Performance Measurement to Support – Exam Questions – Ch.18

Fundamentals of Cost Accounting, 6e (Lanen)

Chapter 18 Performance Measurement to Support Business Strategy

1) One reason financial measures are used to evaluate performance is that they are easily quantifiable.

2) One disadvantage of using nonfinancial measures to evaluate performance is that they are only available on a monthly, quarterly, or annual basis.

3) One question that an organization's mission statement should answer is how the organization will evaluate its performance relative to its competitors.

4) In general, all managers in a given organization are responsible for the same things and should be evaluated using the same financial and nonfinancial measures.

5) In general, performance measures—financial and nonfinancial—should relate to what managers at different levels control.

6) A business model is a description of how different levels and employees in the organization must perform for the organization to achieve its goals and objectives.

7) In general, the use of multiple measures to evaluate performance is better than the use of a single performance measure.

8) At the middle levels in the organization, control and performance measurement focus on how people carry out the daily activities that create the organization's products.

9) At the upper level of the organization, performance measurement focuses on whether the organization is meeting its responsibilities and performing well from the stakeholders' perspective.

10) A balanced scorecard is basically a balance sheet prepared using nonfinancial measures.

11) The concept of a balanced scorecard is to measure how well the organization is doing from the view of employees, suppliers, customers, business partners, and the community, as well as the shareholders.

12) A balanced scorecard uses only nonfinancial measures to determine how well the organization is doing in view of competing stakeholder concerns.

13) Continuous improvement involves the search for and implementation of the best way to do something as practiced by other organizations or in other parts of one's own organization.

14) One of the important guidelines of benchmarking is to not benchmark everything at the best-in-the-business level; no organization can be the best at everything.

15) The primary objective of benchmarking is to evaluate performance of an activity, operation, or organization relative to the performance by other companies.

16) Manufacturing cycle time is the total time involved in processing, moving, storing, and inspecting a good or providing a service.

17) Improving the efficiency of the manufacturing cycle involves decreasing the time spent processing a good.

18) The number of defective units is an example of a subjective performance measure.

19) Partial productivity is the ratio of the value of output to the value of all key inputs.

20) One advantage of nonfinancial measures is that managers directly involved in operations are likely to understand them.

21) Employee involvement in real decision-making is likely to increase the employee's commitment to the organization and its objectives.

22) Employees empowered with real decision-making authority are more likely to be more responsive to customer concerns.

23) ________ is a firm's ability to generate products or services that are perceived by its customers as being superior and unique as opposed to those offered by its competitors.

A) Strategy

B) Product differentiation

C) Cost leadership

D) The balanced scorecard

24) ________ is a firm's ability to implement low costs compared to its competitors with productivity improvements, increased efficiency, reduction of waste, and the use of cost control.

A) Strategy

B) Product differentiation

C) Cost leadership

D) The balanced scorecard

25) Which of the following statements is(are) true regarding financial measures?

(A) One disadvantage of using financial measures to evaluate performance is that they are typically reported on a monthly, quarterly, or annual basis.

(B) One reason financial measures are used to evaluate performance is that they are easily quantifiable.

A) Only A is true.

B) Only B is true.

C) Both of these are true.

D) Neither of these is true.

26) A description of an organization's values, definition of its responsibilities to stakeholders, and identification of its major strategies is called its:

A) business-level strategy.

B) mission statement.

C) performance objectives.

D) master budget.

27) Which of the following nonfinancial measures would not be used to evaluate a middle manager's performance?

A) Frequency of meeting customer delivery requirements.

B) Amount of unwanted employee turnover.

C) Success in dealing with suppliers.

D) Fulfilling responsibilities to company shareholders.

28) A balanced scorecard shows measures of performance as they related to areas of performance. Which of the following is a measure of performance of customer value?

A) Gross margin ratio.

B) Retention of existing customers.

C) Hours of job related training.

D) Process cycle time.

29) Which of the following is not one of the four views of the balanced scorecard?

A) Financial.

B) Competitor performance.

C) Internal business process.

D) Learning and growth.

30) Which of the following best describes possible objectives related to the customer perspective of the balanced scorecard?

A) Reduced cycle time, project management.

B) Improved relationships, timeliness.

C) Increased revenue, reduced costs.

D) Employee satisfaction, global knowledge improvement.

31) A business model attempts to minimize problems associated with:

A) decentralization.

B) divisional autonomy.

C) goal congruence.

D) maximizing profits.

32) Which of the following statements is(are) false regarding performance measures?

