Strategy & Balanced Scorecard Ch.18 Test Bank Answers - Chapter Test Bank | Cost Accounting & Analytics 1e by Karen Congo Farmer. DOCX document preview.

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Strategy & Balanced Scorecard Ch.18 Test Bank Answers

CHAPTER 18

Business Strategy, Performance Measurement, and the Balanced Scorecard

CHAPTER LEARNING OBJECTIVES

1. Describe the elements management considers in deriving a company’s strategic plan.

2. Explain the process of performance measurement, including its financial and nonfinancial measures

3. Detail how the balanced scorecard’s four perspectives work together to measure a company’s performance.

Current count is:

Knowledge: 16

Comprehension: 31

Application: 35

Analysis: 55

Evaluation: 1

Synthesis: 3

Total: 141

Number and percentage of questions:

Easy: 27 questions, 19 percent (target of 25%)

Medium: 106 questions, 75 percent (target of 65%)

Hard: 8 questions, 6 percent (target of 10%)

Question types:

Multiple Choice: 110

Short Answer: 6

Brief Exercises: 12

Exercises: 10

Problems: 3

Multiple-Choice Questions

        1. When an organization starts up, they decide on their mission and vision, and these two components inform every step of their goal achievement. Which of the following best represents the component that determines the path they take to move towards implementing their long-term vision?
  1. Goals and objectives
  2. Measures and targets
  3. Results
  4. Strategies and initiatives

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires understanding of the five components of a strategic plan. Choice D is the correct choice since this component of a strategic plan helps a business create a path and then adjust that as needed to overcome barriers and move towards achieving long-term goals. The remaining choices are components of a strategic plan, but they do not determine the path.

        1. When an organization starts up, they decide on their mission and vision, and these two components inform every step of their goal achievement. Which of the following best represents the component that results from coordination of business units across the organization tracking dollars and dates?
  1. Goals and objectives
  2. Measures and targets
  3. Results
  4. Strategies and initiatives

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires understanding of the five components of a strategic plan. Choice B is the correct choice since this component results in the business’s Master Budget, i.e., their companywide plans for dollars and dates. The remaining choices are components of a strategic plan, but they do not correctly answer the question.

        1. When a company is in its planning stage, it must analyze the existing market to plan its path to success. According to Porter, there are five forces that shape the industry a business operates within. Which of the following is one of those five forces?
  1. Existing entrants
  2. Power of managers
  3. Threat of substitutes
  4. Threat of suppliers

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires understanding of the Porter’s Five Forces. Choice C is the correct choice since it is the only choice listed that is one of the Five Forces. The remaining three choices are incorrect variations of Porter’s Five Forces.

        1. When a company is in its planning stage, it must analyze the existing market to plan its path to success. According to Porter, there are five forces that shape the industry a business operates within. Which of the following is least likely to be considered one of these five forces?
  1. Mission and Vision
  2. New entrants
  3. Power of customers
  4. Threat of substitutes

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires understanding of the Porter’s Five Forces. Choice A is the correct choice since it is the only choice listed that is not one of the Five Forces. In fact, it is a component of the strategic planning process. The other three choices are representative of Porter’s Five Forces.

        1. Once a company has identified various industry challenges and starts to overcome them, they may choose to use a SWOT analysis. Ideally, this will help the company determine important internal and external areas of concerns. Which of the following represents the correct breakdown of the acronym SWOT?
  1. Strengths, Weaknesses, Opportunities, Threats
  2. Strengths, Weaknesses, Opportunities, Treats
  3. Strengths, Worries, Opportunities, Threats
  4. Summaries, Weaknesses, Opportunities, Threats

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with SWOT analysis and what the acronym stands for. Choice A is the only choice that correctly identifies what each of the letters of SWOT represents. The remaining choices all contain one item that is incorrect.

        1. Cost accounting principles are an important component for any organization that assist management in their decision-making. Additionally, managers rely on accountants to interpret data and provide information to help them understand their business in greater depth. Which of the following choices best represents a strategic plan?
  1. Derek is an accountant who has compiled some data for management so that they can increase production over the next year.
  2. Shawn is a manager who would like to reduce employee turnover and is meeting with human resources to gather data.
  3. Suzanne is an accountant who has compiled an expansion plan for a restaurant to franchise locations and eventually operate in five states.
  4. Terrance is a manager who would like to see the retail store where he works implement measures to reduce shrinkage and is estimating the cost to do so.

Ans: C, LO 1, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the differences between a strategic plan and an operating plan. Choice C is the correct choice because it identifies a strategic plan that is a comprehensive likely multi-year plan for an organization. An operating plan is more likely to focus on specific outcomes for a year, and the other three choices fall into that category.

        1. Cost accounting principles are an important component of any organization that assist management in their decision-making. Additionally, managers rely on accountants to interpret data and provide information to help them understand their business in greater depth. Which of the following choices best represents an operating plan?
  1. Nathan is the manager of an automotive shop who knows that the shop needs more mechanics on staff to expand their service offerings.
  2. Susan is a therapist and would like to expand her practice by hiring new therapists over the next few years.
  3. Tara is a florist who would eventually like to retire and has enlisted the help of her children to formulate a plan by which they take over control within the next 5 years.
  4. Theodore is the manager of a local football team and is using last year’s ticket sales data to create a plan to increase ticket sales for the coming year.

Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the differences between a strategic plan and an operating plan. Choice D is the correct choice because that plan is likely focused on an immediately upcoming year’s specific outcome. The other three choices are closer to strategic plans in that they are comprehensive, likely multi-year, plans for an organization.

        1. A company’s strategic plan is an integral part of their initial planning and is comprised of five components. Management builds their strategic plan around five specific components to meet their objectives. Which of the following best represents some aspects of a strategic plan in the correct order?
  1. Goals and Objectives, Measures and Targets, and Results
  2. Goals and Objectives, Strategies and Initiatives, and Mission and Vision
  3. Measures and Targets, Results, and Goals and Objectives
  4. Mission and Vision, Results, and Strategies and Initiatives

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with strategic plans and the five components that make them up. Choice A is correct because it lists three of the five components in the correct order they appear within the plan. The remaining choices represent some of the components, but they occur out of order.

        1. A company’s strategic plan is an integral part of their initial planning and is comprised of five components. Management builds their strategic plan around five specific components to meet their objectives. Which of the following best represents an incorrect ordering of some of these aspects of a strategic plan?
  1. Goals and Objectives, Results, and Strategies and Initiatives
  2. Goals and Objectives, Strategies and Initiatives, and Results
  3. Mission and Vision, Goals and Objectives, and Measures and Targets.
  4. Strategies and Initiatives, Measures and Targets, and Results

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the five components of a strategic plan. Choice A is correct because it lists three of the five components in the wrong order. The remaining choices show some of the components in the correct order.

        1. As part of the process of creating a strategic plan, management will have to decide what is most important to them. Although industries may vary, the general components of a strategic plan have the same general structure. Which of the following best represents the vision component for an art gallery?
  1. To be the city’s most visited and well-respected avenue of art promotion
  2. To connect artists with the communities they reside in
  3. To provide an avenue for artists to freely display their craft
  4. To use key performance indicators to determine how to best market their artists

Ans: A, LO 1, Bloom: C, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires knowledge of what vision as part of the strategic planning process means. Choice A is correct because it identifies a reasonable vision for an art gallery rather than a mission which is what the other choices would represent. A vision is a narrative of something an organization would like to achieve in the future.

        1. As part of the process of creating a strategic plan, management will have to decide what is most important to them. Although industries may vary, the general components of a strategic plan have the same general structure. Which of the following best represents the vision component for a coffee shop?
  1. To create a welcoming and inviting environment where patrons spend their time working and connecting
  2. To provide a well-balanced work environment for baristas
  3. To serve the best coffee at the best price with friendly staff
  4. To work with local vendors and provide a way to locally source all products

Ans: C, LO 1, Bloom: C, Difficulty: Easy, AACSB: Knowledge, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires knowledge of what vision as part of the strategic planning process means. Choice C is correct in that it identifies a vision for a coffee shop rather than a mission which is what the other choices would represent. A vision is a narrative of something an organization would like to achieve in the future.

        1. A public university has an objective of increasing enrollment in its online programs. The university has an online division where each major program is represented, and they have a representative assigned to each program. How could the university most effectively implement this?
  1. Delegating additional enrollment responsibilities to the advisors in each college
  2. Delegating the monitoring of day-to-day data to the dean of each college
  3. Requiring each college’s dean’s managers encourage incoming students to consider an online program
  4. Requiring faculty engagement in persuading students to enroll in at least one online class per period

Ans: A, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with how to evaluate an organization’s strategic plan based on its objectives. Choice A is correct because delegating enrollment of online programs to advisors is an effective use of existing resources that moves the university closer to achieving its goals. The remaining three choices would not be an effective use of existing resources in this scenario.

        1. A public university has an objective of increasing enrollment in its online programs. The university has an online division where each major program is represented, and they have a representative assigned to each program. What is a relevant key performance indicator (KPI) that could be used to measure success?
  1. Percentage increase or decrease in number of students enrolled in each program this year compared to other programs
  2. Percentage increase or decrease in number of students enrolled in online programs as compared to last year
  3. Percentage of formerly enrolled non-online students from last year who have enrolled in an online program this year
  4. Percentage of students enrolled in the university who attend online versus taking classes on-campus.

Ans: B, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with how to measure success based on objectives. Choice B is correct because a percentage increase or decrease of students enrolled in online programs comparatively between years will provide a clear picture of whether the objective has been met. The remaining three choices would potentially provide some useful data but would not accurately measure the success of increasing enrollment in online programs.

        1. The College of Business at a local college has an objective of generating a $500,000 surplus earmarked for a new technology center. The College’s technology is severely lacking compared to other area schools. Who would be responsible for ensuring the College of Business meets its objectives?
  1. The Accounting and Budget Department of the College of Business
  2. The Dean of the College of Business
  3. The Department Chairs of the College of Business
  4. The President of the University

Ans: B, LO 1, Bloom: C, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: Choice B is correct as the Dean of the College of Business represents the appropriate level of management to be responsible for tracking and meeting a budgetary goal for the college. The remaining three choices are inappropriate as they are likely focused on larger goals or at a level too low to be responsible for such a large financial goal.

        1. The College of Business at a local college has an objective of generating a $500,000 surplus earmarked for a new technology center. The College’s technology is severely lacking compared to other area schools. How will the person in charge of meeting this goal be held accountable and with what potential result?
  1. Having a component built into an annual review with no incentivizing aside from potential job security
  2. Having a component built into an annual review with raises tied to successes and extensive explanation needed for an unfavorable performance
  3. Having an informal meeting with upper management at the end of the project with the potential for a bonus
  4. Holding informal meetings with upper management to discuss results with no raises tied to success

Ans: B, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with how to evaluate progress towards a financial goal. Choice B is correct because it is the only choice that provides an effective means to evaluate progress on a consistent basis and something that will incentivize the person responsible for the outcome. The remaining choices either contain an inconsistent basis for review and/or a lack of incentive for the responsible party.

        1. Businesses use Porter’s Five Forces to determine how well companies will be able to generate a profit. To create and implement a successful strategic route, companies will take these five forces into consideration. Which of the following is a good representation of the power of customers?
  1. A company changes its bill-payment policy to pay all vendors within 30 days and avoid surcharges.
  2. A company changes its return policy to allow a 90-day return window after customers’ complaints.
  3. A local florist fears a new online florist, so they begin to offer same-day delivery for all bouquets.
  4. A sushi restaurant begins to offer home delivery after a local grocery store offers to deliver their own in-house sushi.

Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces. Choice B correctly identifies the power of customers. A company altered a return policy due to feedback received from their customers. The remaining choices represent other forces but not the power of customers.

        1. Businesses use Porter’s Five Forces to determine how well companies will be able to generate a profit. To create and implement a successful strategic route, companies will take the five forces into consideration. Which of the following is a good representation of the threat of substitutes?
  1. A furniture store is worried about losing customers to a competitor because the competitor offers more favorable credit terms than they can offer.
  2. A local Italian restaurant is concerned about the trend of delivery-based meal kits.
  3. A local Thai food restaurant is concerned about a Thai food truck that services the same area.
  4. A veterinary office is concerned about a local pet store that sells puppies.

Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces. Choice B correctly identifies the threat of substitutes. The Italian restaurant is concerned about a different offering that could be a substitute for what they offer their customers. The remaining choices represent other forces but not the threat of substitutes.

        1. A company’s chosen strategy is the route it uses to arrive its destination. A guiding set of principles for laying out the long-term goals is known as Porter’s Five Forces. Which of the following best represents the threat of new entrants?
  1. A dress shop opens next to a local boutique that specializes in women’s clothing.
  2. A fine jewelry store would like to open in a market where three other fine jewelry stores exist.
  3. Customers of a clothing boutique learn of an online shop that sells the same clothing.
  4. Thrifty Dresses, Inc. changed their credit terms to give preference to online vendors over brick-and-mortar stores.

Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces. Choice A is correct in that it represents a threat of new entrant to an existing market. A local boutique could potentially lose some of its market share once the new dress shop opens. The other three choices are either other elements of Porter’s Five Forces or not examples of one of the threats identified in the framework.

        1. A company’s chosen strategy is the route it uses to arrive its destination. A guiding set of principles for laying out the long-term goals is known as Porter’s Five Forces. Which of the following best represents the bargaining power of a carrot farmer as a supplier?
  1. A carrot farmer gives first choice of their organic crops to the customer who pay their bills fastest.
  2. A carrot farmer notices that the farm next door has started to grow and sell beets.
  3. A carrot farmer’s customers have the option to purchase from a new company that delivers in half the time.
  4. The new owner of a carrot farm has decided to switch from carrots to growing and selling tomatoes.

Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires that familiarity with Porter’s Five Forces. Choice A is correct in that it represents the bargaining power of suppliers. A carrot farmer giving first choice to certain customers means that they hold the power to decide who receives preferential crops. The other three choices are either other elements of Porter’s Five Forces or not examples of the bargaining power of suppliers identified in the framework.

        1. Lana is the owner of Leafy Greens, a smoothie store slated to open within the next six months. Lana is in the process of creating her strategic plan and needs to identify her furthest-reaching goals. She knows that this process will take some time to get right and wants to do it properly. Which of the following is an example of a competitive rivalry for Leafy Greens according to Porter’s Five Forces?
  1. A coffee shop that sells a variety of items including smoothies
  2. A farm that sells fresh strawberries to local vendors
  3. A health food store that sells hand-pressed juices
  4. An ice cream shop that sells ice cream-based drinks like milkshakes

Ans: A, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces. Choice A is the correct choice because it represents a competitive rivalry for the identified business in the same market. A smoothie shop would need to look for other businesses who sell the same products as them. The remaining choices could be considered under other elements of Porter’s Five Forces, but they do not represent a directly competitive rivalry.

        1. Lana is the owner of Leafy Greens, a meal-replacement smoothie store slated to open within the next six months. Lana is in the process of creating her strategic plan and needs to identify her furthest-reaching goals. She knows that this process will take some time to get right and wants to do it properly. Which of the following is an example of a threat of substitutes for Leafy Greens according to Porter’s Five Forces?
  1. A food truck that will sell smoothies and other items just opened in the area.
  2. A meal kit that is available for all meals, including breakfast.
  3. A meal kit that is available that allows customers to make fresh salads.
  4. A supplier of bananas has decided to offer new credit terms for existing customers.

Ans: B, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces. Choice B is correct in that a meal kit that would allow customers to make breakfast items would present a threat of substitution to a smoothie store since the meal kits could replace breakfast smoothies for some existing customers. The remaining choices are also elements of Porter’s Five Forces but are not likely to be considered a threat of substitutes.

        1. Once a business is ready to move from identifying industry challenges to overcoming them, the company may choose to complete a SWOT analysis. This tool helps the organization identify internal and external factors affecting them. Which of the following is the best breakdown of Internal and External forces in a SWOT analysis?
  1. Internal: Opportunities, Threats; and External: Strengths, Weaknesses
  2. Internal: Opportunities, Weaknesses; and External: Strengths, Threats
  3. Internal: Strengths, Opportunities; and External: Weaknesses, Threats
  4. Internal: Strengths, Weaknesses; and External: Opportunities, Threats

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the components of a SWOT analysis. Choice D correctly stratifies the elements of SWOT into Internal or External factors. The remaining three choices have incorrectly placed an element in each category.

        1. As a company begins to fine tune its strategy, it is prudent to identify their strengths and weaknesses in addition to outside opportunities and threats. This SWOT analysis will ensure they can effectively evaluate and deal with items that will either help or hurt their chances of success. Which of the following represents a Strength for a mobile dog grooming business?
  1. The business is mobile and can move to different markets.
  2. The fixed size of the truck used for grooming is limited in space.
  3. The mobile grooming business can be expanded without excessive entrance costs.
  4. The mobile grooming business can be franchised.

Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the components of a SWOT analysis. Choice A correctly identifies a strength for a mobile dog grooming business. The fact that the business is mobile is a strength while the remaining choices represent other SWOT elements that apply to the business.

        1. As a company begins to fine tune its strategy, it is prudent to identify their strengths and weaknesses in addition to outside opportunities and threats. This SWOT analysis will ensure they can effectively evaluate and deal with items that will either help or hurt their chances of success. Which of the following represents an Opportunity for a mobile dog grooming business?
  1. The mobile dog groomer has a great relationship with their existing suppliers.
  2. The mobile grooming business is not able to offer all the services that are available at their physical location in the suburbs.
  3. Their brick-and-mortar store is in a suburb, and the truck can now travel to local fairs and events in the city.
  4. There are existing mobile dog groomers in the area who have older model trucks and grooming technologies.

Ans: C, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the components of a SWOT analysis. Choice C correctly identifies an opportunity for a mobile dog grooming business. The fact that the business has an established brick-and-mortar location from which it can deploy a mobile team is an opportunity while the remaining choices represent other SWOT elements that apply to the business.

        1. According to Porter, there are five forces that must be assessed and acknowledged by any business who wishes to successfully create an effective strategy. Which of the following best demonstrates the threat of substitutes for a handmade furniture manufacturer?
  1. A furniture store that sells ready-to-build pieces from unique designs.
  2. A handmade home décor store.
  3. A supplier who sells mahogany wood and determines the terms that a potential buyer must meet to buy from them.
  4. Another furniture store who also sells handmade furniture.

Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces and the impact of each on a business. Choice A is correct because it is the only choice that represents a threat of a substitute product. A furniture store that sells ready-to-build furniture may pull some of the business from a handmade furniture store. The other three choices are incorrect as they represent other threats to the furniture store.

        1. According to Porter, there are five forces that must be assessed and acknowledged by any business who wishes to successfully create an effective strategy. Which of the following best demonstrates the power of a handmade furniture store as a customer?
  1. The furniture store can choose credit customers based upon their credit scores.
  2. The furniture store will only buy from a supplier who will give them credit terms of 30 days.
  3. The furniture store will only sell to customers who can pay in cash.
  4. The furniture store will require a down payment from all potential customers on pre-orders.

Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces and the impact of each on a business. Choice B is correct because it is the only choice that represents the power of the furniture store when acting as a customer. By dictating the terms that require to become a customer, they demonstrate the power they hold in that as a customer. The remaining three choices are incorrect as they represent other powers.

        1. After completing a SWOT analysis, a company begins to set its strategy to advance from its current position. Porter describes a strategy spectrum whereby a company has two choices: cost leadership and product differentiation. Which of the following is a company who has selected a cost leadership strategy?
  1. Beauty You is a salon that specializes in trendy haircuts tailored to each client.
  2. Cost Mart is a big box store that sells items at the cheapest price in town.
  3. Itsy is an online marketplace where vendors sell unique handmade items.
  4. Oldies is a vintage car dealership that sells high-end vintage vehicles.

Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with SWOT analysis and the associated strategies. Choice B is correct since Cost Mart is using a cost leadership strategy by focusing on minimizing the cost of what they sell as compared to offering the variety or uniqueness of what they sell. The remaining three choices are incorrect as they are either a product differentiation strategy or a company that sits somewhere on the spectrum between the two options.

        1. After completing a SWOT analysis, a company begins to set its strategy to advance from its current position. Porter describes a strategy spectrum whereby a company has two choices: cost leadership and product differentiation. Which of the following is a company who is not purely a cost leader or a product differentiator but somewhere in the middle of the spectrum?
  1. Feltz is a factory that produces felt fabric at the lowest cost possible by using as much automated machining as possible.
  2. Freshies is a grocery store that carries unique products and strives to keep their costs as low as possible.
  3. Paisley, Inc., is an upscale jewelry store that specializes in the sale of one-of-a-kind necklaces.
  4. Turnips is a grocery store that sells product in bulk so it can offer lower per-unit costs to customers.

Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with SWOT analysis and the associated strategies. Choice B is correct as Freshies is using both a product differentiation strategy by focusing on the variety or uniqueness of what they sell and a cost leadership strategy by offering products at their lowest possible cost. The remaining three choices are incorrect since they are either strictly a cost leadership strategy or strictly a company that uses a product differentiation strategy.

        1. After completing a SWOT analysis, a company begins to set its strategy to advance from its current position. Porter describes a strategy spectrum whereby a company has two choices: cost leadership and product differentiation. Which of the following is a company who selected a product differentiation strategy?
  1. Collectibles, Etc., is a collectibles store that specializes in hard-to-find collectibles.
  2. IShadows is a makeup line that makes unique palettes combinations sold at drug stores.
  3. Society 12 is an online art store that sells art prints for a reasonable price.
  4. Woolies is a factory that strives to make affordable and practical wool socks.

Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with SWOT analysis and the associated strategies. Choice A is correct since Collectibles, Etc. is using a product differentiation strategy by focusing on the variety and uniqueness of what they sell instead of trying to minimize the cost of what they sell. The other three choices are incorrect because they are either a cost leadership strategy or a company that sits on the spectrum between the two.

        1. In addition to Porter’s Five Forces and related strategy spectrum, a company could choose to use the complementary framework of customer value proposition. This method requires that each company detail their mix of products, prices, services, relationships, and image. In what way is this strategy like Porter’s strategic choices?
  1. Both strategic plans contain a subset of additional identification.
  2. Both strategies strictly focus on maintaining the best pricing in the market.
  3. Both strategies strictly focus on providing the most unique products to their customers.
  4. The company must define a mix of what makes up their business.

Ans: A, LO 1, Bloom: AN, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with both Porter’s Five Forces and the complementary framework of customer value proposition. Choice A is the correct choice as it identifies the appropriate way in which the two strategies are similar. Porter’s Five Forces has a subset of cost leadership and product differentiation, and the complementary framework of customer value proposition has a subset of operational excellence and product leadership. The remaining choices are incorrect as they do not correctly identify ways the two are similar.

        1. Once a business is ready to move from identifying industry challenges to overcoming them, the company may choose to complete a SWOT analysis. This tool helps the organization identify internal and external factors affecting them. Which of the following correctly aligns with the elements of SWOT?
  1. Opportunities: Good relationship with customers.
  2. Strengths: The business can franchise its operations.
  3. Threats: The business is mobile-only with no brick-and-mortar location.
  4. Weaknesses: The business is limited in capacity due to owning a small amount of equipment.

Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with a SWOT analysis and its components. Choice D correctly identifies a factor that is aligned with an element of SWOT analysis. The other three choices all contain at least one incorrect representation.

        1. In addition to Porter’s Five Forces and related strategy spectrum, a company could choose to use the complementary framework of customer value proposition. This method requires that each company make a choice between operational excellence and product leadership. Which of the following represents the mix of items that a company should detail under the framework of customer value proposition?
  1. Image, Relationship, Services, Prices, Profits
  2. Prices, Services, Profits, Relationship, Products
  3. Products, Services, Prices, Image, Power
  4. Services, Prices, Image, Products, Relationship

Ans: D, LO 1, Bloom: C, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with both Porter’s Five Forces and the complementary framework of customer value proposition. Choice D is correct since it accurately identifies the mix of items the company needs to detail if it chooses the customer value proposition. The remaining choices are incorrect as they each contain at least one incorrect item in the mix.

        1. Jones Corp. is a newly formed organization that will produce 10-key calculators that it intends to sell to office supply stores and directly from its own online platform. Jones is in the planning stages of their business and are formulating a strategic plan. As part of this initial planning, the owners know that they must first identify a mission and vision. Which of the following best represents a mission for Jones?
    1. Jones Corp. calculator will be the calculator of choice for Accountants and CPAs.
    2. Jones will be the largest provider of calculators in the US.
    3. Jones will produce the best calculators in the world.
    4. Jones will provide a calculator that is reliable and cost-efficient.

Ans: D, LO 1, Bloom: C, Difficulty: Hard, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires understanding the difference between mission and vision, and that can be difficult since they are similar. Choice D is correct because it provides a purpose for the organization. The other three choices are potential visions and not missions since they are more narrative in nature and outline what Jones Corp. would like to accomplish or be known for in the future.

        1. Jones Corp. is a newly formed organization that will produce 10-key calculators that it intends to sell to office supply stores and directly from its own online platform. Jones is in the planning stages of their business and are formulating a strategic plan. As part of this initial planning, the owners know that they must first identify a mission and vision. Which of the following best represents a vision for Jones?
    1. Jones will connect accountants through their shared love of 10-key calculators.
    2. Jones will have a Jones Corp. calculator in every accountant’s office.
    3. Jones will make 10-key calculators user-friendly and accessible.
    4. Jones will provide financial literacy through the advancement in their technology.

Ans: B, LO 1, Bloom: C, Difficulty: Hard, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires understanding the difference between mission and vision, and that can be difficult since they are similar. Choice B is correct because it provides a more narrative statement and demonstrates what Jones Corp. would like accomplish or be known for in the future. The other three choices are potential missions since they describe a purpose for the organization rather than a larger description for the future.

        1. Trevor is an aspiring baker who eventually hopes to leave his current full-time job and bake instead. He knows that planning now will make all the difference as he moves towards making his dream a reality. He plans to begin by baking out of his house and eventually open a small brick-and-mortar location. According to Porter’s Five Forces, which of the following represents the threat of substitutes for Trevor?
    1. Gonuts Donuts is a bakery that his friend Jerry wants to open sometime in the next few years.
    2. Poofy Pastries is a small bakery that is in the same town as Trevor.
    3. Tasty Bites delivers an at-home baking kit available at a local grocery.
    4. Treats on the Go is a mobile bakery truck that frequents a nearby farmer’s market.

Ans: C, LO 1, Bloom: AP, Difficulty: Hard, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces and the framework each encompasses. Choice C is correct because it represents a threat of substitutes for Trevor since customers would have a different way to satisfy their needs and wants without visiting Trevor’s bakery when it opens. The remaining choices are incorrect as they represent elements of Porter’s Five Forces other than the threat of substitutes.

        1. Trevor is an aspiring baker who eventually hopes to leave his current full-time job and bake instead. He knows that planning now will make all the difference as he moves towards making his dream a reality. He plans to begin by baking out of his house and eventually open a small brick-and-mortar location. According to Porter’s Five Forces, which of the following represents competitive rivalry for Trevor?
    1. Delicious Desserts sells a pre-packaged box of gluten-free cake mix available at the grocery store.
    2. Lars is a local baker would also like to start a bakery, Lars’ Treats, in the same timeframe as Trevor.
    3. Lisa is a local baker with a shop, Lisa’s Pastries, near Trevor’s home.
    4. You Bake It! sells a take-home kit that contains ingredients to make cookies at home.

Ans: C, LO 1, Bloom: AP, Difficulty: Hard, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with Porter’s Five Forces and the framework each encompasses. Choice C is correct because it represents a competitive rivalry for Trevor because it is an existing business that operates in the same industry as Trevor plans to and could take away some of his future potential customers. The remaining choices are incorrect as they represent elements of Porter’s Five Forces other than competitive rivalry.

        1. As an organization fine-tunes its strategies and defines its objectives, management will disseminate these strategies and objectives to various levels of the organization. While distributing tasks to other employees, management should ensure outcomes remain congruent with their intentions. Which of the following best represents one of the steps used to make sure this succeeds?
    1. Employees constantly undertake tasks to move the company closer to its vision.
    2. Employees occasionally undertake tasks to move the company closer to its vision.
    3. Responsibilities and the authority to fulfill these are assigned solely by seniority.
    4. Responsibilities and the authority to fulfill these are assigned by both seniority and job description.

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with goal congruence and tasking employees correctly to keep everything aligned. Choice A is correct because it accurately represents a step that makes sure goals remain congruent. The other three choices are not correct as they do not ensure goal congruence.

        1. An insurance company owns and operates an office building downtown. The company employs its own staff to perform tasks including building cleaning and maintenance. This organization also operates its insurance business unit from within that building. Management is evaluating the type of compensation offered to individuals with various roles within the company. Which of the following would be the most appropriate type of compensation for the janitorial staff who are utilized to clean and maintain the building?
  1. Commission
  2. Hourly wage
  3. Piece rate
  4. Salary

Ans: B, LO 2, Bloom: C, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the various types of compensation available to companies to utilize for their employees and the appropriate use of each type. In the case of the janitorial staff, Choice B is the correct choice. Hourly wages are the most appropriate for positions requiring fewer skills with an option for overtime pay if hours worked exceed a set limit. The remaining three choices would not be appropriate choices for janitorial staff.

        1. An insurance company owns and operates an office building downtown. The company employs its own staff to perform tasks including building cleaning and maintenance. This organization also operates its insurance business unit from within that building. Management is evaluating the type of compensation offered to individuals with various roles within the company. Which of the following is the most appropriate type of compensation for the insurance agents charged with selling policies?
  1. Commission
  2. Hourly wage
  3. Piece rate
  4. Salary

Ans: A, LO 2, Bloom: C, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the various types of compensation available to companies to utilize for their employees and the appropriate use of each type. In the case of the insurance agents, Choice A is the correct choice. Commissions are most appropriate for positions motivated by generating sales and revenue. The remaining three choices would not be the appropriate choice for insurance agents.

        1. Nonfinancial performance measures are often helpful to organizations when they evaluate actions that are being taken now to achieve success later. Which of the following is most likely to be a nonfinancial performance measure utilized by the Sales and Marketing Department?
  1. Employee satisfaction as an indicator of how satisfied employees are with the company
  2. Internal promotion rate as a measure of how quickly high-performing employees advance within the company
  3. Net promoter score as a score based on how likely it is a customer will recommend this company to others
  4. Vacation days earned versus used as a measure of whether staff takes time to enjoy their life outside of work

Ans: C, LO 2, Bloom: AN, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with nonfinancial performance measures and how certain departments within an organization might utilize them. Choice C is the correct choice since it is the only choice listed utilized by the Sales and Marketing department. The other choices are also nonfinancial performance measures, but those would not likely be useful measures for the Sales and Marketing Department’s performance.

        1. Nonfinancial performance measures are often helpful to organizations when they evaluate actions that are being taken now to achieve success later. Which of the following is most likely to be a nonfinancial performance measure utilized by the Human Resources Department?
  1. Customer conversion rate to measure the percentage of interactions with customers that end with a sale
  2. Efficiency as a measure of the number of units that are being produced every hour
  3. Internal promotion rate to track the rate that high-performing employees advance within the company.
  4. Net promoter score to score how likely it is a customer will recommend this company to others.

Ans: C, LO 2, Bloom: AN, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with nonfinancial performance measures and how certain departments within an organization might utilize them. Choice C is the correct choice since it is the only choice listed utilized by the Human Resource department. The other choices are also nonfinancial performance measures, but those would not likely be useful measures for the Human Resources Department.

        1. A company wishes to assess certain financial performance measures to assess their operations for the current year. Management believes this will be an effective way to assess certain aspects as the financial measures are both objective and measurable. If the organization would like to evaluate how effective the organization is at collecting receivables, then which of the following performance measures should they use?
  1. Accounts receivable turnover
  2. Net income growth
  3. Gross margin
  4. Operating cash flow

Ans: A, LO 2, Bloom: C, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial performance measures and how to best use them. Choice A is the correct choice since that will directly measure the company’s effectiveness at collecting receivables, unlike choice B that measures the number of days it takes to collect them rather than the efficiency. The other two choices are financial performance measures, but they do not measure the efficiency of collecting receivables.

        1. Kevin is an employee in the finance department at Easy Trader Co. and is performing some financial analysis on their current year’s performance. Before he can begin looking at a variety of nonfinancial factors, including customer conversion rates and internal promotion scores, he will need to evaluate some financial performance measures. Which of the following provides the most accurate rationale for evaluating Residual Income?
  1. Comparing a company’s return in relation to income for year-to-year analysis
  2. Determining a company’s ability to mark-up from cost
  3. Evaluating a company’s actual costs to its budgeted expectations
  4. Evaluating income earned beyond the minimum required return on investment

Ans: D, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial performance measures and an understanding of when it is appropriate to use each kind. Choice D is correct since this is the most accurate reason for why Kevin should evaluate the Residual Income. The remaining choices provide either an incorrect summary of Residual Income or provide the rationale for evaluating a different measure.

        1. Kevin is an employee in the finance department at Easy Trader Co. and is performing some financial analysis on their current year’s performance. Before he can begin looking at a variety of nonfinancial factors, including customer conversion rates and internal promotion scores, he will need to evaluate some financial performance measures. Which of the following provides the most accurate rationale for evaluating Economic Value Added?
  1. Evaluating after-tax income earned beyond the company’s cost of capital on its invested capital
  2. Evaluating income earned beyond the minimum required investment
  3. Evaluating profitability using a consistent measure like earnings without interest
  4. Understanding the cash implications of a company’s primary operating activities

Ans: A, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial performance measures and an understanding of when it is appropriate to use each kind. Choice A is correct since this is the most accurate reason for why Kevin should evaluate the Economic Value Added. The remaining choices provide either an incorrect summary of Economic Value Added or provide the rationale for evaluating a different measure.

        1. The accounting department of Stryker Inc. is putting together a financial analysis for management. They are focusing on performance measures and pulled together information from the two most recent years. If the accounting department wants to focus solely on financial measures, then how would you respond?
  1. This is a great idea since a company’s numerical performance plays a larger part in its success or failure than nonfinancial measures do.
  2. This is a great idea since the numbers and stories tell management about everything going on with the company.
  3. This is not a great idea since nonfinancial measures provide a much clearer and more accurate picture of how a company performed during the period under review.
  4. This is not a great idea since one form of measurement alone may not be enough to paint a complete picture of the company’s performance.

Ans: D, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial and nonfinancial performance measures and knowledge about when to use each kind. Choice D is correct because it accurately points out that focusing on only one form of measurement may not be enough to paint a complete picture of an organization’s performance. The remaining choices are incorrect because they place too much emphasis on one type of measurement or the other rather than emphasizing the value of and need for both.

        1. The accounting department of Stryker Inc. is putting together a financial analysis for management. They are focusing on performance measures and pulled together information from the two most recent years. If the accounting department would like to evaluate financial measures, then what is an appropriate choice for that evaluation?
  1. Evaluating all efforts exerted to drive financial results
  2. Evaluating the likelihood a customer would recommend Stryker to their friend
  3. Evaluating the operating, investing, and financing activities of the company
  4. Evaluating what markets are underserved in the industry

Ans: C, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial and nonfinancial performance measures and knowledge about when to use each kind. Choice C is correct because evaluating the operating, investing, and financing activities of the company is a good example of an appropriate use of those financial measures. The other choices are incorrect because they are all ways that you could evaluate nonfinancial measures.

        1. As an organization fine-tunes its strategies and defines its objectives, management will disseminate these strategies and objectives to various levels of the organization. While distributing tasks to other employees, management should ensure that outcomes remain congruent with their intentions. Which of the following best represents an example of goal congruence?
    1. Don is a salesperson tasked with double-checking payroll figures to diversify his skillset.
    2. John is an HR representative tasked with shadowing a salesperson to increase his understanding of that position.
    3. Sharon is an accountant tasked with creating a new ad campaign to attract customers.
    4. Tara is an administrative assistant tasked with teaching a new secretary the organization’s required skillset for serving customers.

Ans: D, LO 2, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with goal congruence and tasking assignments to achieve it. Choice D is correct because it accurately represents a task that ensures goals remain congruent. The remaining three choices are not correct since they would not ensure goal congruence.

        1. A football team knows that to accomplish their goals, those goals need to range from high-level organizational thinking to each individual player. The team has the following levels: franchise, team, and individual. What is an objective that would likely appear at both the team and individual levels?
    1. Attract the best players from across the country.
    2. Play each game with the level of intensity of a championship.
    3. Reduce the penalty yardage per player.
    4. Win a major championship within five years.

Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the dissemination of tasks throughout an organization. Choice B is correct since it is an objective that could reasonably appear at both the team and individual levels. This would not likely be a goal at the franchise level. The remaining three choices are not correct because they would either occur at the franchise level or at only of the team or individual levels.

