Performance Evaluation Chapter 11 Test Questions & Answers

Chapter 11

Performance Evaluation Revisited: A Balanced Approach

Chapter Learning Objectives

1. Identify the desirable characteristics of performance measures. (Unit 11.1)
2. Explain how to use a balanced scorecard to improve an organization’s performance. (Unit 11.2)

To achieve an organization’s strategy, a balanced scorecard integrates performance measures across four perspectives:

• Learning and growth perspective: “Are we developing our employees’ skills and providing them with technologies that facilitate change and improvement?”
• Internal business process perspective: “Are we improving our business processes in order to deliver maximum value to our customers?”
• Customer perspective: “Are we meeting our customers’ expectations?”
• Financial perspective: “Are we reaching our financial goals?”

1. Explain how to use benchmarking to improve an organization’s performance. (Unit 11.3)

Benchmarking is using data from other organizations to identify those processes and practices that lead to world-class performance. It involves sharing information between benchmarking partners or among organizations that belong to a benchmarking consortium.

1. Calculate delivery cycle time, manufacturing cycle time, and manufacturing cycle efficiency. (Appendix)

Delivery cycle time is the time from order placement to order shipment. Manufacturing cycle time is the time from the beginning of production to order shipment.

TRUE-FALSE STATEMENTS

1. Measures that can be determined only after something is finished are called lagging indicators.
2. Return on investment, residual income, and EVA all have qualitative components.
3. A lagging indicator “lags” the time period when a performance is measured.
4. Lagging indicators can be used to predict future results.
5. Measures that are predictors of your ultimate performance on a particular activity are referred to as predictor indicators.
6. Even if an organization relies solely on one performance strategy, it cannot easily be misled into thinking all is well, when in reality, all is not well.
7. Identifying whether a measure is a leading or lagging indicator can be difficult, because a lagging indicator of one event can be a leading indicator of another.
8. Earnings per share, although taken from accounting reports, is a qualitative measure.
9. Nonfinancial measures, which are not based on accounting results, can be either qualitative or quantitative.
10. Although executives recognize the importance of nonfinancial performance measures, companies are not particularly good at using them.
11. When choosing the right performance measures, the best measures relate to day-to-day operations.
12. To be of any value, a measure of performance must be measurable, meaning that it is complete and accurate, and is based on actual results rather than on estimates.
13. As a measure of a salesperson’s performance, corporate profit margin is an example of an actionable measure.
14. The key to using key performance indicators to drive performance is to understand the cause-and-effect relationships they represent.
15. A performance dashboard is a visual display of the key measures related to an organization’s operational goals and strategies.
16. A performance dashboard is a management tool that integrates performance measures (performance) across four different perspectives (dashboard) to guide operations toward achieving an organization’s strategy.
17. The balanced scorecard assists in communicating the corporate strategy throughout the organization.
18. When a company creates a balanced scorecard, managers are stating a hypothesis about the results that will occur if certain performance measures are stressed.
19. The balanced scorecard includes one or two measures in each of six perspectives.
20. The learning and growth perspective answers the question, “Are we improving our business processes in order to deliver maximum value to our customers.”
21. The balanced scorecard is a system that forces managers to consider how different parts of their company affect one another.
22. Benchmarking is the practice of using data from other organizations to identify the processes and practices associated with world-class performance.
23. Benchmarking is about trying to achieve another company’s metrics.
24. The goal of benchmarking is to identify those best practices that improve both quality and productivity.
25. For processes that are not identical, companies cannot benefit from benchmarking outside their industry.

LO: 3, Bloom: C, Unit: 11-3, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Strategy

1. Benchmarking is appropriate only within a company’s industry.
2. In determining whether benchmarking is worth the effort, a company must assess the potential return from a benchmarking project.
3. Benchmarking participants should adhere to the Benchmarking Code of Conduct which provides general principles to follow during the benchmarking process.
4. The time between an order’s placement and its shipment is referred to as the delivery cycle time.
5. Perfect manufacturing cycle efficiency would yield a ratio of zero – that is, no processing time would be non-value-added.

LO: 4, Bloom: C, Unit: Appendix, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Strategy

Answers to True-False Statements

MULTIPLE-CHOICE QUESTIONS

1. A direct material variance is a measure of
   1. outcomes.
   2. inputs.
   3. qualitative factors.
   4. waste.
2. Measures that can be determined only after something is finished are called
   1. post-operations indicators.
   2. lagging indicators.
   3. input indicators.
   4. objective indicator.
3. Direct materials variances, direct labor variances, return on investment, residual income and EVA are performance measures that are

1. Direct materials variances, direct labor variances, return on investment, residual income and EVA are performance measures that are

