Question: Tarnow Manufacturing produces metal components and
Tarnow Manufacturing produces metal components and is organized in four geographic divisions (North, South, East, and West). The company adopted a balanced scorecard approach to performance measurement several years ago. Although there were some initial modifications to the measures used, the current scorecard has remained the same for over two years. The scorecard has four perspectives with two measures in each perspective (the words in parentheses are the short titles used for the measures).
Some of the measures, such as market share and gross margin percentage, are common, but some of the others require explanation. Customer satisfaction is measured on a scale of 0–100 percent based on periodic surveys. The percentage modules completed measures the training course modules available to employees and which they are “strongly†encouraged to complete. The company believes this is one of the keys to their strategy to become known for new and innovative products. In addition to the training measure, they also measure the percentage of sales made up of new products (that is, products introduced in the last year). This is measured as a percentage of total revenue.
Scorecard results for the most recent quarter for the four divisions and for the company as a whole follow:
Required
a. Prepare a strategy map that would support the choice of the measures in this scorecard.
b. Evaluate the fourth-quarter performance of the four divisions. Use visualizations as appropriate to illustrate your analysis.
c. The CFO would like an analysis of the performance of the East Division for the past year. You are provided with the following information. (Again, use visualizations as appropriate in your analysis.)
> Refer to the data in Exercises 14-24 and 14-28. Lauderdale Corporation has a cost of capital of 8.6 percent. Required Compute residual income for the three regions. Ignore taxes. How have these regions performed? Exercise 14-24: Exercise 14-28:
> Dolson Appliances makes coffee machines for offices and homes. For next year, the production budget is 125,000 units. Beginning inventories will be 10,000 units and the desired ending inventory will be 8,000 units. Required What is the sales budget for t
> Kirby Soups has just made its sales forecasts, and its marketing department estimates that the company will sell 3,900,000 units of its vegetable soup during the coming year. In the past, management has maintained inventories of finished goods at approxi
> My company is unique. We can’t use benchmarking.” How would you respond?
> When might the master budget start with a forecast of something other than sales— production, for example? Why?
> I know how to satisfy customers—give the product away.” How does a system with multiple measures of performance address this concern with evaluating managers in part on customer satisfaction?
> Consider the number of customer complaints as a measure of customer satisfaction. How does this measure customer satisfaction? How does it fail to measure customer satisfaction?
> Again, consider a class you are taking (or have taken). Did the instructor use solely objective measures (scores on numerical exams, for example) or did they use a mix of objective and subjective (short-essay questions, for example). Why do you think bot
> Consider your campus bookstore. Who do you think are the stakeholders? What do you think are its critical success factors? How would they differ from those of a retail bookstore in a city without a college?
> “A process control chart will tell managers when to investigate variances.” Do you agree?
> A computer company always sells the processing unit and monitor together as a bundled package. Is there any benefit to computing a sales mix variance under these circumstances?
> Many companies argue that they do not pay their managers a bonus because they believe their employees will work hard for a “fair” wage and do not need to be motivated with a bonus. Why would managers in such a system work hard? Is there a financial incen
> Actual revenues are greater than budgeted for December, so our revenue variance is favorable.” Give an example of when this would be “good” news and when it could be “bad” news.
> Refer to the Business Application item “Transfer Pricing at Weyerhaeuser.” Why might the company use market prices instead of costs for product transfers?
> Refer to Question 15-14. What type of responsibility center would you recommend the company make Alpha Division? Beta Division? Explain your reasons.
> What is the difference between the planning and the control functions of the budget? What problems do these differences create?
> In some organizations (firms, universities, government agencies), spending appears to increase as the end of the budgeting period approaches, even if there are no seasonal differences. What might cause this?
> Government agencies are limited in spending by budget categories, not just by an overall spending limit. What purpose does this serve? What problems does it create?
> Would the budgeting plans for a company that uses a just-in-time (JIT) inventory system be different from those for a company that does not? Why?
> Is the CEO ever an agent in the principal–agent relationship as discussed in the chapter? Is a division president ever a principal in the principal–agent relationship as discussed in the chapter? Explain.
> Salespeople are often paid a commission based on sales revenue. How might that incentive system lead to dysfunctional consequences?
> The management control system collects information from local managers for planning purposes. It then uses the plan to evaluate the local managers. What are the advantages of this? What are the disadvantages?
> Preparing a budget is a waste of time. The strategic plan is what we work to accomplish.” How would you respond to this comment?
> How could a professional sports firm use the mix variance to analyze its total stadium revenues?
> What is contingent compensation?
> What is relative performance evaluation (RPE)?
> The Treadway Commission indicated that bonus plans based on achieving short-run financial results have been a factor in financial frauds, particularly when the bonus is a large component of an individual’s compensation. Why is this so?
> What is the controllability concept?
> What is goal congruence? How is it different from behavioral congruence?
> What are the five basic kinds of decentralized units in a responsibility accounting system?
