Chapter 13--The

Chapter 13--The Balanced Scorecard: Strategic-Based Control

Balanced Scorecard: Strategic-Based Control

Student: ___________________________________________________________________________

1. A competitive environment means that organizations will be

A. producing increasingly high-volume, low-variety products and services.
B. focused internally on efficiency.
C. viewing their actions independent of competitors, suppliers, and customers.
D. managing cause and effect linkages to customer satisfaction.

2. Which type of responsibility accounting addresses directed continuous improvement in environments that
consist of competitive conditions and dynamic change?
A. activity-based responsibility accounting
B. strategic-based responsibility accounting
C. process-based responsibility accounting
D. functional-based responsibility accounting

3. Activity-based responsibility accounting adds which of the following to the financial-based responsibility
accounting perspective?
A. process perspective
B. functional perspective
C. consumer perspective
D. learning perspective

4. Which of the following is NOT true about activity-based responsibility accounting?

A. The emphasis changes from cost reduction through change to cost control.
B. The emphasis includes financial results as well as how things are done.
C. Responsibility moves from one dimension to two dimensions.
D. It moves from a control system to a performance management system.
5. What are the two additional perspectives that are added to the activity-based approach to achieve strategic-
based responsibility?
A. a customer perspective and a learning and growth perspective
B. an infrastructure perspective and a process perspective
C. a customer perspective and a financial perspective
D. a financial perspective and a process perspective

6. Which of the following is NOT a limitation of activity-based responsibility accounting?

A. Change efforts are often fragmented.
B. Change efforts lack connection to mission.
C. Change efforts lack connection to strategy.
D. Change efforts are driven by value-added analysis.

7. Directed continuous improvement is accomplished by linking initiatives to

A. processes.
B. strategy and mission.
C. financial outcomes.
D. measures.

8. Which of the following is a perspective of strategic-based responsibility accounting but is NOT a perspective
of activity-based responsibility accounting?
A. financial perspective
B. process perspective
C. customer perspective
D. all of these

9. The most common strategic-based performance management system is

A. variance analysis with standard costs as benchmarks.
B. the balanced scorecard.
C. financial budgets.
D. all of these.

10. The balanced scorecard

A. is an activity-based responsibility accounting model that measures operating activities.
B. is a financial-based responsibility accounting model that focuses on the financial performance of units,
rewarding performance with static financial-oriented standards.
C. is a strategic-based financial reporting system that balances assets with liabilities and owner's equity.
D. is a strategic-based performance management system that identifies objectives and measures from a financial
perspective, customer perspective, process perspective, and learning and growth perspective.
11. Which of the following is NOT an advantage of strategic-based responsibility accounting?
A. It includes perspectives that serve as a source of competitive advantage.
B. Change efforts are directed by the mission and strategy.
C. Responsibility is centralized within the organization.
D. All are advantages of strategic-based responsibility accounting.

12. A major difference between activity-based responsibility accounting and strategic-based responsibility
accounting is
A. only strategic-based responsibility accounting is linked to strategy.
B. only strategic-based responsibility accounting is focused on systemwide efficiency.
C. only strategic-based responsibility accounting includes the process perspective.
D. only strategic-based responsibility accounting reinforces team accountability.

13. Which feature is related solely to strategic-based responsibility and not to activity-based responsibility?
A. financial perspective
B. process perspective
C. team accountability
D. customer perspective

14. Which is NOT a major difference between activity-based measures and strategic-based measures?
A. Strategic-based measures are linked to strategy.
B. Strategic-based measures are used to align objectives.
C. Strategic-based measures are balanced measures.
D. All of these.

15. Lead measures are critical to strategy because

A. they are based on actual activity.
B. they are an independent part of the system.
C. there should be a causal linkage with strategy.
D. they are outcome measures.

16. Which of the following statements is true regarding lag measures?

A. lag measures are measures that relate to customers
B. lag measures are factors that drive future performance
C. lag measures are performance drivers
D. lag measures include measures such as customer profitability
17. For a firm to have balanced measures, the measures selected must be balanced between
A. lag and lead measures.
B. objective and subjective measures.
C. financial and nonfinancial measures.
D. all of these.

18. _______________ are outcome measures that are a result of past efforts.
A. Objective measures
B. External measures
C. Financial measures
D. Lag measures

19. _______________ are outcome measures that are expressed in monetary terms.
A. Objective measures
B. External measures
C. Financial measures
D. Lag measures

20. _______________ are outcome measures that can be readily quantified and verified.
A. Objective measures
B. External measures
C. Financial measures
D. Lag measures

21. _______________ are outcome measures that relate to customers.

A. Objective measures
B. External measures
C. Financial measures
D. Lag measures

22. Which of the following would be a nonfinancial measure?

A. customer profitability
B. dissatisfied customers
C. return on investment
D. cost per unit
23. Which of the following would be a subjective measure?
A. employee capabilities
B. market share
C. return on investment
D. cost per unit

24. Which of the following would be an external measure?

A. profitability
B. employee satisfaction
C. process efficiency
D. all of these

25. Which of the following would NOT be an objective measure?

A. customer profitability
B. employee capabilities
C. return on investment
D. cost per unit

26. Which of the following would be a lead measure?

A. customer profitability
B. cost per employee
C. return on investment
D. employee training hours

27. Which of the following would be a lag measure?

A. budget forecasts
B. sales per employee
C. plant investment
D. employee training hours

28. Lead measures

A. are the measures with the highest priority.
B. are generic to different strategies.
C. are based on performance drivers.
D. represent the desired outcomes.
29. Communicating strategy through measurements requires both scope and flexibility. Which of the following
statements is true?
A. Flexibility requires subjective and objective measurement as well as nonfinancial measures.
B. Flexibility requires that measures be optimal and dynamic.
C. Scope implies that internal and external measures are needed.
D. Both a and c are true.

