Question: Why do effective performance evaluation systems

> Burdeno Appliances has two divisions, Sales and Financing. Sales is responsible for selling Burdeno’s inventory and maintaining inventory for future sale. Financing Division takes loan applications, packages loans into pools, and sells them in the financ

> What are the limitations of market-based transfer prices? What are the limitations of cost based transfer prices?

> Refer to the information in Exercise 15-36. Suppose Manufacturing is located in Country X with a tax rate of 35 percent and Marketing in Country Y with a tax rate of 15 percent. All other facts remain the same. Required a. Current output in Manufacturing

> Refer to the information in Exercise 15-24. Assume there is no special order pending. Required a. What transfer price would you recommend for Hamlet Industries? b. Using your recommended transfer price, what will be the income of the two divisions, assum

> Anstell Corporation operates a Manufacturing Division and a Marketing Division. Both divisions are evaluated as profit centers. Marketing buys products from Manufacturing and packages them for sale. Manufacturing sells many components to third parties in

> Refer to the information in Exercise 15-34. Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. Required a. Current output in Production is

> Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition

> Cascade Containers is organized into two divisions—Manufacturing and Distribution. Manufacturing produces a product that can be sold immediately or transferred to Distribution for further processing and then sold. Distribution only buys from Manufacturin

> Refer to the data in Exercise 15–26. Suppose that Civic Division will charge the client interested in implementing a costing system by the hour based on cost plus a fixed fee, where the cost is primarily the consultant’s hourly pay. Assume also that Civi

> Whitehill Chemicals has two operating divisions. Its Formulation Division in the United States mixes, processes, and tests basic chemicals, and then ships them to Ireland, where the company’s Commercial Division uses the chemicals to produce and sell var

> Hardyke Group operates a local after-school recreation and activities program. The Education Department is a state governmental agency. Hardyke has an agreement with the Department to provide services to students in need for a nominal $1 per day, to be p

> Pilgrim Logistics operates a network of delivery vans. Pilgrim allows its decentralized units (divisions) to “rent” vans to another Pilgrim division. Commercial Division has leased some of its idle vans to Retail Division for $450 per month. Recently, Co

> How can ratios, such as ROI, be used for control as well as performance evaluation?

> Lola Metals has two decentralized divisions, Stamping and Finishing. Finishing always has purchased certain units from Stamping at $36 per unit. Stamping plans to raise the price to $48 per unit, the price it receives from outside customers. As a result,

> Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems. Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing

> Refer to the data in Exercise 15-24. Assume the transfer price is unchanged from the current transfer price. Required a. Does Hamlet Industries want to accept this order? b. Will the Distribution Division manager be willing to accept this order? c. Will

> Hamlet Industries is organized into two divisions, Fabrication and Finishing. Both divisions are considered to be profit centers, and the two division managers are evaluated in large part on divisional income. The company makes a single product. It is ma

> Refer to the data in Exercise 14-45. Assume that the division uses beginning-of-year asset values in the denominator for computing ROI. Required a. Compute ROI, using net book value. b. Compute ROI, using gross book value. c. If you worked Exercise 14-39

> Refer to the information in Exercises 14-40 and 14-41. Required a. What is the division’s residual income before considering the project? b. What is the division’s residual income if the asset is purchased? c. What is the division’s residual income if th

> Refer to the data in Exercise 14-37. Required Evaluate the performance of the two divisions assuming Houghton Chemicals uses economic value added (EVA). Exercise 14-37:

> Refer to the data in Exercises 14-24, 14-28, and 14-32. The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&D expenditures (which are included in SG&A) for the year

> Refer to the data in Exercise 14-33. Required Evaluate the performance of the two divisions assuming Lasky Manufacturing uses economic value added (EVA). Exercise 14-33:

> The following data are available for two divisions of Ryan Enterprises: The cost of capital for the company is 7 percent. Ignore taxes. Required a. If Ryan measures performance using ROI, which division had the better performance? b. If Ryan measures per

> What is the coordinating role of budgeting?

