Chapter 9 Performance Management and Evaluation

1、Chapter 8 Performance Management and EvaluationFall 2007CrossonUse only with permission of Susan CrossonLearning Objectives:Management Responsibility, Accountability, and PerformanceResponsibility centers and performance measuresEnd-to-end accountability with the balanced scorecardLinking executive

2、compensation and performanceUse only with permission of Susan CrossonResponsibility, Accountability, and PerformanceResponsibility accounting:An information system that classifies data according to areas of responsibility and reports each areas activities by including only the revenues, cost, and re

3、source categories that the assigned manager can control.Organizational chart: Line and staff relationshipsResponsibility centers-5 kindsUse only with permission of Susan CrossonExampleUse only with permission of Susan CrossonResponsibility Centers and Measures of Performance Cost Centers-costsDiscre

4、tionary Cost Centers-costsRevenue Centers-revenuesProfit Centers-income statementInvestment Centers-balance sheet and income statement: ROI, RI, EVAUse only with permission of Susan CrossonCost Centers A responsibility center whose manager is accountable for only controllable costs that have a well-

5、defined relationship between the centers resources and products or servicesExample: Factory, directly traceable to products or servicesMeasures: Compare Actual to Master and Flexible Budgets Compute DM, DL, OH variancesSCM: Supply Chain Management (AP,AR, Sales, Inventory, Purchasing systems)Look an

6、d listen SE 4. Complete the following performance report for cost center C for the month ended December 31.Actual ResultsVarianceFlexible BudgetVarianceMaster BudgetUnits produced800?20(U)100Center costsDirect materials$84$?$80$?$100Direct labor150?40(F)200Variable overhead?20(U)240 ?300Fixed overhe

7、ad 280 ? 250 ?250Total cost$ ?$44(U)$ ?$120(F)$850Performance measuresDefect-free units to total produced:75% ?N/A90%Average throughput time per unit12 minutes ?N/A 10 minutesSE 4. SolutionComplete the following performance report for cost center C for the month ended December 31.Actual ResultsVaria

8、nceFlexible BudgetVarianceMaster BudgetUnits produced800?=8020(U)100Center costsDirect materials$84$?=4U$80$?=20F$100Direct labor150?=10F?=16040(F)200Variable overhead?=26020(U)240 ?=60F300Fixed overhead 280 ?=30U 250 ?=0250Total cost$ ?=774$44(U)$ ?=730$120(F)$850Performance measuresDefect-free uni

9、ts to total produced:75% ?=15%FN/A90%Average throughput time per unit12 minutes ?=2UN/A 10 minutesUse only with permission of Susan CrossonDiscretionary Cost CentersA responsibility center whose manager is accountable for costs only and in which the relationship between resources and products or ser

10、vices is not well defined.Example: HR, IT, Accounting, and other Administrative supportMeasures:Compare Actual to Master BudgetCompute variancesERM: Enterprise Resource Management (PR,HR, Financial systems)Use only with permission of Susan CrossonRevenue CentersA responsibility center whose manager

11、is accountable primarily for revenue and whose success is based on its ability to generate revenueExample: catalog, phone or e-commerce sales center Measures:Compare Actual to Master BudgetCompute sales related variancesCRM: Customer Relationship ManagementUse only with permission of Susan CrossonPr

12、ofit CentersA responsibility center whose manager is accountable for both revenues and costs and for the resulting operating income.Examples: retail store Measures: Variable costing income statement or Traditional income statementCompare actual, flexible, and master budgeted income statementsCompute

13、 variancesCRM, SCMSE 5.Complete the following performance report for profit center P for the month ended December 31.Master BudgetActual VarianceSales$120?$ 20(F)Controllable variable costsVariable cost of goods sold?25 10(U)Variable selling and administrative expenses515 ?Contribution margin$100$10

14、0$ ?Controllable fixed costs60 ? 10(F)Profit center income ?$ 50$ 10(F)Performance measuresNumber of orders processed?5020(F)Average daily sale$4.00?.66(F)Number of units sold?10040(F)SE 5.Complete the following performance report for profit center P for the month ended December 31.Master BudgetActu

15、al VarianceSales$120?=140$ 20(F)Controllable variable costsVariable cost of goods sold?=1525 10(U)Variable selling and administrative expenses515 ?=10UContribution margin$100$100$ ?=0Controllable fixed costs60 ?=50 10(F)Profit center income ?=40$ 50$ 10(F)Performance measuresNumber of orders process

16、ed?=305020(F)Average daily sale$4.00?=4.66.66(F)Number of units sold?=6010040(F)Use only with permission of Susan CrossonInvestment CentersA responsibility center whose manager is accountable for profit generation and can also make significant decisions about the resources the center uses.Examples:

17、A division, product-line, companyMeasures:Compare actual, flexible, and master budgeted income statements and balance sheetsCompute ROI, residual income, and EVA variancesTime to market analysesValue/Cost analysesERM, SCM, CRMUse only with permission of Susan CrossonReturn On InvestmentE 12.Momence