        1. A football team knows that to accomplish their goals, those goals need to range from high-level organizational thinking to each individual player. The team has the following levels: franchise, team, and individual. What is an objective that would likely appear at the franchise level?
    1. Encourage team to ensure best outcome each game.
    2. Fill the stadium seats to at least 89% capacity for each game.
    3. Increase number of touchdowns per game.
    4. Play each game to win.

Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the dissemination of tasks throughout an organization. Choice B is correct since it is an objective that would likely appear at the franchise level. The remaining three choices are not correct because they would either occur at the team or individual levels.

        1. Once a business is ready to grow, they hire qualified candidates to work for them. The type of compensation offered and any additional offerings will vary depending on the job. Why is it important for companies to select the correct type of compensation?
    1. Appropriate compensation for each job ensures employees make just enough money to keep them from leaving.
    2. If compensation and performance align, then both act as motivators for employees.
    3. If compensation and performance are misaligned, then both will negatively motivate employees.
    4. The correct compensation for each job discourages employees from discussing compensation with one another.

Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with compensation and its importance to both the employees and the company. Choice B is correct because it correctly identifies the reason it is imperative to choose the correct type of compensation for each job. The remaining three choices are incorrect because they do not fully or accurately represent why it is important to select the correct type of compensation.

        1. Once a business is ready to grow, they hire qualified candidates to work for them. The type of compensation offered and additional offerings will vary depending on the job. If a company is looking to hire sales staff, then what would the most appropriate form of compensation be?
    1. Commission will motivate sales employees to increase company revenues since their sales will directly tie to their income.
    2. Hourly wages will incentivize them to spend more time with potential clients.
    3. Salary will be most appropriate for them, as it is a long-term position where payment depends on outcomes rather than hours logged.
    4. Stock options will reward sales staff for making sales and also ensure their compensation is unpredictable.

Ans: A, LO 2, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with compensation and its importance to employees and the company. Choice A is correct since it correctly identifies the most appropriate form of compensation for sales staff. This kind of position should aim to generate as much revenue as possible, so a commission-based system should prove most effective. The other three choices are incorrect because they are not the most appropriate type of compensation for sales staff.

        1. One of the most crucial components of having employees is to make sure their evaluations are both fair and appropriate. From an employee’s perspective, there are five significant aspects of the performance evaluation process. Which of the following best represents the communication perspective?
    1. Dale receives an email from HR addressing his frequent absenteeism.
    2. John has an annual review process where he receives feedback about his performance.
    3. Sandra has sit-down meeting with her manager to discuss methods for increasing her effectiveness.
    4. Sheryl and her manager work together to establish her goals for the upcoming year.

Ans: A, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the performance evaluation process from the employee perspective. Choice A is correct because it correctly identifies an example of the communication perspective that would include continuous communication about an employee’s behavior. The remaining three choices are all representative of the other aspects of the performance evaluation process.

        1. One of the most crucial components of having employees is to make sure their evaluations are both fair and appropriate. From an employee’s perspective, there are five significant aspects of the performance evaluation process. Which of the following best represents the compensation perspective?
    1. Andrea’s manager has set up a meeting to discuss a recent conflict with a coworker.
    2. Michael gives one of his employees some feedback on a recent project.
    3. Samantha is up for consideration for a promotion based upon her most recent sales metrics.
    4. Trevor is completing a self-evaluation form before his yearly performance review.

Ans: C, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the performance evaluation process from the employee perspective. Choice C is correct since it correctly identifies an example of the compensation perspective that would include awarding raises and promotions as a result of good performance. The remaining three choices are all representative of the other aspects of the performance evaluation process.

        1. From an employee’s perspective, one of the most important aspects of working for an organization is to be evaluated fairly. For the performance evaluation process, there are aspects from this perspective and each is important. Which of the following best represents the mentoring perspective?
    1. Daisy received formal feedback from her manager on her work.
    2. Mark and his manager go out to eat occasionally to discuss his future.
    3. Mary reviewed her team’s work and is documenting feedback with the intent of improving their performance.
    4. Stanley received a bonus for the year because he had record-setting sales this year.

Ans: C, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the performance evaluation process from the employee perspective. Choice C is correct since it correctly identifies an example of the mentoring perspective that would include giving feedback on employees’ work with the goal of increasing effectiveness. The remaining three choices are all representative of the other aspects of the performance evaluation process.

        1. From an employee’s perspective, one of the most important aspects of working for an organization is to be evaluated fairly. For the performance evaluation process, there are aspects from this perspective and each is important. Which of the following best represents the personal goals perspective?
    1. Angela requested a salary rather than an hourly wage since that is more in-line with her job duties.
    2. Austin schedules a meeting with his manager to ask for suggestions on improving his performance.
    3. HR emails Ryan a reminder about the company’s paid time off policy since it changed recently.
    4. Tamara meets with her manager to discuss her goals for the next quarter and how those goals fit into the larger vision of the organization.

Ans: D, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the performance evaluation process from the employee perspective. Choice D is correct because it gives a scenario from the personal goals perspective that would include employees setting goals with the guidance of management so they align with overall business goals and strategies. The remaining three choices are all representative of the other aspects of the performance evaluation process.

        1. Performance measurement is an important pillar of an organization’s management control system, and while these pillars are consistent, each business is likely to use different approaches for each one. Performance measurement is the fourth pillar and is an anchor in the process. Which of the following is representative of effective performance measurement in the setting of a college classroom?
    1. Clearly communicate requirements to students, but notify them that there are no further reminders of expectations.
    2. Ensure students receive timely feedback so they can adjust their behavior if needed.
    3. Shrink the scope of their responsibility as the students progress to avoid overwhelming them.
    4. Wait until midterms return grades to students and give them your feedback.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with performance measurement and how to effectively implement it. Choice B is correct because when students get timely feedback, they can either continue their good behaviors or to make changes to improve. The remaining three choices are incorrect since they are not effective for performance in a college classroom setting and may actually create a negative impact.

        1. Performance measurement is an important pillar of an organization’s management control system, and while these pillars are consistent, each business is likely to use different approaches for each one. Performance measurement is the fourth pillar and is an anchor in the process. Which of the following is representative of effective performance measurement in a call center environment?
    1. Assign the most challenging calls to the newest employees to motivate them.
    2. Clearly communicate call center goals using posters and management correspondence.
    3. Give feedback about performance on an annual review.
    4. Make sure employees know all calls are recorded and reinforce the consequences for missing targets.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with performance measurement and how to effectively implement it. Choice B is correct because the call center communicates their goals and expectations frequently and places reminders in locations where all employees will see them. The remaining three choices are incorrect because they are not effective for affecting performance in a call center setting and could create a negative environment.

        1. One important aspect of performance measurement is appropriately assigning responsibility based on the level of employee in the hierarchy of the company. If done incorrectly or in an imbalanced fashion, then employees may feel as though they have an unfair work environment. Which of the following responsibilities would be more appropriate to assign to a staff-level employee?
    1. To increase sales by four percent within the next two months.
    2. To recruit new staff for the art department so that they can continue to internally promote.
    3. To reduce the company’s employee turnover.
    4. To research and visit new potential markets.

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with responsibility assignment based on the level of employee. Choice A is correct as a short-term goal of two months to achieve a specific goal of a four percent increase in sales is in-line with a goal appropriate for a staff member. The remaining three choices are incorrect because they are either less specific or longer-term and would be more appropriate to assign to middle or upper management.

        1. One important aspect of performance measurement is appropriately assigning responsibility based on the level of employee in the hierarchy of the company. If done incorrectly in an imbalanced fashion, then employees may feel as though they have an unfair work environment. Which of the following responsibilities would be more appropriate for upper management?
    1. Hire a new payroll employee within the next week to fill a vacancy.
    2. Increase gross margin by ten percent during the second quarter of the New Year.
    3. Perform an analysis based on last year’s sales data, and compile a report.
    4. Reduce workforce shrinkage by five percent in next holiday season.

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with responsibility assignment based on the level of employee. Choice C is correct since it is a long-term goal with no specific time-frame for completion to achieve a less-specific performance measure, and that is in line with a goal that belongs in upper management. The other three choices are incorrect because they are either more specific or short-term or would be more appropriate to assign to staff or middle management.

        1. Companies will investigate and integrate tools to effectively evaluate themselves from both a financial and nonfinancial perspective. Both perspectives come with advantages and can assist in painting a more complete picture of how a business has performed. Why would a company choose to look at a nonfinancial measure?
    1. The company is concerned with its performance during the last fiscal year.
    2. The company is evaluating their sales tactics to determine what is effective for them.
    3. The company is not concerned with changing events as they transpire.
    4. The company would like to investigate whether there has been an increase in Accounts Receivable turnover.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial and nonfinancial measures used by a company to evaluate its performance. Choice B is the best answer since it is describing an action the company is taking rather than end results. The other three choices describe the use of financial measures for various tasks.

        1. Companies will investigate and integrate tools to effectively evaluate themselves from both a financial and nonfinancial perspective. Both come with various advantages and can assist in painting a more complete picture of how a business has performed. Why would a company choose to look at a financial measure?
    1. The company has concerns about its Earnings per Share trends over the past five years.
    2. The company is more concerned with ongoing performance as compared to how numbers ended in the most recent fiscal year.
    3. The company would like to better understand why their inventory turnover has decreased.
    4. The company would like to determine whether it should increase spending on research and development to increase variety in customer offerings.

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial and nonfinancial measures used by a company to evaluate its performance. Choice A is correct because it is describing an evaluation of past results rather than something is currently ongoing, and it is a quantitative measure. The other three choices describe the use of nonfinancial measures for various tasks.

        1. A small ceramics company is compiling data about its performance during the last two fiscal years. They reported the following:

Year 1

Year 2

Sales

$1,890,000

$2,150,000

Variable Costs

$923,023

$1,050,000

Fixed Costs

$550,000

$600,000

Tax Rate

25%

25%

Using the information above, what is their after-tax income for year 1?

  1. $104,244.19
  2. $241,744.19
  3. $312,732.75
  4. $416,977.00

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial measures companies use to evaluate their performance. The formula for After-Tax Income is: Pre-Tax Income × (1 – Tax Rate), and Pre-Tax Income = Sales – Variable Costs – Fixed Costs = $1,890,000 – $923,023 – $550,000 = $416,977. Therefore, the After-Tax Income = $416,977 × (1 – 0.25) = $312,732.75 (Choice C).

        1. A small ceramics company is compiling data about its performance during the last two fiscal years. They reported the following:

Year 1

Year 2

Sales

$1,890,000

$2,150,000

Variable Costs

$923,023

$1,050,000

Fixed Costs

$550,000

$600,000

Tax Rate

25%

25%

Using the information above, what is their after-tax income for year 2?

  1. $125,000.00
  2. $275,000.00
  3. $375,000.00
  4. $500,000.00

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial measures companies use to evaluate their performance. The formula for After-Tax Income is: Pre-Tax Income times (1 – Tax Rate), and Pre-Tax Income = Sales – Variable Costs – Fixed Costs = $2,150,000 – $1,050,000 – $600,000 = $500,000. Therefore, the After-Tax Income = $500,000 × (1 – 0.25) = $375,000.00 (Choice C).

        1. The owner of a local pet supply store fears their efforts to increase the store’s gross profit and net income are futile. They have compiled the following information from their financial statements over the last 2 years:

Year 1

Year 2

Sales

$520,000

$550,000

Cost of Goods Sold

$450,000

$398,000

Operating Expenses

$49,400

$48,500

What is the percent difference in the Gross Margin ratio for year 2 compared to year 1? (Round the gross margin for years 1 and 2 to two decimal places.)

  1. The percentage differs between years 1 and 2 by 12.35%.
  2. The percentage differs between years 1 and 2 by 14.18%.
  3. The percentage differs between years 1 and 2 by 14.86%.
  4. There is no difference in the Gross Margin ratio percentage between those two years.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with gross profit and its related financial performance metrics including gross margin and knowledge about how these items are expressed as a percentage of sales. First, calculate the gross margin ratio. That will equal the gross profit divided by the total sales. Year 2’s Gross Margin ratio is: ($550,000 - $398,000)/$550,000 = $152,000/$550,000 = 0.2764 or 27.64%. Year 1’s Gross Margin ratio is: ($520,000 - $450,000)/$520,000 = $70,000/$520,000 = 0.1346 or 13.46%. The difference between those percentages is: Percentage in Year 2 – Percentage in Year 1 or 27.64% - 13.46% = 14.18% (Choice B).

        1. The owner of a local pet supply store fears their efforts to increase the store’s gross profit and net income are futile. They compiled the following information from their financial statements over the last 2 years:

Year 1

Year 2

Sales

$520,000

$550,000

Cost of Goods Sold

$450,000

$398,000

Operating Expenses

$49,400

$48,500

Using horizontal analysis, what is the percent change in the Profit Margin ratio for year 2 compared to year 1? (Round profit margin ratios for years 1 and 2 to two decimal places.)

  1. The store reported 10.09% change in its profit margin ratio from Year 2 compared to Year 1.
  2. The store reported 14.18% change in its profit margin ratio from Year 2 compared to Year 1.
  3. The store reported 14.09% change in its profit margin ratio from Year 2 compared to Year 1.
  4. The store reported 14.86% change in its profit margin ratio from Year 2 compared to year 1.

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with net income and its related financial performance metrics including profit margin and knowledge about how these items are expressed as a percentage of sales. First, calculate the profit margin ratio. The profit margin ratio will equal net income divided by total sales. Year 2’s Net Income equals $550,000 - $398,000 - $48,500 = $103,500. Now, divide by sales to determine the percentages using horizontal analysis. $103,500/$550,000 = .1882 or 18.82%. Year 1 Net Income is $520,000 - $450,000 - $49,400 = $20,600. Now, divide that amount by sales to determine its percentage using horizontal analysis. $20,600/$520,000 = .0396 or 3.96%. The percent change is: Percentage in Year 2 – Percentage in Year 1 or 18.82% - 3.96% = 14.86% (Choice D).

        1. A local lawn care business is considering changing their credit policy for customers. Their accountant gathered the following information to help management decide.

Year 1

Year 2

Operating Expenses

$901,768

$942,680

Net Credit Sales

$608,550

$793,400

Cash Sales

$683,200

$864,320

The lawn care business would like to switch to an all-cash sales system since they currently collect only 72% of their credit sales. If they implement this change, then how would that impact the business?

  1. The company would experience an increase in cash collections since they have switched to all-cash sales system.
  2. The business would likely acquire new customers that like a business who sets strict terms.
  3. The company would experience an increase in net income since they would have increased collection of sales.
  4. The company would experience an increase in gross profit since they would have increased collection of sales.

Ans: A, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial performance measures including how various changes in company policies impact an organization’s financial position. Choice A is correct because having an-all cash sales system would lead to an increase in cash flow as sales would no longer remain in accounts receivable or potentially uncollected. The remaining choices are incorrect since they falsely associate an increase in cash sales with an increase in total sales or assume that a stricter policy would attract new customers.

        1. A local lawn care business is considering changing their credit policy for customers. Their accountant gathered the following information to help management decide.

Year 1

Year 2

Operating expenses

$901,768

$942,680

Net Credit Sales

$608,550

$793,400

Cash Sales

$683,200

$864,320

The lawn care business would like to switch to an all-cash sales system since they are collecting only 72% of their credit sales. The management team is not unanimously on board with the idea of making this change. Which of the following reasons is the most likely reason the management team is not on the same page?

  1. Existing customers may choose to take their business elsewhere since they like the product offerings of a competitor.
  2. Existing customers may choose to take their business elsewhere so they can have more generous terms and will not have to rely on cash for transactions.
  3. New customers may choose to go with a competitor due to a more desirable delivery schedule.
  4. New customers may choose to go with a competitor due to better discounts offered as part of a promotional credit.

Ans: B, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with financial performance measures including how various changes in company policies can impact an organization’s ability to attract or retain customers. Choice B is correct because having a more stringent cash-only sale policy may drive existing customers to take their business elsewhere so they have more generous terms. The remaining choices are incorrect because they are not likely reasons that management would disagree with this potential new policy. The incorrect choices all represent valid reasons a competitor might attract customers, but none are due to the potential cash-only policy.

        1. Global Dynamics is a large corporation with offices throughout the United States. They specialize in helping businesses grow and tackle issues with staffing and overall logistics. Global Dynamics has a variety of departments including accounting, human resources, sales, and customer service. Which of the following best represents a task for a staff accountant at Global Dynamics?
    1. Devise a plan for a ten percent improvement in the collection of Accounts Receivable over the next five years.
    2. Implement a plan for a five percent reduction in the days’ sales in receivables over the next month.
    3. Reduce employee turnover in the accounting department within the next six months.
    4. Reduce the number of days the monthly closing process takes over the next few months.

Ans: B, LO 2, Bloom: AN, Difficulty: Hard, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with work responsibilities for various employees at different levels and in different areas of the organizational hierarchy. Choice B is correct because it assigns a short-term objective with a specific performance measure to someone at a staff level. The remaining three choices are incorrect because they contain a mixture of long-term objectives or less-specific performance measures in addition to more short-term and specific performance measures.

        1. Global Dynamics is a large corporation with offices throughout the United States. They specialize in helping businesses grow and tackle issues with staffing and overall logistics. Global Dynamics has a variety of departments including accounting, human resources, sales, and customer service. Which of the following best represents a task for the Chief Information Officer at Global Dynamics?
    1. Create a new company policy to enhance security and reduce the likelihood of employees falling prey to cyberthreats.
    2. Create a new company policy to enhance security and reduce the likelihood of cyberthreats to employees by ten percent.
    3. Distribute a new communication policy within a week that disseminates information about appropriate company computer usage.
    4. Gather estimates for new anti-virus software that the company would like to purchase and install by the end of the year.

Ans: A, LO 2, Bloom: AN, Difficulty: Hard, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with work responsibilities for various employees at different levels and within different parts of the organizational hierarchy. Choice A is correct because it assigns a long-term objective with less-specific performance measures to someone at the upper management level. The remaining three choices are incorrect because they contain a mixture of long-term objectives and less-specific performance measures in addition to more short-term or specific performance measures.

        1. Stucker Corp. just started their annual company-wide evaluation of the most recent year’s performance. Management will look at many financial and nonfinancial measures as part of this comprehensive review. Their accountant compiled the following information:

Sales: $9,320,568

Operating Expenses: $7,623,004

Weighted Average Common Shares Outstanding ($2 per share): $12,467,200

If the company does not have preference shares and there is no income tax, then how much will their earnings per share (EPS) be for the year?

