ACCT 2200 Lecture Notes - Lecture 1: Earnings Before Interest And Taxes, Balanced Scorecard, Billable Hours

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26 Aug 2016
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Chapter 12
Performance Measurement in Decentralized
Organizations
Solutions to Questions
12-1 In a decentralized organization,
decision-making authority isn’t confined to a few
top executives; instead, decision-making
authority is spread throughout the organization.
12-2 The benefits of decentralization include:
(1) by delegating day-to-day problem solving to
lower-level managers, top management can
concentrate on bigger issues such as overall
strategy; (2) empowering lower-level managers
to make decisions puts decision-making
authority in the hands of those who tend to have
the most detailed and up-to-date information
about day-to-day operations; (3) by eliminating
layers of decision-making and approvals,
organizations can respond more quickly to
customers and to changes in the operating
environment; (4) granting decision-making
authority helps train lower-level managers for
higher-level positions; and (5) empowering
lower-level managers to make decisions can
increase their motivation and job satisfaction.
12-3 The manager of a cost center has
control over cost, but not revenue or the use of
investment funds. A profit center manager has
control over both cost and revenue. An
investment center manager has control over
cost and revenue and the use of investment
funds.
12-4 Margin is the ratio of net operating
income to total sales. Turnover is the ratio of
total sales to average operating assets. The
product of the two numbers is the ROI.
12-5 Residual income is the net operating
income an investment center earns above the
company’s minimum required rate of return on
operating assets.
12-6 If ROI is used to evaluate performance,
a manager of an investment center may reject a
profitable investment opportunity whose rate of
return exceeds the company’s required rate of
return but whose rate of return is less than the
investment center’s current ROI. The residual
income approach overcomes this problem
because any project whose rate of return
exceeds the company’s minimum required rate
of return will result in an increase in residual
income.
12-7 The difference between delivery cycle
time and throughput time is the waiting period
between when an order is received and when
production on the order is started. Throughput
time is made up of process time, inspection
time, move time, and queue time. Process time
is value-added time and inspection time, move
time, and queue time are non-value-added time.
12-8 An MCE of less than 1 means that the
production process includes non-value-added
time. An MCE of 0.40, for example, means that
40% of throughput time consists of actual
processing, and that the other 60% consists of
moving, inspection, and other non-value-added
activities.
12-9 A company’s balanced scorecard should
be derived from and support its strategy.
Because different companies have different
strategies, their balanced scorecards should be
different.
© 2014 by McGraw-Hill Education. All rights reserved.
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 12 1
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12-10 The balanced scorecard is constructed
to support the company’s strategy, which is a
theory about what actions will further the
company’s goals. Assuming that the company
has financial goals, measures of financial
performance must be included in the balanced
scorecard as a check on the reality of the theory.
If the internal business processes improve, but
the financial outcomes do not improve, the
theory may be flawed and the strategy should be
changed.
© 2014 by McGraw-Hill Education. All rights reserved.
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2 Managerial Accounting for Managers, 3rd Edition
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Exercise 12-1 (10 minutes)
1.
2.
3.
© 2014 by McGraw-Hill Education. All rights reserved.
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 12 3
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