1. Residual income is a measurement of
   1. inputs.
   2. outcomes.
   3. quality.
   4. production efficiency.
2. Which of the following is not an example of a lagging indicator?
   1. Earnings per share
   2. Grade point average
   3. Number of customer complaints
   4. Cost of goods sold
3. Lagging indicators can be used to
   1. measure past performance.
   2. help managers determine if they are on the right track.
   3. provide evidence that a certain result has been obtained.
   4. provide information to take timely corrective action.
4. Which of the following is not an example of a customer-oriented nonfinancial measure?
   1. Market share
   2. Delivery performance
   3. Product flexibility
   4. Product defects
5. Which of the following is not an example of an employee-oriented nonfinancial measure?
   1. Absenteeism
   2. Labor productivity
   3. Accidents per month
   4. Employee empowerment
6. Which of the following is not an example of an internal operating nonfinancial measure?
   1. Labor productivity
   2. Product defects
   3. Product flexibility
   4. Setup efficiency
7. Which of the following is an example of a customer-oriented nonfinancial measure?
   1. Product flexibility
   2. Product defects
   3. Production volume
   4. New product introductions
8. Which of the following is an example of an employee-oriented nonfinancial measure?
   1. Setup efficiency
   2. Labor productivity
   3. Accidents per month
   4. Time to respond to customer problems
9. Which of the following is an example of an internal operating nonfinancial measure?
   1. Accidents per month
   2. Labor productivity
   3. Market share
   4. Product flexibility
10. Which of the following is not a main barrier to the effective use of nonfinancial performance measures by organizations?
    1. Skepticism that the measures are directly related to the bottom line
    2. Lack of management skill needed to implement the measures
    3. Lack of familiarity with the measures on the part of the board members
    4. Undeveloped tools for analyzing the measures
11. Which of the following is not a reason companies use key performance indicators?
    1. To align business activity with corporate strategy
    2. To improve company performance
    3. To improve timeliness of business decisions
    4. To measure production efficiency in the past few months
12. Which of the following is not a reason companies use key performance indicators?
    1. To mandate to report company performance to stakeholders
    2. To increase accuracy of business decisions
    3. To improve company performance
    4. To identify costs that may be non-value-added
13. Measures that help predict a future result are referred to as
    1. lagging indicators.
    2. earnings per share.
    3. leading indicators.
    4. EVA.
14. Leading indicators provide managers with the information they need to
    1. calculate direct material and direct labor variances.
    2. take timely, corrective action.
    3. prepare GAAP-based financial statements.
15. Measures that provide managers with information they need to take timely, corrective action are referred to as
    1. budget indicators.
    2. variance indicators.
    3. cycle indicators.
    4. leading indicators.
16. For managers to adequately monitor the organization’s performance, they need to use
    1. leading and cycle indicators.
    2. lagging and budget indicators.
    3. leading indicators and lagging indicators.
    4. lagging and cycle indicators.
17. Before deciding whether a measure is a leading or lagging indicator, a manager should be sure to know
    1. to what event the measure is related.
    2. whether the measure is used by companies in the industry.
    3. whether the measure is financial or non-financial.
    4. the effect the indicator will illustrate.
18. Earnings per share is a financial measure that is