> Refer to the information in Exercise 14-24. Information on the division assets in the three regions of Lauderdale Corporation follows: Required Compute the division ROI for each of the three regions. How have these regions performed? Exercise 14-24:

> The following partial financial information (in thousands of dollars) is available for Thole, Inc.: Corporate overhead costs at Thole are allocated to divisions based on relative sales. Required a. Complete the income statements for both divisions and th

> Refer to Exercise 14-25. The results for year 2 have just been posted: Required Compute divisional operating income for the two divisions. How have these divisions performed? Exercise 14-25:

> Owen Audio shows the following information for its two divisions for year 1. Required Compute divisional operating income for the two divisions. Ignore taxes. How have these divisions performed?

> Refer to the data in Exercise 13-54 and in Exhibits 13.20 and 13.21. Required To what level or levels would funding for Product Development Group have to drop such that one, but only one, of the PDG Areas received no funding? Explain. Exercise 13-54:

> Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performa

> Chatsworth Theatre Group (CTG) is a not-for-profit organization that stages plays and other performances in a medium-sized city. Ticket revenues cover a portion of the operating costs, but CTG also relies on donations from local donors. In preparing the

> Gladstone Mini-Golf operates in a tourist area. The population grows significantly in the summer but is relatively small the rest of the year. For that reason, the business operates only during the roughly four-month (125-day) period from mid-May to mid-

> A friend tells you that the Business Application “The Risks of Focusing on Efficiency” demonstrates “that trying to achieve efficient operations is not a good idea.” Do you agree? Explain.

> If customers are satisfied, they will buy your products and profits will increase. Therefore, you only need to measure profit. Comment.

> What problems might arise if a firm relies solely on management estimates in preparing the master budget?

> Consider a class you are taking (perhaps cost accounting) or have taken in the past. Was your evaluation based on a single measure of performance (a final exam, for example) or did the instructor use multiple measures of performance (perhaps a quiz, midt

> Consider the Business Application “A New Strategy for an Old Business.” Prior to the internet, the The New York Times (and other papers) offered news, a crossword puzzle, recipes, and so on. They are also offered in the newer digital model of the paper.

> Consider a locally owned coffee shop, a Starbucks store, and a retail gas station that offers fresh coffee in its convenience stores. Characterize these stores according to the Porter strategy framework.

> Consider the Business Application “Changes in Bank Distribution Channels—a Mix Variance Interpretation.” In what ways would the mix variance described there be similar to the sales mix and production mix variances described in the chapter? In what ways w

> Consider a firm in the “sharing economy,” such as Uber, Lyft, or Airbnb. Do you think they would benefit by computing and evaluating (1) market share and industry volume variances; (2) sales mix and sales quantity variances; and (3) production mix and yi

> What are the three elements of a management control system?

> What does dysfunctional decision making refer to?

> A business school dean asks you for help in understanding the school’s inability to meet its budget. What are some of the variances you think might be important to consider? Why?

> What are the advantages of decentralization? What are some major disadvantages of decentralization?

> Why is performance measurement an important component of a management control system in a decentralized organization?

> What does decentralization mean in the context of a management control system?

> What is the difference among a firm’s value proposition, its mission, and its mission statement?

> How is benchmarking used?

> What is benchmarking?

> A balanced scorecard is a set of two or more performance measures. Do you agree? Why or why not?

> How do companies evaluate their own performance in getting workers involved and committed?

> Why measure delivery performance?

> There is no reason to investigate favorable variances; only unfavorable variances indicate problems.” Do you agree?

> Why is manufacturing cycle efficiency important to most organizations?

> What performance factors do measures related to customer satisfaction attempt to evaluate?

> What is the difference between an organization’s mission and its strategy?

> What is “management by exception”?

> What are several examples of companies that probably use materials mix and yield variances?

> For what decisions would a manager want to know market share variance?

> Why is there no efficiency variance for revenues?

> What does a manager learn by computing an industry volume variance?

> Variance analysis can be useful in a manufacturing environment where you know the standards, but it wouldn’t be useful in a service environment.” True or false?

> Standards and budgets are the same thing. True or false?

> How could a hospital firm use the mix variances to analyze salary costs regarding emergency room services?

> What is the basic difference between a master budget and a flexible budget? a. A flexible budget considers only variable costs; a master budget considers all costs. b. A master budget is based on a predicted level of activity; a flexible budget is based

> What is the standard cost sheet?