(A) In general, the use of multiple measures to evaluate performance is better than the use of a single performance measure.

(B) Managers evaluated using multiple measures will most likely act differently than managers evaluated using single measures.

A) Only A is false.

B) Only B is false.

C) Both of these are false.

D) Neither of these is false.

33) A balanced scorecard is a set of:

A) performance measures.

B) financial statements.

C) budget schedules.

D) annual reports.

34) In general, a balanced scorecard is used to evaluate an organization's performance using:

A) standard costs and variance analysis.

B) multiple financial and nonfinancial measures.

C) financial statements and ratio analysis.

D) the Board of Directors' audit committee.

35) One of the results in using balanced scorecards is a shift from a focus on financial results to a focus on:

A) maximizing market share.

B) minimizing budgetary slack.

C) eliminating fraudulent behavior.

D) increasing customer satisfaction.

36) Which of the following balanced scorecard perspectives focuses on quality and process improvement?

A) Financial.

B) Customer.

C) Internal Business Process.

D) Learning and growth.

37) Which of the following balanced scorecard perspectives focuses on customer service issues?

A) Financial.

B) Customer.

C) Internal Business Process.

D) Learning and Growth.

38) Which of the following balanced scorecard perspectives focuses on shareholder's interests?

A) Financial.

B) Customer.

C) Internal Business Process.

D) Learning and growth.

39) Which of the following balanced scorecard perspectives focuses on employee development?

A) Financial.

B) Customer.

C) Internal Business Process.

D) Learning and growth.

40) In the balanced scorecard, the financial perspective addresses which of the following questions?

A) "To achieve our mission, how will we sustain our ability to change and improve?"

B) "To succeed financially, how should we appear to our shareholders?"

C) "To satisfy our shareholders and customers, in what business process must we excel?"

D) "To achieve our mission, how should we appear to our customers?"

41) In the balanced scorecard, the internal business process perspective addresses which of the following questions?

A) "To achieve our mission, how will we sustain our ability to change and improve?"

B) "To succeed financially, how should we appear to our shareholders?"

C) "To satisfy our shareholders and customers, in what business process must we excel?"

D) "To achieve our mission, how should we appear to our customers?"

42) In the balanced scorecard, the learning and growth perspective addresses which of the following questions?

A) "To achieve our mission, how will we sustain our ability to change and improve?"

B) "To succeed financially, how should we appear to our shareholders?"

C) "To satisfy our shareholders and customers, in what business process must we excel?"

D) "To achieve our mission, how should we appear to our customers?"

43) In the balanced scorecard, the customer perspective addresses which of the following questions?

A) "To achieve our mission, how will we sustain our ability to change and improve?"

B) "To succeed financially, how should we appear to our shareholders?"

C) "To satisfy our shareholders and customers, in what business process must we excel?"

D) "To achieve our mission, how should we appear to our customers?"

44) The balanced scorecard measures an organization's performance in all of the following areas except:

A) financial.

B) government.

C) customer.

D) learning and growth.

45) ________ communicates an organization's strategy into an inclusive set of performance measures that provide the structure for implementing that strategy.

A) Productivity component

B) Product differentiation

C) Cost leadership

D) The balanced scorecard

46) The first step to the successful implementation of a balanced scorecard is specifying the:

A) organization's vision and strategy.

B) elements that pertain to value-added aspects of the business.

C) owner's expectations about return on investment.

D) objectives of all four balanced scorecard measurement perspectives.

47) Which of the following represents value-added time in the manufacturing cycle?

A) Inspection Time.

B) Storage Time.

C) Move Time.

D) Process Time.

48) Manufacturing Cycle Efficiency is computed as:

A) Processing Time × Manufacturing Cycle Time.

B) Processing Time ÷ Inspection Time.

C) Processing Time ÷ Manufacturing Cycle Time.

D) Moving Time ÷ Storage Time.

49) Which of the following is not included in manufacturing cycle time?

A) Inspection time.

B) Storing time.

C) Moving time.

D) Marketing time.

50) Mountainburg Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below:

The manufacturing cycle time was:

A) 5.3 hours.

B) 20.7 hours.

C) 15.4 hours.

D) 9.5 hours.

51) Travis Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below:

The manufacturing cycle efficiency was closest to:

A) 0.73.

B) 0.06.

C) 0.15.

D) 0.02.

52) Steinwand Corporation keeps track of the time required to fill orders. Data concerning a particular order appear below:

The manufacturing cycle time was:

A) 20.3 hours.

B) 25.2 hours.

C) 4.9 hours.

D) 12.1 hours.