> What are the advantages of financial measures of performance? What are the advantages of nonfinancial measures of performance?
> Why is worker involvement important to an organization’s success?
> Why is it important for management accountants to understand business strategy?
> If the sales activity or materials efficiency variance is zero, there is no reason to compute a mix and quantity or yield variance. True or false?
> How would you recommend accounting for variances at the end of the year? Why?
> What complication arises in variance analysis when the number of units produced is not the same as the number of units sold?
> Fixed cost variances are computed differently from the variances for variable costs. Why?
> The Treadway Commission commented that a factor giving rise to fraud is the existence of pressures on division managers to achieve unrealistic profit objectives. Why might top management set unrealistic profit targets?
> Actual direct materials costs differ from the master budget amount. What are the three primary reasons for the difference?
> Why is transfer pricing important in tax accounting?
> How does the separation of duties help prevent financial fraud?
> What role do “packages” play in zero-based budgeting? How do these roles address critiques of traditional budgeting?
> How are actual direct labor costs used in a standard cost system? Does this differ from their use in a normal costing system? If so, how? If not, why not?
> Montgomery Fashions produces and sells clothing through various retailers. Montgomery is highly decentralized and allows its managers discretion in managing with little direct oversight. This latitude in decision making is checked by using a performance
> Mack’s Juices produces and bottles a line of fruit juices. The manufacturing process entails mixing and adding juices and other ingredients at the bottling plant, which is a part of Blending Division. The finished product is packaged in
> Refer to the data in Problem 15-41. Division managers are evaluated using residual income using a 9 percent cost of capital. Required a. What is the residual income for Western without the transfer to Eastern? b. What is Western’s residual income if it t
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> The Treadway Commission commented that the forces leading to financial fraud were present in all companies to some extent, but fraudulent financial reporting resulted from the right combustible mixture of forces and opportunities to commit fraud. Based o
> Many firms in the service industry have empowered their customer-facing employees to handle service complaints on the spot rather than having the customer contact a corporate customer service center. For example, some airline and hotel companies authoriz
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> A common method of measuring performance in many college and university courses is to combine objective measures (test scores, for example) with subjective measures (class participation measures, for example). These scores are weighted and combined to de
> Venice Textiles produces cloth. The inputs are fabric, labor, and overhead. Fragmentary productivity records from plant files for the last period show the following: Required Determine the partial fabric (materials) productivity.
> Refer to the data in Exercise 18-42 (McNichols Lubricants). From the accounting records, you also gather the following information for the two years. Required a. Compute the total factor productivity measures for quarter 1 and quarter 2 based on the thre
> Boleyn Cycles produces several models of high-end bicycles and related products. The company collects various operational performance measurements monthly and reviews them as part of its continuous improvement program. The company has recently been evalu
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> Each April, it is common to find news articles contrasting executive pay with firm performance. For example, on April 9, 2009, The Wall Street Journal reported that the top three executives at Kilroy Realty (a California property developer and manager) w
> Mission statements can be difficult to write, especially for not-for-profit organizations engaged in charitable work. Consider the following two statements from relief organizations: • American Red Cross: “The American Red Cross prevents and alleviates h
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> Stansbury Stores is a general grocery and convenience items retailer. The business is quite competitive and margins are thin. The company recently reviewed its performance measurement system and decided to adopt a balanced scorecard. As a part of that re
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> Refer to the information in Problem 17-58. Required Write a memo to the managers at Pease Contractors recommending which variances they should investigate this period, along with your reasons. Problem 17-58:
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> Larned Company makes a storage box using metal. The company uses a standard costing system. Variable overhead is allocated on the basis of direct materials usage (pounds). Overhead is allocated to units based on expected production of 13,500 units. Larne
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> Refer to the information and analysis of Problem 16-79. Required Help the managers at Harlow understand the implications from the production cost variance analysis by writing a short summary of your analysis. Include visualizations to highlight your conc
> Refer to the information and analysis of Problem 16-78. Required Help the managers at Harlow understand the implications from the profit variance analysis by writing a short summary of your analysis. Include visualizations to highlight your conclusions.
> The following information concerning actual results is available from Hamburg, Inc.: The company planned to sell 64,800 units at a price of $11 each. Variable marketing and administrative costs are budgeted at 15 percent of revenue. You have discovered t
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> A company has a bonus plan that states that managers with division income ranked below the average of all managers receive no bonus for the year. What biases might arise in this system?
> Copland Components manufactures an electronic device for vehicle manufacturing. The current standard cost sheet for a device follows: Assume that the following data appeared in Copland’s records at the end of the past month: There are n
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> In the previous chapters, we considered different allocation methods and considered which one might be “better.” Why might a manager have a different opinion about the “best” allocation system after moving to another business unit? Is this ethical?
> In Chapter 12, we discussed corporate cost allocation and the incentive problems associated with these allocations. How is the problem of corporate cost allocations similar to the transfer pricing problems studied in this chapter? Is the approach suggest
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