1. Return on investment is a financial measure that is

1. Nonfinancial measures can be

1. Qualitative indicators
   1. tend to be based on feelings and perceptions.
   2. tend to be based on perceptions and are non-financial amounts.
   3. rely upon accounting records.
   4. are also referred to as non-financial.
2. Qualitative indicators tend to be based on
   1. feelings or accounting records.
   2. feelings or perceptions.
   3. accounting records or perceptions.
   4. perceptions or clarifications.
3. A difference in quantitative indicators and qualitative indicators is
   1. quantitative indicators differ based of who is doing the measuring whereas qualitative indicators are the same among individuals since each one has a unique perspective.
   2. qualitative indicators are subjective while quantitative indicators are objective.
   3. quantitative indicators always consist of numerical amounts while qualitative indicators are not numerical.
   4. quantitative indicators are financial and qualitative indicators are non-financial.
4. Which of the following not a qualitative measure that McDonald’s may use?
   1. Accidents per month
   2. Customer retention
   3. Current ratio
   4. Number of orders filled incorrectly
5. The best measures relate to corporate Strategy and SMART. Which of the following is not a component of SMART?
   1. Measurable
   2. Timeliness
   3. Actionable
   4. Responsibility
6. The best measures relate to corporate strategy and SMART. Which of the following is not a component of SMART?
   1. Tangible
   2. Measurable
   3. Relevant
   4. Specific
7. A performance measure is specific if it
   1. measures only one activity.
   2. relates clearly and directly to the process it measures.
   3. is either qualitative or nonfinancial, but not both.
   4. is complete and accurate.
8. A performance measure is measurable if it
   1. measures only one activity.
   2. relates clearly and directly to the process it measures.
   3. relates to a corporate strategic objective.
   4. is complete and accurate.
9. A performance measure is actionable if
   1. something can be done to influence its value.
   2. it is complete and accurate.
   3. it is clearly and directly related to the process it measures.
   4. it is based on actual results rather than on estimates.
10. A measure is relevant if
    1. It is complete and accurate.
    2. It is clearly and directly related to the process it measures.
    3. It relates to a corporate strategic objective.
    4. something can be done to influence its value.
11. As decision windows and operating cycles continue to shorten, which of the following characteristics of a measure become more important?
    1. Specific
    2. Measurable
    3. Actionable
    4. Timely
12. Indicators that measure successful progression toward the organization’s goals are referred to as
    1. key performance indicators.
    2. SMART indicators.
    3. lagging indicators.
    4. dashboard indicators.
13. A visual display of the key measures related to an organization’s operational goals and strategies is referred to as a
    1. balanced scorecard.
    2. performance dashboard.
    3. strategy map.
    4. benchmark report.
14. A performance dashboard does which of the following?
    1. Offers a numerical display of key performance measures
    2. Offers managers the opportunity to drill down into data to obtain information
    3. Displays a clear picture of a company’s financial condition
    4. Is a list of cause-and-effect relationship between quantitative and qualitative amounts
15. A manager can use a performance dashboard
    1. for driving strategy and focusing of critical measures.
    2. to focus on critical measures and to identify the cause of any issues.
    3. to identify the cause of any issues and to correct any negative issues.
    4. to identify the cause of any issues and to correct any negative issues.
16. A performance dashboard is most helpful when it
    1. directly links employee satisfaction with customer satisfaction.
    2. identifies and measures cause-and-effect relationships.
    3. is customized for particular managers.
    4. identifies whether a measure is leading or lagging.
17. A management tool that integrates performance measures across four different perspectives to guide operations toward achieving an organization’s strategy is called
    1. a performance dashboard.
    2. a balanced scorecard.
    3. key performance measures.
    4. a company satisfaction benchmark.
18. A balanced scorecard
    1. integrates performance measures across four different perspectives.
    2. assists in communicating the corporate strategy throughout the organization.
    3. helps managers understand the interrelationships between various areas of an organization.
    4. illustrates cause-and-effect relationships.
19. A balanced scorecard does not
    1. integrate performance measures across different perspectives.
    2. provide a visual display of the key measures related to an organization’s operational goals and strategies.
    3. help managers understand the interrelationships between various areas of an organization.
    4. help guide operations toward achieving an organization’s strategy.
20. According to a Bain & Company survey, approximately what percentage of global business executives use a balanced scorecard to monitor performance?
    1. 16%
    2. 29%
    3. 38%
    4. 91%
21. Which of the following uses five to seven measures of performance across four perspectives?
    1. Balanced scorecard
    2. Key performance measure
    3. Performance dashboard
    4. Leading and lagging indicators
22. Before a balanced scorecard can be developed, managers must
    1. be clear about the strategy they are trying to achieve.
    2. understand the lagging and leading indicators that affect operations.
    3. utilize a performance dashboard to develop operational goals.
    4. utilize SMART measures.
23. Which of the following is not one of the four balanced scorecard perspectives?
    1. Learning and growth
    2. Production
    3. Customer
    4. Financial
24. Which of the following is not one of the four balanced scorecard perspectives?
    1. Internal business processes
    2. Customer
    3. Industry
    4. Financial
25. Which of the following is not one of the four balanced scorecard perspectives?
    1. Customer
    2. Financial
    3. Learning and growing
    4. Performance
26. When using the balanced scorecard to monitor performance, the learning and growth perspective answers which of the following questions?
    1. Are we developing employees and providing technologies that facilitate change and improvement?
    2. Are we creating products and hiring employees with skills to create product and deliver them in a timely manner?
    3. Are we meeting our stakeholders’ expectations?
    4. Are we growing in a manner to be competitive in the industry?
27. When using the balanced scorecard to monitor performance, which of the following perspectives is the foundation for improvement in all other areas?
    1. Internal business processes
    2. Financial
    3. Learning and growth
    4. Customer
28. Which of the following does not describe the learning and growth perspective?
    1. Hiring the right people
    2. Training employees effectively
    3. Giving employees technologies they need to develop and produce the products and services that customers desire.
    4. Choosing customers the company wants to serve
29. Which of the following is not a measure that relates to the learning and growth perspective?
    1. Net income per employee
    2. Revenue per employee
    3. Training dollars spent per employee
    4. Suggestions generated by employees
30. Which of the following is not a measure that relates to the learning and growth perspective?
    1. Percentage of vacancies filled with internal candidates
    2. Product return rate
    3. Technology spending per employee
    4. Suggestions generated by employees
31. Which of the following is not a measure that relates to the learning and growth perspective?
    1. Revenue growth
    2. Revenue per employee
    3. Training dollars spent per employee
    4. Technology spending per employee
32. Which of the following is a measure that relates to the learning and growth perspective?
    1. Earnings per share
    2. Response time to customer request
    3. Revenue per employee
    4. Market share
33. When using the balanced scorecard to monitor performance, the internal business processes perspective answers which of the following questions?
    1. Are we developing employees and providing technologies that facilitate change and improvement?
    2. Are we improving our business processes in order to deliver maximum value to our customers?
    3. Are we meeting our stakeholders’ expectations?
    4. Are we growing in a manner to be competitive in the industry?
34. Which of the following does not describe the internal business processes perspective?
    1. Focus is on creating products and services that customers desire
    2. Is the foundation for improvement in all other areas
    3. Focus is on delivering products and services in a timely manner
    4. Measures assist managers in assessing the efficiency and effectiveness of production processes
35. Which of the following is not a measure that relates to the internal business processes perspective?
    1. Percentage of on-time deliveries
    2. Response time to customer request
    3. Delivery cycle time
    4. Product return rate
36. Which of the following is not a measure that relates to the internal business processes perspective?
    1. Return on investment
    2. Cost per unit
    3. Rework hours
    4. Defect rate
37. Which of the following is a measure that relates to the internal business processes perspective?
    1. Delivery cycle time
    2. Market share
    3. Training hours per employee
    4. Cash flow
38. When using the balanced scorecard to monitor performance, the customer perspective answers which of the following questions?
    1. Are we developing employees and providing technologies that facilitate change and improvement?
    2. Are we creating products and hiring employees with skills to create product and deliver them in a timely manner?
    3. Are we meeting our customers’ expectations?
    4. Are we growing in a manner to be competitive in the industry?
39. Which of the following is not a measure that relates to the customer perspective?
    1. Customer satisfaction
    2. Customer loyalty index
    3. Customer profitability
    4. Response time to customer requests
40. Which of the following is not a measure that relates to the customer perspective?
    1. Market share
    2. Product return rate
    3. Delivery cycle time
    4. Percentage of revenue from new customers
41. Which of the following is a measure that relates to the customer perspective?
    1. Time to market
    2. Market share
    3. Revenue growth
    4. Defect rate
42. When customers consider making purchases, which of the following is not an expectation they have?