53) Steinwand Corporation keeps track of the time required to fill orders. Data concerning a particular order appear below:

The manufacturing cycle efficiency was closest to:

A) 0.24.

B) 0.16.

C) 0.92.

D) 0.08.

54) Morgenstern Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below:

The manufacturing cycle time was:

A) 4.3 hours.

B) 31.6 hours.

C) 27.3 hours.

D) 11.5 hours.

55) Morgenstern Corporation keeps track of the time required to fill orders. The times recorded for a particular order appear below:

The manufacturing cycle efficiency was closest to:

A) 0.05.

B) 0.57.

C) 0.14.

D) 0.16.

56) Which of the following items is not part of the continuous improvement philosophy?

A) Eliminate activities that are nonvalue-added.

B) Improve the efficiency of activities that are value-added.

C) Use benchmarking to identify activities that need improvement.

D) Provide bonus incentives to managers for accurate performance reports.

57) Benchmarks are used to evaluate the performance of an activity or operation relative to other organizations or other parts of one's own organization. Which of the following is not a guideline for using benchmarks to evaluate performance?

A) Benchmarks should only be used for nonfinancial measures.

B) Do not benchmark everything at the best-in-the-business level.

C) Benchmark only best-in-the-business activities that are important.

D) Use internal benchmarks for less important activities or operations.

58) Which of the following statements is(are) false?

(A) Internal, regional, and local benchmarks should be used for the most important processes and activities in an organization.

(B) In general, the use of multiple measures to evaluate performance is better than the use of a single performance measure.

A) Only A is false.

B) Only B is false.

C) Both of these are false.

D) Neither of these is false.

59) Which of the following is typically not considered an objective of quality control?

A) Reduce costs associated with customer complaints.

B) Reduce costs of honoring product or service warranty.

C) Increase customer satisfaction with product or service.

D) Increase the number of deliveries made when promised.

60) Functional performance measures differ from customer satisfaction performance measures in that they are used primarily to evaluate:

A) internal processes.

B) external processes.

C) benchmark processes.

D) continuous improvement processes.

61) Manufacturing cycle efficiency is computed by dividing process time by:

A) moving time + storage time.

B) storage time + inspection time.

C) moving time + storage time + inspection time.

D) process time + moving time + storage time + inspection time.

62) Which of the following statements is(are) true regarding performance measures?

(A) In general, objective performance measures are better than subjective performance measures.

(B) In general, the use of multiple performance measures is better than the use of single performance measures.

A) Only A is true.

B) Only B is true.

C) Both of these are true.

D) Neither of these is true.

63) An objective performance measure is one where:

A) different people will agree as to the appropriateness of a measure.

B) different people will agree as to the method to calculate the measure.

C) different managers will calculate a measure differently.

D) different managers will view the facts and come to different conclusion.

64) A subjective performance measure is one where:

A) different people will agree as to the appropriateness of a measure.

B) different people will agree as to the method to calculate the measure.

C) different managers will calculate a measure the same.

D) different managers will view the facts and come to different conclusions.

65) Which of the following is not a mistake often made when measuring nonfinancial performance?

A) Using subjective rather than objective measures.

B) Not linking measure to strategy.

C) Not validating links between activities and strategies.

D) Not setting appropriate performance targets.

66) Which of the following performance measures would be used to evaluate the personnel department performance?

A) Number of product recalls.

B) Percentage of late deliveries.

C) Number of requests for transfers.

D) Length of time to fill vacant positions.

67) Partial productivity measures are most closely related to what type of variances?

A) Price variances.

B) Sales mix variances.

C) Efficiency variances.

D) Production volume variances.

68) Total factor productivity:

A) is a ratio of the value of output to the value of all key inputs.

B) is the same thing as the production volume variance.

C) focuses on an individual input.

D) includes materials and labor but not overhead.

69) If a manager wants to assess performance relative to the industry, it is best to use:

A) partial productivity measures.

B) production volume variances.

C) sales price variances.

D) total factor productivity.

70) Partial productivity:

A) is a ratio of the value of output to the value of all key inputs.

B) is the same thing as the production volume variance.

C) focuses on an individual input.

D) includes materials and labor but not overhead.

71) Which of the following is not a partial productivity measure?

A) tons output/tons of material used.

B) sales value/total cost.

C) gallons output/direct labor hour.

D) units produced/machine hour.

72) Which of the following is a total factor productivity measure?

A) Tons output/tons of material used.

B) Units produced/machine hour.

C) Sales value/total cost.

D) Gallons output/direct labor hour.