30. Which of the following statements comparing activity-based performance and strategic-based performance
evaluation is NOT true?
A. Strategic-based performance evaluation expands the set of metrics.
B. Only strategic-based performance evaluation leads to cost reductions.
C. Only strategic-based performance standards set stretch targets for all four perspectives.
D. Both systems encourage quality improvements.

31. Stretch targets are

A. aimed at stretching the firm's resources.
B. aimed at static standards.
C. aimed at transforming the organization within three to five years if achieved.
D. aimed at transforming the organization immediately.

32. Which of the following features make stretch targets feasible?

A. The targets are set in isolation by top management.
B. The measures are linked by causal relationships.
C. The measures are based on currently attainable standard costs.
D. The targets are set at desired levels for twenty years to ensure long-term performance.

33. Business strategy is concerned with

A. choosing market and customer segments.
B. identifying critical internal and business processes.
C. selecting individual and organizational properties required.
D. all of these.

34. Strategy translation is concerned with

A. choosing general goals.
B. choosing the customer segments.
C. identifying measures, targets, and initiatives.
D. choosing the nature of the business.
35. Which of the following is NOT a step in developing the Balanced Scorecard?
A. setting balanced objectives
B. outlining control procedures
C. setting target values
D. rewards

36. Which of the following is not a strategic theme of the financial perspective?
A. revenue growth
B. asset utilization
C. employee capability
D. risk management

37. Objectives for increasing revenue growth include

A. adopting a new pricing strategy.
B. reducing the cost per unit.
C. eliminating non-value-added activities.
D. reducing distribution channel cost.

38. Which of the following is NOT a measure commonly used to evaluate asset utilization?
A. return on investment
B. economic value added
C. market share
D. return on investment

39. Diversifying customers and product lines are initiatives important to

A. revenue growth.
B. cost reduction.
C. asset utilization.
D. risk management.

40. In the financial perspective, economic value added would be an appropriate measure for
A. revenue growth.
B. cost reduction.
C. improving asset utilization.
D. risk management.
41. In the customer perspective, objectives and measures that drive the creation of customer value are
A. customer survey ratings.
B. post-purchase cost.
C. on-time deliveries.
D. all of these.

42. Increasing customer value occurs when

A. the customer receives more benefits.
B. the customer perceives a greater gap between benefits and sacrifice.
C. customer costs are reduced.
D. none of these.

43. In the Balanced Scorecard system, core objectives and measures

A. are common across all organizations.
B. are common across all scorecard perspectives.
C. are common across departments.
D. none of these.

44. From the customer perspective, which of the following might be considered a core objective rather than a
performance value?
A. decrease price
B. increase customer retention
C. improve image
D. improve product quality

45. From the customer perspective, which of the following might be an appropriate measure for improving
product quality?
A. customer profitability
B. cost per customer
C. percentage of returns
D. number of patents pending

46. On-time delivery performance is calculated as

A. orders delivered on time/total number of orders delivered.
B. orders delivered on time/total sales dollars.
C. orders delivered on time/total production.
D. orders delivered/orders delivered on time.
47. An operational measure of quality is
A. defects per unit.
B. number of defective units.
C. pounds of scrap.
D. all of these.

48. The time it takes to produce one unit of product is called

A. velocity.
B. delivery time.
C. cycle time.
D. turnover.

49. Cycle time is

A. the time it takes to collect the account after the sale.
B. the time it takes to turn inventory over.
C. the time it takes to deliver the product after it is sold.
D. the time it takes to produce one unit of product.

50. The formula for computing Manufacturing Cycle Efficiency (MCE) is

A. Processing Time / (Processing time + Move time + Inspection time + Waiting time + Other non-value-added
time).
B. Theoretical Capacity / Production hours available.
C. Cycle time per unit ´ velocity.
D. none of these.

51. The number of units that can be produced in a given period of time is called
A. velocity.
B. cycle time.
C. turnover.
D. efficiency.

52. Delivery performance can be improved by

A. decreasing cycle time.
B. increasing cycle time.
C. decreasing velocity.
D. increasing turnover.
53. At the beginning of 2011, Peters Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products:

Theoretical annual capacity 2,000

Actual production 1,800
Production hours available 500
Actual conversion cost per hour $7

The theoretical velocity per hour is

A. 4.0 units.
B. 3.6 units.
C. 1.1 units.
D. 1.0 units.

54. At the beginning of 2011, Peters Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products:

Theoretical annual capacity 2,000

Actual production 1,800
Production hours available 500
Actual conversion cost per hour $7

What is the ideal conversion cost per unit?

A. $0.9 per unit.
B. $1.75 per unit.
C. $25.50 per unit.
D. $28 per unit.

55. A manufacturing cell has the theoretical capability of producing 40,000 microchips per quarter. The
conversion cost per quarter is $25,000. There are 4,000 production hours available within the cell per quarter.

The theoretical velocity per hour is

A. 25.00 units.
B. 16.00 units.
C. 10.00 units.
D. 2.24 units.

56. Harris, Inc., manufactures a product that experiences the following activities:

Processing (three departments) 60 hours

Moving (four moves) 15 hours
Waiting time 45 hours
Storage time (before delivery) 120 hours
The MCE for the product is
A. 0.33.
B. 0.27.
C. 0.25.
D. 0.18.

57. A manufacturing cell has the theoretical capability of producing 40,000 microchips per quarter. The
conversion cost per quarter is $25,000. There are 4,000 production hours available within the cell per quarter.
The theoretical cycle time per unit in minutes is
A. 0.625 minutes.
B. 6.000 minutes.
C. 8.400 minutes.
D. 37.500 minutes.

