Chapter 19-Quality and Performance: True/False

Chapter 19—Quality and Performance
TRUE/FALSE
1. The systematic process of regulating organizational activities to make them consistent with the
expectations in plans, targets, and standards of performance refers to organizational control.
ANS: T PTS: 1 DIF: 1
NAT: AACSB Analytic | Operations Management TYP: F
2. Effectively controlling an organization requires information about product standards and actual
products, as well as actions to correct any deviations from the standards.
ANS: F PTS: 1 DIF: 2
3. It is important to create a written Internet policy for an "acceptable use policy" for workplace Internet
use.
4. Customer service, external business processes, financial performances, and the organization's capacity
for learning and growth are the four major perspectives of the balanced scorecard.
5. The feedback control model is a comprehensive management control system that balances traditional
financial measures with measures of customer service, internal business processes, and the
organization's capacity for learning and growth.
6. Feedback control focuses on the quantity of an end product or service.
7. Managers focus on the various elements of the scorecard to set targets, evaluate performance, and
guide discussion about what further actions need to be taken.
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Chapter 19: Quality and Performance
8. A standard for performance is included in an organization's overall strategic plan to compare

organizational activities against.
9. The final step of the feedback control model is to do nothing if performance is adequate or to take
corrective action if performance is inadequate.
10. In most companies, managers rely exclusively on qualitative measures to measure actual performance.
11. The fourth step in the control process is comparing actual activities to performance standards.
12. Effective management control involves subjective judgment and employee discussions, as well as
objective analysis of performance data.
13. A responsibility center is the fundamental unit of analysis for a budget control system.
14. An expense budget lists forecasted and actual revenues of the organization.
15. The level of funds flowing through the organization and the nature of cash disbursements is shown
through the capital budget.
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16. A balance sheet budget is a budget that plans and reports investments in major assets to be depreciated
over several years.
17. Bottom-up budgeting is a process in which lower level managers anticipate their department's resource
needs and pass them up to top management for approval.
18. A process in which lower level managers anticipate their department's resource needs and pass them to
top management for approval is called top-down budgeting.
19. The balance sheet shows the firm's financial position with respect to expenses and credits at a specific
point in time.
20. Liabilities are the firm's debts, both current and long-term.
21. The income statement shows revenues coming into the organization from all sources and subtracts all
expenses.
22. Frequently calculated ratios typically pertain to activity, passivity, and profitability.
23. The liquidity ratio shows the company's ability to meet its current debt obligations and a measurement
of the firm's margin of safety.
24. An activity ratio that measures how many times the inventory is turned over to meet the total sales
figure is called the inventory turnover.
25. The return on total assets (ROA) is an activity ratio that is the percentage returned to investors on total
assets.
26. Under hierarchical control, employees are actively engaged and committed to their work.
27. The use of cultural values, traditions, shared beliefs and trust to increase compliance with goals refers
to decentralized control.
28. Open-book management ties employee rewards to the company's overall success.
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29. The goal of open-book management is to get every employee thinking and acting like a business
owner.
30. Closed-book management helps employees appreciate why efficiency is important to the organization's
success as well as their own.
31. An organization-wide commitment to infusing quality into every activity through continuous
improvement defines six sigma.
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32. A group of six to twelve volunteer employees who meet regularly to discuss and solve problems
affecting their common work activities refers to a quality team.
33. The implementation of total quality management involves the use of many techniques such as quality
circles, benchmarking, Six Sigma principles, reduced cycle time, and continuous improvement.
34. Finland has the highest 2007-2008 opacity score.
35. Benchmarking is the age-old practice of allowing the artisan to sign his name to the finished product.
36. Outsourcing is the continuous process of measuring products, services, and practices against the
toughest competitors or the industry leaders.
37. Reduced cycle time is one of the common techniques of TQM, and refers to the ability of TQM to
shorten the time required to receive inventory after placing an order for it.
38. Continuous improvement is the implementation of a large number of small, incremental improvements
in all areas of the organization on an ongoing basis.
39. Six Sigma is most beneficial when employees have challenging jobs.
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40. Very high expectations from senior management and a desire to share authority by middle managers
are two of the positive factors leading to success of TQM.
41. The certification based on a set of international standards for quality management, setting uniform