73) The Otero Manufacturing Company collected the following information (in days):

What is the manufacturing cycle efficiency?

A) 87.5%.

B) 63.6%.

C) 62.2%.

D) 42.9%.

74) The Otero Manufacturing Company collected the following information (in days):

What is the manufacturing cycle time?

A) 14.0 days.

B) 16.0 days.

C) 22.0 days.

D) 22.5 days.

75) The Malcolm Company collected the following information (in days):

What is the manufacturing cycle efficiency?

A) 28.6%.

B) 64.5%.

C) 71.4%.

D) 90.9%.

76) The Malcolm Company collected the following information (in days):

What is the manufacturing cycle time?

A) 10 days.

B) 31 days.

C) 28 days.

D) 22 days.

77) The Majors Company collected the following information (in days):

What is the manufacturing cycle efficiency?

A) 61.5%.

B) 72.7%.

C) 87.0%.

D) 27.3%.

78) The Majors Company collected the following information (in days):

What is the manufacturing cycle time?

A) 21 days.

B) 65 days.

C) 55 days.

D) 46 days.

79) The Falisari Company collected the following information (in days):

What is the manufacturing cycle efficiency?

A) 100.0%.

B) 82.2%.

C) 63.1%.

D) 76.5%.

80) The Falisari Company collected the following information (in days):

What is the manufacturing cycle time?

A) 65 days.

B) 34 days.

C) 103 days.

D) 85 days.

81) The Ramos Company collected the following information (in days):

What is the manufacturing cycle efficiency?

A) 87.5%.

B) 82.4%.

C) 70.9%.

D) 17.6%.

82) The Ramos Company collected the following information (in days):

What is the manufacturing cycle time?

A) 39.5 days.

B) 34.0 days.

C) 32.0 days.

D) 10.0 days.

83) The Boxwood Machining Co. has the following information for last year:

The partial productivity for metal is:

A) 2.800.

B) 1.400.

C) 0.714.

D) 0.526.

84) The Boxwood Machining Co. has the following information for last year:

The partial productivity for labor is:

A) 2.800.

B) 2.000.

C) 0.526.

D) 0.500.

85) The California Machining Co. has the following information for last year:

The partial productivity for metal is:

A) 0.04.

B) 0.08.

C) 12.50.

D) 25.00.

86) The California Machining Co. has the following information for last year:

The partial productivity for labor is:

A) 12.50.

B) 2.00.

C) 0.50.

D) 0.12.

87) The White Hot Mining Co. has the following information for last year:

The partial productivity for labor is:

A) 1.000.

B) 0.069.

C) 14.583.

D) 12.000.

88) The Trundle Pass Mining Co. has the following information for last year:

The partial productivity for labor is:

A) 1.120.

B) 0.071.

C) 14.063.

D) 112.000.

89) The Cave Springs Milling Co. has the following information for last year:

The partial productivity for materials is:

A) 0.12

B) 1.31

C) 8.33

D) 15.75

90) The Alma Milling Co. has the following information for last year:

The partial productivity for materials is:

A) 0.131.

B) 0.191.

C) 0.686.

D) 5.236.

91) The Fort Smith Co. has the following information for last year:

The partial productivity for materials is:  

A) 1.136.

B) 0.288.

C) 0.263.

D) 3.802.

92) The Fort Smith Co. has the following information for last year:

The partial productivity for labor is:

A) 0.097.

B) 0.256.

C) 3.906.

D) 10.313.

93) Tungsten Forging Co. has provided the following information for last year:

The total factor productivity measure is:

A) $480,000.

B) $375,000.

C) 1.28.

D) 0.78.

94) Toomey Toolworks Co. has provided the following information for last year:

The total factor productivity measure is:

A) 1.231.

B) 1.600.

C) 2.167.

D) 3.250.

95) Prancing Products has provided the following information for last year:

The total factor productivity measure is:

A) 1.25.

B) 1.60.

C) 15.63.

D) 1.17.

96) Sojourn Enterprises has provided the following information for last year:

The total factor productivity measure is:

A) 1.003.

B) 1.134.

C) 0.882.

D) 0.362.

97) Premier Products Co. has provided the following information for last year:

The total factor productivity measure is:

A) $150,000.

B) $312,000.

C) 1.154.

D) 0.832.

98) Moonlight Co. has provided the following information for last year:

The selling price of the product (rounded) is:

A) $45.01.

B) $33.80.

C) $39.00.

D) $28.13.

99) Magnum Co. has provided the following information for last year:

The total labor cost (rounded) is:

A) $293,325.

