Review Questions and Exercises

Completion Statements

Fill in the blank(s) to complete each statement.

1. Designing accounting-based performance measure for an organization subunit requires three steps. Step 1 is to choose performance measures that _______________________________________ ______________________ financial goals.

2. In the formula to calculate residual income, the required rate of return multiplied by investment is called the _________________ cost of the investment.

3. _____________________ cost is the cost of purchasing an asset today identical to the one currently held, or the cost of purchasing an asset that provides services like the one currently held if an identical asset cannot be purchased.

4. An important consideration in designing compensation arrangements is the trade-off between creating _______________________ to get the manager to work hard and imposing __________ on the manager.

5. ___________________ describes situations in which an employee prefers to exert less effort (or report distorted information) compared to the effort (or accurate information) desired by the owner, because the employees effort (or validity of the reported information) cannot be accurately monitored and enforced.

6. Name the four levers of control. _____________

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