guidelines for processes to ensure that products conform to customer requirements is the ISO
certification.
42. An economic value added system identifies various activities needed to provide a product and
determines the cost of each of those activities.
43. Market value-added systems measure the stock market's estimate of the value of the company's past
and projected capital investment projects.
44. ABC is a control system that identifies the various activities needed to provide a product and allocates
costs accordingly.
45. The system of governing an organization so that the interests of corporate owners are protected refers
to corporate governance.
46. Although work processes can be controlled and regulated, it is impossible to control and regulate
employee behavior.
NAT: AACSB Analytic | Creation of Value TYP: F
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47. Managers are increasingly recognizing the need to measure intangible aspects of performance such as
customer service.
48. The Six Sigma approach is a comprehensive management control system that balances traditional
financial measures with operational measures relating to a company’s critical success factors.
49. Within the balanced scorecard, customer service indicators measure things such as employee retention
and satisfaction.
50. Tracking measures such as customer service and employee involvement are examples of identifying
and defining nonfinancial measurements.
51. An expense budget lists forecasted and actual revenues of the organization.
52. The capital budget lists planned investments in major assets such as buildings, heavy machinery, or
complex information technology systems.
53. On a balance sheet, the bottom line indicates the net income – profit and loss – for the given time
period.
54. Ratios are stated as fractions rather than proportions.
55. Companies today are increasingly shifting from a hierarchical control process to one that is more
decentralized.
56. Decentralized control techniques can improve a company’s bottom line by reducing employee
misconduct, such as employee theft.
57. With hierarchical control, power is dispersed and is based on knowledge and experience as much as
position.
58. TQM became attractive to U.S. managers in the 1980s after it had been successfully implemented by
Japanese companies which were gaining market share and an international reputation for high quality.
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59. A Six Sigma process will typically result in one defective package of product for every three
truckloads shipped.
60. TQM tends to be most successful when it enriches jobs and improves employee motivation.
MULTIPLE CHOICE
1. Which of the following is the systematic process through which managers regulate organizational
activities?
a. Strategic planning
b. Organizational control
c. Organizational goal setting
d. Strategic regulation
e. Organizational leading
ANS: B PTS: 1 DIF: 1
2. One area in which many managers are implementing stronger controls is
a. employee use of e-mail and Internet.
b. employee breaks.
c. office socialization.
d. employee conflict
e. promptness.
ANS: A PTS: 1 DIF: 2
3. According to MANAGER'S SHOPTALK in Chapter 19, guidelines for creating an effective but fair
"acceptable use policy" for workplace Internet use includes all of the following EXCEPT:
a. make sure employees understand that they have no legal right to privacy in the workplace
b. create a written Internet policy
c. describe the disciplinary process
d. review the policy at regular intervals
e. all of these are included in the guidelines
ANS: E PTS: 1 DIF: 2
4. Which of the following is a comprehensive management control system that balances traditional
financial measures with operational measures relating to a company's critical success factors?
a. Economic value-added system
b. Activity-based costing system
c. Market value-added system
d. Balanced scorecard
e. Open-book management system
ANS: D PTS: 1 DIF: 2
5. ____ indicators focus on production and operating statistics.
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a. Financial performance
b. Business process
c. Critical success
d. Potential for learning and growth
e. Performance measurement
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6. All well-designed control systems involve the use of ____ to determine whether performance meets
established standards.
a. opinions
b. advice
c. consultants
d. benchmarks
e. feedback
7. All of the following are major perspectives of the Balanced Scorecard EXCEPT:
a. Competitors
b. Customers
c. Learning and growth
d. Financial
e. Internal business processes
8. What is the first step in the feedback control system?
a. Establishing strategic objectives
b. Establishing standards of performance
c. Taking corrective action
d. Comparing performance to standard
e. Measuring previous performance
9. CyberChasers Corporation sends a post-purchase questionnaire to all consumers who buy their
products. They are interested in gathering data on product quality, customer service orientation, and
customer satisfaction. This is an example of
a. a concurrent control.
b. a feedback control.
c. a feedforward control.
d. preliminary control.
e. preventive control.
NAT: AACSB Analytic | Operations Management TYP: A
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10. Kendra is a manager at George's Goodies. On a regular basis Kendra and her subordinates set
individual and organizational goals. This process is similar to which component of the control model?
a. Taking corrective action when necessary
b. An information system
c. Establishing performance standards
d. Engaging strategic analysis
e. None of these
ANS: C PTS: 1 DIF: 2
11. According to the control model, after establishing standards of performance the manager should