B) $482,500.

C) $468,750.

D) $200,021.

100) Walters Co. has provided the following information for last year:

The total material cost (rounded) is:

A) $293,325.

B) $582,500.

C) $300,021.

D) $200,000.

101) Harringer Co. has provided the following information for last year:

The total overhead cost (rounded) is:

A) $172,200.

B) $109,989.

C) $140,000.

D) $200,000.

102) Cavanaugh Co. has provided the following information for last year:

The total number of gallons input (rounded) is:

A) 10,000 gallons.

B) 8,600 gallons.

C) 7,450 gallons.

D) 200,000 gallons.

103) Employee involvement is important in an effective performance measurement system because it:

A) increases the employee's commitment to the organization and its objectives.

B) decreases the employee's reliance on financial performance measures.

C) increases the likelihood that goal congruence problems will occur.

D) decreases the chances of an unfavorable manufacturing cycle time.

104) Which of the following is not a difficulty in implementing nonfinancial performance measurement systems?

A) Fixation on financial measures.

B) Reliability of the nonfinancial measures.

C) Nonfinancial measures decrease goal congruence.

D) Lack of correlation between nonfinancial measures and financial results.

105) The Miller Manufacturing Company collected the following information (in days) for April and May:

Required:

a. Calculate the manufacturing cycle efficiency for April and May.

b. Calculate the processing time required for May so that May's manufacturing cycle efficiency is equal to April's manufacturing cycle efficiency.

106) The Satin Manufacturing Company collected the following information (in days) for July and August:

Required:

a. Calculate the manufacturing cycle efficiency for July and August.

b. Assume September's processing time will be the same as August. If Satin's target for manufacturing cycle efficiency is 65%, what will be September's target for manufacturing cycle time?  

107) The Gantry Company collected the following information (in days) for November and December:

Required:

a. Calculate the manufacturing cycle efficiency for November and December.

b. Assume January's processing time will be the same as December. If Gantry's target for manufacturing cycle efficiency is 65%, what will be January's target for non-processing times?

108) The Miller Manufacturing Company collected the following information (in days) for April and May:

Required:

a. Calculate the manufacturing cycle efficiency for April and May.

b. Calculate the processing time required for May so that May's manufacturing cycle efficiency is equal to April's manufacturing cycle efficiency.

109) The Satin Manufacturing Company collected the following information (in days) for July and August:

Required:

a. Calculate the manufacturing cycle efficiency for July and August.

b. Assume September's processing time will be the same as August. If Satin's target for manufacturing cycle efficiency is 65%, what will be September's target for manufacturing cycle time?  

110) The Gantry Company collected the following information (in days) for November and December:

Required:

a. Calculate the manufacturing cycle efficiency for November and December.

b. Assume January's processing time will be the same as December. If Gantry's target for manufacturing cycle efficiency is 65%, what will be January's target for non-processing times?  

111) The Everton Manufacturing Company collected the following information (in days):

Required:

a. Calculate the manufacturing cycle efficiency for April, May, and June.

b. Calculate the processing time required for June so that the manufacturing cycle efficiency is equal to the most efficient of the previous two months.

112) The Altoona Manufacturing Company collected the following information (in days) for July, August, and September:

Required:

a. Calculate the manufacturing cycle efficiency for July, August, and September.

b. Assume October's processing time will be the same as September. If Altoona's target for manufacturing cycle efficiency is 65%, what will be October's target for manufacturing cycle time?  

113) The Gantry Company collected the following information (in days) for October, November, and December:

Required:

a. Calculate the manufacturing cycle efficiency for October, November, and December.

b. Assume January's processing time will be the same as December. If Gantry's target for manufacturing cycle efficiency is 60%, what will be January's target for non-processing times?  

114) Marion Forging Co. has provided the following information for last year:

Required:

Calculate the partial productivity for:

a. Metal.

b. Labor.

115) Marion Forging Co. has provided the following information for last year:

Required:

Calculate the total factor productivity measure.

116) Pantipazole Products Co. has provided the following information for last year:

Required:

Calculate the total factor productivity measure.

117) Shuster Metalworks Co. has provided the following information for last year:

Required:

Calculate the partial productivity for:

a. Metal.

b. Labor.

118) Shuster Metalworks Co. has provided the following information for last year:

Required:

Calculate the total factor productivity measure.

119) Cummings Co. has provided the following information for last year:

Required:

Calculate the total factor productivity measure.

120) Maeve Co. has provided the following information for last year:

Required:

Calculate the partial productivity for:

a. Metal.

b. Labor.