18、Associates is evaluating the performance of three divisions: Maple, Oaks, and Juniper. Using the following data, compute the return on investment and residual income for each division, compare the divisions performance, and comment on the factors that influenced performance. MapleOaksJuniperSales$10

19、0,000$100,000$100,000Operating income$10,000$10,000$20,000Assets invested$25,000$12,500$25,000Desired ROI 40%40%40%E 12. Solution Momence Associates is evaluating the performance of three divisions: Maple, Oaks, and Juniper. Using the following data, compute the return on investment and residual inc

20、ome for each division, compare the divisions performance, and comment on the factors that influenced performance.MapleOaksJuniperSales$100,000$100,000$100,000Operating income$10,000$10,000$20,000Assets invested$25,000$12,500$25,000Desired ROI 40%40%40%ROI=Operating Income/Assets InvestedMaple= $10,0

21、00/$25,000= 40%Oaks= $10,000/$12,500= 80% Residual Income=Operating Income-(Desired ROI x Assets Invested)Maple= $10,000-(40% x $25,000)= $0Oaks= $10,000-(40% x $12,500)= $5,000Use only with permission of Susan CrossonEconomic Value AddedE 13.Leesburg, LLP, is evaluating the performance of three div

22、isions: Lake, Sumter, and Poe. Using the following data, compute the economic value added by each division and comment on each divisions performance.LakeSumterPoeSales$100,000$100,000$100,000After-tax operating income$10,000$10,000$20,000Total assets$25,000$12,500$25,000Current liabilities$5,000$5,0

23、00$5,000Cost of capital15%15%15%E 13. SolutionLeesburg, LLP, is evaluating the performance of three divisions: Lake, Sumter, and Poe. Using the following data, compute the economic value added by each division and comment on each divisions performance.LakeSumterPoeSales$100,000$100,000$100,000After-

24、tax operating income$10,000$10,000$20,000Total assets$25,000$12,500$25,000Current liabilities$5,000$5,000$5,000Cost of capital15%15%15%EVA= After-tax operating income - Cost of capital(TA-CL)Lake: $10,000 15%($25,000-$5,000) = $7,000Sumter: $10,000 15%($12,500-$5,000) = $8,875 Use only with permissi

25、on of Susan CrossonWhat Do You Know?Responsibility CentersTypes: E 5, Look and listen SE2Cost Center: C2Profit Center: E9, E 10Investment Center: P 8, Look and listen SE7, SE8, SE9.Look and listen SE 2. Identify each of the following as a cost center, a discretionary cost center, a revenue center, a

26、 profit center, or an investment center.1.The manager of center A is responsible for generating cash inflows and incurring costs with the goal of making money for the company. The manager has no responsibility for assets.2.Center B produces a product that is not sold to an external party.3.The manag

27、er of center C is responsible for the telephone order operations of a large retailer.4.Center D designs, produces, and sells products to external parties. The manager makes both long-term and short-term decisions.5.Center E provides human resource support for the other centers in the company.SE 2.So

28、lutionIdentify each of the following as a cost center, a discretionary cost center, a revenue center, a profit center, or an investment center.1.The manager of center A is responsible for generating cash inflows and incurring costs with the goal of making money for the company. The manager has no re

29、sponsibility for assets. P2.Center B produces a product that is not sold to an external party. C3.The manager of center C is responsible for the telephone order operations of a large retailer. R4.Center D designs, produces, and sells products to external parties. The manager makes both long-term and

30、 short-term decisions. I5.Center E provides human resource support for the other centers in the company. DCE 5.Identify the most appropriate type of responsibility center for each of the following organizational units.1.A pizza store in a pizza chain2.The ticket sales center of a major airline3.The

31、South American segment of a multinational company4.A subsidiary of a business conglomerate5.The information technology area of a company6.A manufacturing department of a large corporation7.An eye clinic in a community hospital8.The food-service function at a nursing home9.The food-preparation plant

32、of a large restaurant chain10.The catalog order department of a retailerE 5.SolutionIdentify the most appropriate type of responsibility center for each of the following organizational units.1.A pizza store in a pizza chain P2.The ticket sales center of a major airline R3.The South American segment

33、of a multinational company I4.A subsidiary of a business conglomerate I5.The information technology area of a company DC6.A manufacturing department of a large corporation C7.An eye clinic in a community hospital P8.The food-service function at a nursing home C9.The food-preparation plant of a large

34、 restaurant chain C10.The catalog order department of a retailer RE 10.The income statement in the traditional reporting format for Green Products, Inc., for the year ended December 31, is as follows.Green Products, Inc.Income StatementFor the Year Ended December 31Total fixed manufacturing costs fo

35、r year were $16,750. All administrative expenses are considered to be fixed.Using this information, prepare an income statement for the company for the year ended December 31, using the variable costing format.SalesLess Cost of Goods SoldGross MarginLess Operating Expenses: Selling Expenses:Variable

36、FixedAdministrative ExpensesOperating Income$296,400 112,750 $183,650$69,820 36,980 27,410$ 49,440E 10. SolutionThe income statement in the traditional reporting format for Green Products, Inc., for the year ended December 31, is as follows.Green Products, Inc.Income StatementFor the Year Ended Dece