58. Roberts, Inc., manufactures a product that experiences the following activities:

Processing (three departments) 18 hours

Moving (four moves) 2 hours
Waiting time 14 hours
Storage time (before delivery) 26 hours

The MCE for the product is

A. 0.48.
B. 0.45.
C. 0.42.
D. 0.30.

59. At the beginning of 2011, Smith Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products.

Theoretical annual capacity 4,000

Actual production 3,600
Production hours available 2,000
Actual cost per unit $28

The theoretical velocity per hour is

A. 1.8 units.
B. 2.0 units.
C. 0.5 units.
D. 0.55units.
60. At the beginning of 2011, Smith Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products.

Theoretical annual capacity 4,000

Actual production 3,600
Production hours available 2,000
Conversion cost per hour $28

What is the ideal conversion cost per unit?

A. $14 per unit.
B. $15.55 per unit.
C. $56 per unit
D. $50.90 per unit.

61. Which of the following is NOT a major enabling factor of the learning and growth perspective?
A. customer attributes
B. information system capabilities
C. employee attitudes
D. employee capabilities

62. The perspective that defines the capabilities needed by the organization to create long-term improvement is
the
A. financial perspective.
B. customer perspective.
C. process perspective.
D. learning and growth perspective.

63. Which of the following would NOT be a core outcome measure for employee capabilities?
A. employee satisfaction ratings
B. number of employees
C. employee turnover
D. employee productivity

64. Which of the following would be considered a lead measure for employee capabilities?
A. employee satisfaction
B. employee turnover
C. employee productivity
D. number of training hours
65. The learning and growth perspective has three major objectives. Which of the following is an objective of
the learning and growth process?
A. increase the number of new products
B. increase customer acquisition
C. increase motivation and alignment
D. improve asset utilization

66. Which of the following might be a measure of employee motivation, empowerment, and alignment?
A. process efficiency
B. suggestions per employee
C. customer satisfaction
D. units product cost

67. Which of the following would not be an outcome measure?

A. net income
B. market share
C. return on investment
D. training hours

68. The critical performance measures of the Balanced Scorecard have some special properties. Which of the
following is NOT one of those properties?
A. scorecard measures are linked by cause-and-effect relationships
B. performance measures are derived from strategy
C. benchmarking plays a critical role
D. performance measures should be balanced between outcome and lead measures

69. Failure of a strategy might be due to

A. incorrect calculations.
B. incorrect feedback.
C. implementation problems.
D. invalid controls.

70. A testable strategy is defined as

A. a strategy that can be implemented.
B. a set of profit goals.
C. a set of linked objectives aimed at an overall goal.
D. a strategy that is verifiable.
71. A testable strategy can be constructed
A. by prioritizing objectives.
B. by sequencing if-then statements.
C. by creating alternative scenarios.
D. by creating lead measures.

72. A strategy map

A. links the cause-and-effect relationships in the proposed strategy, creating a testable strategy.
B. maps the organization's strategies over time.
C. documents the performance results of an organization.
D. strategizes about the organization's competitors.

73. Double-loop feedback occurs under what conditions?

A. When managers receive information about both the effectiveness of strategy implementation as well as the
validity of assumptions.
B. When managers receive feedback information from two information sources.
C. When managers validate the feedback information by double checking it.
D. When managers receive information about the effectiveness of the controls and the effectiveness of the
implementation.

74. Double-loop feedback can be defined as

A. feedback that deals with both the effectiveness of strategy implementation and the validity of the
assumptions underlying the strategy.
B. feedback that emphasizes the effectiveness of strategy implementation and the costs of implementation.
C. feedback that emphasizes the validity and assumptions underlying the strategy and the costs of the strategy.
D. feedback on lead indicators and lag indicators.

75. If only the return on investment were used to measure performance, it would be considered
A. double-loop feedback.
B. triple-loop feedback.
C. a testable strategy.
D. single-loop feedback.

76. Balanced scorecard is designed to bring about organizational change. Which of the following is NOT a
means of alignment?
A. Employees must share ownership of objectives, measures, targets, and initiatives.
B. Incentives must be structured to support strategy.
C. Resources must be allocated to support strategy.
D. All of these.
77. The balanced scorecard becomes a means of communicating the strategy of the organization to its
employees and managers. What might be a downside of communicating this information?
A. Employees will need direction about what is to be done.
B. Employees will need to understand where the organization is headed.
C. Sensitive information may end up in the hands of competitors.
D. All of these.

78. Performance expectations are communicated by setting

A. new initiatives.
B. targets.
C. a strategic vision.
D. activity measures.

79. For purposes of strategic alignment, incentive compensation should be based upon
A. expected performance of weighted targets for a given period.
B. expected financial performance of the company.
C. actual performance compared to weighted target values for a given period.
D. actual financial performance of the company.

80. Which of the following is NOT a condition that must be present for a strategy to become attainable?
A. budgetary process must provide the resources necessary to carry out the initiatives
B. resources must be allocated to strategic initiatives
C. the organization must decide how much of the strategic targets will be achieved for the coming year
D. all are conditions that must be met for strategy to become actionable

81. Activity-based responsibility and strategic-based responsibility incorporate some of the same elements.
However, strategic-based responsibility adds some new elements to the common dimensions. What are the
elements in common and what new elements are included?
82. Compare and contrast activity-based measures and strategic-based measures.

83. Strategic-based performance measures are balanced measures. Give examples of four types of balanced
measures.

84. Activity-based evaluation and strategic-based evaluation incorporate some of the same elements. However,
strategic-based responsibility adds some new elements to the common dimensions. What are the elements in
common and what new elements are included?
85. The following measures belong to one of four perspectives on the balanced scorecard:

1 Product cost per unit

2 Satisfaction of employees
3 Satisfaction of customer
4 Cycle time

Required:

a. Identify the perspective appropriate for each measure listed above.

b. Suggest a possible strategic objective that might be associated with each measure.

