MGAD40H3 Lecture : Lec 8 Notes

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2 May 2011

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Look at variances: mobil 25 career year, not broader perspective, corporate, lower departmental, strategic level, business dev director might have own set of key targets with key customers. are we achieving growth in customer areas we want. take a look at things how operations is affected. various function of company, does it add value across all functions of organization. cost centre doesn"t have same ability to influence innovation, doesn"t see ultimate customer. how can you change and develop process around them that drive things of customer experience: easier measure to capture, real-time feedback, how capture info from machines, how source the info, how does. It help www. notesolution. com: enable with it difficult, put in balanced scorecard easier with 0-100 number to measure. Is this highest part of organization, how does it affect integration. Organization wasn"t doing well because losing money. Not a lot of levels on price side, commodity requires differentiation.

Related Questions

Please help me answer the following questions:
1. Management accounting:
A) is both retrospective, providing feedback about past operations,and also prospective, incorporating forecasts and estimates aboutfuture events.
B) is primarily oriented to external stakeholders.
C) must be consistent with rules formulated by the FinancialAccounting Standards Board (FASB).
D) provides information that is generally available only on aquarterly or annual basis.

2. Management accounting information is BEST described as:
A) providing a signal that something is wrong.
B) identifying and helping to explain what is wrong.
C) simply summarizing information, but giving no indication thatanything is wrong.
D) measuring overall organizational performance.

3. Which of the following would be MOST helpful for a top managerof a company?
A) profitability report of the company
B) information to monitor hourly and daily operations
C) number of customer complaints
D) operating expense summary reported by department

4. The Balanced Scorecard is said to be "balanced" because itmeasures:
A) short-term and long-term objectives.
B) financial and nonfinancial objectives.
C) internal and external objectives.
D) All of the above are correct.

5. The ________ perspective of the Balanced Scorecard asks, "How issuccess measured by our shareholders?"
A) learning and growth
B) customer
C) financial
D) shareholder

6. Defect rates for products and yield percentages in manufacturingare measures of quality included in the ________ perspective of theBalanced Scorecard.
A) financial
B) production
C) process
D) internal

7. The purpose of the Balanced Scorecard is BEST described ashelping an organization:
A) develop customer relations.
B) mobilize employee skills for continuous improvements inprocessing capabilities, quality, and response times.
C) introduce innovative products and services desired by targetcustomers.
D) translate an organization's mission, vision, and strategy into aset of performance measures that help to implement thestrategy.

8. The FIRST step in developing strategic objectives for theBalanced Scorecard is:
A) defining the long-run financial objectives.
B) identifying the target customer.
C) articulating the organization's vision.
D) select objectives for the customer value proposition.

9. Identify the BEST description of the Balanced Scorecard'scustomer perspective. To achieve our firm's vision andstrategy:
A) How do we lower costs?
B) How do we motivate employees?
C) How can we obtain greater profits?
D) How does the company intend to attract, retain, and deepenrelationships with targeted customers by differentiating itselffrom competitors?

10. Fixed costs:
A) may be either direct or indirect costs.
B) vary with production or sales volume.
C) include parts and materials used to manufacture a product.
D) can be adjusted in the short run to meet actual demands.

11. Which of the following describes a variable cost?
A) Variable cost are always indirect costs.
B) Variable costs increase in total when the actual level ofactivity increases.
C) Variable costs include most personnel costs and depreciation onmachinery.
D) Variable costs can always be traced directly to the costobject.

12. Cost-volume-profit analysis is used PRIMARILY bymanagement:
A) as a planning tool.
B) for control purposes.
C) to establish a target net income for next year.
D) to attain extremely accurate financial results.

13. The break-even point is the level at which revenues:
A) equal fixed costs.
B) equal variable costs.
C) equal fixed costs minus flexible costs.
D) equal variable costs plus fixed costs.

14. Cost-volume-profit analysis assumes all of the followingEXCEPT:
A) all costs are purely variable or fixed.
B) units manufactured equal units sold.
C) total variable costs remain the same over the relevantrange.
D) total fixed costs remain the same over the relevant range.