a. compare performance to standards.
b. get the standards approved by the supervisors and subordinates.
c. measure actual performance.
d. take corrective action.
e. provide feedback.
12. Tiffany recently discovered that the reject rate for her department has exceeded the standard for
performance in this area. What should Tiffany do to exercise effective control?
a. She should order more training for her workforce.
b. She should contact the maintenance department and have them come fix her machinery.
c. She should suspend the poorer workers in her department.
d. She should investigate and discover the cause of the problem.
e. None of these
13. Zachary, a manager at ExecuComp, receives quarterly reports, which track his department's
production statistics. However, these reports lack key information regarding reject rates. Which of
the following components of the control model need improvement?
a. Measuring actual performance
b. The planning and setting of performance standards
c. SWOT analysis
d. The ability to take corrective action when necessary
e. All of these
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14. All of the following are key steps of setting up feedback control systems EXCEPT
a. comparing performance to standards.
b. establishing standards.
c. getting employee opinions.
d. measuring performance.
e. making necessary corrections.
15. Mistletoe Corporation has a detailed set of organizational goals and management information system
that delivers timely and accurate information. Mistletoe still has control problems, however, because
its managers refuse to act on the information they receive. Mistletoe's control process has flaws in
which of the following areas?
a. Its performance standards
b. Its management information systems
c. Its ability to take corrective action when necessary
d. Its measurement systems
e. None of these
16. Your department has absenteeism standards, a way to measure absenteeism, and, based on your
investigation, you have concluded that your department has an excessive absenteeism rate. What
should your next step be?
a. Set new absenteeism standards
b. Develop new measures of absenteeism
c. Terminate three employees for excessive absenteeism
d. All of these would be good examples of taking corrective action.
e. None of these
17. Kyle's work group consistently exceeds the goals the members set for themselves some months ago.
In an attempt to better motivate the group, Kyle thought it would be a good idea to set new goals.
This is an example of Kyle exercising control by
a. comparing performance to standards.
b. developing adequate measures of performance.
c. taking corrective action.
d. all of these
e. comparing performance to standards and developing adequate measures of performance
only.
18. ____ is any organizational department or unit under the supervision of a single person who is
responsible for its activity.
a. Independent center
b. Responsibility center
c. Analysis center
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d. Control center
e. Budgeting center
19. Which of the following includes anticipated and actual expenses for a responsibility center?
a. revenue budget
b. cash budget
c. capital budget
d. expense budget
e. operating budget
20. Which of these is a financial budget that estimates cash flows on a daily basis or weekly basis to
ensure that the company can meet its obligations?
a. Capital expenditure budget
b. Balance sheet budget
c. Cash budget
d. Revenue budget
e. Profit budget
21. Madison has been assigned to work on the development of a budget that plans future investments in
major assets such as buildings and heavy machinery. Madison is working on a(n)
a. cash budget.
b. capital budget.
c. revenue budget.
d. operating budget.
e. expense budget.
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22. The ____ plans future investments in major assets to be depreciated over several years.
a. capital budget
b. balance sheet budget
c. cash budget
d. revenue budget
e. profit budget
23. Brad is a department manager at Home Theater, Inc. His sole role in the budget process is to
implement the budget that is developed for him. This is an example of
a. strategic budgeting.
b. operational budgeting.
c. top-down budgeting.
d. management by objectives.
e. bottom-up budgeting.
24. Pauline is an area manager at Ironman Gym. She anticipates her area's needs and formulates a
proposed budget every quarter. She then sends this proposal to her manager. This is an example of
a. top-down budgeting.
b. strategic budgeting.
c. revenue budgeting.
d. bottom-up budgeting.
e. none of these.
25. An advantage of the bottom-up budgeting process is
a. its emphasis on bureaucratic control.
b. lower managers are more involved.
c. top managers control the information flow.
d. top managers are often not committed to achieving budget targets.
e. all of these.
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26. The firm's financial position with respect to assets and liabilities at a specific point in time is shown by
its
a. activity ratio.
b. profitability ratio.
c. income statement.
d. liquidity ratio.
e. balance sheet.
27. ____ provide the basic information used for financial control of an organization.
a. Owners equity
b. Income statements
c. Financial position
d. Mission Statements
e. 100-K's
28. ____ is(are) the difference between assets and liabilities and is the company's net worth in stock and
retained earnings.
a. Assets
b. Current debt
c. Net profit
d. Owners' equity
e. Liabilities
29. The ____ ratio refers to the ability of the organization to meet its current debt obligation.
a. activity
b. liquidity
c. profitability
d. conversion
e. growth
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30. The conversion ratio is considered to be a(n)