86. The following measures belong to one of four perspectives on the balanced scorecard:

1 Return on investment
2 Time to market
3 Number of new customers
4 Percentage of revenues from new sources
5 Quality costs
6 Employee productivity

Required:

a. Identify the perspective appropriate for each measure listed above.

b. Suggest a possible strategic objective that might be associated with each measure.
87. Tomassi Company would like to increase its operational efficiency. For the first quarter of operations during
the current year, the following data were reported:

Days
Inspection time 0.3
Process time 3.7
Move time 1.0
Wait time 5.0

Required:

a. Compute the manufacturing cycle efficiency (MCE) for the quarter.

b. If by use of JIT all wait time during production is eliminated, what will be the new MCE?

88. Allegro Industries is planning to change its manufacturing plant by automating and installing a flexible
manufacturing system. The company is also changing its performance measures as well as its operating
procedures. In an effort to evaluate performance and determine where improvements can be made, management
has gathered the following data relating to activities over the last four months:

Month
1 2 3 4
Quality Control Measures:
Number of defects 191 161 122 93
Number of warranty claims 56 33 33 29
Number of customer complaints 107 93 71 57

Material Control Measures:

Purchase order lead time 9 days 87 days 6 days 4 days
Scrap as a percentage of total cost 1% 2% 3% 4%

Machine Performance Measures:

Percentage of machine downtime 2% 4% 4% 7%
Use as a percentage of availability 96% 91% 89% 87%
Setup time (hours) 6 9 10 13

Delivery Performance Measures:

Throughput time (days) 6.0 7.5 9.0 10.0
Delivery cycle time (days) 15.0 19.0 21.0 24.0
Manufacturing cycle efficiency 35.0% 26.7% 21.1% 18.0%
Percentage on-time deliveries 97% 95% 92% 84%
Total units 4,221 4,089 3,818 3,705
Many of these measures are new and the president has asked you to interpret the results. Throughput is the time it takes to turn materials into a
completed product. Delivery cycle time is the time between receiving an order and shipping the goods.

Required:

Using the performance measures given, do the following:

a. Identify the areas where the company seems to be improving.
b. Identify the areas where the company seems to be deteriorating.

89. Marshek Industries has the theoretical capability to produce 119,000 units per month but currently produces
102,000 units. The conversion cost for the month is $3,750,000. There are 8,500 production hours available
within the plant per month. In addition to processing time, to produce a unit takes 15 minutes of move time and
10 minutes of wait time.

Required:

1. Compute the theoretical and actual velocities per hour

2. Compute the theoretical and actual cycle times (minutes per unit produced)
3. Compute the MCE

90. How does the Balanced Scorecard communicate strategy to the organization? How is strategy translated into
performance measures?
91. The Sun and Surf scuba resort recently changed owners. The new owners planned to upgrade the resort into
to a destination vacation resort by improving the lodging and the restaurant. Currently, the restaurant has a
limited menu of sandwiches and little competition because of its location. The current staff has been retained
and the new management held a meeting with the employees to develop a balanced scorecard that would guide
operations. All were enthusiastic about creating the scorecard and the new management’s plans for the resort.

The following measures were developed for an initiative that would improve the restaurant:

a. Resort sales
b Resort return on investment
c. Number of menu items
d. Dining area cleanliness
e. Customer satisfaction with menu choices through satisfaction surveys
f. Customer satisfaction with service through satisfaction surveys
g. Average time to take an order
h. Average time to prepare an order
i Percentage of the cooking staff completing a basic cooking course at the
community college
j. Percentage of restaurant staff completing a hospitality course at the
community college
Required:

1. For each measure, create a balanced scorecard (show the perspective, measure and measure)
indicate whether the performance measure should increase ( +) or decrease
(-).
2. Create a strategy map that links the performance measures.
3. What are the hypotheses built into the scorecard? Through if/then statements show how performance
will be improved.
4. How will management know if one of the hypotheses is false?
92. Clotheshound is a local clothing store in New England. Clotheshound has been experiencing increased
competition from the national clothing chains. In an effort to improve performance, management intends to
create a Balanced Scorecard. In a meeting, several measures were suggested by various managers.

Management has identified a key problem. Customers are taking too long to pay their department store's charge
card bills, and the company has an abnormal amount of bad debts. If this problem were solved, the company
would have far more cash to invest in store improvements. Investigation has revealed that much of the problem
with late payments and unpaid bills is apparently due to disputes about incorrect charges on the customer bills.
Incorrect charges usually occur because sales clerks enter data incorrectly on the charge account slip.

The performance measures suggested by the managers are given below:

Total sales revenue

Sales per square foot of floor space
Sales to inventory ratio
Sales per employee
Sales to total assets
Customer satisfaction with accuracy of charge account bills from monthly customer survey
Customer wait time for service
Travel expenses for buyers' trips
Average age of accounts receivable
Courtesy shown by junior staff members based on surveys of senior staff
Unsold inventory at the end of the season as a percentage of total cost of sales
Percentage of suppliers making just-in-time deliveries
Quality of food in the staff cafeteria based on staff surveys
Written-off accounts receivable as a percentage of sales
Percentage of charge account bills containing errors
Percentage of employees who have attended the city's cultural diversity workshop
Total profit
Profit per employee
Percentage of salesclerks trained to correctly enter data on charge account slips

Required:

a. Build an integrated Balanced Scorecard using only performance measures suggested by the managers. You do not have to use all the
measures, but build a Balanced Scorecard that reveals a strategy for dealing with the problems with accounts receivable and unsold
merchandise.

b. Construct a testable strategy by showing the causal links (with arrows) between measures in the different perspectives, and show whether
the performance measure should show an increase or decrease.

c. Assume that the company adopts the Balanced Scorecard. After operating for a year, there are improvements in some performance
measures but not in others. What should management do next?
93. Puma Manufacturing has a theoretical capability to produce 20,250 copiers per quarter but currently
produces 10,125 copiers. The conversion cost per quarter is $4,860,000. There are 6,750 production hours
available within the plant per quarter. In addition to the processing minutes per unit used, the production of
copiers uses 12 minutes of move time, 8 minutes of wait time, and 10 minutes of rework time. (All work is done
by cell workers.)