(Compensation tied to balanced scorecard) Degree of difficulty oftarget achievement in the mid-1990s mobile corporation's marketingand refining (M&R) division underwent a major reorganizationand developed new strategic directions. In conjunction with thesechanges, M&R developed a balance scorecard around fourperspectives: financial customer, internal business processes andlearning and growth. Subsequently M&R linked compensation toits balanced scorecard metrics. To illustrate, all salariedemployees in M&R's Natural Business Units received thefollowing percentages of their competitive market salary:

Poor Performance within industry Average performance withinindustry Performance best in industry
Base Pay 90% 90% 90%
Award Based on corporate 1-2% 3-6% 10%
performance on financial metrics
Award based on performance on 0% 5-8% 20%
balanced scorecard metrics for the
M&R division and business unit 91-92% 98-104% 120%

The balanced scorecards included numerous metrics. M&R'sfinancial metrics included return on capital employed andprofitability and customer metrics included share of targetedsegments of consumers and profitability of dealers. Internalbusiness process metrics included safety and quality indices.Finally learning and growth metrics included an index of employeesperceptions of the work climate at M&R

Business units developed their own Balanced Scorecards. In additionto choosing targets from scorecard metrics, the business unitschose percentage weights that determined how much the achievedscorecard measures would contribute to the bonus pool displayed inthe taable above. These percentage weights were required to sum to100%. Furthermore, in connection with the award fro performance onthe business unit Balanced Scorecard metrics, the business unitsassigned a performance factor, that is, a "degree of difficulty" oftarget a chievement for each target. The performance factors aresimilar in concept to those in diving or gymnastic competitionswhere performance scores depend on the difficulty of the attempteddive or gymnastic routine. The performance factors underwnt revieqwby peers, uppoer management, and the employees whose evaluation andcompensation depended on the performance factors. ranged from 1.25(for best-in-industry performance) to 0.7 for poor performance. Atarget corresponding to average industry performance rated a 1.0performance factor.

Required:

A. What are the advantages and concerns in linking compensation toa balanced scorecard generally?
B. Evaluate M&Rs approach to linking compensation to multiplemeasures including its system of assigning degrees of difficulty toachieving targets. In your response, consider the process that isinvolved in developing the compensation scheme.

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Multiple Choice Questions

1. A cost center is a unit of a business that incurs costs butdoes not directly generate revenues. Which of the following woulddefinitely not be considered a cost center?
A. Accounting department.
B. Purchasing department.
C. Research department
D. Advertising department.
E. All of these could be considered cost centers.

2. A unit of a business that not only incurs costs, but alsogenerates revenues, is called a:
A. Performance center.
B. Profit center.
C. Cost center.
D. Responsibility center.
E. Expense center.

3. Regardless of the system used in departmental costanalysis:
A. Direct costs are allocated, indirect costs are not.
B. Indirect costs are allocated, direct costs are not.
C. Both direct and indirect costs are allocated.
D. Neither direct nor indirect costs are allocated.
E. Total departmental costs will always be the same.

4. An accounting system that provides information thatmanagement can use to evaluate the profitability and/or costeffectiveness of a department's activities is a:
A. Departmental accounting system.
B. Cost accounting system.
C. Service accounting system.
D. Revenue accounting system.
E. Standard accounting system.

5. Expenses that are easily traced and assigned to a specificdepartment because they are incurred for the sole benefit of thatdepartment are called:
A. Direct expenses.
B. Indirect expenses.
C. Controllable expenses.
D. Uncontrollable expenses.
E. Fixed expenses.

6. Costs that the manager has the power to determine or at leaststrongly influence are called:
A. Uncontrollable costs.
B. Controllable costs.
C. Joint costs.
D. Direct costs.
E. Indirect costs.

7. Responsibility account performance reports:
A. Become more detailed at higher levels of management.
B. Become less detailed at higher levels of management.
C. Are equally detailed at all levels of management.
D. Are useful in any format.
E. Are irrelevant.

8. Which of the following is an example of a performance measureof internal business processes which would be found in a balancedscorecard?
A. Product defect rates
B. Number of new customers
C. Employee satisfaction
D. Return on Investment
E. Sales growth

9. Which of the following is an example of a performance measureof the customer perspective which would be found in a balancedscorecard?
A. Product defect rates
B. Number of new customers
C. Employee satisfaction
D. Return on Investment
E. Sales growth

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MGAD40H3 Lecture : Lec 8 Notes

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