a. activity ratio.
b. liquidity ratio.
c. profitability ratio.
d. leverage ratio.
e. cash ratio.
31. Which of the following is a ratio that measures the firm's internal performance with respect to key
activities defined by management?
a. A liquidity ratio
b. An activity ratio
c. Return on total assets
d. A current ratio
e. Profit margin on sales
32. The ____ is purchase orders divided by customer inquiries.
a. current ratio
b. inventory turnover ratio
c. conversion ratio
d. profit margin on sales
e. none of these
33. Tammy is a production manager at Eagle's Nest, Inc.. She is concerned that too much money is being
wasted on inventory that is sitting in the warehouse too long. She should calculate a(n)
a. current ratio.
b. inventory turnover ratio.
c. conversion ratio.
d. profitability ratio.
e. leverage ratio.
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34. Net income divided by sales is the correct formula for calculating
a. return on total assets.
b. a current ratio.
c. a liquidity ratio.
d. profit margin on sales.
e. a corporate evaluation.
35. Which of the following refers to funding activities with borrowed money?
a. ROA
b. Leverage
c. Liquidity
d. Profitability
e. Activity
36. The basic philosophy of control at Nutrients-For-You, Inc. is based on the policies found in the
employee handbook, as well as a strict hierarchy of authority. This philosophy is consistent with
a. clan control.
b. bottom-up control.
c. hierarchical control.
d. culture control.
e. decentralized control.
37. Decentralized control is usually implemented in all of the following areas EXCEPT:
a. self-control.
b. peer group.
c. corporate culture.
d. employee selection and socialization.
e. the quality control department.
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38. Which of the following allows employees to see for themselves the financial condition of the
company?
a. Open-book management
b. An economic value-added system
c. Activity-based costing
d. An inappropriate control system
e. Market value-added system
39. The control "system" at FreshFood Corporation is based on the culture of the organization and norms
that develop in the individual work teams. This is an example of
a. bureaucratic control.
b. decentralized control.
c. organizational control.
d. feedback control.
e. none of these.
40. The goal of ____ is to get every employee thinking and acting like a business owner.
a. management-by-walking around
b. closed-book management
c. MBO
d. open-book management
e. just-in-time inventory systems
41. Total quality management
a. is based on the ideas of Frederick Taylor.
b. gives managers total responsibility for achieving quality goals.
c. gives all employees the responsibility for achieving quality goals.
d. was first successfully implemented in the United States.
e. all of these.
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42. The ____ offers some indication of the degree to which various countries are open regarding
economic matters.
a. Opacity Index
b. Economic Index
c. Clarity Index
d. National Index
e. Foreign Economy Index
43. Which of the following is a philosophy of organization-wide commitment to continuous
improvement, focusing on teamwork, customer satisfaction, and lowering costs?
a. Engineering
b. Total quality management
c. Outsourcing
d. Culture
e. Diversity
44. A quality circle is a group of ____ volunteer employees.
a. 2 to 4
b. 6 to 12
c. 10 to 20
d. 15 to 25
e. 30 to 50
45. A group of 6 to 12 volunteer employees who meet regularly to discuss and solve problems affecting
their common work activities is a
a. feedforward control group.
b. work team.
c. quality circle.
d. committee.
e. problem team.
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46. Heather belongs to an informal group at work that meets twice a month to discuss common issues
and problems in the workplace. Recently, this group has been focusing on ways to improve safety in
the workplace. This group is an example of
a. a safety group.
b. a quality circle.
c. an ad-hoc committee.
d. a problem team.
e. none of these.
47. Quality circles are based on the assumption(s) that
a. the people who do the job know it better than anyone else.
b. quality can be increased by increasing the size of the organization.
c. quality can be increased by talking more about it.
d. the more employees talk, the more satisfied they will be.
e. all of these.
48. What is the key to successful benchmarking?
a. Application
b. Implementation
c. Analysis
d. Strategy
e. Planning
49. Which of the following is the process of measuring your organizational process against the best in the
industry?
a. Outsourcing
b. Continuous improvement
c. Environmental analysis
d. Benchmarking
e. Competitive measurement
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50. Which of the following is a quality control approach that emphasizes a relentless pursuit of higher
quality and lower costs?
a. Continuous improvement
b. Cycle time
c. Quality circles
d. Six Sigma
e. Benchmarking
51. To reduce the organization's cycle time is to reduce the number of
a. of committees in the organization.
b. layers of management.
c. steps in an organizational process.
d. staff employees in the organization.
e. none of these.
52. ____ refers to the steps taken to complete a company process.
a. Continuous improvement
b. Cycle time
c. Quality circles
d. Six sigma
e. Benchmarking
53. It seems that once a year the managers of Stone Construction, Inc. attempt a major organization
intervention, such as management-by-objectives. They never seem to be satisfied with the
performance of Stone Construction and, sure enough, 12 months later, along comes another major
intervention. By implementing organizational change in this way, Stone Construction's management
may well be violating the principle of
a. benchmarking.
b. continuous improvement.
c. unity of direction.
d. top-down control.
e. none of these.
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54. ____ is(are) most beneficial when employees have challenging jobs.
a. Six Sigma
b. Total Quality Management
c. Kaizen
d. Quality circles
e. Continuous improvement
55. Contingency factors that can influence the success of a TQM program in a positive way include all of
the following EXCEPT:
a. tasks make high skill demands on employees
b. TQM serves to enrich jobs and motivate employees
c. problem-solving skills are improved for all employees
d. participation and teamwork are used to tackle significant problems
e. managers wait for big, dramatic innovations
56. ____ is a contingency factor that can influence the success of a TQM program in a negative way.
a. Continuous improvement is a way of life
b. TQM serves to enrich jobs and motivate employees
c. Problem-solving skills are improved for all employees
d. Participation and teamwork are used to tackle significant problems
e. Union leaders are left out of QC discussions
57. Contingency factors that can influence the success of a TQM program in a negative way include all of
the following EXCEPT:
a. tasks make high skill demands on employees
b. management expectations are unrealistically high
c. middle managers are dissatisfied about loss of authority
d. workers are dissatisfied with other aspects of organizational life
e. managers wait for big, dramatic innovations
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58. Which of these is based on a set of international standards for quality?