    1. Price
    2. Delivery speed
    3. High profit margin for supplier
    4. Quality
43. When using the balanced scorecard to monitor performance, the financial perspective answers which of the following questions?
    1. Are we developing employees and providing technologies that facilitate change and improvement?
    2. Are we creating products and hiring employees with skills to create product and deliver them in a timely manner?
    3. How do investors see us?
    4. Are we growing in a manner to be competitive in the industry?
44. When using the balanced scorecard to monitor performance, the financial perspective answers which of the following questions?
    1. How do customers see us?
    2. Are we reaching our financial goals?
    3. Are we improving our business processes in order to deliver maximum value to our customers?
    4. Is our market share sufficient?
45. Which of the following is not a measure that relates to the financial perspective?
    1. Net income
    2. Percentage of revenue from new customers
    3. Earnings per share
    4. Revenue growth
46. Which of the following is not a measure that relates to the financial perspective?
    1. EVA
    2. Return on investment
    3. Cost per unit
    4. Profit margin
47. Which of the following is not a measure that relates to the financial perspective?
    1. Residual income
    2. Earnings per share
    3. Revenue growth
    4. Training dollars spent on employee training
48. Which of the following is a measure that relates to the financial perspective?
    1. Revenue growth
    2. Market share
    3. Customer profitability
    4. Defect rate
49. Which of the following strategies relates to the financial perspective?
    1. Increase profit
    2. Achieve operational excellence
    3. Infuse corporate culture of quality throughout workforce
    4. Retain and grow customer base
50. Which of the following strategies relates to the customer perspective?
    1. Manage customer relationships and develop reputation for quick turnaround
    2. Retain and grow customer base and develop reputation for quick turnaround
    3. Manage customer relationships and retain and grow customer base
    4. Develop reputation for quick turnaround and manage customer relationships
51. Which of the following strategies relates to the internal business processes perspective?
    1. Infuse corporate culture of quality throughout workforce and develop reputation for quick turnaround
    2. Achieve operational excellence and infuse corporate culture of quality throughout workforce
    3. Manage customer relationships and achieve operational excellence
    4. Develop reputation for quick turnaround and manage customer relationships
52. Which of the following strategies relate to the learning and growth perspective?
    1. Develop reputation for quick turnaround
    2. Infuse corporate culture of quality throughout workforce
    3. Achieve operational excellence
    4. Retain and grow customer base
53. A pictorial representation of the cause-and-effect relationships embodied in the strategy is called a
    1. strategy map.
    2. strategy scorecard.
    3. strategy dashboard.
    4. strategy indicator.
54. A strategy map is a
    1. visual display of the key measures related to an organization’s strategies.
    2. pictorial representation of the cause-and-effect relationships embodied in the strategies.
    3. visual display of the corporation’s strategies.
    4. pictorial representation of the particular strategies that have been met by the organizational units.
55. In selecting the measures for the balanced scorecard, managers should choose between four and seven measures for each perspective to avoid
    1. strategy overload.
    2. reporting overload.
    3. information overload.
    4. scorecard overload.
56. To balance the scorecard, organizations should also select
    1. leading measures.
    2. qualitative measures.
    3. quantitative measures.
57. To balance the scorecard, organizations should select all of the following except
    1. leading measures.
    2. dashboard measures.
    3. lagging measures.
    4. qualitative measures.
58. After selecting the appropriate measures for the balanced scorecard, managers should
    1. set a limit on the measure.
    2. select a committee to enforce the use of the measures.
    3. set a target for each measure.
    4. select a manager to evaluate each measure.
59. Building a balanced scorecard involves
    1. clarifying strategies.
    2. translating strategies into operational objectives.
    3. selecting measures that provide evidence of objectives achievements.
60. The steps involved in building a balanced scorecard are
    1. selecting measures, setting targets for measures, and adjusting the scorecard as strategies change.
    2. selecting measures, setting targets for measures, and changing objectives that do not meet scorecard measures.
    3. setting targets for measures, adjusting objectives to meet the scorecard, and eliminating processes that do not meet objectives.
    4. selecting measures, focusing on financial measures, and changing objectives that do not meet scorecard measures.
61. Which of the following is a fifth perspective that some organizations add to the balanced scorecard?
    1. An additional area that the company expects to expand into at a later date
    2. An additional one that highlights areas of strategic importance
    3. Corporate accountability
    4. Safety and environmental concerns
62. Which of the following are examples of a fifth perspective that some organizations may want to add to their balanced scorecard?
    1. Supplier relations and community involvement
    2. Community involvement and employee morale
    3. Environmental impact and employee morale
    4. Profitability and supplier relations
63. What length of time does the Balanced Scorecard Institute estimate it takes to create a corporate-level scorecard?
    1. Two to three weeks
    2. Two to three months
    3. Two to three years
    4. More than five years
64. The practice of using data from other organizations to identify the processes and practices associated with world-class performance is referred to as
    1. benchmarking.
    2. dashboarding.
    3. industry flowcharting.
    4. scorecarding.
65. Benchmarking is not about trying to achieve another company’s metrics, but about
    1. maintaining internal processes and customer relations to stay competitive with other companies in the industry.
    2. replicating the successful practices that lead to their outstanding metrics.
    3. trying to outperform the other company in its best practices areas.
    4. outdoing the other company in profit and reputation.
66. Which of the following statements is correct regarding benchmarking?
    1. Benchmarking is the practice of using a company’s own data to identify the processes and practices in which it outperforms its competitors.
    2. Benchmarking involves selecting measures, setting targets for measures and adjusting the benchmark as strategies change.
    3. Benchmarking participants should adhere to the Benchmarking Code of Conduct which provides general principles to follow during the benchmarking process.
    4. Benchmarking is the development of a hypothetical scorecard.
67. Which of the following does benchmarking not focus on?
    1. Identifying best practices
    2. Studying best practices
    3. Analyzing best practices
    4. Eliminating non-value-added processes
68. The goal of benchmarking is to
    1. identify those best practices and improve both quality and productivity.
    2. help managers understand the interrelationships between various areas of an organization.
    3. make an organization more competitive with other companies within the industry.
    4. use qualitative and quantitative measures to evaluate managers of organizational units.
69. Which of the following kinds of companies would a bass boat manufacturing company not want to benchmark?
    1. Another bass boat manufacturer with a best practice in quality control
    2. A manufacturer of ladies’ dresses with a best practice in inventory management
    3. A retail store that has a best practice in employee safety
    4. A bass boat manufacturer might want to benchmark with all the above companies.
70. Benchmarking means trying to match another company’s
    1. metrics.
    2. performance.
    3. profitability.
    4. processes.
71. Benchmarking does not require an organization to share its
    1. processes.
    2. process metrics.
    3. proprietary information.
    4. successful practices.
72. If a public utility company wanted to benchmark ways to protect its underground electrical cables, which of the following companies should it not contact?
    1. Telephone company
    2. Wi-Fi company
    3. Another public utility company
    4. Cable television company
73. Which of the following does benchmarking focus on?
    1. Identifying best metrics
    2. Analyzing best metrics
    3. Studying best processes
    4. Exceeding best processes
74. Which of the following organizations would benefit from benchmarking?
    1. Equipment manufacturer
    2. Law firm
    3. Community college
75. The time between an order’s placement and its shipment is referred to as
    1. delivery cycle time.
    2. production cycle time.
    3. sales order cycle time.
    4. throughput time.
76. Delivery cycle time is the difference between
    1. the start of production of a product and its delivery.
    2. the start of production of a product and its shipment.
    3. an order’s placement and its delivery.
    4. an order’s placement and its shipment.
77. From a customer’s perspective, the time lapse between receipt of an order and the point when the product is pulled from inventory for a retailer is referred to as
    1. non-value added.
    2. wasted time.
    3. internal process time.
    4. delivery cycle time.
78. The time from the start of a production to the shipment of the product to the customer is referred to as
    1. manufacturing cycle time.
    2. throughput time.
    3. delivery cycle time.
    4. either manufacturing cycle time or throughput time.
79. The ratio of value-added processing time to total manufacturing cycle time is referred to as
    1. manufacturing cycle efficiency.
    2. manufacturing cycle ratio.
    3. throughput efficiency.
    4. the delivery cycle ratio.
80. Manufacturing cycle efficiency is calculated as
    1. value-added processing time divided by non-valued added processing time.
    2. non-value-added processing time divided by total manufacturing cycle time.
    3. value-added processing time divided by total manufacturing cycle time.
    4. direct cost of manufacturing divided by total manufacturing cost.
81. Perfect manufacturing cycle efficiency would yield a ratio equal to
    1. zero.
    2. one.
    3. between zero and one.
    4. between zero and 100.
82. On January 4^th, Stevens Manufacturing received an order for 30 uniforms. The following information pertained to that order.

