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Chapter 24: Q27RQ (page 1355)
How does capacity affect transfer pricing decisions?
In case of operation at full capacity, the transfer price equals to market selling price, however in case of operation below capacity, than transfer price equals to variable cost per unit.
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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
What is a key performance indicator?
Zims, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year:
Net Sales Revenue Operating Income Average Total Assets
Residential \( 550,000 \) 65,280 $ 192,000
Professional 1,090,000 164,820 402,000
Management has a 26% target rate of return for each division.
Requirements
1. Calculate each division鈥檚 ROI. Round all of your answers to four decimal places.
2. Calculate each division鈥檚 profit margin ratio. Interpret your results.
3. Calculate each division鈥檚 asset turnover ratio. Interpret your results.
4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude?
What is the biggest advantage of using RI to evaluate investment centers?
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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