a. Quality circle
b. Corporate governance
c. ISO certification
d. Open-book management
e. Balance scorecard
59. Which of the following is a control system that measures performance in terms of after-tax profits
minus the cost of capital invested in tangible assets?
b. Economic value-added system
d. Inappropriate control system
e. None of these
60. ____ is a control system that identifies the various activities needed to produce a product and
determines the cost of those activities.
b. An economic value-added system
d. An inappropriate control system
e. None of these
61. Which of the following refers to the system of governing an organization so that the interests of
corporate owners are protected?
a. Quality circle
b. Corporate governance
c. ISO certification
d. Open-book management
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62. Ophelia, the new CEO at Odyssey Inc., plans to implement a highly effective systematic process of
regulating organizational activities to make them consistent with the expectations that are
established by managers within the company. This is referred to as:
a. Organizational control
b. Feedback control
c. Budgetary control
d. Systems control
e. Quality control
NAT: AACSB Analytic | Creation of Value TYP: A
63. Focusing on how well resources and human capital are being managed for the company’s future
refers to which component of the balanced scorecard?
a. Customers
b. Learning and growth
c. Financials
d. Internal business processes
e. External business processes
64. In the process of implementing the balanced scorecard approach at his company, operations
manager Seth Howard wonders whether internal activities and processes add value for customers
and shareholders. This involves which dimension of the balanced scorecard?
a. Customers
b. Learning and growth
c. Financials
d. External business processes
e. Internal business processes
65. Use of the balanced scorecard can hinder or decrease organizational performance if it is
implemented using which type of orientation?
a. Performance management orientation
b. Performance measurement orientation
c. Customer orientation
d. Learning and growth orientation
e. Internal business process orientation
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66. ________ control is the process of setting targets for an organizations expenditures.
a. Quality
b. Income
c. Budgetary
d. Systems
e. Supply chain
67. Ron meets with his company’s accountant to discuss the budget of anticipated and actual expenses
for each segment of the organization. This involves review of which type of budget?
a. Expense budget
b. Revenue budget
c. Cash budget
d. Capital budget
e. Nonfinancial budget
68. Stella, a systems manager for a large technology company, would like to get an understanding of her
company’s financial position with respect to assets and liabilities at the end of the fiscal year. Which
financial statement should she refer to?
a. Income statement
b. Activity ratio
c. TQM report
d. Balance sheet
69. In today’s tough economy, companies are predominantly looking for employees with what types of
skills?
a. Accounting skills
b. Conceptual skills
c. Researching skills
d. Technical skills
e. A diverse set of skills
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70. Which of the following is considered a leverage ratio?