Hours Required

Receive and process order 0.25

Waiting for production to begin 1.25

Cutting 50.00

Sewing and lettering 300.00

Moving materials from one station to another 20.00

Waiting for an operation to begin 95.00

Packaging 35.00

Loading to be shipped 0.50

In transit to customer 5.00

Calculate the delivery cycle time.

1. 500 hours
2. 507 hours
3. 502 hours
4. 505 hours
5. On January 4^th, Stevens Manufacturing received an order for 30 uniforms. The following information pertained to that order.

Hours Required

Receive and process order 0.25

Waiting for production to begin 1.25

Cutting 50.00

Sewing and lettering 300.00

Moving materials from one station to another 20.00

Waiting for an operation to begin 95.00

Packaging 35.00

Loading to be shipped 0.50

In transit to customer 5.00

Calculate the manufacturing cycle time.

1. 500 hours
2. 507 hours
3. 502 hours
4. 505 hours
5. On January 4^th, Stevens Manufacturing received an order for 30 uniforms. The following information pertained to that order.

Hours Required

Receive and process order 0.25

Waiting for production to begin 1.25

Cutting 50.00

Sewing and lettering 300.00

Moving materials from one station to another 20.00

Waiting for an operation to begin 95.00

Packaging 35.00

Loading to be shipped 0.50

In transit to customer 5.00

Calculate the value-added time.

1. 385 hours
2. 350 hours
3. 390 hours
4. 390.75 hours
5. On January 4^th, Stevens Manufacturing received an order for 30 uniforms. The following information pertained to that order.

Hours Required

Receive and process order 0.25

Waiting for production to begin 1.25

Cutting 50.00

Sewing and lettering 300.00

Moving materials from one station to another 20.00

Waiting for an operation to begin 95.00

Packaging 35.00

Loading to be shipped 0.50

In transit to customer 5.00

Calculate the manufacturing cycle efficiency.

1. 70%
2. 60%
3. 69%
4. 10%

(50 + 300 hr.) ÷ 500 hr. = 70%

Answers to Multiple-Choice Questions

MATCHING

1. Match the following terms to the appropriate statement by placing the letter to the left of each statement.

1. i – Performance dashboard
2. a– Balanced scorecard
3. f – Learning and growth perspective
4. b – Benchmarking
5. c – Delivery cycle time
6. h– Manufacturing cycle time
7. d –Financial perspective
8. j – Strategy map
9. g –Manufacturing cycle efficiency
10. e –Internal business processes perspective

BRIEF EXERCISES

1. Financial measures alone do not capture all aspects of an organization’s performance. As such, it is important to utilize nonfinancial measures. Likewise, managers must understand qualitative measures and their relationship to the organization’s goals.

Required:

List five barriers to the effective use of nonfinancial performance measures by organizations.

1. Undeveloped tools for analyzing nonfinancial measures
2. Skepticism that nonfinancial measures are directly related to the bottom line
3. Low levels of accountability for nonfinancial aspects of performance
4. Lack of familiarity with nonfinancial measures on the part of board members
5. Lack of familiarity with nonfinancial measures on the part of management
6. Once managers realize that leading, lagging, financial, and nonfinancial measures need to be monitored, they must identify the key performance indicators that measure successful progression toward the organization’s goals.

Required:

List five reasons why companies use key performance indicators.

1. Mandate to report company performance to stakeholders
2. Improve timeliness of business decisions
3. Increase accuracy of business decisions
4. Align business activity with corporate strategy
5. Improve company performance
6. A balanced scorecard should include five to seven measures in each of four perspectives.

Required:

List six measures that relate to the learning and growth perspective.

Answers will vary. Several measures are:

Employee turnover rate, number of employees who possess relevant professional certification, suggestions generated by employees, training hours per employee, percentage of vacancies filled with internal candidates, employee satisfaction, training dollars spent per employee, technology spending per employee, and revenue per employee.

1. A balanced scorecard should include five to seven measures in each of four perspectives.

Required:

List five measures that relate to the internal business processes perspective.

Answers will vary. Several measures are:

Percentage of on-time deliveries, time to market, cost per unit, defect rate, response time to customer request, rework hours, manufacturing cycle efficiency, number of equipment breakdowns, and delivery cycle time.

1. A balanced scorecard should include five to seven measures in each of four perspectives.

Required:

List five measures that relate to the customer perspective.

Answers will vary. Several measures are:

Customer satisfaction index, number of new customers, customer loyalty index, number of customer complaints, market share, product return rate, percentage of revenue from new customers, customer attrition rate, customer profitability.

1. A balanced scorecard should include five to seven measures in each of four perspectives.

Required:

List five measures that relate to the financial perspective.

Answers will vary. Several measures are:

Net income, residual income, profit margin, earnings per share, EVA, cash flow, return on investment, revenue growth, and net income per employee.

1. Barry’s Ice Cream Shoppe is interested in improving his performance in the area of quality control and customer service. This interest came about after Barry put a “suggestions box” near the counter. Several suggestions related to employees not being clean in handling their orders, not filling orders properly, and rudeness from employees. Barry has discussed his problems with his neighboring store, a local-dry cleaning business.

Required:

List five processes that Barry and the dry-cleaning business have in common.

Employee orientation, employee training on customer service, employee training on how to handle product, training on how to process each product, training on how to handle machinery breakdown, ability to retain good employees, and use of technology (such as timing of process, measurement of cleaning substance for cleaning, or sprinkles for ice cream shop).

