CHAPTER 19 MEASURING AND REWARDING ORGANIZATIONAL PERFORMANCE MULTIPLE CHOICE Variance analysis would be appropriate to measure performance in a b c d profit centers investment centers cost centers all of the above ANSWER: investment center revenue center profit center cost center ANSWER: EASY cost centers and investment centers revenue centers and profit centers revenue centers and investment centers profit and investment centers ANSWER: d EASY Using a single performance evaluation criterion for an investment center a b c d is most effective because a manager can concentrate on a single goal can result in manipulation of the performance measure allows multinational investment centers' performances to be equitably compared is only appropriate if the criterion is non-monetary ANSWER: a Net cash flow could be used to measure performance in a b c d EASY Which of the following responsibility centers may be evaluated on the basis of residual income? a b c d d b 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 reduced Chapter 19 sell all assets that 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 by 16% or more ANSWER: c manager d should be evaluated on all costs and revenues that can be directly traced to the sub-unit c 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: c MEDIUM The Statement of Cash Flows indicates the cash inflows and outflows from a b c d investing, financing, and borrowing activities operating, investing, and sending activities merchandising, financing, and investing activities operating, investing, and financing activities ANSWER: 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 ANSWER: a In evaluating the performance of a profit center manager, the manager a b Measuring and Rewarding Organizational d 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 Measuring and Rewarding Organizational Performance 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 c EASY If sales and expenses both rise by $100,000 a b c d residual income will increase return on investment will increase return on investment will be unchanged asset turnover will decrease ANSWER: 11 c 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 c ABC Corp president accept reject accept reject EASY A company's return on investment is affected by a change in a b c d Asset Turnover Yes Yes No No ANSWER: a Profit Margin on Sales Yes No No Yes EASY 19-4 Performance 13 Chapter 19 Measuring and Rewarding Organizational The return on investment (ROI) ratio measures a b c d only asset turnover only earnings as a percent of sales both asset turnover and earnings as a percent of sales asset turnover and earnings as a percent of sales, correcting for the effects of differing depreciation methods ANSWER: c EASY 14 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 c d 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: 15 sales ROI increase indeterminate no change no change ANSWER: c Assert turnover increase increase increase decrease Profit margin increase decrease decrease no change MEDIUM Which of the following would be an appropriate alternative to the use of ROI in evaluating the performance of an investment center? a b c d Residual income yes no yes yes ANSWER: 17 MEDIUM A sub-unit of an organization is evaluated on the basis of its ROI If this sub-unit’s and expenses both increase by $30,000, how will the following measures be affected? a b c d 16 b Net cash flow yes yes no no c Cost and revenue variance analysis yes no no yes EASY Return on investment is computed by dividing income by Chapter 19 a b c d Measuring and Rewarding Organizational Performance 19-5 contribution margin inventory turnover assets invested average assets employed ANSWER: c EASY 18 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 an increase in the profit margin ratio to above 30% a decrease in the profit margin ratio to below 30% no change in the profit margin ratio a change in the profit margin ratio that cannot be determined from this information ANSWER: 19 covers fixed expenses is not used to cover expenses equals contribution margin equals product contribution margin ANSWER: b EASY Profit margin equals a b c d income divided by sales incomes divided by average inventory income divided by average assets income divided by average stockholder’s equity ANSWER: 21 MEDIUM Profit margin indicates the portion of sales that a b c d 20 c a EASY The Du Pont model measures a b c d residual income return on investment throughput profit ANSWER: b EASY 19-6 Performance 22 Chapter 19 In the Du Pont model, profit margin is a ratio of a b c d income to sales income to assets sales to income sales to assets ANSWER: 23 EASY contribution margin and asset turnover profit margin and asset turnover asset turnover profit margin ANSWER: b EASY Residual income is used as a performance measure in a b c d profit centers cost centers investment centers revenue centers ANSWER: 25 a The Du Pont model measures ROI as it is affected by a b c d 24 Measuring and Rewarding Organizational c EASY If a new project generates a positive residual income, the a b c d project's return on investment is less than the target rate project's return on investment is greater than the target rate project's return on investment is equal to the target rate relationship between the project's return on investment and the target rate cannot necessarily be determined ANSWER: b EASY 26 A prospective project under consideration by P Division of C Co has an estimated residual income of a negative $20,000 If the project requires an investment