37、mber 31Total fixed manufacturing costs for year were $16,750. All administrative expenses are considered to be fixed.Using this information, prepare an income statement for the company for the year ended December 31, using the variable costing format.SalesLess Variable Cost of Goods SoldLess Variabl

38、e Selling Expenses Less Variable Administrative ExpensesContribution MarginLess Fixed Costs and Expenses: Fixed OverheadFixed Selling ExpensesFixed Administrative ExpensesOperating Income$296,400 $112,750- 16,750 $ 69,820 $ 0$130,580$ 16,750$36,980 $ 27,410$49,440P 8.Micanopy Company makes replicas

39、of Indian artifacts. The balance sheet for the Arrowhead Division showed that the company had invested assets of $300,000 at the beginning of the year and $500,000 at the end of the year. During the year, the Arrowhead Divisions operating income was $80,000 on sales of $1,200,000.1.Compute the Arrow

40、head Divisions residual income if the desired ROI is 20 percent.2.Compute the following performance measures for the division:a.Profit marginb.Asset turnoverc.Return on investment3.Compute Micanopy Companys economic value added if total corporate assets are $6,000,000, current liabilities are $800,0

41、00, after-tax operating income is $750,000, and the cost of capital is 12 percent.Use only with permission of Susan CrossonBalanced ScorecardEnd-to-end AccountabilityOne type of a Managers DashboardKey Performance Objectives, Measures and Targets LinkedUse only with permission of Susan CrossonThe Ba

42、lanced ScorecardDeveloped by Robert S. Kaplan and David P. NortonA framework that links the perspectives of an organizations four basic stakeholder groups with the organizations mission and vision, performance measures, strategic plan, and resources.Use only with permission of Susan CrossonClassic B

43、alanced Scorecard PerspectivesFinancial (investors)Learning and growth (employees)Internal business processesCustomersTo succeed, an organization must add value for all groups in both the short and long term Use only with permission of Susan CrossonOther Balanced Scorecard PerspectivesCommunity Gove

44、rnmentFinancial (investors)Learning and growth (employees)Internal business processesCustomersTo succeed, an organization must add value for all groups in both the short and long term Balanced Scorecard FrameworkIdeally, everyone in the organization should be able to see how their actions contribute

45、 to the achievement of organizational goals from multiple perspectives.Lead indicatorsLag indicatorsStrategic Planning and the Balanced ScorecardFor each perspective, develop its scorecard based on the organizations mission/vision and resourcesObjective/GoalMeasureTargetBalanced Scorecard FrameworkA

46、ll perspectives are linked and balanced in the scorecardObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetOrganizationsMission/VisionFinancialCustomerInternal Business ProcessLearning and GrowthUse only with permission of Susan CrossonScorecard ProcessPerformanc

47、e objectives are linked and balanced in planning processPerformance measures are specified for organizational unitsQuantifiable targets are set for organizational units Actual performance is measured and organizational units are held accountable An organizational unit may be a department, a product

48、line, a location, a curriculum, an individual, or a courseUse only with permission of Susan CrossonCorporate Scorecard Example: Who are the Stakeholders?Financial CustomersInternal Business Processes Learning and Growth GovernmentCommunityA Corporate Scorecard Example ObjectiveMeasureTargetObjective

49、MeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetOrganizationsMission/VisionFinancial CustomersInternal Business ProcessesLearning and Growth: EmployeesGovernmentCommunityObjectiveMeasureTargetObjectiveMeasureTargetUse only with permission of Susan CrossonHarley Davidsons“Fulfills dreams thr

50、ough the experience of motorcyclingCorporate Mission/VisionSample Corporate Scorecard for Harley Davidson: ObjectiveMeasuresTargetSustain or grow key indicatorsROI, EVA, Cash flowObjectiveMeasuresTargetQuality products# of defectsCycle timeObjectiveMeasuresTargetLife-long customersMarket shareRepeat

51、 customersObjectiveMeasuresTargetGreat place to work# accidentsGrievance resolution timeFulfills dreams through the experience of motorcyclingFinancial CustomersInternal Business ProcessesLearning and Growth: EmployeesGovernmentCommunityObjectiveMeasuresTargetGood neighborCommunity service hoursObje

52、ctiveMeasuresTargetTimely complianceOn time filingsUse only with permission of Susan CrossonWhat Do You Know?Balanced ScorecardE 15Scorecard for Review ProblemBuild a Balanced Scorecard for Winter Wonderland Resort ObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTargetObjectiveMeasureTar

53、getFinancial/Funding Sources: Customers:Internal Administrative ProcessesLearning and Growth:GovernmentCommunityObjectiveMeasureTargetObjectiveMeasureTarget“Mission StatementUse only with permission of Susan CrossonIntroducing StrategyValueChainBalanced ScorecardUse only with permission of Susan CrossonStrategic PositioningMichael Porter Cost Leadership Differentiation (Focus)Use only with permission of Sus