1. Margie’s Flower Shop is interested in improving her performance in the financial area. This interest came about after Margie had her year-end financial statements prepared and, although she was profitable, her cash flow was inadequate. Margie has discussed her problems with her neighboring store, an auto supply retail store.

Required:

List five financial processes that Margie and the auto supply business have in common.

Accounts receivable collection policies, accounts payable policies (Margie may not be taking advantage of discounts), policies for accepting personal checks, inventory re-order policies, cash budgeting policies, and inventory return policy, delivery charge policies.

1. Patton’s Manufacturing has provided the following information relating to a large order of Part #2347 transistors for a major customer:

Raw materials ordered for Part #2347 July 1

Part #2347 put into production July 12

Part #2347 completed July 13

Part #2347 transferred to finished goods July 14

Date order accepted July 15

Order assembled July 17, July 18, July 19

Order delivered to warehouse July 21

Warehouse packaged order July 23

Call to customer that order was ready July 24

Customer picked up order July 24

What is the delivery cycle time?

July 1 through July 24 – 24 days

1. Patton’s Manufacturing has provided the following information relating to a large order of Part 328G7 engines.

Required:

Calculate the manufacturing cycle efficiency.

(2 + 14) ÷ (1 + 14 + 0.25 + 2 + 0.25 + 0.50 + 1) = 84.2%

EXERCISES

1. Midland Industries is the manufacturer of metal-frame backyard pools and pool accessories. The controller of the company recognizes that the success of the company depends on both financial and nonfinancial measures. Place an “X” in the appropriate columns to indicate whether the following measures are leading or lagging and financial or nonfinancial.

1. Midstate Industries is a retail clothing store. Marilyn Mounds knows that customer satisfaction is key to the success of her store. Indicate by placing an “X” in the appropriate column whether the following measures are leading or lagging and qualitative or quantitative. Each item may classify as more than one measure.

1. Community Hospital is reassessing their performance measures. The hospital accounting administrator has asked supervisors to submit items they believe should be used in evaluating performance related to their individual departments. The supervisors have submitted a number of suggestions. Indicate by placing an “X” in the appropriate column whether the following measures are leading or lagging and qualitative or quantitative. Each item may classify as more than one measure.

1. Financial measures alone do not capture all aspects of an organization’s performance. Nonfinancial measures can be either qualitative or quantitative. Indicate by placing an “X” in the appropriate column whether the following nonfinancial measures are internal operating measures, customer-oriented measures, or employee-oriented measures.

1. Countless measures could be captured and reported to managers. The best measures are SMART: specific, measurable, actionable, relevant, and timely. Listed below are examples of poorly constructed performance measures. For each component of SMART, provide two better measures for each performance measure.

1. The best measures that should be captured and reported to managers relate to corporate strategy and are SMART: specific, measurable, actionable, relevant, and timely. Below are examples of poorly constructed performance measures for each of these. For each component of SMART, provide two better measures than those provided.

1. The first step in developing a balanced scorecard is to clarify the strategic focus. Assume you are asked by your supervisor to develop a strategy map for your organization. You have determined that the following strategies have been established by the company.

• Achieve operational excellence
• Develop trained workforce
• Infuse corporate culture of quality throughout workforce
• Develop reputation for quick turnaround
• Retain and grow customer base
• Manage customer relationships
• Increase profit

Required:

Prepare a strategy map using the four balanced scorecard perspectives.

Increase profit

Financial

Develop reputation for quick turnaround

Retain and grow customer base

Customer

Achieve operational excellence

Manager customer relationships

Internal

Business

Processes

Develop trained workforce

Infuse corporate culture of quality throughout workforce

Learning

and

Growth

1. The first step in developing a balanced scorecard is to clarify the strategic focus. You have been assigned to a team that has the responsibility to develop a strategy map for your organization. Your team members have determined that the company has established several strategic focuses. One team member has started a strategy map but has not filled in the strategies.

• Achieve operational excellence
• Develop trained workforce
• Infuse corporate culture of quality throughout workforce
• Develop reputation for quick turnaround
• Retain and grow customer base
• Manage customer relationships
• Increase profit

Required:

Complete the strategy map using the four balanced scorecard perspectives.

Financial

Customer

Internal

Business

Processes

Learning

and

Growth

Increase profit

Financial

Develop reputation for quick turnaround

Retain and grow customer base

Customer

Achieve operational excellence

Manager customer relationships

Internal

Business

Processes

Develop trained workforce

Infuse corporate culture of quality throughout workforce

Learning

and

Growth

1. Summer Time Sports operates an ocean side rental stand for motorcycles, bicycles, and small watercraft along with umbrellas, chairs, toys and rubber rafts. Because several other stands are in the area, it is important for Summer Time to remain competitive. Summer Time must generate enough cash revenue during the summer to carry it through the slower winter months.

Required:

Identify two measures for each of the four balanced scorecard perspectives that will help Summer Time to achieve its strategy.

Answers will vary.

Learning and Growth perspective:

1. Investment in technology for an advertising shop
2. Training hours for employees on operating rental items

Internal Business Processes perspective:

1. Employee hours spent keeping rental items in working order

2. Visual display of rental items

Customer perspective:

1. Number of customers per day

2. Number of customers renting more than one item

Financial perspective

1. Return on investment

2. Cash flows

1. Lights Out Motel is owned and operated by your mother’s neighbor. The motel manager knows you are taking an accounting class and has asked you to help develop a balanced scorecard for her. To stay competitive with larger chain motels, Lights Out needs to find a way to advertise the amenities offered that larger chains may not have, such as garden views from every window, fresh flowers in every room, and home cooked meals.

Required:

Identify two measures for each of the four balanced scorecard perspectives that will help Lights Out achieve its strategy.

Answers will vary.

Learning and Growth perspective:

1. Investment in technology such as a Facebook presence
2. Training hours for employees answering customer inquiries

Internal Business Processes perspective:

1. Employee hours spent planting and weeding garden

2. Cleanliness of rooms

Customer perspective:

1. Number of new customers

2. Number of customer complaints

Financial perspective

1. Profit margin

2. Cash flow

1. Budget Taxi Service operates a transportation service from the local airport to the major hotels in the area. All the hotels are located within a five-mile radius of the airport. A majority of Budget’s customers are business people who fly in and out of the city frequently.