Required:

a. Compute the theoretical and actual velocities per hour and the theoretical and actual cycle times
(minutes per unit produced).
b. Compute the ideal and actual amounts of conversion cost assigned to each printer.
c. Calculate the MCE.
d. If poor employee training is the root cause of wait time and move time, develop an improvement
strategy as a series of if-then statements that will reduce the conversion cost per printer.

94. Why does the Balanced Scorecard differ from company to company? Whose responsibility is the
implementation?

95. How can management communicate strategy? What are three methods for achieving strategic alignment?
What management failure can keep strategy from being actionable?
Chapter 13--The Balanced Scorecard: Strategic-Based Control Key

1. A competitive environment means that organizations will be

A. producing increasingly high-volume, low-variety products and services.
B. focused internally on efficiency.
C. viewing their actions independent of competitors, suppliers, and customers.
D. managing cause and effect linkages to customer satisfaction.

2. Which type of responsibility accounting addresses directed continuous improvement in environments that
consist of competitive conditions and dynamic change?
A. activity-based responsibility accounting
B. strategic-based responsibility accounting
C. process-based responsibility accounting
D. functional-based responsibility accounting

3. Activity-based responsibility accounting adds which of the following to the financial-based responsibility
accounting perspective?
A. process perspective
B. functional perspective
C. consumer perspective
D. learning perspective

4. Which of the following is NOT true about activity-based responsibility accounting?

A. The emphasis changes from cost reduction through change to cost control.
B. The emphasis includes financial results as well as how things are done.
C. Responsibility moves from one dimension to two dimensions.
D. It moves from a control system to a performance management system.

5. What are the two additional perspectives that are added to the activity-based approach to achieve strategic-
based responsibility?
A. a customer perspective and a learning and growth perspective
B. an infrastructure perspective and a process perspective
C. a customer perspective and a financial perspective
D. a financial perspective and a process perspective
6. Which of the following is NOT a limitation of activity-based responsibility accounting?
A. Change efforts are often fragmented.
B. Change efforts lack connection to mission.
C. Change efforts lack connection to strategy.
D. Change efforts are driven by value-added analysis.

7. Directed continuous improvement is accomplished by linking initiatives to

A. processes.
B. strategy and mission.
C. financial outcomes.
D. measures.

8. Which of the following is a perspective of strategic-based responsibility accounting but is NOT a perspective
of activity-based responsibility accounting?
A. financial perspective
B. process perspective
C. customer perspective
D. all of these

9. The most common strategic-based performance management system is

A. variance analysis with standard costs as benchmarks.
B. the balanced scorecard.
C. financial budgets.
D. all of these.

10. The balanced scorecard

A. is an activity-based responsibility accounting model that measures operating activities.
B. is a financial-based responsibility accounting model that focuses on the financial performance of units,
rewarding performance with static financial-oriented standards.
C. is a strategic-based financial reporting system that balances assets with liabilities and owner's equity.
D. is a strategic-based performance management system that identifies objectives and measures from a financial
perspective, customer perspective, process perspective, and learning and growth perspective.

11. Which of the following is NOT an advantage of strategic-based responsibility accounting?

A. It includes perspectives that serve as a source of competitive advantage.
B. Change efforts are directed by the mission and strategy.
C. Responsibility is centralized within the organization.
D. All are advantages of strategic-based responsibility accounting.
12. A major difference between activity-based responsibility accounting and strategic-based responsibility
accounting is
A. only strategic-based responsibility accounting is linked to strategy.
B. only strategic-based responsibility accounting is focused on systemwide efficiency.
C. only strategic-based responsibility accounting includes the process perspective.
D. only strategic-based responsibility accounting reinforces team accountability.

13. Which feature is related solely to strategic-based responsibility and not to activity-based responsibility?
A. financial perspective
B. process perspective
C. team accountability
D. customer perspective

14. Which is NOT a major difference between activity-based measures and strategic-based measures?
A. Strategic-based measures are linked to strategy.
B. Strategic-based measures are used to align objectives.
C. Strategic-based measures are balanced measures.
D. All of these.

15. Lead measures are critical to strategy because

A. they are based on actual activity.
B. they are an independent part of the system.
C. there should be a causal linkage with strategy.
D. they are outcome measures.

16. Which of the following statements is true regarding lag measures?

A. lag measures are measures that relate to customers
B. lag measures are factors that drive future performance
C. lag measures are performance drivers
D. lag measures include measures such as customer profitability

17. For a firm to have balanced measures, the measures selected must be balanced between
A. lag and lead measures.
B. objective and subjective measures.
C. financial and nonfinancial measures.
D. all of these.
18. _______________ are outcome measures that are a result of past efforts.
A. Objective measures
B. External measures
C. Financial measures
D. Lag measures

19. _______________ are outcome measures that are expressed in monetary terms.
A. Objective measures
B. External measures
C. Financial measures
D. Lag measures

20. _______________ are outcome measures that can be readily quantified and verified.
A. Objective measures
B. External measures
C. Financial measures
D. Lag measures

21. _______________ are outcome measures that relate to customers.