121) Colbyville Co. has provided the following information for last year:

Required:

Calculate the total factor productivity measure.

122) Beach Co. has provided the following information for last year:

Required:

Calculate the total factor productivity measure.

123) Melbourne, Inc. has provided the following information for last year:

Required:

Calculate the partial productivity for:

a. Metal.

b. Labor.

124) Melbourne Inc., has provided the following information for last year:

Required:

Calculate the total factor productivity measure.

125) Indiatlantic Corporation's management keeps track of the time it takes to process orders. During the most recent month, the following average times were recorded per order:

Required:

a. Compute the manufacturing cycle time.

b. Compute the manufacturing cycle efficiency.

c. What percentage of the production time is spent in non-value-added activities?

126) During the most recent month at Harrison Corporation, storing time was 3.0 days, inspection time was 0.8 days, processing time was 2.8 days, and moving time was 0.6 days.

Required:

a. Compute the manufacturing cycle time.

b. Compute the manufacturing cycle efficiency.

c. What percentage of the production time is spent in non-value-added activities?

127) Michael Corporation's management reports that its average manufacturing cycle time is 6.3 days, its manufacturing cycle efficiency is 0.27, its average move time is 0.1 day, and its average storage time is 3.9 days.

Required:

a. What is the process time?

b. What is the inspection time?

128) Karin Corporation keeps track of the time required to fill orders. The times required for a particular order appear below:

Required:

a. Determine the manufacturing cycle time. Show your work.

b. Determine the manufacturing cycle efficiency. Show your work.  

129) Consider the following management activities:

∙ Choose the organization's long-term strategy.

∙ Plan and organize the use of resources into efficient operations.

∙ Implement plans and organizational change.

∙ Measure and report results.

∙ Define the organization's scale and scope of operations.

Required:

a. Identify the sequence in which the decisions must be carried out. Why is it important to carry out these activities sequentially?

b. How can an effective cost management system support the above activities?

130) Consider a local coffee shop, a Starbucks store, and a retail gas station that offers fresh coffee in its convenience stores.

Required:

Characterize these stores according to the Porter strategy framework.

131) Studebaker Corporation, one of the earliest auto manufacturers, prospered in the late 1940s and into the 1950s. Its advertising after World War II emphasized quality of design and production. The corporation also used the stability of its work force in its advertisements, often featuring pictures of father and son working side by side in its factories.

Required:

a. From just this brief description of Studebaker Corporation, which type of competitive strategy—cost leadership or differentiation—would you guess Studebaker was using? Explain your choice.

b. Given your answer in Part (a), speculate on what market factors might have caused the corporation to go into bankruptcy and cease production in the mid-1960s.

132) Describe the difference between a company's mission statement and its business-level strategy.

133) Levi Strauss and Co., maker of Levi's familiar 501 and 505 brands of jeans, also makes a "Signature" brand that was introduced several years ago for discount retailers such as Walmart. Levi's strategy with the new jeans was to sell a competitively priced pair. The jeans were to be about one-half the price of the familiar 501 and 505 jeans. To get costs down Levi would:

∙ Use cheaper fabrics and materials.

∙ Shun costly mass-market advertising.

∙ Strictly limit the number of fits, styles, and colors.

The Signature brand had a good first year of sales; assume that results for the second year and later are not yet in.

Required:

a. Assess the new strategy at Levi. What do you think are the potential benefits and risks?

b. How will the firm's value chain and balanced scorecard change as a result of the new strategy?

134) For each of the following jobs, identify a possible nonfinancial performance measure.

(a) Computer help desk worker at your university.

(b) Dental hygienist.

(c) Airline gate agent.

(d) City bus driver.

135) What is a business model?

136) Explain how producing more units than can be sold can increase operating income. Would this be an issue in a service company or is it only an issue in a manufacturing environment? Could a company employ this strategy indefinitely to show continuous increases in profits?

137) Describe the four common perspectives that are used in the balanced scorecard.

138) Sam Almasi, the CEO of Almasi Technologies Inc. (ATI), a biotechnology firm had recently returned from a conference on modern cost management and performance measurement methods where he was exposed to target costing, value-chain analysis, balanced scorecard, activity-based management, and other ideas.

ATI is a five-year old company operating in a growing, but competitive market. It develops and produces a number of different enzymes for use by research scientists and pharmaceutical companies. Its main competitors are also small to medium-sized firms just like ATI. The key to growth in this industry is the ability to develop new products in a short time. Gail Stevenson, the vice-president (VP) for research & development (R&D), has noticed that some of ATI's new developments did not perform well because of the delays in their introduction into the market. Stevenson is very keen on hiring the best scientists and ensuring that they stay current in their fields because knowledge is the key competitive weapon in the biotechnology industry.