of $400,000, the a b c d project generates a negative return on investment project's return on investment is zero project's return on investment is 5% less than the company's target rate company's target rate is 15% ANSWER: c MEDIUM Chapter 19 27 Measuring and Rewarding Organizational Performance Residual income is the a b c d contribution margin of an investment center, less the imputed interest on the invested capital used by the center contribution margin of an investment center, plus the imputed interest on the invested capital used by the center income of an investment center, less the imputed interest on the invested capital used by the center income of an investment center, plus the imputed interest on the invested capital used by the center ANSWER: 28 b EASY If a division generates a positive residual income then the division’s a b c d asset turnover was very high profitability was greater than that of other divisions in the company performance was above expectations actual return on investment exceeds the division’s target return ANSWER: d EASY Residual income is determined as a b c d income times the asset turnover rate income times the inventory turnover rate income minus (asset base times target rate of return) sales minus (asset base times target rate of return) ANSWER: 31 EASY long-term short-term qualitative profit center ANSWER: 30 c Residual income is an example of a performance measurement a b c d 29 19-7 c EASY Residual income is used as a performance measure in which of the following types of centers? a Revenue yes Investment no Profit yes 19-8 Performance b c d Chapter 19 yes no no ANSWER: 32 c 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: d EASY If sales and expenses both rise by $100,000, profit margin will a b c d decrease and asset turnover will decrease increase and asset turnover will decrease decrease and asset turnover will increase increase and asset turnover will increase ANSWER: 35 EASY increase in residual income decrease in return on investment decrease in residual income decrease in both residual income and return on investment ANSWER: 34 d yes yes no An increase in a corporation's target rate would result in a(n) a b c d 33 yes yes yes Measuring and Rewarding Organizational c MEDIUM Asset turnover equals a b c d income divided by average assets sales divided by assets sales divided by average assets assets divided by sales ANSWER: c EASY Chapter 19 36 Measuring and Rewarding Organizational Performance 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 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: b EASY Which measure is limited by the fact that it uses accounting income? a b c d 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 c Asset turnover increase no change increase no change d EASY Z Division of XYZ Corp has the following information for 1998: Assets available for use Target rate of return Residual income $1,800,000 10% $ 270,000 What was Z Division's return on investment for 1998? a 15% 19-10 Performance b c d Chapter 19 Measuring and Rewarding Organizational 10% 25% 20% ANSWER: c MEDIUM Use the following information for questions 40-43: Apple Division of the American Fruit Co had the following statistics for 1998: Assets available for use $1,000,000 Book Value $1,500,000 Market Value Residual income 100,000 Return on investment 15% 40 What was Apple Division's segment income for 1998? a b c d $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 a d 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 $ 50,000 $ 333,333 Chapter 19 108 Measuring and Rewarding Organizational Performance Perks include all of the following except a b c d free child care free parking recreational memberships hourly wages ANSWER: 109 profit sharing an employee stock option plan contingent pay monthly salary ANSWER: EASY company lunch rooms flexible fringe benefit programs ESOPs pensions ANSWER: b EASY Which performance plan is most motivating? a b c d health insurance piece rate hourly wages pensions ANSWER: 112 d Cafeteria plans are a b c d 111 EASY A pay plan that does not encourage the overall company good is a b c d 110 d d MEDIUM A person who specializes in taking over other firms is called a(n) a b c d shirker(s) raider(s) expatriate(s) none of the above 19-27 19-28 Performance Chapter 19 ANSWER: 113 the United States Canada Japan France ANSWER: c 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 EASY The average compensation for chief executives was lowest in a b c d 114 b Measuring and Rewarding Organizational d MEDIUM Expatriate employees a b c d should be paid a base comparable to what he/she was earning domestically will be paid more than corresponding managers in their home country will always pay taxes in the country in which they are based should receive retirement benefits based on local currencies ANSWER: a MEDIUM SHORT ANSWER/PROBLEMS Chapter 19 Measuring and Rewarding Organizational Performance 19-29 Discuss economic value added a b c d e What is it intended to do? 