Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Question
Chapter 28, Problem 1TIF
a.
To determine
Identify the effect of cognitive biases of motivated reasoning and surrogation on the usefulness of balanced scorecard.
b.
To determine
Identify some ideas to protect oneself from falling prey to each of these biases.
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Students have asked these similar questions
Biases like motivated reasoning and surrogation are very prevalent in the business world. Man-
agers are often compensated and evaluated based on performance measures such as production
costs and profit margin. Hence, when subjective decisions need to be made regarding joint
cost allocation, support department cost allocation, and budgeting, managers are motivated
to believe and overvalue evidence that supports their products receiving less cost allocations,
more budgeting, and other favorable outcomes. At the same time, managers will discount any
evidence or reasoning that does not produce a favorable outcome for them. This is all part of
the bias known as motivated reasoning. It is important to note, as well, that people exhibit the
motivated reasoning bias unconsciously. In other words, people commonly overvalue favorable
information and discount unfavorable information without realizing it.
(Continued)
Explain with an example why managers find it difficult to adopt a decision alternative even when the relevance cost analysis shows the superiority of this decision alternative to maximize operating income over other decision alternatives. What might the company do to reduce the pressure on management and decrease the ethical conflict?
Which of the following statements is true?
A balanced scorecard contains both customer and internal business process performance measures because improvements in internal business process should result in improvements in customer satisfaction.
Incentive compensation for employees, such as bonuses, should be tied to balanced scorecard performance measures only if managers are confident that the performance measures are easily manipulated by those being evaluated.
Chapter 28 Solutions
Financial And Managerial Accounting
Ch. 28 - How does a strategic performance measurement...Ch. 28 - What is the difference between a leading indicator...Ch. 28 - Prob. 3DQCh. 28 - How are strategic objectives and strategic...Ch. 28 - What do strategy maps show, and how do they add...Ch. 28 - Prob. 6DQCh. 28 - Prob. 7DQCh. 28 - Prob. 8DQCh. 28 - Prob. 9DQCh. 28 - Prob. 10DQ
Ch. 28 - 72 Inc. has developed a balanced scorecard with...Ch. 28 - Bluetiful Inc. has the following strategic...Ch. 28 - Moses Moonrocks Inc. has developed a balanced...Ch. 28 - Prob. 4BECh. 28 - Lonnies Shipping Co. is considering switching to...Ch. 28 - Henrys Cafe is a local restaurant that is growing...Ch. 28 - American Express Company is a major financial...Ch. 28 - Eat-n-Run Inc. owns and operates 10 food trucks...Ch. 28 - Prob. 4ECh. 28 - Apples Oranges Inc. is trying to become more...Ch. 28 - The following is the balanced scorecard for Smith...Ch. 28 - Prob. 7ECh. 28 - Coulson and Company is a large retail business...Ch. 28 - Rizzo Goal Inc. produces and sells hockey...Ch. 28 - Silver Lining Inc. has a balanced scorecard with a...Ch. 28 - Two departments within Cougar Gear Inc. are...Ch. 28 - Sunny Nights Inc. is completely powered by the...Ch. 28 - Instructions 1.Label each element of the balanced...Ch. 28 - Strategic initiatives and CSR Obj. 2, 4 Get...Ch. 28 - Hyperflash Inc. has a balanced scorecard that...Ch. 28 - Instructions 1.Based on the balanced scorecard and...Ch. 28 - Strategic initiatives and CSR Blue Skies Inc. is a...Ch. 28 - Eye Swear Inc. has a balanced scorecard that...Ch. 28 - Den-Tex Company is evaluating a proposal to...Ch. 28 - Prob. 2MADCh. 28 - Analyze CSR initiatives at Green Manufacturing...Ch. 28 - Prob. 1TIFCh. 28 - Blake McKenzie Tax Services is a company serving...Ch. 28 - Young Manufacturing Company is a startup...Ch. 28 - The fundamental concept behind strategic...Ch. 28 - Which of the following statements regarding the...Ch. 28 - The balanced scorecard provides an action plan for...Ch. 28 - Which of the following statements best describes...Ch. 28 - A sign of the successful implementation of a...