A. Objective measures
B. External measures
C. Financial measures
D. Lag measures

22. Which of the following would be a nonfinancial measure?

A. customer profitability
B. dissatisfied customers
C. return on investment
D. cost per unit

23. Which of the following would be a subjective measure?

A. employee capabilities
B. market share
C. return on investment
D. cost per unit
24. Which of the following would be an external measure?
A. profitability
B. employee satisfaction
C. process efficiency
D. all of these

25. Which of the following would NOT be an objective measure?

A. customer profitability
B. employee capabilities
C. return on investment
D. cost per unit

26. Which of the following would be a lead measure?

A. customer profitability
B. cost per employee
C. return on investment
D. employee training hours

27. Which of the following would be a lag measure?

A. budget forecasts
B. sales per employee
C. plant investment
D. employee training hours

28. Lead measures

A. are the measures with the highest priority.
B. are generic to different strategies.
C. are based on performance drivers.
D. represent the desired outcomes.

29. Communicating strategy through measurements requires both scope and flexibility. Which of the following
statements is true?
A. Flexibility requires subjective and objective measurement as well as nonfinancial measures.
B. Flexibility requires that measures be optimal and dynamic.
C. Scope implies that internal and external measures are needed.
D. Both a and c are true.
30. Which of the following statements comparing activity-based performance and strategic-based performance
evaluation is NOT true?
A. Strategic-based performance evaluation expands the set of metrics.
B. Only strategic-based performance evaluation leads to cost reductions.
C. Only strategic-based performance standards set stretch targets for all four perspectives.
D. Both systems encourage quality improvements.

31. Stretch targets are

A. aimed at stretching the firm's resources.
B. aimed at static standards.
C. aimed at transforming the organization within three to five years if achieved.
D. aimed at transforming the organization immediately.

32. Which of the following features make stretch targets feasible?

A. The targets are set in isolation by top management.
B. The measures are linked by causal relationships.
C. The measures are based on currently attainable standard costs.
D. The targets are set at desired levels for twenty years to ensure long-term performance.

33. Business strategy is concerned with

A. choosing market and customer segments.
B. identifying critical internal and business processes.
C. selecting individual and organizational properties required.
D. all of these.

34. Strategy translation is concerned with

A. choosing general goals.
B. choosing the customer segments.
C. identifying measures, targets, and initiatives.
D. choosing the nature of the business.

35. Which of the following is NOT a step in developing the Balanced Scorecard?
A. setting balanced objectives
B. outlining control procedures
C. setting target values
D. rewards
36. Which of the following is not a strategic theme of the financial perspective?
A. revenue growth
B. asset utilization
C. employee capability
D. risk management

37. Objectives for increasing revenue growth include

A. adopting a new pricing strategy.
B. reducing the cost per unit.
C. eliminating non-value-added activities.
D. reducing distribution channel cost.

38. Which of the following is NOT a measure commonly used to evaluate asset utilization?
A. return on investment
B. economic value added
C. market share
D. return on investment

39. Diversifying customers and product lines are initiatives important to

A. revenue growth.
B. cost reduction.
C. asset utilization.
D. risk management.

40. In the financial perspective, economic value added would be an appropriate measure for
A. revenue growth.
B. cost reduction.
C. improving asset utilization.
D. risk management.

41. In the customer perspective, objectives and measures that drive the creation of customer value are
A. customer survey ratings.
B. post-purchase cost.
C. on-time deliveries.
D. all of these.
42. Increasing customer value occurs when
A. the customer receives more benefits.
B. the customer perceives a greater gap between benefits and sacrifice.
C. customer costs are reduced.
D. none of these.

43. In the Balanced Scorecard system, core objectives and measures

A. are common across all organizations.
B. are common across all scorecard perspectives.
C. are common across departments.
D. none of these.

44. From the customer perspective, which of the following might be considered a core objective rather than a
performance value?
A. decrease price
B. increase customer retention
C. improve image
D. improve product quality

45. From the customer perspective, which of the following might be an appropriate measure for improving
product quality?
A. customer profitability
B. cost per customer
C. percentage of returns
D. number of patents pending

46. On-time delivery performance is calculated as

A. orders delivered on time/total number of orders delivered.
B. orders delivered on time/total sales dollars.
C. orders delivered on time/total production.
D. orders delivered/orders delivered on time.

47. An operational measure of quality is

A. defects per unit.
B. number of defective units.
C. pounds of scrap.
D. all of these.
48. The time it takes to produce one unit of product is called
A. velocity.
B. delivery time.
C. cycle time.
D. turnover.

49. Cycle time is

A. the time it takes to collect the account after the sale.
B. the time it takes to turn inventory over.
C. the time it takes to deliver the product after it is sold.
D. the time it takes to produce one unit of product.

50. The formula for computing Manufacturing Cycle Efficiency (MCE) is

A. Processing Time / (Processing time + Move time + Inspection time + Waiting time + Other non-value-added
time).
B. Theoretical Capacity / Production hours available.
C. Cycle time per unit ´ velocity.
D. none of these.

51. The number of units that can be produced in a given period of time is called
A. velocity.
B. cycle time.
C. turnover.
D. efficiency.

52. Delivery performance can be improved by

A. decreasing cycle time.
B. increasing cycle time.
C. decreasing velocity.
D. increasing turnover.

53. At the beginning of 2011, Peters Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products:

Theoretical annual capacity 2,000

Actual production 1,800
Production hours available 500
Actual conversion cost per hour $7
The theoretical velocity per hour is
A. 4.0 units.
B. 3.6 units.
C. 1.1 units.
D. 1.0 units.

54. At the beginning of 2011, Peters Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products:

Theoretical annual capacity 2,000

Actual production 1,800
Production hours available 500
Actual conversion cost per hour $7

What is the ideal conversion cost per unit?

A. $0.9 per unit.
B. $1.75 per unit.
C. $25.50 per unit.
D. $28 per unit.

55. A manufacturing cell has the theoretical capability of producing 40,000 microchips per quarter. The
conversion cost per quarter is $25,000. There are 4,000 production hours available within the cell per quarter.

