19-33
If the manager of Northern Division is evaluated on return on investment alone, will she
invest in the new project? Explain.
ANSWER:
The manager would not invest in the new project because the new project would lower
the Division's ROI from the current 25% ($1,500,000/$6,000,000) to 22%. The new
project only generates an ROI of 4% ($40,000/$1,000,000)
MEDIUM
14.
The manager of the Dallas Division of Walking Tours of America is preparing the budget
for 1999. At this point, she has determined that average total assets for 1999 will equal
$4,000,000. She is evaluated on the amount of residual income generated by her division.
Assume variable costs in Dallas Division are expected to equal 60% of total sales and
fixed costs are expected to equal $400,000 in 1999.
a.
b.
Compute the sales level that would generate a 20% return on investment.
Assuming the rate of return is 15%, determine the level of sales that would
generate $200,000 of residual income.
ANSWER:
a.
b.
19-34
Performance
Chapter 19
MEDIUM
15.
The following information is given for Blue and Red Divisions of Color Company.
Sales
Var. cost of goods sold
Fixed manufacturing costs
Variable selling
Fixed admin. (50% allocated)
Fixed selling (20% allocated)
Assets at cost
Accumulated depreciation
a.
b.
Blue
$600,000
200,000
50,000
30,000
20,000
50,000
800,000
200,000
Red
$300,000
150,000
40,000
5,000
4,000
30,000
600,000
100,000
If Color uses income to evaluate division managers, compute net income that
should be used for that purpose given the limited data above.
If Color uses ROI to evaluate division managers and uses historical cost as the
investment base, compute the ROI for Blue and Red.
ANSWER:
a.
Sales
CGS
Gross Margin
Variable selling
Fixed admin
Blue
$600,000
(250,000)
$350,000
(30,000)
(10,000)
Red
$ 300,000
( 190,000)
$ 110,000
(5,000)
(2,000)
Chapter 19
Fixed selling
Controllable income
b.
19-35
(40,000)
$ 270,000
Blue
$270,000 $800,000
= 33.75%
(24,000)
$ 79,000
Red
$79,000 $600,000
= 13.17%
MEDIUM
16.
Peanut Plain
$ 60,000
$100,000
$400,000
$500,000
If M & M charges each division 12% for capital employed, compute residual
income for Peanut and Plain.
Compute the ROI for each division.
ANSWER:
a.
Net income
Interest charge
Residual income
b.
ROI
MEDIUM
Peanut
$60,000
(48,000)
$12,000
Plain
$100,000
(60,000)
$ 40,000
19-36
Performance
17.
Chapter 19
Creative Business Solutions (CBS), a division of Doug Jorgenson CPA, buys and installs
modular office components. For the most recent year, the division had the following
performance targets:
Asset turnover
Profit margin
Target rate of return on investments for RI
Cost of capital
Income tax rate
2.5
6%
13%
10%
40%
Actual information concerning the companys performance for last year follows:
Total assets at beginning of year
Total assets at end of year
Total invested capital (annual average)
Sales
Variable operating costs
Direct fixed costs
Allocated fixed costs
$3,600,000
5,300,000
8,000,000
9,000,000
3,650,000
4,770,000
675,000
Required:
a. For CBS, compute the segment margin and the average assets for the year.
b. Based on segment margin and average assets, compute the profit margin, asset
turnover and ROI.
c. Evaluate the ROI performance of CBS.
d. Using your answers from part b., compute the residual income of CBS.
e. Compute the EVA of CBS. Why are the EVA and RI levels different?
f. Based on the data given in the problem, discuss why ROI, EVA and RI may be
inappropriate measures of performance for CBS.
Chapter 19
19-37
17. (contd.)
ANSWER:
a.
Sales
Variable costs
Direct fixed costs
Segment margin
$ 9,000,000
(3,650,000)
(4,770,000)
$ 580,000
c.
The target ROI for the division was 2.5 x 6 = 15%. The division generated an ROI
of only 13%. Thus the division did not achieve its target rate of return. The poor
performance resulted from the divisions failure to achieve its targeted asset
turnover.
d.
e.
19-38
Performance
f.
Chapter 19
ROI, RI and EVA are measures of short-term performance. These measures may
be particularly inappropriate for divisions that have long-term missions (such as
high growth). In this case, the relatively large growth and assets of CBS from the
beginning of the period to the end of the period may indicate this division is
oriented to growth. If so, the ROI, RI and EVA measures will provide an incentive
contrary to the growth mission.
DIFFICULT
18.
The IHM Company produces small plastic dolls in its Nevada manufacturing plant. The
company is currently evaluating ways to improve productivity. The accountant of the
firms parent organization suggested that management implement a new compensation
plan based on throughput performance measure as an incentive to increase productivity.
To demonstrate how such a measure might work, the accountant gathered the following
data from the firm for June 1998:
Total units attempted
Good units manufactured
Processing time (total hours)
Value-added processing time
a.
b.
c.
d.
e.
6,000,000
4,800,000
800
600
ANSWER:
a.
b.
c.
d.
e.
19.
Identify the steps to follow in establishing the performance reward system for a company.
ANSWER:
Chapter 19
4.
5.
6.
7.
19-39
MEDIUM
20.
21.
Discuss the rethinking taking place regarding the time frame used in American business
performance systems.
ANSWER:
Historically, American time frames for performance has been short term, often only one
year. Presumably management tries to do what is best for the firm and its owners. Thus,
shareholder wealth maximization should be the primary focus of management. Short term
profit maximization doesn't necessarily result in long-run shareholder wealth maximization.
To encourage this different attitude, employees and management are being asked to take a
longer run perspective. This is enhanced with employee stock ownership in their firm.
MEDIUM
22.
Are individual performance plans suitable for the Japanese worker? Why?
ANSWER:
The Japanese worker tends to be more group oriented. These workers view
themselves a team working together for some common goal. Thus, individual
performance plans would not work well in Japan.
MEDIUM
19-40
Performance
23.
Chapter 19
24.
Deferred compensation techniques are currently used in the American work place. What
are they and how do they benefit the employer and the employee?
ANSWER:
Deferred compensation is pay that was earned on current performance but is paid later to
the employee. The compensation may include profit sharing plans, pensions, and stockbased plans like ESOPs. The payment by the employer can be deducted currently for tax
purposes but the employee doesn't recognize it as income until it is received. In stock
option plans, earnings in the plan are not taxable to the employee until the plan is
distributed. Size of the plans are affected by the firm's stock value and encourage
employees to take a more positive attitude about the company's future.
MEDIUM
25.
Chapter 19
19-41
adequate by NFP employees. Attempts are being made in this sector to incorporate some
performance factors in its compensation system.
MEDIUM
26.
Explain why the average worker in a plant or office may feel dissatisfied with the salary
structure in American operations today.
ANSWER:
Exhibit 22-8 in the text indicates that CEOs in the U.S. average compensation far exceed
comparable CEOs in other industrial countries. No other country's CEOs approach U.S.
CEO compensation. Even U.S. managers are relatively low ranked compared to other
countries. Employees' compensation in U.S. manufacturing plants are one of the lowest in
the industrialized world. Thus, American workers feel they are being short-changed or the
CEOs are being overpaid.
MEDIUM