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 More directly align the interests of common shareholders and managers EVA = A/Tax profit – (market value of invested capital x cost of capital %) EVA uses after-tax profit, cost of capital and market value of assets invested RI uses segment income, target rate of return and book value of assets invested Because it recognizes that there may be a significant difference between book value and market value of assets The market value of a company is reflected in stock prices which are another measure of performance evaluation EVA includes the increased investment immediately even though significant income may not occur until sometime in the future Most investments will show decreased short-term performance (EVA) and may cause a company to refuse projects that are profitable in the long-term (similar to shortcomings of the payback method) MEDIUM What items affect comparability of different divisions within the same company on the basis of EVA, ROI and RI? ANSWER: a b c Each measure is based on accounting income which can be manipulated in the short-term by accounting methods used, which can differ between investment centers The measurement of the asset base is affected by the choice of what to include, and may include items that relate to decisions made by prior managers All measures focus primarily on how well the segments in isolation with results compared to prior years for the same segment, rather than relative company-wide objectives MEDIUM Why is it likely that a subordinate manager would be more attentive to certain performance measures than overall corporate objectives to guide his decision making? 19-30 Performance Chapter 19 Measuring and Rewarding Organizational ANSWER: Managers are evaluated based on how their actual results compare to specific measures of performance These performance measures are intended to be surrogates for the overall corporate goals as they apply to specific managers Thus performance measures are selected by the extent to which they are good proxies for corporate goals (that is the extent to which they operationally define, and are consistent with, corporate goals) and are intended to be major focal points for managers MEDIUM 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 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 How can return on investment result in sub-optimization when it is used as a performance measure? ANSWER: Because performance measures are used to reward performance, managers use them as decision criteria when they evaluate alternative courses of action For example, if ROI Chapter 19 Measuring and Rewarding Organizational Performance 19-31 is the performance criterion, a division manager will only invest in new projects that will result in an increase in his/her division's ROI This is sub-optimal if the overall organization would be better off by the division manager's investment in available projects with lower ROIs MEDIUM Define residual income Evaluate residual income as a measure of performance ANSWER: Residual income is the remainder of net profit once a target cost of capital has been taken into consideration Residual income is determined by deducting from net income a prescribed or imputed interest charge on assets This method allows an organization to use different rates of interest for various organizational assets A main advantage of using RI is that it overcomes some limitations of ROI (sub-optimization) MEDIUM What are some common problems encountered in determining ROI? ANSWER: Net income and investment involved can both be calculated several ways Multiple calculations are often presented to show the different factors that effect ROI, changes in sales, expenses, and capital investments MEDIUM Discuss management uses of flexible budgets ANSWER: Flexible budgets are important to managers in performing a variety of functions Formulating budgets commits certain activities agreed to during the planning process to specific monetary amounts The flexible budget provides the means to estimate costs at various levels of activity The control function is undertaken to assure that actual operations meet planned operations Through this function, deviations are determined and variances can be ascertained Managers also use flexible budgets in performance 19-32 Performance Chapter 19 Measuring and Rewarding Organizational evaluation Evaluation is more meaningful with valid and accurate data to make the process of evaluation beneficial to all involved MEDIUM Use the following information for questions 10 and 11: 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 Use the following information for questions 12 and 13: Northern Division of Utah Chemical Co produced the following operating results in 1998: Sales Segment income Assets $10,000,000 1,500,000 6,000,000 Northern Division is considering a $1,000,000 investment in a new project Northern estimates that its return on investment (for all of its operations) would be at 22% with the new investment 12 How much net segment income is the new project expected to produce? Chapter 19 Measuring and Rewarding Organizational Performance 19-33 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 = $1,540,000 - $1,500,000 = $40,000 MEDIUM 13 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 The required net income = 20% x $4,000,000 = $800,000 sales = net income + fixed costs + variable costs sales = $800,000 +| $400,000 + (.60 x sales) 19-34 Performance Chapter 19 Measuring and Rewarding Organizational sales x 40% = $1,200,000 sales = $3,000,000 b sales = fixed costs + variable costs + required return + residual income sales = $400,000 + (.60 x sales) + (.15 x sales) + $200,000 sales = $2,400,000 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 Red $300,000 150,000 40,000 5,000 20,000 50,000 800,000 200,000 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: Chapter 19 Measuring and Rewarding Organizational Performance a Sales CGS Gross Margin Variable selling Fixed admin Fixed selling Controllable income b 19-35 Blue $600,000 (250,000) $350,000 (30,000) (10,000) (40,000) $ 270,000 Blue $270,000 ÷ $800,000 = 33.75% Red $ 300,000 ( 190,000) $ 110,000 (5,000) (2,000) (24,000) $ 79,000 Red $79,000 ÷ $600,000 = 13.17% MEDIUM 16 Information for two divisions of M & M Company is given below: Net income Capital investment a b Peanut $ 60,000 $400,000 Plain $100,000 $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 Plain $60,000 $100,000 (48,000) (60,000) $12,000 $ 40,000 $60,000 ÷ $400,000 $100,000 ÷ $500,000 = 15% = 20% 19-36 Performance 17 Chapter 19 Measuring and Rewarding Organizational 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 company’s 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 Chapter 19 Measuring and Rewarding Organizational Performance 19-37 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 17 (cont’d.) ANSWER: a Sales Variable costs Direct fixed costs Segment margin $ 9,000,000 (3,650,000) (4,770,000) $ 580,000 Average assets = ($3,600,000 + $5,300,000) / = $4,450,000 b Profit margin = $580,000 / $9,000,000 = 6.44% Asset turnover = $9,000,000 / $4,450,000 = 2.02 ROI = $580,000 / $4,450,000 = 13% c The target ROI for the division was 2.5 x = 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 RI = $580,000 – (13% x $4,450,000) = $580,000 - $578,500 = $1500 e After-tax profits = pretax income – taxes = $580,000 – ($580,000 x 40%) = $348,000 19-38 Performance Chapter 19 Measuring and Rewarding Organizational EVA = $348,000 – ($8,000,000 x 10%) = $(452,000) EVA and RI differ for three reasons First, RI is based on pre-tax rather than after-tax income Second, RI is based on the book value of investment, whereas EVA is based on the market value of investment Third, the target rates of return differ between the methods f 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 firm’s 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 How many defective units were produced in June? Compute manufacturing cycle efficiency for June Compute the process productivity in June Compute the process quality yield in June Compute the hourly throughput for June ANSWER: a b c d e Defective units = 6,000,000 - 4,800,000 = 1,200,000 MCE = 600 ÷ 800 = 75% Process productivity = 6,000,000 ÷ 600 = 10,000 units per hour Process quality yield = 4,800,000 ÷ 6,000,000 = 80% Throughput = 10,000 x 75 x = 6,000 dolls per hour MEDIUM Chapter 19 Measuring and Rewarding Organizational Performance 19-39 19 Identify the steps to follow in establishing the performance reward system for a company ANSWER: The steps are in the following order: set strategic goals identify the critical success factors set the compensation strategy identify performance measures set performance rewards measure/monitor performance determine rewards MEDIUM 20 Discuss pay-for-performance plans they ANSWER: Employees should be encouraged by compensation plans to perform and be loyal to the organization Performance measures should be related to a company's operational targets These performance measures not have to be evenly weighted Management can assign higher weights to more important performance measures as are related to the corporate goals MEDIUM 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 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: 19-40 Performance Chapter 19 Measuring and Rewarding Organizational 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 23 What is a golden parachute and why is it used? ANSWER: A golden parachute is a benefit package awarded to managers if their firm is taken over and they are terminated This normally follows a hostile takeover of their firm Proponents of parachutes say that they allow managers to devote their limited time to serving the interests of their company's stockholders in an unbiased manner Others say parachutes lead to entrenched managers and reward managers who may have mismanaged their firm which created the conditions that resulted in the hostile takeover MEDIUM 24 Deferred compensation techniques are currently used in the American work place What are they and how 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 stock-based 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 Comment on differences regarding employee performance that exists between for-profit and not-for-profit organizations ANSWER: Chapter 19 Measuring and Rewarding Organizational Performance 19-41 In a for profit entity, stockholders and their representatives, the board of directors, maintain oversight of the company and its officers These individuals are directly concerned about the effectiveness and efficiency of operations because they are the residual claimants who are paid (in the form of dividends and stock value increases) only after all other involved parties receive their compensation In NFP organizations, no overriding interest group comparable to stockholders keeps herd on the performance of managers in the entity Performance rewards are less effective in these operations Pay and performance rewards in NFPs have often not been regarded as 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 ... 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 ANSWER:... activities operating, investing, and sending activities merchandising, financing, and investing activities operating, investing, and financing activities ANSWER: EASY and the sub-unit should be evaluated... would increase sales by more than 16% acquire any technologically advanced assets that would cause costs to be by 16% or more ANSWER: c manager d should be evaluated on all costs and revenues that