Required:

Identify one measure in each of the four perspectives of the balanced scorecard that Budget’s managers should monitor. Explain your reasoning for each.

Answers may vary.

Learning and Growth – revenue per employee – Managers should be able to determine the number of fares, how much revenue each taxi driver should generate, and whether each driver is picking up a minimum number of fares each day.

Internal Business Processes perspective – Number of taxi repairs – Managers should evaluate repairs to determine when to replace vehicles.

Customer perspective – Number of customer complaints – Managers need to know when customers are not happy with a driver, cleanliness of autos, and time to travel to destinations.

Financial perspective – Cash flows – Managers need to ensure that the company has adequate cash flow to fund daily operations such as purchasing fuel, paying employee wages, and other costs.

1. Good Morning Day Care Center is a childcare facility. Good Morning is considering benchmarking with Lights Out, a small successful bed and breakfast inn located on the same block as Good Morning.

Required:

List five processes that Good Morning might have in common with those of a bed and breakfast inn.

Answers will vary.

Employee training, janitorial services, employee turnover, number of equipment breakdowns (broken swing or swimming pool filter), number of new customers, number of customer complaints, customer profitability, net income, cash flow

1. Morgan Company has provided you with the following information on an order it received for fifty widgets. Listed below is the timeline for processing the order.

Required:

• 1. Calculate the delivery cycle time.
  2. Calculate the manufacturing cycle time.
  3. Calculate the manufacturing cycle efficiency.

1. 0.25 + 1.00 + 0.25 + 12.00 + 0.50 + 1.00 + 0.50 = 15.5 hours
2. 0.25 + 12.00 + 0.50 + 1.00 + 0.50 = 14.25 hours
3. 12.00 ÷ 14.25 = 84.21%
4. Ledbetter Industries makes and sells outdoor canvas canopies. The selling price of each canopy is $499. Ledbetter has provided you with the following timeline information on an order it received for twelve canopies.

Required:

• 1. Calculate the delivery cycle time.
  2. Calculate the manufacturing cycle time.
  3. Calculate the manufacturing cycle efficiency.

1. 0.50 + 12.00 + 0.25 + 6.00 + 0.25 + 3.00 + 0.50 = 22.50 hours
2. 0.25 + 6.00 + 0.25 + 3.00 + 0.50 = 10 hours
3. 6.00 ÷ 10.00 = 60%
4. Ledbetter Industries makes and sells two types of outdoor canvas canopies. Ledbetter has provided you with the following timeline information stated in hours for its two products: Standard and Deluxe.

Required:

• 1. Calculate the manufacturing cycle time for each product.
  2. Calculate the manufacturing cycle efficiency for each product.

1. Standard: 0.25 + 6.00 + 0.25 + 3.00 + 0.50 = 10.0 hours

Deluxe: 0.25 + 5.00 + 0.25 + 2.00 + 0.50 = 8 hours

1. Standard: 6.00 ÷ 10.00 = 60%

Deluxe: 5.00 ÷ 8.00 = 62.5%

PROBLEMS

1. Mel Torme, sales manager for Hokque, Inc. has received numerous customer complaints about the length of time it takes to receive an order. He has gathered the following information from a recent order to help him understand the issue.

Required:

1. Calculate the delivery cycle time for the order.
2. Calculate the manufacturing cycle time for the order.
3. Calculate the value-added time for the order.
4. Calculate the manufacturing cycle efficiency.

1. 94 hours ÷ 200 hours = 47%
2. Explain the difference between a leading indicator and a lagging indicator and give one example of each relating to your performance in this class.

A lagging indicator is a measure that can be determined only after something is finished, whereas a leading indicator helps predict the future. An example of a lagging indicator is an exam score. An example of a leading indicator is time spent studying for an exam.

1. List the four balanced scorecard perspectives.
2. Learning and growth perspective
3. Internal business processes perspective
4. Customer perspective
5. Financial perspective
6. Why is the use of the balanced scorecard preferable over performance measurement based solely on financial data?
7. Why is the balanced scorecard different for different companies?
8. What is a strategy map?
9. Many other performance indicators impact the success of a business rather than only those focusing on financial results, a lagging indicator. Improving performance in other areas can impact that of financial results. Leading indicators give managers insight into this.
10. The organization’s vision and strategy lie at the heart of the balanced scorecard and different organizations focus on different visions and strategies. Different organizations will have different leading, lagging, qualitative and quantitative measures for each perspective.
11. A strategy map is a pictorial representation of the cause-and-effect relationships embodied in the strategy.
12. What is benchmarking?
13. What is a best practice?
14. What are the five items on which benchmarking is focused?
15. Benchmarking is the practice of using data from other organizations to identify the processes and practices associated with world-class performance.
16. The practices associated with world-class performance are referred to as best practices. In other words, best practices are the processes that lead to the best performance.
17. Identifying best practices

Studying best practices

Analyzing best practices

Adapting best practices

Implementing the results

1. What is delivery cycle time?
2. What is manufacturing cycle time?
3. How is manufacturing cycle efficiency calculated and what ratio would perfect efficiency yield?
4. Delivery cycle time is the time between an order’s placement and its shipment.
5. Manufacturing cycle time, or throughput time, is the time from the start of production to the shipment of the product to the customer.
6. Manufacturing cycle efficiency is the ratio of value-added processing time to total manufacturing cycle time. Perfect manufacturing cycle efficiency would yield a ratio equal to one.

ESSAY

1. Explain the difference between a leading indicator and a lagging indicator and give one example of each relating to your performance in this class.

A lagging indicator is a measure that can be determined only after something is finished whereas a leading indicator is a measure that helps predict the future. An example of a lagging indicator is an exam score. An example of a leading indicator is time spent studying for an exam.

1. Traditionally, organizations have evaluated their performance using only financial measures. However, many other performance indicators should be considered. The balanced scorecard was developed to assist managers in measuring performance across several perspectives.

Required:

• 1. Identify and discuss each of the perspectives used in the balanced scorecard.
  2. Provide three measures of performance used in each perspective.