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Similar questions
- Historically, performance measurement systems have been based on accounting or other quantitative numbers. One issue is that some accounting numbers can be affected by the actions of managers, and this may result in distorted performance results. A well-designed performance measurement system should eliminate these potential conflicts, as much as possible. There is a way to prevent these issues associated with using accounting measures as performance measures through use of nonaccounting measures in conjunction with accounting-based measures to help mitigate the problems of using accounting-based measures alone. Most performance measurement systems today use a combination of accounting-based measures and non-accounting-based measures, short-term or long-term indicators, or quantitative and qualitative components. True / Falsearrow_forwardWhich of the following statements about the balanced scorecard approach is false? It requires managers to focus on financial measures more than nonfinancial measures. It looks at performance from the following perspectives: financial, customer, internal business, and learning and growth. It helps balance short-term operating performance with long-term strategies. It recognizes that traditional measures of performance are often not adequate to fully assess a company’s performance.arrow_forwardWhich of the following statements regarding responsibility accounting systems is true? O Residual income is best used when evaluating the performance of profit centers rather than investment centers. An advantage of using return on investment to evaluate performance is that it encourages managers to increase both operating assets and operating income. O The use of residual income as a performance measure may lead segment managers to reject investments in projects that would be favorable for the company as a whole. O Residual income is a less effective metric for evaluating performance if there are significant differences in the size of the operating segments. O None of the above statements is true.arrow_forward
- There is often more than one way to improve a performance measure. Unfortunately, some of the actionstaken by managers to make their performance look better may actually harm the organization. For example, suppose the marketing department is held responsible only for increasing the performance measure“total revenues.” Increases in total revenues may be achieved by working harder and smarter, but theycan also usually be achieved by simply cutting prices. The increase in volume from cutting prices almostalways results in greater total revenues; however, it does not always lead to greater total profits. Thosewho design performance measurement systems need to keep in mind that managers who are under pressure to perform may take actions to improve performance measures that have negative consequenceselsewhere.Required:For each of the following situations, describe actions that managers might take to show improvement inthe performance measure but which do not actually lead to improvement in…arrow_forwardConsultant Frank Alvarez recently commented that the mostcommon error made by his clients is ignoring opportunitycosts associated with business decisions. The costs Alvarezwas referring to are:a. Benefits foregone by selecting one course of actionover another.b. The out-of-pocket costs of implementing a particularbusiness decision.c. Costs that make future opportunities possible.d. Costs that have made past opportunities possible.arrow_forwardA profit center manager often also supervises revenue and cost center managers. True or False True False Investment center managers have control over the investment of assets. True or False True False The balanced scorecard attempts to focus managers' attention on more than just financial measures. True or False True Falsearrow_forward
- Which of the following situations is most likely to pose a problem for companies that use return on investment as a measure of a manager’s performance? a. Managers may be encouraged to purchase more operating assets than they otherwise should. b. Managers may be discouraged from purchasing operating assets that could improve overall profitability. c. Managers may be discouraged from reducing their division’s costs. d. Managers may be discouraged from paying off debt in order to reduce costsarrow_forwardOne of the ways to describe the difference between a manager and nonmanager is that a manager's success is directly dependent on Multiple Choice both their own and their subordinates' performance. only their own performance. more their own than their subordinates' performance. only their subordinates' performance.arrow_forwardWhich of the following is not a characteristic of a lean accounting system? Multiple Cholce Costs in the system are organized according to value streams. The system includes both financial and nonfinancial performance indicators. It is most appropriate for firms operating in dynamic and competitive environments. The system incorporates the use of standard costs and standard cost variances. The overall intent of the system is to more accurately reflect improvements associated with lean manufacturing.arrow_forward
- agency costs may occur if A. Managers make decisions for their own best interest B. Managers may not attempt to maximize the value of the firm to shareholders C. The board does not properly oversee the activities and decisions of managers D.all of the abovearrow_forwardAgency theory suggests that one way to motivate managers to act in the best interests of the owners/shareholders is to link managerial compensation to firms' payoffs, such as net income or share returns. However, such a linkage imposes risk on the manager. Required: (1) Why is it important to control or reduce some of the risk thus imposed on managers? Explain. Discuss two methods by which risk imposed on the managers could be reduced.arrow_forwardDescribe an adverse selection problem a company is facing. What is the source of the asymmetric information? Who is the less informed party? What transactions are not being consummated as a result of the information? Could you (or do you) use signaling or screening to consummate these transactions? Offer your company some sound advice, complete with computations of the attendant profit consequences.arrow_forward
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