a. Debt ratio
b. Return on total assets
c. Profit margin on sales
d. Conversion ratio
e. Inventory turnover
71. At LBK Industries, responsibility for quality control rests with a team of quality control inspectors and
supervisors rather than with employees. LBK uses what type of organizational control?
a. Matrix control
b. Hierarchical control
c. Decentralized control
d. Bottom-up control
e. Balanced control
72. At RWI Distilleries, rules and procedures are used only when necessary. Instead, shared goals and
values guide employee behavior. RWI uses what type of organizational control?
a. Centralized control
b. Hierarchical control
c. Decentralized control
d. Top-down control
e. Balanced control
73. Silver n’ Gold Inc. recently introduced a new control philosophy where all employees have access to
the same information that owners have, such as what money is coming in and where it is going. This
is an example of which control philosophy?
a. Balanced scorecard
b. Six Sigma
c. Continuous improvement
d. Total quality management
e. Open-book management
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74. Charlie, a manager at a textile company, is bothered by a lack in quality of products manufactured by
his company. Charlie hopes to infuse quality into the company through continuous improvement by
involving everyone who works there. This describes which control philosophy?
a. Balanced scorecard
b. Six Sigma
c. Continuous improvement
d. Total quality management
e. Open-book management
75. Which quality control technique uses a five-step methodology to define, measure, analyze, improve,
and control processes, otherwise referred to as DMAIC?
a. Quality circles
b. Six Sigma
c. Benchmarking
d. Balanced scorecard
e. Continuous improvement
76. Which financial control system measures the stock market’s estimate of the value of a company’s
past and projected capital investment projects?
a. Market value-added
b. Economic value-added
c. System governance
d. Activity-based costing
e. Corporate governance
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CASE
Scenario - Katrina Aldridge
The yearly auditing review of Pilgrim Industries is scheduled for next month. Katrina Aldridge is
preparing for that audit and is also preparing her budget for the coming year.
1. Which of these budgets will provide Katrina information about planned investments in major assets
like buildings and heavy machinery?
a. Cash budget
b. Revenue budget
c. Capital budget
d. Expense Budget
e. Balance-Sheet budget
ANS: c
PTS: 1 DIF: 2
NAT: AACSB Analytic | Operations Management KEY: Scenario Questions
TYP: A
2. In planning and budgeting for the next 12 months, Katrina is participating in a budgeting process in
which lower-level manager's budget their department's resource needs and pass them up to top
management for approval. This budget process is an example of
a. zero-based budgeting.
b. bottom-up budgeting.
c. top-down budgeting.
d. balance sheet budgeting
e. none of these.
ANS: b
PTS: 1 DIF: 2
TYP: F
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3. Katrina has also requested that the financial ratios be calculated and analyzed for her. Which of the
following ratios will give her the best information for evaluating liquidity?
a. Profit margin on sales
b. Current ratio
c. Conversion ratio
d. Return on assets
e. None of these.
ANS: b
PTS: 1 DIF: 2
TYP: A
COMPLETION
1. The systematic process through which managers regulate organizational activities is known as
____________________.
ANS: organizational control
PTS: 1 DIF: 2
2. ____________________ focuses on whether performance meets established standards.
ANS: Feedback control
PTS: 1 DIF: 2
3. When ____________________ deviates from a(n) ____________________, managers must interpret
the deviation.
ANS: performance; standard
PTS: 1 DIF: 2
4. A(n) ____________________ is defined as any organizational department or unit under the
supervision of a single person who is responsible for its activity.
ANS: responsibility center
PTS: 1 DIF: 2
5. A(n) ____________________ includes anticipated and actual expenses for each responsibility center
and for the total organization.
ANS: expense budget
PTS: 1 DIF: 2
6. A(n) ____________________ lists forecasted and actual revenues of the organization.
ANS: revenue budget
PTS: 1 DIF: 2
7. The ____________________ estimates receipts and expenditures of money on a daily or weekly basis
to ensure that an organization has sufficient cash to meet its obligations.
ANS: cash budget
PTS: 1 DIF: 2