> A flexible budget is a. Appropriate for control of factory overhead but not for control of direct materials and direct labor. b. Appropriate for control of direct materials and direct labor but not for control of factory overhead. c. Not appropriate when

> The flexible budget for costs is computed by multiplying average total cost at the master budget activity level by the activity at some other level.” Is this true or false? Explain.

> How can a budget be used for performance evaluation?

> When would you advise a firm to use prices other than market prices for interdivisional transfers?

> Many firms prefer to use market prices for transfer prices. Why would they have this preference?

> Do transfer prices exist in centralized firms? Why?

> If a division’s residual income falls from one period to the next, does that mean that the division’s performance is declining? Why?

> If a division’s ROI falls from one period to the next, does that mean that the division’s performance is declining? Why?

> How could a hospital firm use the mix variance to analyze its revenues?

> How is return on investment (ROI) computed?

> What makes creating budgets for marketing and administration more difficult than creating, for example, the production cost budget?

> Write out the inventory equation that is used to determine required production in the production budget for a manufacturing firm.

> What is participative budgeting? What are some advantages of participative budgeting? What are some disadvantages?

> What is the purpose of the cash budget if the budgeted income statement will indicate whether the firm expects to be profitable?

> What does the phrase “use it or lose it” mean in the context of budgeting?

> Which has more detail, the budget for the coming period or a long-range forecast? Why?

> What is the dual-rate method of corporate cost allocation?

> The owner-manager of Molena Restaurant describes the balanced scorecard measures used to assess performance by listing the following performance measures: Required a. Link the measures to the perspectives of the balanced scorecard by filling in the follo

> A regional airline discloses that it uses a balanced scorecard with the following performance measures: • Profit • Gate agent assessments • Load factor (percentage of seats filled) •

> Reviewing the variance report for one of the manufacturing plants in your company, you see a large unfavorable fixed cost price variance and large favorable production volume variance. You contact the plant controller, who says that there is no problem:

> What role does the master budget play in the planning and budgeting exercise?

> Refer to the information in Problem 16-78. Variable overhead is applied on the basis of machine hours. The standard cost sheet follows: The actual resource usage for July per unit of output follows: Required Prepare a manufacturing cost variance analysis

> Harlow Parts produces a single product at its Superior Plant. The master budget for July follows: The following operating income statement shows the actual results for July: Required Prepare a profit variance analysis for the Superior Plant for July such

> Pease Contractors is a local home remodeling company. In analyzing financial performance, the accountant compares actual results with a flexible budget. The standard direct labor rates used in the flexible budget are established each year at the time the

> Stearn & Company makes a lubricating oil using two grades of petroleum (Alpha and Beta). Within certain limits, the two grades can substitute for one another, so the actual mix of inputs often differs from the standard mix. Stearn holds no materials

> Robinwood Fixtures manufactures two products, K4 and X7. The company prepares its master budget on the basis of standard costs. The following data are for September: Required a. Prepare a variance analysis for each variable cost for each product. b. Prep

> McKinney Solvents produces a wide variety of products for the manufacturing industry. The standard mix for producing a single batch of 100 gallons of its biggest-selling product is as follows: There is a standard 20 percent loss in liquid volume during p

> Refer to the data for the Earle Soup Company (Problem 17-54). Required Break down the total activity variance into sales mix and quantity parts. Problem 17-54:

> Wisner Fabrication prepares its budgets on the basis of standard costs. Variances are analyzed and reported monthly. There are no materials inventories. The following information relates to the current period: Actual costs and activities for the month fo

> Refer to the data in Problem 16-61. Required Prepare a sales activity variance analysis for Savery Parts for March like the one in Exhibit 16.4. Problem 16-61:

> The results for March for Savery Parts follow: Required Prepare a flexible budget for Savery Parts for March.

> Production cost variances are not useful in my company. There is substantial learning that takes place, so we are more efficient, the more we produce. A standard cost sheet doesn’t reflect that.” Do you agree?

> Refer to the data in Problem 16-58. Required Use the information for Nottingham Forest Products in Problem 16-58 to prepare a profit variance analysis like the one in Exhibit 16.5. Problem 16-58:

> The following partial information is contained in the variance analysis received from the Western Plant of Eastlawn Company. All plants at Eastlawn apply overhead on the basis of direct labor-hours. Required a. Prepare a variable overhead analysis like t