Bob Phillips, the controller of ATI, had another concern. He has been noticing that the new products were not only delayed but their actual development costs were usually higher than budgeted. One of his goals was to see that the new products were profitable for the company.

Linda Joseph, the production manager, had a different concern of her own. Based on her observation, the production of the new enzymes was taking longer. Her feeling was that the products spent too much time in the quality control (QC) department. Barry Laker, the manager of the QC department, argued that the new enzymes lacked the rigorous specifications that are demanded in the marketplace. Consequently, the QC department has to perform additional tests to get to the root cause of the problems.

Almasi had heard complaints from all quarters, and decided to convene a meeting of all the department heads.

Almasi: Good afternoon, everyone. I am troubled that despite hiring a number of talented scientists, we are unable to compete effectively in the marketplace. Many of the recent entrants in the game seem to be beating us easily.

Stevenson: Sam, the key to our growth is rapid introduction of new products. Although my scientists are developing new enzymes in record times, they seem to be getting held up in manufacturing, and especially, the QC department.

Laker: Sam, I think I can pinpoint the root cause of the problem. I agree that our scientists are developing new enzymes in record times, but they do not seem to be paying any attention to standards. It looks like my department will have to provide training to them regarding quality control matters.

Stevenson: With due respect, I do not think there is more to know about QC standards. It looks like the QC department wants more attention and is therefore creating all this unnecessary fuss.

Joseph: I think I will agree with Barry that there are problems at the R&D side. My production scientists are also complaining that adequate specifications have not been developed; they have to constantly phone their R&D counterparts for clarifications.

Stevenson: I do not believe that the production problems can be attributed to R&D. I have personally screened each and every scientist during the hiring process.

Phillips: I don't think we will make much progress as a company if we keep pointing fingers at one another. We all must realize that all problems, regardless of their origin, finally affect the bottom-line of our company. Unless we set aside our differences and work together as a team, we will be unable to compete with our rivals. Some of our competitors follow best practices, which we must try to emulate.

Almasi: I agree with Bob. We must all look for solutions. I recently attended a conference where noted speakers talked about the value-chain of a company, interrelationships between functions, and the balanced scorecard. In fact, some speakers suggested that companies must stop discussing in terms of individual functions or departments; instead they must talk in terms of processes and understand linkages among all the processes that exist in an organization. I believe there are a number of ideas that we could adopt. I will leave the conference proceedings in the library, and suggest that we all read about these different topics. How about getting together after six weeks and discussing a plan of action? Thank you and see you all after six weeks.

Required:

Assume the role of a consultant preparing a report for ATI. Discuss the following aspects in your report:

a. The internal value-chain of ATI.

b. The balanced scorecard. Identify the goals of the company under each perspective of the scorecard and cause-effect relationships, and develop potential measures that could be used.

c. How the inter-departmental differences can be eliminated.

139) Granite Manufacturing produces high-end furniture products for the luxury hotel industry. Granite has succeeded through excellence in design, careful attention to quality in manufacturing and in customer service, and through continuous product innovation. The manufacturing process at Granite begins with a close consultation with each customer so that the finished product exactly meets the customer's specifications. This commonly means unique designs, special fabrics, and high levels of manufacturing quality. In addition, Granite believes that a key competitive edge it has over other competitors is that it has an outstanding design staff that is able to work with customers to come up with product designs that go beyond the customer's expectations.

Required:

Present a balanced scorecard for Granite Manufacturing with 3-4 perspectives and 3-4 quantitative critical success factors (CSFs) in each perspective.  

140) Jackie Horner started Glad Rags to combine fashion and sustainability. The original production of sandals made from recycled plastic has expanded to a complete line of casual footwear. Current sales total over $2 million. Jackie hired the firm's first controller early this year, and has asked him to detail suggestions for ways to increase profits. Thomas Roberts, the new controller, has compiled a list of recommended changes that focus on quality improvements. Glad Rags' customers expect high quality at a low price, a "value" product. So, the company must simultaneously watch costs and quality. After receiving his list of suggestions, Jackie calls Thomas to her office and says, "I don't see how improving quality can increase productivity. In fact, it seems to me that efforts to improve quality will slow down production and decrease productivity."

Required:

Using specific examples, help Thomas explain to Jackie why efforts to improve quality can also boost productivity. How does productivity play a role in the firm's strategy and competitive environment?