  1. $0.14
  2. $0.27
  3. $0.75
  4. $1.50

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the formula for EPS: Net Income minus Preferred Dividends divided by the Number of Weighted Average Common Shares Outstanding. Before using this formula, solve for Net Income amount and the Number of Weighted Average Common Shares Outstanding. Net Income = Sales – Operating Expenses = $9,320,568 – $7,623,004 = $1,697,564. The Number of Weighted Average Common Shares Outstanding = $12,467,200/$2 = 6,233,600 shares. EPS = $1,697,564/6,233,600 shares = $0.27 per share (Choice B).

        1. Stucker Corp. just started their annual company-wide evaluation of the most recent year’s performance. Management looks at many financial and nonfinancial measures as part of this comprehensive review. Their accountant compiled the following information:

Sales: $9,320,568

Operating Expenses: $7,623,004

Weighted Average Common Shares Outstanding ($2 per share): $12,467,200

If the company has $52,000 of preferred dividends and there is no income tax, then how much will their earnings per share be for the year?

  1. $0.26
  2. $0.27
  3. $0.75
  4. $1.49

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the formula for earnings per share (EPS), which is Net Income minus Preferred Dividends divided by Weighted Average Common Shares Outstanding. Before using this formula, you must first solve for both Net Income and the Number of Weighted Average Common Shares Outstanding. Net Income = Sales – Operating Expenses = $9,320,568 – $7,623,004 = $1,697,564. Weighted Average Common Shares Outstanding = $12,467,200/$2 = 6,233,600 shares. EPS = ($1,697,564 – $52,000)/6,233,600 shares = $1,645,564/6,233,600 = $0.26 per share (Choice A).

        1. Simone is a staff accountant for a local factory and has been asked to gather data and perform some analysis by the end of the week for the annual financial performance review. She compiled the following information:

Year 1

Year 2

Sales

$1,256,002

$1,439,754

Expenses

$883,458

$993,200

Depreciation

$82,344

$100,420

Amortization

$9,002

$10,430

Interest

$15,706

$18,722

Taxes

$45,000

$60,000

Assume that expenses do not include depreciation, amortization, or interest. What is the difference between earnings before interest and taxes (EBIT) for Years 1 and 2?

  1. $36,490 decrease
  2. $51,490 increase
  3. $54,506 decrease
  4. $54,506 increase

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the calculation of EBIT: Sales – Expenses – Depreciation – Amortization. EBIT, Year 1 = $1,256,002 – $883,458 – $82,344 – $9,002 = $281,198. EBIT, Year 2 = $1,439,754 – $993,200 – $100,420 – $10,430 = $335,704. The difference is ($335,704 – $281,198) = $54,506 Increase (Choice D).

        1. Simone is a staff accountant for a local factory, and she has been asked to gather data and perform some analysis by the end of the week for the annual financial performance evaluation. She compiled the following information:

Year 1

Year 2

Sales

$1,256,002

$1,439,754

Expenses

$883,458

$993,200

Depreciation

$82,344

$100,420

Amortization

$9,002

$10,430

Interest

$15,706

$18,722

Taxes

$45,000

$60,000

Assume that expenses do not include depreciation, amortization, or interest. What is the difference between earnings before interest, taxes, depreciation, and amortization (EBITDA) for Years 1 and 2?

  1. $36,490 increase
  2. $51,490 decrease
  3. $54,506 decrease
  4. $74,010 increase

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the calculation of EBITDA: Sales – Expenses (excluding certain items). EBITDA, Year 1 = $1,256,002 – $883,458 = $372,544. EBITDA, Year 2 = $1,439,754 – $993,200 = $446,554. The difference is ($446,554 – $372,544) = $74,010 Increase (Choice D).

        1. Carrie is currently a full-time employee at a law firm, and she also makes and sells jewelry online in her personal time. She is trying to evaluate her side business in terms of financial measures. The online shop generated the following numbers on average per month: Sales, $4,316.00; Variable Costs, $1,809.00; and Fixed Costs, $762.00. Carrie sold 1,144 units per month. What is Carrie’s annualized operating margin? (Round your answer to two decimal places.)
    1. 40.36%
    2. 40.43%
    3. 58.09%
    4. 82.34%

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the formula for operating margin: operating income divided by sales. First, calculate the monthly operating income which is sales – variable costs – fixed costs = $4,316.00 – $1,809.00 – $762.00 = $1,745.00 per month. Next, annualize that operating income: $1,745.00 × 12 = $20,940. Also annualize the sales: $4,316.00 × 12 = $51,792.00. In conclusion, calculate the operating margin using this equation: $20,940.00/$51,792.00 = 0.4043 or 40.43% (Choice B).

        1. Carrie is currently a full-time employee at a law firm, and she also makes and sells jewelry online in her personal time. She is trying to evaluate her side business in terms of financial measures. The online shop has generated the following numbers on average per month: Sales, $4,316.00; Variable Costs, $1,809.00; and Fixed Costs, $762.00. Carrie sold 1,144 units per month. What is Carrie’s annualized operating income if Carrie sold 1,200 units per month instead of her current monthly average? (Round intermediate calculations to two decimal places.)
    1. $20,940.00
    2. $22,392.00
    3. $31,536.00
    4. $45,144.00

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the formula for operating income: sales – variable costs – fixed costs. First, recalculate the sales per unit and variable cost per unit, and recalculate the aggregates for each with the new unit quantity, 1,200. Sales per unit = $4,316/1,144 units = $3.77 per unit. Variable Costs per unit = $1,809/1,144 units = $1.58 per unit. Updated Sales = $3.77 × 1,200 units = $4,524.00. Updated Variable Costs = $1.58 × 1,200 units = $1,896.00. Operating income per month = $4,524.00 – $1,896.00 – $762.00 = $1,866.00. To finish, annualize the operating income by multiplying this value by 12: $1,866.00 × 12 = $22,392.00 (Choice B).

        1. Kelsey has been making soy candles for friends and family for many years. Recently she debated making an official website to sell her candles to the general public. Her variable cost is $4.20 per unit, and she would sell each candle for $10.00. Her fixed costs will be $418.00 per month. How many units would she need to sell per year to completely replace her current annual salary of $36,450? Round your final answer to the nearest whole unit.
    1. 4,941 units
    2. 5,419 units
    3. 7,150 units
    4. 36,450 units

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with calculating various components of operating income using the following formula: Sales – Variable Costs – Fixed Costs = Operating Income. In this question, the operating income is not given, but the annual operating income would have to be at least equal to her annual salary of $36,450. First, annualize her costs. Fixed Costs = $418.00 × 12 = $5,016.00. Now, solve for her sales: Sales – Variable Costs – Fixed Costs = Operating Income. ($10.00 – $4.20)X – $5,016.00 = $36,450. $5.80X = $41,466. To calculate the units, she would need to sell: X = $41,466/$5.80 = 7,149.31 or 7,150 units (Choice C).

        1. Kelsey has been making soy candles for friends and family for many years. Recently she debated making an official website to sell her candles to the general public. Her variable cost is $4.20 per unit, and she would sell each candle for $10.00. Her fixed costs will be $418.00 per month. How many units would she need to sell per month, on average, to completely replace her monthly salary of $4,268? Round your final answer to the nearest whole unit.
    1. 370 units
    2. 663 units
    3. 664 units
    4. 808 units

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with calculating various components of operating income using the following formula: Sales – Variable Costs – Fixed Costs = Operating Income. In this question, the operating income is not known, but the operating income would have to be at least equal to her monthly salary of $4,268. Now, solve for sales: ($10.00 - $4.20) X – $418.00 = $4,268. To calculate the units that would need to be sold: X = $4,686.00/$5.80 = 807.93 or 808 units (Choice D).

        1. Trevor sculpts unique vases for houseplant when he is not working as a full-time vet technician at a small, family practice. Trevor’s side business has grown exponentially, and he would like to hire someone to help manage the online ordering system and pack orders for shipment. Currently, the monthly costs of his business include: Variable Costs of $10.00 per unit and fixed costs of $773.00. Hiring an assistant would increase his monthly costs by $5,423.00. If Trevor decides to hire the assistant, then how many additional units would he have to sell in a year to generate an annual operating income of $37,823 if the sales price is $18.00 per unit? Round final answer to the nearest whole unit.
    1. 519 units
    2. 6,228 units
    3. 9,527 units
    4. 14,022 units

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with calculating various components of operating income using the following formula: Sales – Variable Costs – Fixed Costs = Operating Income. To calculate this, assume that the annual sales amount is X. Hence, ($18.00 - $10.00) X – ($5,423 × 12) – ($773.00 × 12) = $37,823. $8.00X – $65,076 – $9,276 = $37,823. Annual Sales, X = ($37,823 + $65,076 + $9,276)/$8.00 = 14,021.88 or 14,022 units (Choice D).

        1. Trevor sculpts unique vases for houseplant when he is not working as a full-time vet technician at a small, family practice. Trevor’s side business has grown exponentially, and he would like to hire someone to help manage the online ordering system and pack orders for shipment. Currently, the monthly costs of his business include: Variable Costs of $10.00 per unit and fixed costs of $773.00. Trevor wants to make an annual operating income of $37,823 at a sales price of $18.00 per unit. How many of these units would Trevor have to sale working on his own? Round final answer to the nearest whole unit.
    1. 2,102 units
    2. 5,888 units
    3. 5,911 units
    4. 6,232 units

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with calculating various components of operating income utilizing the following formula: Sales – Variable Costs – Fixed Costs = Operating Income. To calculate this, first assume annual sales is X. Hence, ($18.00 – $10.00) X – ($773.00 × 12) = $37,823. $8.00X – $9,276 = $37,823. Annual Sales, X = ($37,823 + $9,276)/$8.00 = 5,887.375 or 5,888 units (Choice B).

        1. In an effort to balance financial and nonfinancial performance measures, an organization may choose a balanced scorecard (BSC). Manufacturers, service entities, and governmental organizations often use this tool to assess performance. Which of the following best represents the four traditional perspectives provided by BSC?
    1. Financial, Customer, External Business Process, Learning and Growth
    2. Financial, Customer, Internal Business Process, Learning and Growth
    3. Financial, Customer, Internal Business Purpose, Learning and Growth
    4. Financial, Vendor, Internal Business Process, Learning and Growth

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards and the four perspectives they utilize. Choice B is correct because it correctly identifies the four traditional perspectives. The other choices list four perspectives where at least one of the choices is incorrect.

        1. In an effort to balance financial and nonfinancial performance measures, an organization may complete a balanced scorecard (BSC). Manufacturers, service entities, and governmental organizations often use this tool to assess performance. Which of the following best represents the correct ordering from lowest to highest level of the four traditional perspectives?
    1. Customer, Financial, Internal Business Process, Learning and Growth
    2. Financial, Customer, Learning and Growth, Internal Business Process
    3. Financial, Internal Business Process, Customer, Learning and Growth
    4. Learning and Growth, Internal Business Process, Customer, Financial

Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards and their four perspectives. Choice D is correct in that it both identifies the four perspectives correctly and lists them in the correct order. The other choices list the four perspectives in the incorrect order.

        1. Sarah is the general manager for an electronics company, and they are currently evaluating company’s performance for the year. Sarah decided to use a balanced scorecard (BSC) to look at both financial and nonfinancial metrics. Which of the following would be an appropriate objective to be implemented under the learning and growth perspective?
    1. Hire an experienced sales manager
    2. Improve efficiency of collecting outstanding accounts
    3. Increase market share for the computer division
    4. Increase operating cash flows

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards and the appropriate objective to use for one of the perspectives. Choice A is correct as it correctly identifies an objective appropriate from the learning and growth perspective for an electronics company. The other choices contain an objective of one of the other perspectives of the BSC.

        1. Robert Kaplan and David Norton created the balanced scorecard (BSC) back in 1992 to help companies balance both financial and nonfinancial measures. Which of the following is one of the four perspectives in the BSC?
  1. Accounting perspective
  2. External business process perspective
  3. Learning and growth perspective
  4. Supplier perspective

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the four perspectives of the BSC. Choice C is the correct choice since it is the only choice listed that is one of the four perspectives. The other three choices are all incorrect variations of the four perspectives.

        1. Robert Kaplan and David Norton created the balanced scorecard (BSC) back in 1992 to help companies balance both financial and nonfinancial measures. Which of the following is unlikely to be considered one of the four perspectives in the BSC?
    1. Accounting perspective
    2. Customer perspective
    3. Financial perspective
    4. Internal business process perspective

Ans: A, LO 3, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the four perspectives of the BSC. Choice A is the correct choice since it is the only choice listed that is not one of the four perspectives. The other three choices are in the four perspectives of the BSC.

        1. The balanced scorecard (BSC) commonly measures what a company considers important from four different perspectives. The BSC must integrate with the organization’s mission, vision, and strategy, but it is predominantly a performance measurement tool to compare actual results against desired objectives. Which of the following phrases supports the rationale for using the financial perspective?
  1. Considers how an organization supports its people and infrastructure to drive and maintain growth
  2. Considers internal processes that are responsible for creating customer and shareholder value
  3. Considers the customer’s perspective and includes metrics that create and retain customer value and satisfaction
  4. Considers the shareholder’s perspective about various metrics such as growth and risk

Ans: D, LO 3, Bloom: AP, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the four perspectives in the BSC and knowledge about the rational that supports them. Choice D is the only choice of the four that supports the rationale for the financial perspective. The other three choices support the other three perspectives.

        1. The balanced scorecard (BSC) commonly measures what a company considers important from four different perspectives. The BSC must integrate with the organization’s mission, vision, and strategy, but it is predominantly a performance measurement tool to compare actual results against desired objectives. Which of the following questions would address the customer perspective?
  1. At what processes must we excel in order to satisfy customers?
  2. How must the organization learn and improve to achieve our vision?
  3. How must we look to our customers in order to achieve our vision?
  4. How must we look to our shareholders in order to succeed?

Ans: C, LO 3, Bloom: AP, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the four perspectives of the BSC and knowledge of what would support a rationale for one of them. Choice C is the only choice of the four that supports a question raised to address the customer perspective. The other three choices support one of the other three perspectives.

        1. The balanced scorecard (BSC) commonly measures what a company considers important from four different perspectives. The BSC must integrate with the organization’s mission, vision, and strategy, but it is predominantly a performance measurement tool to compare actual results against desired objectives. Which of the following supports the rationale for the learning and growth perspective?
  1. A happy customer will share their recommendation with others.
  2. A happy employee is a productive employee.
  3. A shareholder will be happy when we strive to increase company value.
  4. A well-functioning process will help the company achieve it operational goals.

Ans: B, LO 3, Bloom: AP, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the four perspectives in the BSC and knowledge of what would support a rationale for one of them. Choice B is the only choice of the four that supports the rationale for the learning and growth perspective. The other three choices support one of the other three perspectives.

        1. Sarah is the general manager for an electronics company, and they are currently evaluating company’s performance for the year. Sarah decided to use a balanced scorecard (BSC) to look at both financial and nonfinancial metrics. Which of the following would be an appropriate objective to be implemented from the internal business process perspective?
    1. Increase operating income growth
    2. Increase quality and decrease timing of shipping online orders
    3. Increase revenue per department
    4. Staff training for superior customer service

Ans: B LO 3, Bloom: AP, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards and the appropriate objective to use for one of the perspectives. Choice B is correct since it correctly identifies an objective appropriate from the internal business process perspective for an electronics company. The other choices contain an objective of one of the other three perspectives of the BSC.

        1. Cameron would like to improve the overall performance for the factory where he works. He has decided to use a balanced scorecard (BSC) so he can take both financial and nonfinancial performance into consideration. Which of the following would be an appropriate objective to implement from the customer perspective?
    1. Hire experienced customer service manager
    2. Increase market share
    3. Increase revenue per customer
    4. Reduce rework on assembly line

Ans: B, LO 3, Bloom: AP, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards and choosing appropriate objectives for one of the perspectives. Choice B is correct since it correctly identifies an objective appropriate from the customer perspective for a factory. The other choices contain an objective of one of the other perspectives of the BSC.

        1. Cameron would like to improve the overall performance for the factory where he works. He has decided to use a balanced scorecard (BSC) so he can take both financial and nonfinancial performance into consideration. Which of the following would be an appropriate objective to implement from the financial perspective?
    1. Increase customer retention
    2. Increase quality of end product
    3. Increase revenue per customer
    4. Reduce overtime for assembly line workers

Ans: C, LO 3, Bloom: AP, Difficulty: Easy, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards and choosing an appropriate objective for one of the perspectives. Choice C correctly identifies an objective appropriate from the financial perspective for the factory. The other choices contain an objective of one of the other perspectives of the BSC.

        1. At the completion of the most recent fiscal year, the management of Fast Cars, Inc., a dealership firm, is evaluating their performance. They created a balanced scorecard at the beginning of the year and identified an objective of increasing customer satisfaction. As part of their review process at the end of the year, what could they do next?
  1. Gather the actual data, compare it to the targets, and fire anyone in the customer service department who missed the target.
  2. Gather the actual data, compare it to the targets, and then adjust their strategy accordingly.
  3. Gather the actual data, compare it to the targets, and wait for an annual review to discuss what happened with management.
  4. Gather this year’s data, compare it to last year’s data, and adjust their strategy accordingly.

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards, different perspectives, and the elements that comprise each. Choice B is correct because it identifies the appropriate steps to take during the review process to ensure success. The other choices are all incorrect due to a missing element that is critical to a successful review.

        1. At the completion of its most recent fiscal year, the management of Fast Cars, Inc., a dealership firm, is evaluating their performance. They created a balanced scorecard at the beginning of the year and identified an objective of increasing customer satisfaction. What could they measure to see if they succeeded in their objective?
    1. Analyze the average customer satisfaction rating on distributed surveys.
    2. Calculate the percentage of employees who have completed the new customer service training implemented by HR.
    3. Calculate the total revenues generated by new clients.
    4. Evaluate the amount of time that it takes to process paperwork for new purchases.

Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards, different perspectives, and the elements that comprise each. Choice A is correct because it is an appropriate measure based on an objective of increasing customer satisfaction. The remaining three choices are incorrect since they measure other things that are not related to customer satisfaction.