The theoretical velocity per hour is

A. 25.00 units.
B. 16.00 units.
C. 10.00 units.
D. 2.24 units.

56. Harris, Inc., manufactures a product that experiences the following activities:

Processing (three departments) 60 hours

Moving (four moves) 15 hours
Waiting time 45 hours
Storage time (before delivery) 120 hours

The MCE for the product is

A. 0.33.
B. 0.27.
C. 0.25.
D. 0.18.
57. A manufacturing cell has the theoretical capability of producing 40,000 microchips per quarter. The
conversion cost per quarter is $25,000. There are 4,000 production hours available within the cell per quarter.
The theoretical cycle time per unit in minutes is
A. 0.625 minutes.
B. 6.000 minutes.
C. 8.400 minutes.
D. 37.500 minutes.

58. Roberts, Inc., manufactures a product that experiences the following activities:

Processing (three departments) 18 hours

Moving (four moves) 2 hours
Waiting time 14 hours
Storage time (before delivery) 26 hours

The MCE for the product is

A. 0.48.
B. 0.45.
C. 0.42.
D. 0.30.

59. At the beginning of 2011, Smith Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products.

Theoretical annual capacity 4,000

Actual production 3,600
Production hours available 2,000
Actual cost per unit $28

The theoretical velocity per hour is

A. 1.8 units.
B. 2.0 units.
C. 0.5 units.
D. 0.55units.

60. At the beginning of 2011, Smith Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products.

Theoretical annual capacity 4,000

Actual production 3,600
Production hours available 2,000
Conversion cost per hour $28
What is the ideal conversion cost per unit?
A. $14 per unit.
B. $15.55 per unit.
C. $56 per unit
D. $50.90 per unit.

61. Which of the following is NOT a major enabling factor of the learning and growth perspective?
A. customer attributes
B. information system capabilities
C. employee attitudes
D. employee capabilities

62. The perspective that defines the capabilities needed by the organization to create long-term improvement is
the
A. financial perspective.
B. customer perspective.
C. process perspective.
D. learning and growth perspective.

63. Which of the following would NOT be a core outcome measure for employee capabilities?
A. employee satisfaction ratings
B. number of employees
C. employee turnover
D. employee productivity

64. Which of the following would be considered a lead measure for employee capabilities?
A. employee satisfaction
B. employee turnover
C. employee productivity
D. number of training hours

65. The learning and growth perspective has three major objectives. Which of the following is an objective of
the learning and growth process?
A. increase the number of new products
B. increase customer acquisition
C. increase motivation and alignment
D. improve asset utilization
66. Which of the following might be a measure of employee motivation, empowerment, and alignment?
A. process efficiency
B. suggestions per employee
C. customer satisfaction
D. units product cost

67. Which of the following would not be an outcome measure?

A. net income
B. market share
C. return on investment
D. training hours

68. The critical performance measures of the Balanced Scorecard have some special properties. Which of the
following is NOT one of those properties?
A. scorecard measures are linked by cause-and-effect relationships
B. performance measures are derived from strategy
C. benchmarking plays a critical role
D. performance measures should be balanced between outcome and lead measures

69. Failure of a strategy might be due to

A. incorrect calculations.
B. incorrect feedback.
C. implementation problems.
D. invalid controls.

70. A testable strategy is defined as

A. a strategy that can be implemented.
B. a set of profit goals.
C. a set of linked objectives aimed at an overall goal.
D. a strategy that is verifiable.

71. A testable strategy can be constructed

A. by prioritizing objectives.
B. by sequencing if-then statements.
C. by creating alternative scenarios.
D. by creating lead measures.
72. A strategy map
A. links the cause-and-effect relationships in the proposed strategy, creating a testable strategy.
B. maps the organization's strategies over time.
C. documents the performance results of an organization.
D. strategizes about the organization's competitors.

73. Double-loop feedback occurs under what conditions?

A. When managers receive information about both the effectiveness of strategy implementation as well as the
validity of assumptions.
B. When managers receive feedback information from two information sources.
C. When managers validate the feedback information by double checking it.
D. When managers receive information about the effectiveness of the controls and the effectiveness of the
implementation.

74. Double-loop feedback can be defined as

A. feedback that deals with both the effectiveness of strategy implementation and the validity of the
assumptions underlying the strategy.
B. feedback that emphasizes the effectiveness of strategy implementation and the costs of implementation.
C. feedback that emphasizes the validity and assumptions underlying the strategy and the costs of the strategy.
D. feedback on lead indicators and lag indicators.

75. If only the return on investment were used to measure performance, it would be considered
A. double-loop feedback.
B. triple-loop feedback.
C. a testable strategy.
D. single-loop feedback.

76. Balanced scorecard is designed to bring about organizational change. Which of the following is NOT a
means of alignment?
A. Employees must share ownership of objectives, measures, targets, and initiatives.
B. Incentives must be structured to support strategy.
C. Resources must be allocated to support strategy.
D. All of these.
77. The balanced scorecard becomes a means of communicating the strategy of the organization to its
employees and managers. What might be a downside of communicating this information?
A. Employees will need direction about what is to be done.
B. Employees will need to understand where the organization is headed.
C. Sensitive information may end up in the hands of competitors.
D. All of these.

78. Performance expectations are communicated by setting

A. new initiatives.
B. targets.
C. a strategic vision.
D. activity measures.

79. For purposes of strategic alignment, incentive compensation should be based upon
A. expected performance of weighted targets for a given period.
B. expected financial performance of the company.
C. actual performance compared to weighted target values for a given period.
D. actual financial performance of the company.

80. Which of the following is NOT a condition that must be present for a strategy to become attainable?
A. budgetary process must provide the resources necessary to carry out the initiatives
B. resources must be allocated to strategic initiatives
C. the organization must decide how much of the strategic targets will be achieved for the coming year
D. all are conditions that must be met for strategy to become actionable

81. Activity-based responsibility and strategic-based responsibility incorporate some of the same elements.
However, strategic-based responsibility adds some new elements to the common dimensions. What are the
elements in common and what new elements are included?