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8. The ____________________ lists planned investments in major assets such as buildings, trucks, and
heavy machinery, often involving expenditures over more than a year.
ANS: capital budget
PTS: 1 DIF: 2
9. In a traditional ____________________ approach, budgeted amounts for the coming year are imposed
on middle- and lower-level managers.
ANS: top-down budgeting
PTS: 1 DIF: 2
10. A budgeting process in which middle and lower-level managers set departmental budget targets in
accordance with overall company revenues and expenditures specified by top management is called
____________________ budgeting.
ANS: top-down
PTS: 1 DIF: 2
11. A budgeting process in which lower-level managers budget their departments' resource needs and pass
them up to top management for approval is called ____________________ budgeting.
ANS: bottom-up
PTS: 1 DIF: 2
12. The ____________________ provides three types of information: assets, liabilities, and owners'
equity.
ANS: balance sheet
PTS: 1 DIF: 2
13. The firm's financial performance for a given time period is shown on the ____________________.
ANS: income statement
PTS: 1 DIF: 2
14. A(n) ____________________ ratio indicates an organization's ability to meet its current debt
obligations.
ANS: liquidity
PTS: 1 DIF: 2
15. A(n) ____________________ ratio measures internal performance with respect to key activities
defined by management.
ANS: activity
PTS: 1 DIF: 2
16. The percentage representing what a company earned from its assets is called ____________________.
ANS:
return on assets
ROA
PTS: 1 DIF: 2
19-30
17. ____________________ involves monitoring and influencing employee behavior through extensive
use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal
mechanisms.
ANS: Hierarchical control
PTS: 1 DIF: 2
18. ____________________ control uses cultural values, traditions, shared beliefs, and trust to generate
compliance with organizational goals.
ANS: Decentralized
PTS: 1 DIF: 2
19. Sharing financial information and results with all employees in the organization is called
____________________ management.
ANS: open-book
PTS: 1 DIF: 2
20. An organization wide commitment to infusing quality into every activity through continuous
improvement is called ____________________.
ANS:
total quality management
TQM
PTS: 1 DIF: 2
21. A group of 6 to 12 volunteer employees who meet regularly to discuss and solve problems affecting
their common work activities is known as a(n) ____________________.
ANS: quality circle
PTS: 1 DIF: 2
19-31
22. The continuous process of measuring products, services, and practices against major competitors or
industry leaders is called ____________________.
ANS: benchmarking
PTS: 1 DIF: 2
23. ____________________ refers to the number of steps taken to complete a company process.
ANS: Cycle time
PTS: 1 DIF: 2
24. The implementation of a large number of small, incremental improvements in all areas of the
organization on an ongoing basis is referred to as ____________________.
ANS: continuous improvement
PTS: 1 DIF: 2
25. A control system that measures performance in terms of after-tax profits minus the cost of capital
invested in tangible assets is called the ____________________.
ANS:
economic value added system
EVA system
PTS: 1 DIF: 2
26. A control system that identifies the various activities needed to provide a product and determines the
cost of those activities is called ____________________.
ANS:
activity-based costing
ABC
PTS: 1 DIF: 2
19-32
27. ____________________ refers to the system of governing an organization so that the interests of
corporate owners are protected.
ANS: Corporate governance PTS: 1 DIF: 3
NAT: AACSB Analytic | Operations Management
TYP: F
SHORT ANSWER
1. List the four major perspectives of a balanced scorecard.
ANS:
(1) Financial performance, (2) customer service, (3) internal business processes, and (4) the
organization's capacity for learning and growth.
PTS: 1 DIF: 2
2. List the four steps in the feedback control model.
ANS:
The four steps are (1) establish standards of performance, (2) measure actual performance, (3)
compare performance to standards, and (4) take corrective action.
PTS: 1 DIF: 2
ESSAY
1. Identify and briefly describe the four steps of the feedback control model.
ANS:
The four steps are 1) establish standards of performance, 2) measure actual performance, 3) compare
performance to standards, and 4) take corrective action. Please refer to exhibit 19.2 in the text.
PTS: 1 DIF: 2
19-33
2. Describe the difference between a balance sheet and an income statement.