        1. To improve overall performance, the management of Bella, an Italian restaurant, has begun their yearly review process. They have gathered actual data and are working their way through the balanced scorecard to evaluate the progress toward their objectives for the year. One of the big objectives was to decrease time from order placement to meal service. Their goal was 18 minutes or less, but their average for the year came out to 21 minutes. How should management handle this situation?
    1. Analyze data for which servers had the longest times and reprimand them.
    2. Fire the floor manager for failing to meet the objective on the balanced scorecard.
    3. Leave the target at 18 minutes, and insist the manager to meet this goal without revisiting the matter further.
    4. Revisit the initial goal of 18 minutes, and determine if it was reasonable now that there is more data available.

Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards, different perspectives, and the elements that comprise each. Choice D is correct because it represents an appropriate reaction by management for missing a goal set forth on a balanced scorecard. The remaining choices are incorrect as they represent a managerial mishandling of the missed target.

        1. To improve overall performance, the management of Bella, an Italian restaurant, has begun their yearly review process. They have gathered actual data and are working their way through the balanced scorecard to evaluate the progress toward their objectives for the year. One of the big objectives was to decrease time from order placement to meal service. Their goal was 18 minutes or less, but their average for the year came out to 21 minutes, and they have asked the floor manager for comments. What is a reasonable explanation for the difference between their target time and the actual timing they achieved?
    1. The restaurant had high turnover and new staff do not seem to fulfill their duties.
    2. The restaurant had high turnover, and new servers were slow to collect and close out checks.
    3. The restaurant recently increased its marketing efforts and saw a 25% increase in sales.
    4. The restaurant relies on a handwritten ticket system, and tickets sometimes get lost of delayed between order placement and food preparation or delivery.

Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards, different perspectives, and the elements that comprise each. Choice D is correct since it presents an issue that would have been present in the restaurant that also would have directly impacted the time from order placement to meal service. The remaining choices are incorrect as they are likely to impact other objectives that the company may have identified in the various perspectives.

        1. A local salon has reached the end of its second quarter of the current year and is evaluating the financial perspective of its balanced scorecard. The salon has decided to make some changes this year to become more competitive in their local market. One of their objectives is to increase their margins. What is an initiative and respective measure that management can put in place to try and achieve this?
    1. Serve more customers, drive revenue up, and measure the average customer satisfaction rating.
    2. Serve more customers, drive revenue up, and measure the percentage of new customers.
    3. Study competitors’ prices to observe trends, and measure change in their operating profit margin.
    4. Study competitors’ prices to observe trends, and measure change in the percentage of new customers served.

Ans: C, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards, different perspectives, and the elements that comprise each. Choice C is correct because the initiative of studying competitors’ prices to observe trends and then measuring the change in operating profit margin would be the most effective way to try and achieve their objective. The remaining choices might help meet other objectives the company is interested in but not the one specified in the problem.

        1. A local salon has reached the end of its second quarter of the fiscal year and is evaluating the financial perspective of its balanced scorecard. The salon has decided to make some changes this year to become more competitive in their local market. One of their objectives is to increase their revenues. What is an initiative that management can put in place to achieve this?
    1. Increase add-on offerings to customers, and measure total revenues.
    2. Increase the number of hours of operation, and measure the increased number of customers per week.
    3. Research appropriate pricing models, and measure operating income margin.
    4. Serve more customers, and measure the average customer satisfaction rating.

Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards, different perspectives, and the elements that comprise each. Choice A is correct because the initiative of increasing add-on offerings and then measuring the change in total revenues is the most effective way to achieve their objective. The remaining choices might help meet other objectives the company is interested in but not the one specified in the problem.

        1. Karen is the sales manager for a local car dealership firm and is working on a balanced scorecard (BSC) to evaluate the firm’s performance. Her current focus in on the financial perspective. Which of the following would be an appropriate initiative and measure if the firm’s objective is to increase revenue?
  1. Initiative: Implement differentiated customer selling prices, and Measure: Total revenues
  2. Initiative: Serve more customers through targeted marketing, and Measure: Total revenues
  3. Initiative: Serve more customers, and Measure: Operating cash flows
  4. Initiative: Serve only customers who have certain income levels, and Measure: Total revenues

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the BSC and appropriate initiatives to take and measures to use to achieve objectives as seen from given perspectives. Choice B correctly identifies both an initiative and a measure that are appropriate for increasing revenue for a car dealership firm. The remaining three choices contain a combination of initiatives and measures that are inappropriate for increasing revenues of a car dealership firm.

        1. Karen is the sales manager for a local car dealership firm and is working on a balanced scorecard (BSC) to evaluate the firm’s performance. Her current focus in on the customer perspective. Which of the following would be an appropriate initiative and measure if the firm’s objective is to increase customer satisfaction?
  1. Initiative: Continue customer feedback activity, and Measure: Average customer satisfaction rating
  2. Initiative: Continue customer feedback activity, and Measure: Customer Conversion Rate
  3. Initiative: Initiate new customer interactions, and Measure: Average customer satisfaction rating
  4. Initiative: Initiate new customer interactions, and Measure: Customer Conversion Rate

Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the BSC and appropriate initiatives to take and measures to use to achieve objectives as seen from given perspectives. Choice A correctly identifies both an initiative and a measure that are appropriate for increasing customer satisfaction for a car dealership firm. The remaining three choices contain a combination of initiatives and measures that are inappropriate for increasing customer satisfaction of a car dealership firm.

        1. The management team for an Italian restaurant has started its annual review of the overall performance of the organization. In an effort to include both financial and nonfinancial measures, they will complete a balanced scorecard (BSC). If they are focusing on the internal business process perspective, then which of the following would be an appropriate initiative and measure to decrease time from order placement to meal service?
  1. Initiative: Conduct efficiency study, and Measure: Percent of meals sent back per week
  2. Initiative: Conduct efficiency study, and Measure: Time from order placement to meal service
  3. Initiative: Hire new wait staff, and Measure: Percent of meals sent back per week
  4. Initiative: Hire new wait staff, and Measure: Time from order placement to meal service

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards and appropriate initiatives to take and measures to use to achieve objectives as seen from given perspectives. Choice B correctly identifies both an initiative and a measure that are appropriate for decreasing time from order placement to meal service for this Italian restaurant. The remaining three choices contain a combination of initiatives and measures that are inappropriate for decreasing time from order placement to meal service for this Italian restaurant.

        1. The management team for an Italian restaurant has started its annual review of the overall performance of the organization. In an effort to include both financial and nonfinancial measures, they will complete a balanced scorecard (BSC). If they are focusing on the learning and growth perspective, then which of the following would be an appropriate initiative and measure to increase employee satisfaction?
  1. Initiative: Implement employee wellbeing program, and Measure: Average employee satisfaction rating
  2. Initiative: Implement employee wellbeing program, and Measure: Percent of employees who complete the program
  3. Initiative: Implement training program, and Measure: Average employee satisfaction rating
  4. Initiative: Implement training program, and Measure: Percent of employees who complete the program

Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with balanced scorecards and appropriate initiatives to take and measures to use to achieve objectives as seen from given perspectives. Choice A correctly identifies both an initiative and a measure that are appropriate for employee satisfaction for an Italian restaurant. The remaining three choices contain a combination of initiatives and measures that are inappropriate for increasing employee satisfaction for an Italian restaurant.

        1. Alison is a baker who specializes in gluten-free cakes. She wants to determine what strategy makes sense for her business and has created the following options: 1) a regular cake at $25.00 per cake or 2) a cake with a base price of $30.00 with modifications costing extra. If Alison decides to proceed with option 1, then what is an appropriate internal business process perspective goal for Alison?
  1. Create a customer loyalty program with points awarded for each purchase.
  2. Create an employee wellness program for all employees, present and future, to encourage a better work environment.
  3. Increase social media marketing efforts to attract new customers.
  4. Reach out to new vendors to secure sourcing of raw materials and reduce internal costs.

Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with a BSC and how to identify appropriate perspectives. Choice D is correct because reaching out to new vendors to secure reduced cost materials would be an internal business process that aligns with Option 1. The remaining three choices could all be objectives and initiatives but align with other aspects of the BSC.

        1. Alison is a baker who specializes in gluten-free cakes. She wants to determine what strategy makes sense for her business and has created the following options: 1) a regular cake at $25.00 per cake or 2) a cake with a base price of $30.00 with modifications costing extra. If Alison decides to proceed with option 2, then what is an appropriate internal business process perspective goal for Alison?
  1. Create a training program for employees to learn new frosting techniques.
  2. Create weekly cake themes that utilize on-hand perishables and reduce waste.
  3. Distribute a customer satisfaction survey to gather data and feedback.
  4. Purchase a new oven to reduce baking times and improve order turnaround times.

Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with a BSC and how to identify appropriate perspectives. Choice D is correct because purchasing an oven to reduce baking times and improve turnaround times would be an internal business process perspective goal that aligns with Option 2. The remaining three choices could all be objectives and initiatives but align with other aspects of the BSC.

        1. Happy Occasions is a small florist slated to open later this year. In preparation for the business launch, the owner is evaluating strategies to optimize their potential for success. If the owner wishes to focus on maximizing customer satisfaction, then what would an appropriate customer perspective initiative be?
  1. Create weekly bouquet specials with different discounts available on different days.
  2. Establish a customer loyalty program with points and incentives.
  3. Optimize their ordering system to reduce incorrect orders and customer returns.
  4. Provide training to employees to reduce turnaround times on orders.

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with a BSC and how to identify appropriate perspectives. Choice B is correct because the establishment of a customer loyalty program aligns with the objective of maximizing customer satisfaction. The remaining three choices are also initiatives the company could use to change aspects of their organization but align with other perspectives.

        1. Happy Occasions is a small florist slated to open later this year. In preparation for the business launch, the owner is evaluating strategies to optimize their potential for success. If the owner wishes to focus on maximizing the number of new customers, then what would an appropriate customer perspective initiative be?
  1. Create a customer referral program with points and incentives.
  2. Distribute customer satisfaction surveys to gather data.
  3. Hire an experienced customer service manager.
  4. Maximize unique offerings and new arrangements

Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with a BSC and how to identify appropriate perspectives. Choice A is correct because the creation of a customer referral program aligns with the objective of maximizing the number of new customers. The remaining three choices are also initiatives the company could use to change aspects of their organization but align with other perspectives.

        1. As companies become established and wish to improve upon their operations, they will seek out tools to assist them. One tool, the balanced scorecard (BSC), is often used to summarize and evaluate both financial and nonfinancial information. Which of the following represents an appropriate usage of the data gathered from a BSC?
  1. After learning that employee turnover was higher than desired, management would like to fire existing staff and hire new employees.
  2. After learning that employees have a low satisfaction rating, the company will implement a well-being program.
  3. After receiving the desired customer satisfaction rating, management has removed their loyalty program because they believe customers will stay at their current levels of satisfaction.
  4. After successfully increasing market share, management has canceled all new social media campaigns.

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with a BSC and how to identify appropriate perspectives. Choice B is correct because management identified an area in need of improvement and plans to implement a new program to improve the issues identified by the employees. The remaining three choices are not appropriate uses of or reactions to information gathered from the BSC.

        1. As companies become established and wish to improve upon their operations, they will seek out tools to assist them. One tool, the balanced scorecard (BSC), is often used to summarize and evaluate both financial and nonfinancial information. Which of the following represents an inappropriate usage of the data gathered from a BSC?
  1. After receiving low quality ratings on individual products, management will improve their machining qualities.
  2. After reviewing customer conversion rates, management decided to initiate new customer interactions.
  3. After reviewing the customer satisfaction surveys, management will be implementing new measures to increase satisfaction.
  4. After reviewing the employee satisfaction survey, management decided to reprimand employees who gave a low rating.

Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with a BSC and how to identify appropriate perspectives. Choice D is correct as this is an inappropriate use of the knowledge gained from the employee satisfaction surveys. The remaining three choices would be appropriate uses of the data gathered from a BSC.

        1. A grocery store just finished another year of operations. As part of their annual wind-down process, they will compile the actual performance metrics to be used in their balanced scorecard (BSC). One of their objectives this year was to increase revenue as measured by total revenue. Which of the following could be a red flag that someone used unethical behavior to achieve this goal?
  1. A cashier chooses not to ring up a candy bar for a small child who did not have the correct change.
  2. A cashier voids out small cash transactions and keeps the money handed over by the customer.
  3. A manager records a sale twice at the end of the year and then reverses it out the subsequent year.
  4. A store clerk pockets an expensive cut of steak to take home and writes it off as damaged.

Ans: C, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the objectives used to achieve various perspectives on a BSC and what actions are unethical when trying to achieve those objectives. Choice C is the best response because the behavior is both unethical and the nature of the action aligns with the goal of increasing revenue for the current year. The remaining three choices are also unethical, but each would likely impact other goals the company or an individual may have.

        1. A grocery store just finished another year of operations. As part of their annual wind-down process, they will compile the actual performance metrics to be used in their balanced scorecard (BSC). One of their objectives this year was to increase customer satisfaction as measured by an increase in the average customer satisfaction rating. Which of the following could be a red flag that someone used unethical behavior to achieve this goal?
    1. A cashier rings up an order twice and immediately corrects the mistaken, hoping the customer is satisfied by the interaction.
    2. A manager creates several new email addresses so they can falsely complete multiple customer satisfaction surveys.
    3. A manager gets kickbacks to promote a new product that will likely make customers more excited to shop at the store.
    4. A store clerk decides to help a customer to their vehicle with their groceries in the hopes that the customer will give the store a better rating on a survey.

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with the objectives used to achieve various perspectives on a BSC and what actions are unethical when trying to achieve those objectives. Choice B is correct because the behavior is both unethical and it aligns with the goal of increasing the reported ratings for customer satisfaction in the current year. The remaining three choices are a mix of unethical or ethical, but none are both unethical and aligned with increasing the customer survey satisfaction ratings.

        1. A small textile manufacturer just completed their balanced scorecard (BSC) for the upcoming year. After evaluating feedback from customers and employees, they have decided to focus their efforts on several areas. If the company wishes to improve employee satisfaction, then which of the following pairs would be the most effective initiative and the best measure to use?
    1. Initiative: Conduct an employee satisfaction survey; and Measure: Average employee satisfaction rating
    2. Initiative: Conduct an employee satisfaction survey; and Measure: Employee turnover
    3. Initiative: Hire an experienced manager; and Measure: Average employee satisfaction rating
    4. Initiative: Hire an experienced manager; and Measure: Employee turnover

Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with perspectives of a BSC and establishing the correct initiatives and measures to achieve certain objectives. Choice A is correct since it contains the appropriate combination of an initiative and a measure that focus on improving employee satisfaction. The other three choices are also within the learning and growth perspective, but they would not achieve the goal of improving employee satisfaction.

        1. A small textile manufacturer just completed their balanced scorecard (BSC) for the upcoming year. After evaluating feedback from customers and employees, they have decided to focus their efforts on several areas. If the company wishes to increase their unique fabric offerings, then which of the following pairs would be the most effective initiative and the best measure to use?
    1. Initiative: Conduct efficiency study; and Measure: Number of new vendor relationships
    2. Initiative: Establish relationships with new vendors; and Measure: Number of new vendor relationships
    3. Initiative: Establish relationships with new vendors; and Measure: Quality rating of new vendors
    4. Initiative: Improve machining capabilities; and Measure: Quality rating of new offerings

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: This question requires familiarity with perspectives of a BSC and establishing the correct initiatives and measures to achieve certain objectives. Choice B is correct since it contains the appropriate combination of an initiative and a measure that would focus on increasing the number of unique fabric offerings. The remaining other choices are also within the internal business process perspective, but they would not achieve the goal of increasing unique fabric offerings.

Short Answers

        1. What is a strategic plan? How do businesses use strategic plans to achieve success? What are the five components of a strategic plan, and what do they entail?

Ans: NA, LO 1, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: A strategic plan is a comprehensive, potentially multi-year plan for an organization that also contains an operating plan. Businesses use strategic plans to set both the short-term objectives and the long-term goals that they strive to achieve on multiple levels. The first component of a strategic plan is “Mission and Vision.” A business’s mission comes first since it defines the business’s purpose or reason for existence. A business’s vision is a narrative that outlines a picture of what an organization will look like after it has achieved its objectives. The second component of a strategic plan is “Goals and Objectives.” This is where the business sets its long-term goals. These long-term goals are broken into sets of tangible short-term objectives for the upcoming year. The third component of a strategic plan is “Strategies and Initiatives.” Strategies and initiatives are the chosen methods and techniques the organization will implement to achieve both their short-term objectives and their long-term goals. The fourth component of a strategic plan is “Measures and Targets.” This section involves taking information gathered from across the organization and putting that information into a meaningful and measurable form that the business can use to measure performance throughout the organization. The fifth and final component is “Results.” This section summarizes a company’s actual performance, whether financial or nonfinancial, and compares the actual performance to predetermined performance targets.

        1. What is the overall goal of a business organization? What are Porter’s Five Forces? How can these help a business achieve its overall goal?

Ans: NA, LO 1, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: The overall goal of a business organization is to generate a profit while also creating value. Porter’s Five Forces is a framework for evaluating an organization’s competitive landscape by examining (1) competitive rivalry, (2) threats of substitutes, (3) threats of new entrants, (4) the power of customers, and (5) the bargaining power of suppliers. Evaluating competitive rivalry involves looking at whether there are existing competitors who may provide potential customers with alternative suppliers. It is important to be aware of any threats of substitutes so the organization can plan for what actions to take if a substitute is available to potential customers. New entrants to the industry can create a more competitive landscape as well by giving potential customers other options. The power of customers must consider to determine how to segment customers in a manner that allows the business to offer appropriate products to different customers. Finally, the power of suppliers is a measure of the amount of influence that suppliers can have on an industry by controlling things like sales price and quantities available. By assessing these five forces in the planning phase of an organization, a business is more likely to achieve its goal of generating a profit by optimally assessing and controlling the variables that are within their own power to control.

        1. What is SWOT analysis, and how it most often used by businesses? Are these elements most likely to be internal or external? In your response, please make sure to discuss each component.

Ans: NA, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: When an organization has identified the challenges, they are likely to encounter within their industry, they will want to develop ways to overcome them. SWOT analysis is one tool that can be used to begin this process. SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. The strengths analysis is an internal assessment of areas where the organization feels it does well in working towards their goals. The weaknesses analysis is an internal assessment wherein the organization takes a serious look at areas that need improvement because they negatively impact their chances of success. Opportunities exist externally and represent current prospects or future endeavors that could benefit the organization. Threats exist externally and represent any current or forecasted challenges that may be unfavorable. These four elements are split with strengths and weaknesses being internal and opportunities and threats being external.