1. Learning and growth perspective is concerned with measuring whether or not the company is hiring the right people, training them effectively, and giving them technologies they need to develop and produce the products and services customers desire. This perspective is the foundation for improvement in all other areas because if employees cannot meet customers’ needs, the company will not be successful in the long run.

Internal business processes perspective is concerned with measuring whether or not the company is creating products and services that customers desire and delivering them in a timely manner.

Customer perspective is concerned with measuring whether or not the company is meeting customers’ expectations concerning the quality, price, delivery speed, and service of the products and services they are purchasing.

Financial perspective is concerning with measuring whether or not the company is achieving the financial goals expected from the success in the other three perspectives.

1. Answers will vary.

Learning and growth: Employee turnover rate, Training hours per employee, and Employee satisfaction;

Internal business processes: Percentage of on-time deliveries, Cost per unit, and Manufacturing cycle efficiency;

Customer: Customer satisfaction index, Number of customer complaints, and market share; Financial: Profit margin, Earnings per share, and Return on investment.

1. Explain benchmarking, including its definition, goal, and the items upon which benchmarking focuses.

Benchmarking is the practice of using data from other organizations to identify the processes and practices associated with world-class performance. The goal of benchmarking is to identify those best practices that improve both quality and productivity. In order to achieve this, benchmarking focuses on identifying, studying, analyzing, and adapting the best practices of other companies, and then implementing the results.

1. Countless measures could be captured and reported to managers. The best measures relate to corporate strategy and are SMART.

Required:

Explain the five components of SMART and give an example of each component.

Specific – relates clearly and directly to the process it measures.

Example – A specific measure of evaluating a customer complaint at a call center might be “number of complaints satisfied in a call”

Measurable – it is complete and accurate and is based on actual results rather than on estimates.

Example – When measuring whether or not a product has achieved a particular quality standard, a measure would be “number of warranty claims with 90 days.”

Actionable – something can be done to influence its value.

Example – as a measure of a salesperson’s performance might be “total sales revenues generated per quarter.”

Relevant – relates to a corporate strategic objective

Example – If a goal is to reduce employee turnover, a relevant measure might be the “number of voluntary employer terminations.”

Timely – to be useful, a measure must be timely

Example – In monitoring and correcting current production processes, “yesterday’s (or the last hour’s) defect rates” might be a more appropriate measure than last year’s product defect rates.

1. Because the organization’s vision and strategy lie at the heart of the balanced scorecard, the first step in developing the scorecard is to clarify the strategic focus. As part of this process, organizations may develop a strategy map.

Required:

• 1. What is a strategy map?
  2. Discuss the process of building a balance scorecard.

1. A strategy map is a pictorial representation of the cause-and-effect relationships embodied in the strategy.
2. Once an organization has clarified the strategy, managers will need to translate it into operational objectives and select measures that will provide evidence of their achievement. To balance the scorecard, the organization should select a mix of leading, lagging, qualitative and quantitative measures for each perspective. This is how “balance” is achieved in the scorecard. After selecting the measures, managers should set a target for each measure. Finally, scorecards should not be cast in stone. Since the selection of the objectives and measures is based on an organization’s strategy, as the strategy changes, so should the scorecard.
3. Measuring and evaluating performance is important to managers. They need to explore how individual and performance measures and other measures can be combined to create a better tool for measuring past performance and driving the future achievement of strategic goals.

Required:

Define the following terms and give one example of each that you can use in your accounting class.

1. Lagging indicator
2. Leading indicator
3. Nonfinancial measure
4. Benchmarking
5. Best practices
   1. Lagging indicator - measures that can be determined only after something is finished, measures past performance – the grade on an exam
   2. Leading indicator - indicators that help predict the future – time spent studying for exam
   3. Nonfinancial measure - measure not based on financial/accounting results – how much you like this class
   4. Benchmarking - the practice of using data from other organizations to identify the processes and practices associated with world-class performance – identifying how the student in the class with the highest test scores prepares for exams
   5. Best practices - the processes that lead to the best performance – doing homework, reading chapter material, studying for exams. However, what is best for one student might not be the best for all students.
6. You have been assigned to a team responsible for improving certain processes in your company. The team is considering participating in a benchmarking study as a way to improve the company’s performance.

Required:

Define benchmarking and best practice. Also discuss how your company might benefit from benchmarking with an organization outside its industry.

Benchmarking is the practice of using data from other organizations to identify the processes and practices associated with world-class performance. Such processes are referred to as best practices. In other words, best practices are the processes that lead to the best performance.

Benchmarking is not trying to achieve another company’s metrics, but about replicating the successful practices that led to their outstanding metrics. Benchmarking is focused on identifying, studying analyzing and adapting best practices and implementing the results. The best companies deliver their products and services with a high level of both quality and productivity. Because all companies share many of the same basic processes, it is best to benchmark against company with the very best processes, regardless of industry. Even for processes that are not identical, companies may benefit from benchmarking outside their industry.

1. Customers typically have expectations for how quickly they should receive a product they have ordered. All other things held equal, they would prefer as short a wait as possible. However, different businesses perform different tasks between an order’s placement and its shipment.

Required:

Discuss three measures that can help managers monitor their delivery processes. Include how each measure is different between two types of businesses.

Delivery cycle time is the time between an order’s placement and its shipment. This time varies depending on the type of business. For example, retailers with sufficient inventories on hand have a very short delivery cycle time since they simple pull the product from the shelf and put it on the delivery truck. However, manufacturing companies that produce to order must manufacture the products which results in delivery cycle times based on how long the manufacturing process takes.

Manufacturing cycle time, or throughput time, is the time from the start of production to the shipment of the product to the customer. Once the order is received, materials are sent to the production floor and converted into the finished product, which is stored for later delivery or delivered immediately. The production process involves valued added processes (assembly) and non-value-added processes (moving material, machine set-up time). The manufacturer of bottled water will probably have a very short delivery cycle time since the process is relatively simple. However, a fine wine manufacturer will have a longer delivery cycle time since wine must be aged which will require a longer manufacturing process.

Manufacturing cycle efficiency is the ratio of value-added process time to total manufacturing time. Perfect manufacturing cycle efficiency would yield a ratio equal to one – that is, all processing time would be value-added. While such a result is not likely to occur, managers should always strive to raise the ratio in that direction.