141) What is the difference between continuous improvement and benchmarking?

142) Dr. Hal Trotter is the director of the Wellness House, a residential center for recovering alcoholics. A typical patient spends 3-4 weeks in an intensive program of rehabilitation. The Wellness House has a staff of 45, including 12 certified therapists, to serve an average patient load of 15. Dr. Trotter is attempting to develop some productivity measures for the center, but is not aware of the limitations of productivity measurement in not-for-profit organizations. You have been called in as a consultant to help develop appropriate productivity measures.

Required:

(a) Identify any major differences/limitations you face in developing performance measures for the Wellness House.

(b) Recommend two or three overall measures of productivity that are appropriate for the Wellness House as a not-for-profit organization.

143) Divisional managers of Crusing Incorporated have been expressing growing dissatisfaction with the current methods used to measure divisional performance. Divisional operations are evaluated every quarter by comparison with the static budget prepared during the prior year. Divisional managers claim that many factors are completely out of their control but are included in this comparison. This results in an unfair and misleading performance evaluation. The managers have been particularly critical of the process used to establish standards and budgets. The annual budget, stated by quarters, is prepared six months prior to the beginning of the operating year. Pressure by top management to reflect increased earnings has often caused divisional managers to overstate revenues and/or understate expenses. In addition, once the budget had been established, divisions were required to "live with the budget." Frequently, external factors such as the state of the economy, changes in consumer preferences, and actions of competitors have not been adequately recognized in the budget parameters that top management supplied to the divisions. The credibility of the performance review is curtailed when the budget cannot be adjusted to incorporate these changes. Top management, recognizing the current problems, has agreed to establish a committee to review the situation and to make recommendations for a new performance evaluation system. The committee consists of each division manager, the Corporate Controller, and the Executive Vice President who serves as the chairman. At the first meeting, one division manager outlined an Achievement of Objectives System (AOS). In this performance evaluation system, divisional managers would be evaluated according to three criteria:

(1) Doing better than last year - Various measures would be compared to the same measures of the prior year.

(2) Planning realistically - Actual performance for the current year would be compared to realistic plans and/or goals.

(3) Managing current assets - Various measures would be used to evaluate the divisional management's achievements and reactions to changing business and economic conditions.

A division manager believed this system would overcome many of the inconsistencies of the current system because divisions could be evaluated from three different viewpoints. In addition, managers would have the opportunity to show how they would react and account for changes in uncontrollable external factors. A second division manager was also in favor of the proposed AOS. However, he cautioned that the success of a new performance evaluation system would be limited unless it had the complete support of top management. Further, this support should be visible within all divisions. He believed that the committee should recommend some procedures which would enhance the motivational and competitive spirit of the divisions.

Required:

a. Explain whether or not the proposed AOS would be an improvement over the measure of divisional performance now used by Crusing Incorporated.

b. Develop specific performance measures for each of the three criteria in the proposed AOS which could be used to evaluate divisional managers.

c. Discuss the motivational and behavioral aspects of the proposed performance system. Also, recommend specific programs which could be instituted to promote morale and give incentives to divisional management.

144) Companies are continuously seeking ways to improve quality of production and reduce costs. One of the areas is to work with suppliers to improve the quality and reliability of parts and products shipped. In an article entitled "In Defense of Activity-Based Cost Management," Robert S. Kaplan says:

An ABC model can play a major role in improving supplier relationships as well. These relationships must be a vital part of any quality and cycle-time improvement program. A key insight is to use ABC to distinguish between low-price and low-cost suppliers. Traditional cost accounting, with its emphasis on purchase price variances, encourages purchasing people to continually scan the population of potential suppliers to obtain low price quotations. Most companies have learned, the hard way, that many of their low-price suppliers are actually extremely high-cost suppliers. (Source: Management Accounting: November, 1992)

Required:

(a) Explain what Kaplan means by "many of their low-price suppliers are actually extremely high-cost suppliers."

(b) What general prevention and appraisal activities can be used to improve the quality and reliability of parts and products shipped from suppliers?

145) What is productivity, and what are the differences between partial productivity measures and total factor productivity?

146) Explain how nonfinancial performance measures for customer satisfaction may differ from functional performance measures.

147) Why is worker involvement important to an organization's success?

148) At some manufacturing companies, line employees are allowed to stop the line or halt production if they think there is a problem occurring. In other words, if units begin to be processed that are outside of specifications.

Required:

Discuss the advantages and disadvantage of this employee empowerment policy.