        1. While performing analysis of their overall performance, organizations will often evaluate both financial and nonfinancial factors. What are some ways that an organization can evaluate their performance from a financial perspective? What about from a nonfinancial perspective?

Ans: NA, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: For financial performance, results are compared to past performance for relevant metrics. These measurements are common because they are both objective and measurable. Some commonly used financial measurements include: the company’s gross margin to determine a firm’s ability to mark-up from cost; the company’s earnings-per-share to evaluate the return on a single share of stock; and the company’s turnover ratios to evaluate a company’s effectiveness at collecting accounts receivables or selling inventory. There are many other values used as well. Nonfinancial performance is different than financial performance in that it focuses on what is happening right now as compared to what has already transpired. An organization can use different nonfinancial measurement for different departments to measure performance. For example, a Human Resources department could use employee training satisfaction to measure how satisfied employees are with the training provided, and an Accounting department could look at vacation days earned versus vacation days used to determine if employees are taking adequate time to relax.

        1. As a manager for a large organization, you may have to find a way to motivate employees. This could include evaluations in addition to compensation. What are four ways that employees can be compensated, and when it is most effective to use each?

Ans: NA, LO 2, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: When it comes to motivation, people will have different reactions to what is being offered to them, so it is important for management to assess what is appropriate to offer. Four ways of offering compensation include: hourly wages, salaries, commissions, and bonuses. Hourly wages are best for positions that require fewer skills, but employees who work for hourly pay should also expect to receive overtime pay when they work over a base number of hours. Salaries are most effective for positions with larger skillsets where long-term employment is the expectation. Employees who have salaried compensation are typically tasked to produce certain outcomes or meet certain deadlines rather working a specific number of hours. Commissions are generally used as a motivation tactic for employees in sales positions. The goal here is to encourage the employee to increase revenues, so their compensation is partially based on a percentage of their total revenues or sales. Bonuses are effective as occasional offerings. Employers may give these on a yearly basis or more frequently, but the bonuses will typically be tied to a performance metric determined by management.

        1. What is a balanced scorecard (BSC), and why was it created? Discuss the four traditional areas the framework divides an organization’s objectives and metrics into.

Ans: NA, LO 3, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: A BSC balances a company’s financial and nonfinancial performance measures and looks at these factors from multiple perspectives. A BSC divides an organization’s objectives and metrics into four traditional perspectives: a financial perspective, a customer perspective, an internal business process perspective, and a learning and growth perspective. The financial perspective looks at the company’s performance from the perspective of a shareholder and addresses metrics they might find important like risk, growth, or profits. The customer perspective takes a hypothetical customer’s view of the performance of the company and evaluates metrics that create value for that customer. The internal business process perspective considers processes internal to an organization that create value for both customers and shareholders. The learning and growth perspective focuses on how a company chooses to support its people and on its infrastructure with the goal of keeping employees both productive and happy. A BSC is a useful management tool that helps an organization reach its overall goal of generating a profit.

Brief Exercises

        1. When a new business starts up, a time will come when its creators must determine what makes up the core of that business. Take a moment to reflect on the role that mission and vision play in a strategic plan created for an organization. Briefly describe why these components are such a crucial and integral part of a business.

Ans: NA, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: The mission and vision of a business will inform and direct all steps towards goal achievement. Once an organization sets its mission and vision, the organization can craft a strategic plan and an operating plan from there. Setting the mission and vision at the inception of an organization is crucial because that sets the tone for what the business wants to achieve and how it will propel itself forward.

        1. A metaphor for the strategic planning process for a business could be a long and winding road where changes are unavoidable despite the best laid plans. In the beginning, management and/or the owners will strive to define the business mission and vision to outline how they plan to achieve this. What is a strategic plan, and what are the components it contains?

Ans: NA, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: A strategic plan is a comprehensive plan for an organization that also contains an operating plan and may span multiple years. The strategic plan normally contains an operating plan that outlines outcomes for the year ahead and plans to achieve them. The components of a strategic plan are: mission and vision, goals and objectives, strategies and initiatives, measures and targets, and results.

        1. Sharon needs travel from Los Angeles to a client site in San Diego that is 120 miles away. The company will be paying for her travel, and they asked her to choose one of the following options (listed from most to least expensive): Airplane (50 minutes), train (2 hours and 55 minutes), rental car (2 hours), or bus (3 hours and 15 minutes). If the customer’s value proposition is to obtain the fastest mode of transportation without regard to price, then which two options is she most likely to consider?

Ans: NA, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: Sharon’s customer’s value proposition is to consider the fastest transportation, so on the list provided, that is airplane or rental car. While there are possibly cheaper options, the airplane and rental car will probably get her to her destination the fastest. The customer value proposition requires that she choose between operation excellence and product leadership. In this case, the airplane or the rental car will achieve the product leadership that Sharon needs.

        1. The following objectives are items of continuous improvement appropriate for many companies in different industries.

1. Reduce employee’s time wasted

5. Increase the number of new product offerings

2. Reduce product damages

6. Reduce launch times for new products

3. Increase market share

7. Increase profit margin

4. Increase customer retention

8. Improve coordination to reduce delivery times

Categorize each of these 8 objectives as a product differentiation or cost leadership strategy. If any of the objectives fit both categories, then briefly explain why.

Ans: NA, LO1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: The following objectives are product differentiation strategies: 3, 4, 5, 6, and 7. The following objectives are cost leadership strategies: 1, 2, 3, 7, and 8. Numbers 3 and 7 comfortably fit in both categories since both objectives can be accomplished by being cost-efficient or offering a unique product or both. Others could arguably be both, but this cannot be determined without more information about the companies.

        1. Sarah is a receptionist at a doctor’s office and collects a salary of $48,500 per year. Last year, she started a gourmet cupcake business where she runs a small stand on weekends and takes online orders during the week with the help of a part-time assistant. Demand for the bakery continues to increase, and she is considering whether to leave her receptionist job and start baking full-time. Making this her full-time career would allow her to grow her business, but she would no longer be able to keep her additional part-time assistant. Below are her average monthly results based on sales of 1,305 units:

Sales $7,830.00

Variable Costs (includes assistant wages of $2.05 per unit) 5,376.60

Contribution Margin $2,453.40

Fixed Costs 678.00

Operating Income $1,775.40

Does it make financial sense for Sarah to leave her full-time job and pursue being a full-time baker?

Ans: NA, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: Yes, based on the information available, it makes financial sense to make the change since she would earn $53,407.80 annually after the change.

This question requires familiarity with annualizing monthly income and accounting for the direct labor Sarah would not be able to keep. The monthly Direct Labor earned is $2.05 × 1,305 = $2,675.25. To annualize that, will multiply the monthly amount by 12: $2,675.25 × 12 = $32,103.00. Her annualized operating income = $1,775.40 × 12 = $21,304.80. When you combine these amounts, $32,103.00 + $21,304.80 = $53,407.80. This amount is more than her current salary, so it would make sense for her to leave her receptionist position and bake full-time.

        1. Johnson Lawncare Company is deciding whether they need to change their credit policies for new and existing customers. Management feels the company is not as liquid as they should be because of a perceived increase in collection times. To check that perception, they pulled the following information from their past two balance sheets:

Year 1

Year 2

Net Credit Sales

$820,000

$900,600

Accounts Receivable, beginning

123,000

106,600

Accounts Receivable, ending

106,600

77,400

What are the accounts receivable turnover in each year? Is management justified in believing that collections have become less effective?

Ans: NA, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: Accounts Receivable Turnover: Year 1, 7.14; Year 2, 9.79. Year 2 is higher, so that means that the company is collecting faster than it previously had. Management is not justified in believing that collections have become less effective.

This question is using financial measures to evaluate a company’s performance and requires calculation of accounts receivable turnover. The formula for accounts receivable turnover is: Net Credit Sales/Average Accounts Receivable. So, for Year 1 this is $820,000/(($123,000 + $106,600)/2) = $820,000/$114,800 = 7.14. And, for Year 2 this is $900,600/(($106,600 + $77,400)/2) = $900,600/$92,000 = 9.79. Year 2 has the higher turnover meaning the company collected its accounts receivable faster in Year 2 than in Year 1, so the perception is incorrect.

        1. Fabulous You, Inc. sells women’s clothing online with a target demographic of young professionals entering the workforce after graduation. Within the past year, management has noticed a decline in sales for items including t-shirts and maxi dresses, while suits and leggings have seen an increase in sales.

Year 1

Year 2

Sales

$2,424,000

$2,909,500

Cost of Goods Sold

989,250

1,101,360

Inventory, beginning

88,468

212,632

Inventory, ending

212,632

163,450

They want to evaluate the overall financial health of the company, so they look at their inventory and their efficiency at managing that inventory through fluctuations in sales. Management wants to know if decreases in sales for some items are of concern or if increases in sales of other items offset them. What is the inventory turnover for each year, and how should management interpret this?

Ans: NA, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: Inventory Turnover: Year 1, 6.57; Year 2, 5.86. Year 2 has a lower inventory turnover, and that means that the company is turning over its inventory slower than it had in year 1. Management is correct to conclude that decreased sales of some items has adversely impacted their ability to sell their inventory despite increased sale of other items.

This question uses financial measures to evaluate a company’s performance and requires calculation of inventory turnover. The formula for inventory turnover is Cost of Goods Sold/Average Inventory. The sales values given are not needed to solve this problem. For Year 1, the turnover is $989,250/(($88,468 + $212,632)/2) = $989,250/$150,550 = 6.57. And, for Year 2 the turnover is $1,101,360/(($212,632 + $163,450)/2) = $1,101,360/$188,041 = 5.86. Year 2 has a lower inventory turnover, and that means the company turns its inventory slower than Year 1.

        1. Below is a list of measures used by organizations to evaluate their objectives:

Employee sick time accrued versus used

Residual Income

Earnings per share

Gross profit percentage

Period cost per unit

Employee turnover

Internal promotion rate

Customer Satisfaction

The list contains both financial and nonfinancial measures and measures that are either quantitative or qualitative. What categories do each of the objectives fall into: financial or nonfinancial and quantitative or qualitative? (Choose one from each set.) If a company wanted to evaluate employee satisfaction, then would any of the objectives above help measure that?

Ans: NA, LO 2, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: Employee sick time accrued versus used: Nonfinancial and Quantitative

Earnings per Share: Financial and Quantitative

Period Cost per unit: Financial and Quantitative

Internal promotion rate: Nonfinancial and Quantitative

Residual Income: Financial and Quantitative

Gross Profit Percentage: Financial and Quantitative

Employee turnover: Nonfinancial and Quantitative

Customer satisfaction: Nonfinancial and Qualitative

If the company wanted to evaluate employee satisfaction, then they could use employee sick time accrued versus used to determine whether employees were taking advantage of their time outside of work to take care of their health. They could also use employee turnover rate to determine if employees leave and how soon after hire they do so. If the employee turnover is low, then they could talk to employees about why they are satisfied to determine what is working well.

        1. Here are some objectives commonly found on strategy maps for companies in a variety of fields and industries:

Decrease product defects

Reduce employee turnover

Increase employee satisfaction

Increase customer satisfaction

Increase margins

Increase employee well-being

Expand product offerings

Increase sales growth

Which of the choices provided are important to most organizations and why? Would each organization follow the same trajectory to achieve their desired outcomes?

Ans: NA, LO 3, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: The following objectives would likely be important to most organizations, regardless of industry: Increase employee satisfaction, increase margins, reduce employee turnover, increase customer satisfaction, increase employee well-being, and increase sales growth. These are all goals applicable to most businesses whereas the following would apply to less businesses: Decrease product defects and expand product offerings are both objectives that apply to a business manufacturing product that is looking to diversify its offerings. Each organization is likely to create their own unique trajectory to achieve their desired results because each business has members, missions, and visions that make it different from other businesses, even those within the same industry.

        1. Braxton Inc. is a factory that produces trendy and decorative kitchen cabinet hardware. They just finished their third year of operations, so management decided it would like to thoroughly evaluate the performance of the organization, both financial and nonfinancial. They are planning to use a balanced scorecard (BSC) for the first time, and they are currently working on the customer perspective. What are two appropriate objectives Braxton could identify for the year? Additionally, what initiatives, measures, and targets would help them to evaluate their performance?

Ans: NA, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution: In evaluating the customer perspective, Braxton Inc. will want to consider what matters to their customer base while also creating value for them. Assuming they can keep their customers happy, they should be able to retain existing customers while attracting new customers. The following objectives would be appropriate for Braxton Inc. to focus on along with some possible initiatives, measures, and targets that could help the evaluation:

    1. Increase customer satisfaction
  • Initiative: Continue customer feedback activity
  • Measure: Average customer satisfaction rating
  • Target: 9.8 out of 10
    1. Increase the number of new customers
  • Initiative: Begin new customer interactions
  • Measure: Customer conversion rate
  • Target: Increase number of new customers by 25% or of more

Both objectives could be great choices to assist Braxton in their efforts. The first objective will keep them focused on keeping their customers happy. Focusing on the second will help them grow their customer base and increase the number of new customers.

        1. Miguel’s Pizzeria creates and sells handmade individual pan pizzas that are available with variety of sauce and topping options. The company is evaluating its key operating activities and has specified the following two objectives as internal business process goals on their balanced scorecard (BSC).

Objectives

Initiatives

Measures

Targets

Actual

1. Reduce average time from order to table delivery

2. Increase quality of ingredients

Complete the above chart by identifying an appropriate initiative, measure, and target for each of these objectives. Please also explain why each is appropriate.

Ans: NA, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. Reduce average time from order to table delivery
  • Initiative: Conduct efficiency study
  • Measure: Time from order placed to pizza served on the table
  • Target: 12 minutes maximum

This is an appropriate metric to evaluate because the time between order to table delivery is an internal process that can be controlled by the company. By setting a maximum time of 12 minutes, they can measure the efficiency of the current system, and that help them determine how close they are to achieving this metric.

  1. Increase quality of ingredients
  • Initiative: Conduct a rotation procedure for perishable items
  • Measure: Number of days perishable items are open before used
  • Target: 4 days or less

This is an appropriate metric to evaluate because the rotational use of perishable items, such as produce, is an internal process that can be controlled by the company. By setting a target time of 4 days, tracking the current system’s rotation paradigm will help them determine how close they are to achieving this metric.

        1. A salon is working to update and revitalize their positioning within the market. They will be completing a balanced scorecard (BSC) and are starting with a couple of objectives from the learning and growth perspective.

Objectives

Initiatives

Measures

Targets

Actual

1. Increase employee knowledge with new techniques

2. Train and recruit at least one new stylist from the local beauty school

Why is each objective above important in this perspective? What would an appropriate initiative, measure, and target for each objective be?

Ans: NA, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. Increase employee knowledge with new techniques

This objective is important to the learning and growth perspective because it affords the company the opportunity to be able to assist their employees with obtaining new knowledge.

  • Initiative: Improve employee training program
  • Measure: Number of hours logged per employee
  • Target: 30 training hours per employee
  1. Train and recruit at least one new stylist from the local beauty school

This objective is important to the learning and growth perspective because it affords the company the opportunity to recruit new stylists and grow the business and the industry.

  • Initiative: Implement a recruitment program at local beauty school
  • Measure: Number of stylists hired per school cycle
  • Target: 1 per semester

Exercises

        1. Shawn is a chef who has been working at a local French restaurant. He has finally saved enough money and secured additional external financing to open his own restaurant. He decided to specialize in plant-based food with choices that include veggie burgers, salads, smoothie bowls, soups, and pasta. He is confident his skills will lend themselves to crafting desirable products that will garner a lot of support and interest from his community. Currently, there are no restaurants that are solely plant-based in his area. He would like to open a brick-and-mortar store in the next six months, and he is fully aware that much work must be done before that. As part of his planning, he enlisted the help of a business manager, Chris. The first step of their analysis will be to identify factors that shape this industry and to use this information to create a unique and well-developed strategy. Chris would like to sit down with Shawn and discuss these items together before proceeding. With this in mind, please answer the following questions.
    1. What would an appropriate element of each of Porter’s Five Forces that this new restaurant business is likely to encounter be?
    2. Is the company using a cost leadership or product differentiation strategy, and what is the difference between these strategies?
    3. If you were helping Chris and Shawn develop a strategy, what advice would you give them, and are there any additional considerations they should be aware of?

Ans: NA, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. The following is a list of Porter’s Five Forces and elements that Shawn is likely to encounter in his business:
  • Competitive rivalry – Shawn is in the restaurant business, so his competitive rivalry would be other restaurants in the area. While he specializes in plant-based food, he may be competing with other non-plant-based restaurants as well.
  • Power of customers – This force will require Shawn to determine what he offers that makes him unique and appealing to customers. His demographic is most likely to be younger and some may have health concerns. He would be wise to continue investigating what motivates these customers to select where they dine.
  • Threat of substitutes – Shawn must be aware that customers choosing his restaurant may also be satisfied by mail-order delivery kits that specialize in plant-based meal preparation, prepared foods from a local grocer, and websites dedicated to providing frozen versions of the items like those that he prepares in his restaurant.
  • Threat of new entrants – Shawn should be aware that food trucks and other restaurants that begin to offer plant-based options are likely to syphon some of his business away, giving his customers alternative selections.
  • Bargaining power of suppliers – Shawn will have to decide how to source his produce and goods. He might be best served by either purchasing from a national chain with a wide range of offerings or dealing with a local provider and advertising the use of locally sourced products.
  1. Shawn appears to be leaning towards a product differentiation strategy as his focus is on providing unique product offerings. Product differentiation requires a company to focus on uniqueness, customization, and quality of the products to set them apart. By comparison, a cost leadership strategy requires a company to focus predominately on cost effectiveness and cost reduction for both the business and its customers. There is a possibility for a business to adopt a strategy that falls between these strategies on a spectrum, but that does not appear to be the case with Shawn’s restaurant.
  2. If I were helping Chris and Shawn develop their strategy, I would encourage them to continue to examine Porter’s Five Forces in more detail. If the threat of competitive rivalry or new entrants is a large concern, then they could speak with local officials and determine if any new businesses have filed for registration in the area. A plan like this would give them perspective about what the general market appears to be doing. They may also want to look into what, if any, restaurants have closed within the last 6 to 12 months to determine what may have hampered their success. Taking the appropriate amount of time upfront to do this kind of research will lend itself to creating a successful strategy.
        1. Teresa is a dog groomer who has recently become licensed and is now able to take on clients. She decided to go out on her own at the end of the current year and start her own business, Happy Wags Dog Grooming. The goal of Happy Wags will be to provide a spa-like experience for dogs where they will be pampered and groomed and given a fun experience while in Teresa’s care. She is aware that there will be challenges to starting her own business, and she wants to be sure she gets it right. When Teresa took a business class in college, she learned about SWOT analysis and how it helps create a strategy for new businesses. Teresa secured a location in an up-and-coming downtown neighborhood that has attracted many other new businesses recently. She would like to have her business strategy and SWOT analysis completed in the next couple of months. Taking all of this into consideration, answer the following questions.
  3. As part of the SWOT analysis, what are some examples of Happy Wags’ internal strengths and weaknesses?
  4. As part of the SWOT analysis, what are some examples of external opportunities and threats for Happy Wags?
  5. Why do companies use a SWOT analysis as part of their strategy, and what are some advantages and disadvantages of opting to use this method?