ANS:
A balance sheet shows the firm's financial position with respect to assets and liabilities at a specific
point in time. It provides three types of information: assets, liabilities, and owners' equity. An income
statement is different from a balance sheet in the sense that it shows revenues coming into the
organization from all sources and subtracts all expenses, indicating the firm's net income.
PTS: 1 DIF: 2
3. Identify and briefly describe each of the common financial ratios addressed in your text.
ANS:
The major categories addressed in the text are liquidity ratios, activity ratios, profitability ratios, and
leverage ratios. Please refer to Exhibit 19.5 in the text.
PTS: 1 DIF: 2
4. Compare hierarchical control with decentralized control.
ANS:
Bureaucratic control uses rules, policies, hierarchy of authority, reward systems, and other formal
devices to influence employee behavior and assess performance. In contrast, decentralized control uses
cultural values, traditions, shared beliefs, and trust to generate compliance with organizational goals.
Bureaucratic control generates employee compliance with rules while decentralized control generates
employee commitment to quality.
PTS: 1 DIF: 2
5. Discuss open-book management and the balanced scorecard.
ANS:
Open-book management allows employees to see for themselves the financial condition of the
company, how each individual's job fits into the big picture and the company's financial future, and it
ties employee rewards to the company's overall success. The balanced scorecard is a comprehensive
management control system that balances traditional financial measures with operational measures
relating to a company's critical success factors. It contains four perspectives: financial performance,
customer service, internal business processes, and the organization's capacity for learning and growth.
PTS: 1 DIF: 2
19-34
6. Discuss the evolution of the balanced scorecard from a system that places equal emphasis on
performance management categories to one that emphasizes cause and effect.
ANS:
This process is illustrated in Exhibit 19.1 on page 563. This adapted approach to the scorecard
indicates that financial results are the final outcome of other processes within the company. The
foundation of high financial performance is learning and growth, which reflects that it is an
organization's people and culture that cause excellent business processes. Excellent business processes
in turn cause customers to be satisfied. And happy customers lead to financial success. Thus, the
components of the scorecard can be organized into a pyramid, indicating that each level reinforces the
level above it. Thus, high financial performance is an outgrowth of success in other areas, starting with
a firm commitment to developing human capital and internal business processes.
PTS: 1 DIF: 2
7. In a TQM program, what is benchmarking?

ANS:
Benchmarking is the continuous process of measuring products, services, and practices against the
toughest competitors or the industry leaders. The key to benchmarking lies in analysis and in the
selection of the comparison company.
PTS: 1 DIF: 2
8. Discuss the positive and negative factors that can influence the success of a TQM program.
ANS:
Refer to Exhibit 19.9 in the text for positive and negative factors associated with TQM.
PTS: 1 DIF: 2
19-35

Chapter 19-Quality and Performance: True/False

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Chapter 19—Quality and Performance

8. A standard for performance is included in an organization's overall strategic plan to compare

NAT: AACSB Analytic | Operations Management TYP: F

30. The conversion ratio is considered to be a(n)

58. Which of these is based on a set of international standards for quality?

70. Which of the following is considered a leverage ratio?

2. Describe the difference between a balance sheet and an income statement.

7. In a TQM program, what is benchmarking?

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