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Chapter 24: 20RQ (page 1324)
What is the biggest disadvantage of using ROI to evaluate investment centers?
The absence of consideration for a cash as a measure is one of the drawbacks of ROI.
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Management by exception is a term often used in performance evaluation. Describe management by exception and how it is used in the evaluation of cost, revenue, and profit centers.
Consider the following key performance indicators, and classify each indicator according to the balanced scorecard perspective it addresses. Choose from the financial perspective, customer perspective, internal business perspective, and the learning and growth perspective.
a. Number of customer complaints
b. Number of information system upgrades completed
c. Residual income
d. New product development time
e. Employee turnover rate
f. Percentage of products with online help manuals
g. Customer retention
h. Percentage of compensation based on performance
i. Percentage of orders filled each week
j. Gross margin growth
k. Number of new patents
l. Employee satisfaction ratings
m. Manufacturing cycle time (average length of production process)
n. Earnings growth
o. Average machine setup time
p. Number of new customers
q. Employee promotion rate
r. Cash flow from operations
s. Customer satisfaction ratings
t. Machine downtime u. Finished products per day per employee
v. Percentage of employees with access to upgraded system
w. Wait time per order prior to start of production
Consider the following data, and determine which of the corporate divisions is more profitable. Explain your reasoning.
Domestic International
Operating income \( 10,000,000 \) 11,000,000
Average total assets 24,000,000 32,000,000
List the disadvantages of decentralization.
One subunit of Racer Sports Company had the following financial results last month:
Subunit X Actual Results Flexible Budget Flexible Budget % Variance
Variance (F or U) (F or U)
Net Sales
Revenue \( 476,000 \) 451,000
Variable
Expenses 261,000 251,000
Contribution
Margin 215,000 200,000
Traceable
Fixed Expenses 40,000 26,000
Divisional
Segment Margin \( 175,000 \) 174,000
Requirements
1. Complete the performance evaluation report for this subunit (round to two decimal places).
2. Based on the data presented and your knowledge of the company, what type of responsibility center is this subunit?
3. Which items should be investigated if part of management鈥檚 decision criteria is to investigate all variances equal to or exceeding \(8,000 andexceeding 10% (both criteria must be met)?
4. Should only unfavorable variances be investigated? Explain.
5. Is it possible that the variances are due to a higher-than-expected sales volume? Explain.
6. Will management place equal weight on each of the variances exceeding \)8,000? Explain.
7. Which balanced scorecard perspective is being addressed through this performance report? In your opinion, is this performance report a lead or a lag indicator? Explain.
8. List one key performance indicator for the three other balanced scorecard perspectives. Make sure to indicate which perspective is being addressed by the indicators you list.
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