Ans: NA, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. As part of the SWOT analysis, Happy Wags may have the following internal strengths and weaknesses:

Strengths

  • Teresa is a licensed groomer who can operate independently.
  • Teresa is offering an immersive spa experience for dogs that exceeds that of her competitors.
  • Teresa has an existing client base that is strong.

Weaknesses

  • Not having a mobile platform for her services will make her less available.
  • Costs will be higher with additional services being offered.
  • Teresa cannot afford to hire anyone else to work with her.
  1. As part of the SWOT analysis, Happy Wags may have the following external opportunities and threats:

Opportunities

  • Happy Wags could become the premiere dog groomer in the area.
  • They could also retain existing clients and grow the business through referrals.
  • Teresa can eventually hire additional groomers to expand her business.
  • Being in an up-and-coming location could garner a lot of interest from the local community.

Threats

  • Existing groomers are already in nearby locations.
  • Customers may seek a lower priced grooming option even if it is a less spa-like offering.
  • Groomers could copy her model and open similar competing businesses.
  • There is a possibility of the city or state implementing new taxes for service businesses.
  1. Companies often use SWOT analyses to help them move from identifying obstacles and challenges to determining how to overcome them. By identifying internal strengths and weaknesses, the company can generate ideas about how to overcome them. By identifying external opportunities and threats, they can analyze and determine how to best approach each of these issues and formulate a plan to overcome them. Some advantages of SWOT analysis are its simplicity, cost, and applicability. A SWOT analysis is done by gathering employees and having a brainstorming session where input can be solicited from many people and perspectives. Some disadvantages of SWOT analysis are the fact that by design, it does not weight items on the list by any type of priority, and in some cases an organization’s strengths can also be its weaknesses. If management is aware of these factors, then a SWOT analysis can be a useful tool for strategizing.
        1. Turner Company sells new and used instruments and has a full-service instrument repair and maintenance department on site. Turner appreciates its customers, many of whom have remained very loyal over the course of Turner’s existence. The company provides free guitar tuning for anyone that purchases a guitar from them. They also have a membership program available at a low cost that rewards customers with a free set of strings for their preferred instrument every month. When a customer chooses Turner for their repair and maintenance needs, the company ensures that all issues, known and potentially unknown, are addressed before the instrument leaves the repair department. Many customers have purchased a variety of instruments over the years from Turner, and others that bought their instruments elsewhere still utilize Turner for their top-notch customer service and maintenance offerings. With this in mind, please answer the following questions.
  2. As it pertains to their operating strategy, which side of Porter’s spectrum would Turner reside on: product differentiation or cost leadership? What led you to this conclusion?
  3. What if Turner operated on the other side of the spectrum from what you selected for part (a)? How would their strategy be different, and what would distinguish this approach from your original choice?
  4. How would either strategy identified in parts (a) and (b) provide an advantage for Turner in the marketplace? Do you have any other suggestions as to how they can improve their operations?

Ans: NA, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. Turner Company’s operating strategy resides on the product differentiation side of Porter’s spectrum since their primary focus is on creating a memorable experience and product for their customers. Their customer base specifically seeks them out because of the exceptional experiences they provide, whether those experiences are procuring a new or used instrument, having an item serviced, or being a member of their loyalty program. Their focus is not on providing the lowest cost or the eliminating non-value-added activities, so they would not be classified as cost leadership.
  2. If Turner were operating on the cost leadership side of the spectrum rather than the product differentiation side of the spectrum, then there would be a much larger focus on low cost rather than strictly on high quality. If they were to implement that sort of strategy, then they would likely include items such as coupons, member discounts, clearance and sale items, and place more emphasis on offering the most cost-efficient service possible to customers. It is possible that this approach may create an entirely different client-base than they currently serve by attracting customers who more concerned with price and cost-savings than they are with the level of service that Turner currently provides.
  3. With the model of business Turner selected, their best choice is to continue focusing on a product differentiation strategy. This perspective attracted new customers for them and keeps existing customers happy and willing to return. They may eventually consider implementing some strategies more aligned with cost leadership goals, but I would recommend against a shift fully to that side of the spectrum. Overall, Turner has done an excellent job of creating a sustainable and desirable service. They may want to consider offering additional membership benefits or discounts to regularly create renewed interest in their offerings.
        1. An organization is designing a system to evaluate its performance. Below is a list of various measures that could accomplish this goal.

1. Net promoter score

6. Vacation days earned vs. used

2. Accounts receivable turnover

7. Days in financial statement close process

3. Overdue project percentage

8. Gross margin

4. Operating cash flow

9. Residual income

5. Average time to hire

10. Earnings per share

Please follow the instructions and answer the following questions.

  1. Classify each measure as financial or nonfinancial and as leading or lagging. When is it appropriate to use each?
  2. Classify each measure according to the functional area of the organization that would find it most relevant and applicable – for example, sales and marketing, manufacturing, human resource, accounting and finance, and upper management.
  3. How are companies able to use these measures to evaluate performances at both the individual and company-wide levels?

Ans: NA, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. The following measures are both financial and lagging: 2. Accounts Receivable Turnover, 4. Operating Cash Flow, 8. Gross Margin, 9. Residual Income, and 10. Earnings per Share. The following measures are both nonfinancial and leading: 1. Net Promoter Score, 3. Overdue project percentage, 5. Average time to hire, 6. Vacation days earned vs. used, and 7. Days in financial statement close process.
  2. The Accounting and Finance Department would use the following measures: 2. Accounts Receivable Turnover, 6. Vacation days earned vs. used, and 7. Days in financial statement close process. 1. The Sales and Marketing Department would use: Net Promoter Score. The Manufacturing Department would have an interest in: 3. Overdue project percentage. The Human Resource Department would use: 5. Average time to hire. The Upper Management (or department-level management) would use: 4. Operating cash flow, 8. Gross Margin, 9. Residual Income, and 10. Earnings per Share. Other departments may use some of these measures, but these measures are likely to best serve the departments as they appear here.
  3. Companies use certain measures to determine performance outcome after events have transpired using lagging indicators. These indicators use information that has already transpired and are the results of past decisions. Management must be mindful that to rely solely upon lagging indicators will not assist them in accounting for data as it happens in real-time. By using leading indicators, companies can measure the results of company actions as they stand. Meaningful changes can be implemented proactively, and changes can be made to impact the outcome.
        1. Under a well-constructed management control system, an organization needs to make some decisions about its Performance Measurement Process (PMP). Sarah is a manager for a small toy factory, and she knows she must be mindful of the role the management control system will play in motivating employees to head in the same direction while also aligning with company goals. Sarah is in the early phases of her design, but she knows that upper management would like the company to be extremely profitable while also keeping employees satisfied. With this in mind, please answer the following questions.
    1. In addition to acknowledging the complexity of the design for this process, what are some additional considerations that Sarah should make?
    2. How does responsibility change for employees as they move into upper-level management positions? What should Sarah keep in mind while setting up the PMP?
    3. What are the most significant aspects of the performance evaluation process from an employee’s perspective? How can Sarah ensure her PMP considers all these aspects?

Ans: NA, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. In addition to keeping the complexity of the design in mind, Sarah could additionally consider the following:
  • Strengthen the clarity of employee evaluation measures by clearly communicating the organization’s mission, vision, goals, objectives, and benchmarks. This would strengthen employer and employee outcomes because all parties would be well-informed about their expectations.
  • Set a realistic and well-documented timeline for performance evaluations with enough time built in for constructive criticism and praise.
  • Make sure to measure things that matter and are effective indicators of the organization’s performance.
  • Assure that evaluation measures are rigorous enough to motivate employees but are also both realistic and attainable.
  1. When employees join an organization at the lowest level of the employment hierarchy, their responsibilities will likely include short-term objectives with specific performance measures. As employees progress through the hierarchy and move into middle and upper-management, they are likely to have responsibilities that are more oriented towards long-term objectives with less-specific performance measures. Sarah will want to keep in mind the potential number of employees at each of level of the hierarchy to ensure equitable distribution of the work and responsibilities.
  2. From an employee’s perspective, the following are the most significant aspects of performance evaluations:
  • Personal goals: Management guides and assists employees in goal setting so their goals align with overall business goals and strategies.
  • Communication: Offer continuous communication between employees and managers about the work and behavior of the employees.
  • Mentoring: Give employees feedback on their work with the overall goal of increasing effectiveness.
  • Evaluation: Utilize employees’ input to provide more formal feedback on their work.
  • Compensation: Ensure good performance results in promotions and raises as warranted.

Sarah can consider all aspects by creating an evaluation plan using these aspects as starting points during her design.

        1. Baldwin Landscaping Services is entering its fifth year of operations and is currently performing its year-end analysis. Organizational management evaluates both financial and nonfinancial measures to determine what areas may need improvement. They asked Karen, a staff accountant, to collect some data and perform an analysis on their accounts receivable. Karen has gathered the following information:

Year 1

Year 2

Accounts Receivable, beginning

$97,832

$95,600

Accounts Receivable, ending

$95,600

$110,880

Net Credit Sales

$1,020,410

10% increase over last year

Use the information above to answer the following questions. (Use 365 days in each year, and round all calculations to two decimal places.)

  1. What are the Accounts Receivable Turnovers in Years 1 and 2, and what is the percentage change between years?
  2. What are the Days’ Sales in Receivables in Years 1 and 2, and what is the change between years?
  3. Based on this initial analysis, which year was more efficient at collection of accounts receivables, and what changes could the organization make (if any) to improve these financial metrics?

Ans: NA, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. Accounts Receivable Turnover: Year 1 = 10.55, Year 2 = 10.87. Change = 3.03% increase in year 2

The Accounts Receivable Turnover is calculated with the following formula: Net Credit Sales/Average Accounts Receivable. Net Credit Sales in Year 2 = $1,020,410 × 1.10 = $1,122,451.

Year 1 = $1,020,410/(($97,832 + $95,600)/2) = $1,020,410/$96,716 = 10.55

Year 2 = $1,122,451/(($95,600 + $110,880)/2) = $1,122,451/$103,240 = 10.87

% change in accounts receivable turnover = (10.87 – 10.55)/10.55 = 3.03% increase in year 2

  1. Days’ sales in receivables: Year 1 = 34.60 days, Year 2 = 33.58 days. Change in days’ sales in receivables = 1.02 days less in year 2

The Days’ Sales in Receivables is calculated with the following formula: 365 days/Accounts Receivable Turnover (from part a).

Year 1 = 365/10.55 = 34.60 days

Year 2 = 365/10.87 = 33.58 days

Change = 34.60 days – 33.58 days = 1.02 days less in year 2

  1. Based on this initial analysis, the company did a more efficient job of collecting accounts receivable in Year 2. In that year, it took them 1.02 fewer days, on average, to collect than it did in the previous year. At an initial glance, it seems like the company’s collection period has improved, but management may feel this improvement is not as significant as they would like to see. One suggestion would be to set a goal to have a collection time of less than 30 days. Management may choose to revisit their collection policies and consider utilizing penalties or charging interest on accounts that take longer to pay.
        1. Turner Electronics is a retail store that specializes in the sale of small electronics including televisions, computers, and stereo equipment. Management has been concerned that the company is both overordering and not turning over merchandise as quickly as they did in years prior. Once inventory has been available for sale for six months, the store marks the sales price down so that they can make room for new products. Management would like to perform some analysis and determine if their concerns are valid. Here is some partial information from their recent financial statements:

Year 1

Year 2

Inventory, beginning

$1,237,542

$1,450,682

Inventory, ending

$1,450,682

$1,832,327

Cost of Goods Sold

$2,643,903

$2,900,431

Use the information above to answer the following questions. (Use 365 days in each year, and round all calculations to two decimal places.)

  1. What is the Inventory Turnover in Years 1 and 2, and what is the percentage change between years?
  2. Based on the answer from part a, determine the Days’ Sales in Inventory in Years 1 and 2, and calculate the change between the two years.
  3. Based on this initial analysis, which year was more efficient at turning over inventory, and what suggestions, if any, could be made to management to improve these financial metrics?

Ans: NA, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. Turnover: Year 1 = 1.97, Year 2 = 1.77. Change = 10.15% decrease

The Inventory Turnover is calculated with the following formula: Cost of Goods Sold/Average Inventory.

Year 1 = $2,643,903/(($1,237,542 + $1,450,682)/2) = $2,643,903/$1,344,112 = 1.97

Year 2 = $2,900,431/(($1,450,682 + $1,832,327)/2) = 2,900,431/$1,641,504.50 = 1.77

% change = (1.77 – 1.97)/1.97 = 10.15% decrease in year 2

  1. Days’ Sales in Inventory: Year 1 = 185.28 days, Year 2 = 206.21 days. Change = 20.94 days more in year 2

The Days’ Sales in inventory is calculated with the following formula: 365/Inventory Turnover (from part a).

Year 1 = 365/1.97 = 185.28 days

Year 2 = 365/1.77 = 206.21 days

Change = 206.21 – 185.28 = 20.94 more days in year 2

  1. Based on this initial analysis, the company did a less efficient job of turning over inventory in Year 2. It is taking them an average of 20.94 additional days compared to the previous year which is almost three full weeks. This increase also moves them farther from the six-month mark where they begin to discount their existing inventory. Management could order less inventory and keep less stock on hand or consider marking items down before the six-month mark to move inventory out faster. If they continue with their current behavior, then they will continue to take more days to turnover inventory, and this will only make matters more concerning.
        1. Florals Inc. is a specialty fabric store that services customers in the market for unique fabrics and patterns. They have an online presence and do not have any intention of opening a brick-and-mortar location, but they would like to increase sales over the next year. They have a small group of shareholders and are compiling information together so that they can set goals for the next fiscal year. Management would like to formulate a comprehensive plan within the next month. They have enlisted the assistance of department heads from across the organization. Please answer the following questions.
    1. What are the four perspectives of a balanced scorecard? Describe the general rationale for each.
    2. Provide one objective, initiative, measure, and target for each perspective in this scenario, and explain whether or not these perspectives must all be linked?
    3. What advice could you give to management about the goals and objectives you provided in part b, and are there any additional tools management could use to augment their balanced scorecard when setting company strategy?

Ans: NA, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. The four perspectives of a balanced scorecard are:
  • Financial perspective – This perspective focuses on the shareholder’s point of view and what financial metrics turn shareholder values into company objectives. A company will use this perspective do decide if they should make sales in new markets, increase sales to existing customers, or find ways to use their existing assets more effectively. Overall, the company wants to ensure their financial metrics are progressing in a way that benefits the company and its shareholders.
  • Customer perspective – This perspective focuses on how a customer perceives the company and the value they receive from interacting with the company. There is also a desire to measure customer satisfaction and not just customer retention. A company should always keep in mind that customers who have a positive experience with them are more likely to continue to support the business than ones that have a negative experience.
  • Internal business process perspective – This perspective focuses on the internal processes a company has that create value for both customers and shareholders. This perspective allows the company to look inward and determine whether there is any room for improvement in their established processes.
  • Learning and growth perspective – This perspective focuses on how an organization supports its people and the opportunities it provides to foster growth. Employee engagement and satisfaction reside within this perspective, and it is in the organization’s best interest to keep its workforce satisfied, growing, and productive.
  1. Financial perspective:

Objective – Increase revenue per customer, Initiative – Direct marketing to the chosen customer segment, Measure – Revenue per customer, and Target – 15% increase over last year.

Customer perspective:

Objective – Increase customer retention, Initiative – Initiate customer satisfaction surveys, Measure – Number of repeat customers, and Target – 35 repeat customers per month

Internal business process perspective:

Objective – Provide variety of offerings, Initiative – Research consumer trends and behaviors, Measure – Number of new offerings, and Target – Add one new offering per month

Learning and growth perspective:

Objective – Retain textile engineers, Initiative – Initiate comparative compensation study, Measure – Length of employment, and Target – Keep textile engineers for 5 or more years

All the perspectives on the balanced scorecard should be linked, and they should all support one another. Not linking them all might cause certain parts of the business to strive towards a goal that does not support another part of the business.

  1. Management should consider how they can ensure all four perspectives of the balanced scorecard remain linked and supportive of one another. A lot of the objectives for the upcoming year show a strong inclination towards increasing sales and revenue. Management’s strategy should include a focus on customer satisfaction that may include soliciting feedback from customers in addition to already identified initiatives. An additional tool management could use might be a strategy map that would visually link their chosen objectives to the four perspectives.
        1. Sarah is a dressmaker who operates a small online marketplace. Her business, Fancy Knits, has grown beyond Sarah’s capacity to handmake all requested items herself. She knows she will soon have to outsource her sewing to another company or individual. When she outsources, she will be able to continue to grow her business and expand it into new markets. Sarah has a dedicated clientele she would like to engage with in more meaningful ways, so she is considering an increase in her social media presence. Sarah has big hopes and dreams, and she would like her business to continue to be successful without trying to expand too quickly. Sarah knows that proper planning and adoption of a strong strategy provide her with the best chance of success.
  2. What is a strategy map, and why do businesses use them? Would Fancy Knits be able to utilize a strategy map in their strategic planning?
  3. If the company decides that they would like to focus on customers during their next fiscal year, then what would an appropriate objective be on their balanced scorecard? Would this perspective directly impact any other balanced scorecard perspectives?
  4. Which strategy does the objective you created best reflect: cost leadership or product/service differentiation? If you were talking to Sarah, what current strategy would you recommend she keep using?

Ans: NA, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

    1. A strategy map is a tool used by management in conjunction with or instead of a balanced scorecard (BSC). This map visually links chosen objectives to the four BSC perspectives focusing on the links between perspectives. The company’s mission and vision should drive decisions that management makes to achieve its objectives as shown on the map. The map can make visible connections between objectives that may otherwise not naturally reveal themselves. Yes, Fancy Knits should be able to use a strategy map with a BSC or on its own.
    2. If Fancy Knits would like to focus on customers during the next fiscal year, then an appropriate objective on their BSC could be to increase or maintain customer satisfaction, or the objective could be to increase customer retention. Both of these objectives, which are within the customer perspective, will have an impact on the other BSC perspectives. If they are successful in increasing the customer retention or maintaining or increasing customer satisfaction, then this will also impact the financial perspective by increasing revenue. It will be important for Sarah to determine what the other perspectives are and how they connect as she finalizes her objectives.
    3. The objective(s) described in part (b) are more in line with a product differentiation strategy since the focus is on the quality and uniqueness of the dresses that Sarah makes and sells. If I were talking to Sarah, then I would encourage her to continue using this type strategy since her focus should not be on cost leadership. She is selling a unique product that appeals to her customers’ desires to have something special rather than the least expensive choice. Sarah could eventually choose to integrate some cost leadership strategies if she wants to expand into additional markets. This may include adding a sale or discounted section to her website where less unique items sell for less.
        1. Sacha is a manager for Foto Corp., a company that sells decorative and engravable picture frames. The company has just completed its fifth year in business. Management is very pleased to learn that the company has exceeded the financial goals it outlined at the beginning of last year. This was the first year the company chose to use a balanced scorecard to help their planning and strategy efforts. Below are two sections from their completed balanced scorecard along with the actual final value of the metric for each:

Financial

Objectives

Initiatives

Measures

Targets

Actual

Increase revenues

Increase sales per month

Monthly revenue growth percentage

4%

5.20%

Increase revenue per customer

Research customer markets and increase direct marketing

Revenue per order

$25

$27.50

Customer

Objectives

Initiatives

Measures

Targets

Actual

Increase customer satisfaction

Gather customer surveys

Average customer satisfaction rating

4.6 out of 5

4.3

Increase number of new customers

Initiate new customer interactions

Customer conversion rate

28% or higher

20%

Use this information to answer the following questions.

  1. As you evaluate the results of the balanced scorecard, how would you say Foto performed on its financial objectives, and how did it perform on its customer objectives? Provide as much detail as possible for both.
  2. If a balanced scorecard was completed thoroughly, then should there be links connecting parts of the customer and financial perspectives? How well do Foto’s customer objectives link or relate to its financial objectives?
  3. How was Foto able to produce the results shown in the financial perspective while generating the results in the customer perspective? Is this a combination that is likely to be present in future years?

Ans: NA, LO 3, Bloom: E, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. After evaluating the balanced scorecard for Foto, it is clear they performed well and exceeded their financial targets as set. They wanted to increase revenues by 4% every month and managed to achieve an average of 5.2%. They also wanted to increase revenue per customer to a per-order average of $25 and ended the year with a per-order revenue of $27.50. The company exceeded their both targets in the financial perspective, and that indicates that the goals were both realistic and attainable and management was successful there. After reviewing the performance of the customer perspective, it appears that Foto did not meet their targets for either objective. Their average customer rating was 4.3 out of 5, and that is short of the 4.6 out of 5 goal they set for themselves. Their customer conversion rate was only 20%, but they were trying to achieve a target of 28%, a notable difference.
  2. If a balanced scorecard was completed thoroughly, then there should be links connecting the customer and financial perspectives. Ideally, a balanced scorecard aims to create objectives that support its perspective and align with the objectives from other perspective on the card. In the case of Foto’s balanced scorecard, the customer-based objectives involved increasing the number of customers Foto has. This supports their financial objectives since having more customers and make a purchase also increases their revenue.

Even though Foto was not able to achieve their targets in the customer perspective, they were still able to surpass the targets from their financial perspective section. Initially, this may seem incompatible since there was failure in one area but success in another area. This might be explained in multiple ways. It is possible Foto increased the amount of traffic through the store but failed to convert visitors into customers, but existing customers who did purchase, spent more on average than they did in previous past. The missed target of customer satisfaction could be due to the population of people submitting their responses being unhappy with something outweighing satisfied customers that did not submitting a survey. If Foto chooses not to change any of their current approaches, then they may find a similar performance for years to come, so these results would be likely to appear again.

Problems

        1. Brian and Mark are in the early stages of planning for a café they would like to open. Brian has a strong business background and currently works as a staff accountant at the corporate office for a local restaurant chain. Mark has been the store manager for a small bakery for the past few years where he was started as a barista. The two of them believe that combining their complementary skill sets will provide them the best opportunity to succeed in the café industry. Their café will feature unique roasts of coffee and espresso sourced from a local coffee bean roastery. They would also like to bake gluten-free and vegan desserts to sell to their customers. Brian and Mark intend to market their offerings as a premium choice and are aware that the pricing will not appeal to all, especially those strictly seeking the cheapest option. They would also like the café to offer space for small community events and in-house events like trivia, book signings, or open mic nights. They have scouted locations and believe they will take over another café’s lease since the current renters have chosen to close their shop after eleven years. The neighborhood where the building is located also features trendy shops, dog parks, bookstores, and local restaurants. Brian and Mark have tentatively decided to name their café Java City and would like to open within the next 9 months if possible.
  1. Are Brian and Mark using a cost leadership or product differentiation, and why?
  2. What is an appropriate strategic plan the company should set for themselves, and what is an appropriate way to measure their performance?
  3. Identify a factor for each of Porter’s Five Forces that could impact the strategy for the company.
  4. If the company also decides to perform a SWOT Analysis, then what are the internal strengths and weaknesses and external opportunities and threats the company could encounter?
  5. If you needed to make a recommendation to management based on your analysis in parts a, b, c, and d, what would you select? Please provide as much detail as possible to support your decision.

Ans: NA, LO 1, Bloom: S, Difficulty: Medium, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. Brian and Mark are utilizing a product differentiation approach for Java City. They are opting to focus on the uniqueness and customizability of their products rather than lowering costs. As they get closer to open, they may choose to integrate some cost leadership strategies to entice new customers, and this would then put them in the middle of the strategy spectrum as described by Porter.
  2. An appropriate strategic plan for Java City would be to generate enough in sales to completely cover costs in their first year and to realize an increase in the following year. An appropriate performance measure for this plan would be the sales revenue. To be more precise, they could set a target for sales growth by 5% each year. Since this is the beginning of their operation, they may not focus on operating profit. But they may add operating profit as additional measure later. For this, the manager would have monthly and quarterly meetings to determine how well resources are being managed to accomplish the goal. An annual performance would provide an opportunity to provide raises or bonuses for a favorable performance or to detail what happened in the event of unfavorable performance.
  3. The following is a list of Porter’s Five Forces and elements that Brian and Mark are likely to encounter in his business:
  • Competitive rivalry – Java City is a café that sells both coffee-based drinks and gluten-free and vegan desserts. This industry has a lot of existing competitors including other local coffeeshops and bakeries and large chains and franchises.
  • Power of customers – The demographic of Java City is likely to include customers of all ages looking to support a local business or with dietary needs that lead them there. Brian and Mark will want to eventually narrow down offerings to appeal to repeat customers to continue to draw them away from their competitors.
  • Threat of substitutes – Brian and Mark need to be cognizant that their customer base may also be satisfied making coffee-based drinks at home from a store-bought mix or having similar products delivered.
  • Threat of new entrants – Brian and Mark need to be aware that other coffee houses may open in the area and choose to offer similar products. Local bakeries or restaurants may choose to integrate gluten-free or plant-based items into their menu, and that may give Java City’s customers different businesses to meet their needs.
  • Bargaining power of suppliers – Brian and Mark have decided to feature locally roasted coffee beans, but they must decide how to source the products that they will use for their baked goods. They might use a local provider for that as well contributing to their uniqueness, or they could use a larger chain that saves some money.
  1. As part of their SWOT analysis, Java City may have the following internal strengths and weaknesses and external opportunities and threats:

Strengths

  • Brian has an extensive business background.
  • Mark has a lot of experience in the food and coffee industry.
  • They have good relationships with local suppliers.
  • Java City will be able to cater to clients’ unique needs and offer them gluten-free and vegan options.

Weaknesses

  • An expensive menu may prove difficult to sustain.
  • The start-up costs are high since they must buy all products up front.
  • They are unable to run the business by themselves and will have to pay for labor.

Opportunities

  • They will be a proud customer of locally sourced coffee beans for their coffee and espresso.
  • They could gain a following with customers in the area frequenting some of the other businesses.
  • Eventually, they might franchise this business or open another location.
  • There is an option to obtain a mobile truck once they establish name recognition in the area.

Threats

  • There are already existing cafes in the area.
  • A wide variety of substitute products are on the market.
  • There are existing bakeries in the area that also sell gluten-free desserts.
  • A local ordinance could pass that heavily regulates how they bake their goods.
  1. If I were in charge of assisting in formulating a plan based upon the analysis performed thus far, I would highly recommend that Java City use a product differentiation strategy to begin. This would be an effective marketing tool to set the business apart from other competitors in the area by noting that Java City is a proud customer of locally sourced goods from the community. While the SWOT analysis revealed some areas that Brian and Mark can focus on, they could also spend some time prioritizing which of these areas to address first. The initial strategic plan and performance measure are adequate at this stage of the planning process, but I would recommend identifying an actual percentage to target.
        1. Tracy is the Chief Financial Officer for Trendy in a Box, a publicly traded fashion delivery subscription-based company headquartered in New York City. Trendy is entering its fourth year in business and has experienced annual sales growth every year. Their customers vary in age, gender, and geographic location. Trendy’s includes accountants, customer service reps, warehouse staff, and personal shoppers, personal shopper is the most sought-after position in the organization. All employees, except for warehouse workers and personal shoppers, have the option to work in-office or remotely and this has created some unique tax issues for Trendy in a Box to overcome. Tracy is preparing for the company’s annual employee meeting where they discuss the past year and reveal plans for the upcoming year. Tracy is consulting all departments and asking each for data. Tracy would like to see Trendy continue growing and would like to present a plan to all Trendy’s employees at the upcoming meeting. With all of this in mind, answer the following questions with the objective of preparing Tracy for the meeting.
  2. What are some examples of financial performance measures this company could use and why choose those? Would other companies use the same measures?
  3. What are some examples of nonfinancial performance measures that Trendy company could use and why choose those? Will all Trendy’s departments use the same measures?
  4. One company-wide goal is to improve staff evaluation procedures. What are the five most important aspects of the staff performance evaluation process from the employee’s perspective, and how can Trendy ensure they are thoroughly addressing each?
  5. The company is considering hiring new employees and must determine the best way to compensate the new hires. Based on the information provided above, what type of compensation would be the most sensible choice?
  6. If you were a manager at this company, how would you describe the importance of performance measurement to the rest of the management team, and how would you describe it to other employees?

Ans: NA, LO 2, Bloom: S, Difficulty: Hard, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

  1. There are variety of financial performance measures a company can choose from including gross margin, operating margin, earnings per share, operating cash flow, growth ratios, turnover ratios, and returns on investments. Each of these measures can help a company analyze various aspects of their business and guide them toward reaching their goals. Some of these metrics will hold immense value for internal users like gross and operating margin, and turnover ratios. But, a metric like earnings per share would be incredibly valuable for external users. Not all companies use the same financial performance measures, but there could be some overlap depending on the overall objectives identified by different organizations. For example, earnings per share would not be a useful metric for a non-publicly traded company that has no shares.
  2. Nonfinancial measures can also help management make decisions and focus on leading indicators. These metrics assist decision-makers to make changes in real time as events unfold. Not all departments will use the same measures since they are trying to account for and manage varied aspects of the business. Trendy in a Box can use the following nonfinancial performance measures in the departments shown:

Human Resources

  • Average time-to-hire
  • Employee training satisfaction
  • Internal promotion rate

Manufacturing/Production

  • Efficiency of shipping completed orders
  • Product quality
  • Number of late shipments

Sales and Marketing

  • Net promoter score
  • Customer retention rate
  • Organic website traffic

Accounting

  • Duration of financial statement close process
  • Vacation days earned versus vacation days used
  • Timeliness of reports requested by other departments
  1. The five most important aspects of the performance evaluation process from the employee’s perspective:
  • Personal Goals: Employees work with management to set personal goals that align with those of the business.
  • Communication: Employees and managers engage in constant communication about the quality of their work.
  • Mentoring: Managers provide employees with feedback about their work and provide support so that they can work towards continuous improvement.
  • Evaluation: The company provides formal feedback and review for employees that includes their input as well.
  • Compensation: Good performance results in raises and/or bonuses.

The company can ensure that all the requirements are met by using this list as a starting point to develop a more formal checklist. Having a structured format ensures all aspects get thoroughly addressed.

  1. Businesses have a variety of ways they could compensate their employees and will assign different types of pay based on the work performed. For warehouse workers, Trendy should go with an hourly wage that allows for overtime pay when the employees need to work more than their scheduled hours. Accountants, executives, and customer service workers are best served by receiving a salary since their positions require a more varied skillset where the outcomes, rather than the number of hours, are measured. Executives may receive bonuses and/or stock options to incentivize them meet certain financial performance measures. Personal shoppers should receive a commission-based pay where their compensation is based on the overall sales they make with an option for a bonus if they average more than a certain value per customer. Ensuring compensation is fair and aligns with expectations for the position will lend itself well to ensuring that employees remain happy.
  2. If describing performance measurements to management, then it is important to focus on the big picture with a lot of long-term objectives. As a person moves up the management ladder, their responsibilities tend to become more long-term and less specific. Understanding how management’s performance fits into the larger landscape of the business helps management understand why their leadership and the outcomes they are responsible for are so crucial. If describing performance measurement to other employees, then it will be important to focus on short-term objectives and very specific performance measures since this is typically the way staff and other employees are evaluated.
        1. Artemis Corporation is a large, national company that manufactures and sells designer, vegan leather products. Their offerings include jackets, pants, dresses, tops, shoes, and accessories. In addition to being sold in high-end luxury stores, they also have a website where people from all over the country can purchase their goods. The management for Artemis has created the following list (in no particular order) of objectives, initiatives, measures, and targets for the upcoming year.

Objectives

Initiatives

Increase customer satisfaction

Conduct employee satisfaction survey

Increase revenue per customer

Conduct efficiency survey

Retain top designers

Hire headhunter to locate strong candidates

Reduce rework

Improve receivables collections process

Increase access to new colors

Launch new social media campaign

Hire experienced sales manager

Gather customer feedback on survey

Increase operating cash flows

Establish relationships with new suppliers

Increase market share

Serve more customers as throughput is increased

Increase employee training

Gather industry or market feedback

Reduce order fulfillment time

Direct marketing to certain segments

Increase number of new customers

Implement training program

Increase revenues

Conduct quality checks of orders

Measures

Targets

% of employees completed training

1 or more per month

Total revenue

$110

Turnover rate of best designers

4.8 out of 5

Average customer satisfaction rating

25% or more of sales volume

Management satisfaction with chosen hires

5% or less of production

Time from order placement to shipment

$2,342,500

Revenue per order

4%

Market share

0

Number of new supplier relationships

24 hours or less

% of new customers

4.5 out of 5

% of orders requiring correction

$10,000,000

Operating cash flows

100% of employees

The managers for Artemis are completing the balanced scorecard using the objectives, initiatives, measures, and targets above.

  1. Sort the objectives, initiatives, measures, and targets and complete the financial perspective of the balanced scorecard.
  2. Sort the objectives, initiatives, measures, and targets and complete the customer perspective of the balanced scorecard.
  3. Sort the objectives, initiatives, measures, and targets and complete the internal business process perspective of the balanced scorecard.
  4. Sort the objectives, initiatives, measures, and targets and complete the learning and growth perspective of the balanced scorecard.
  5. Does the balanced scorecard prepared by Artemis align with what you would expect from a company in this industry? How will management use this information in the upcoming year? Are there any other considerations to make when a company decides to use a balanced scorecard?

Ans: NA, LO 3, Bloom: S, Difficulty: Hard, AACSB: Communication, AICPA: BC: Strategic Perspective, IMA: Strategy, Planning & Performance: Strategic and Tactical Planning, Solution:

Financial Perspective

Objectives

Initiatives

Measures

Targets

Increase revenue per customer

Direct marketing to certain segments

Revenue per order

$110

Increase operating cash flows

Improve receivables collections process

Operating cash flows

$2,342,500

Increase revenues

Serve more customers as throughput is increased

Total revenue

$10,000,000

Customer Perspective

Objectives

Initiatives

Measures

Targets

Increase customer satisfaction

Gather customer feedback on survey

Average customer satisfaction rating

4.8 out of 5

Increase market share

Launch new social media campaign

Market Share

4%

Increase number of new customers

Gather industry/market feedback

% of new customers

25% or more of sales volume

Internal Business Process Perspective

Objectives

Initiatives

Measures

Targets

Reduce rework

Conduct quality checks of orders

% of orders requiring corrections

5% or less of production

Increase access to new colors

Establish relationships with new suppliers

Number of new supplier relationships

1 or more per month

Reduce order fulfillment time

Conduct efficiency survey

Time from order placement to shipment

24 hours or less

Learning and Growth Perspective

Objectives

Initiatives

Measures

Targets

Retain best designers

Conduct employee satisfaction survey

Turnover rate of best designers

0

Hire experienced sales manager

Hire headhunter to locate strong candidates

Management satisfaction with chosen hires

4.5 out of 5

Increase employee training

Implement training program

% of employees completed training

100% of employees

  1. The balanced scorecard prepared by the management for Artemis aligns with what one would expect to see from a company operating in a high-end luxury goods market. They set objectives that make sense considering the importance of their customers, high amount spent per order, and their desire to continue growing their brand. Management can use this information to create the rest of their strategy for the year, and they can determine what role each department plays in realizing these goals. For example, increasing overall revenue for an organization takes the coordination and cooperation of all employees, and not only a single department like sales. When using a balanced scorecard, it is important to remember that these do not prioritize, and management will probably want to use this scorecard as a starting point. Then, they can outline a more specific plan for the company and the management team. Additionally, Artemis may want to incorporate the use of a strategy map that would connect some of the less obvious areas of the scorecard with the overall mission and vision of the company.

Document Information

Document Type:
DOCX
Chapter Number:
18
Created Date:
Aug 21, 2025
Chapter Name:
Chapter 18 Strategy & Balanced Scorecard
Author:
Karen Congo Farmer

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