Activity-based responsibility and strategic-based responsibility both are concerned with systemwide efficiency,
team accountability, financial perspective, and process perspective. However, strategic-based responsibility is
linked to strategy, and adds a customer perspective and the learning and growth perspective. Strategic-based
responsibility adds direction to improvement efforts by tying responsibility to the firm's strategy. It includes
only the perspectives that are sources for competitive advantage and diffuses responsibility to those throughout
the organization.
82. Compare and contrast activity-based measures and strategic-based measures.

Activity-based measures are concerned with standards: process-oriented, financial, value-added, dynamic, and
optimal. Strategic perspective adopts standards for each of the perspectives. Standards are used to communicate
strategy, align objectives, and link strategy to the objectives. Strategic-based measures seek balance. The
strategic approach aligns, reinforces, and communicates strategy and its objectives.

83. Strategic-based performance measures are balanced measures. Give examples of four types of balanced
measures.

There are lead and lag measures. Lead measures drive future performance (research) and lag measures are
results of past efforts (profitability). There are objective and subjective measures. Objective measures can be
quantified and verified (market share), and subjective measures are less quantifiable and judgmental
(capabilities). There are financial and nonfinancial measures. Financial measures are expressed in monetary
terms (profit), and nonfinancial measures use nonmonetary measures (number of returns). There are internal
measures and external measures. Internal measures relate to processes and capabilities (efficiency), and external
measures relate to customers and stakeholders (satisfaction). Using many different types of measures allows a
close link to strategy.

84. Activity-based evaluation and strategic-based evaluation incorporate some of the same elements. However,
strategic-based responsibility adds some new elements to the common dimensions. What are the elements in
common and what new elements are included?

Activity-based evaluation and strategic-based evaluation both focus on time reductions, quality improvements,
cost reductions, and trend measurements. However, strategic-based evaluation also includes an expanded set of
metrics and sets stretch targets for all four perspectives. Stretch targets are set at levels that will transform the
organization within a period of three to five years.
85. The following measures belong to one of four perspectives on the balanced scorecard:

1 Product cost per unit

2 Satisfaction of employees
3 Satisfaction of customer
4 Cycle time

Required:

a. Identify the perspective appropriate for each measure listed above.

b. Suggest a possible strategic objective that might be associated with each measure.

a. 1 Product cost per unit -- financial

2 Satisfaction of employees -- learning and growth
3 Satisfaction of customer -- customer
4 Cycle time -- process

b. 1 Product cost per unit -- decrease product costs

2 Satisfaction of employees -- increase motivation and alignment
3 Satisfaction of customer -- increase customer repeat business
4 Cycle time -- decrease production time
86. The following measures belong to one of four perspectives on the balanced scorecard:

1 Return on investment
2 Time to market
3 Number of new customers
4 Percentage of revenues from new sources
5 Quality costs
6 Employee productivity

Required:

a. Identify the perspective appropriate for each measure listed above.

b. Suggest a possible strategic objective that might be associated with each measure.

a. 1 Return on investment -- financial

2 Time to market -- process
3 # of new customers -- customer
4 % of revenues from new sources -- financial
5 Quality costs -- process
6 Employee productivity -- learning and growth

b. 1 Return on investment -- improve asset utilization

2 Time to market -- decrease product development
cycle time
3 # of new customers -- increase customer acquisition
4 % of revenues from new sources -- develop new customers and
markets
5 Quality costs -- increase process quality
6 Employee productivity -- increase employee capabilities

87. Tomassi Company would like to increase its operational efficiency. For the first quarter of operations during
the current year, the following data were reported:

Days
Inspection time 0.3
Process time 3.7
Move time 1.0
Wait time 5.0

Required:

a. Compute the manufacturing cycle efficiency (MCE) for the quarter.

b. If by use of JIT all wait time during production is eliminated, what will be the new MCE?

a. MCE = 3.7/(3.7 + 0.3 + 1.0 + 5.0 ) = 0.37

b. MCE = 3.7/(3.7 + 0.3 + 1.0 ) = 0.74
88. Allegro Industries is planning to change its manufacturing plant by automating and installing a flexible
manufacturing system. The company is also changing its performance measures as well as its operating
procedures. In an effort to evaluate performance and determine where improvements can be made, management
has gathered the following data relating to activities over the last four months:

Month
1 2 3 4
Quality Control Measures:
Number of defects 191 161 122 93
Number of warranty claims 56 33 33 29
Number of customer complaints 107 93 71 57

Material Control Measures:

Purchase order lead time 9 days 87 days 6 days 4 days
Scrap as a percentage of total cost 1% 2% 3% 4%

Machine Performance Measures:

Percentage of machine downtime 2% 4% 4% 7%
Use as a percentage of availability 96% 91% 89% 87%
Setup time (hours) 6 9 10 13

Delivery Performance Measures:

Throughput time (days) 6.0 7.5 9.0 10.0
Delivery cycle time (days) 15.0 19.0 21.0 24.0
Manufacturing cycle efficiency 35.0% 26.7% 21.1% 18.0%
Percentage on-time deliveries 97% 95% 92% 84%
Total units 4,221 4,089 3,818 3,705

Many of these measures are new and the president has asked you to interpret the results. Throughput is the time it takes to turn materials into a
completed product. Delivery cycle time is the time between receiving an order and shipping the goods.

Required:

Using the performance measures given, do the following:

a. Identify the areas where the company seems to be improving.
b. Identify the areas where the company seems to be deteriorating.

a. Areas where the company is improving:

In the area of quality control, there seem to be improvements. The number of defects has decreased by over 50 percent in the last four
months. Warranty claims and customer complaints have also decreased. The combination of these effects has had an overall improvement
in quality. Material control has mixed reviews. The purchase order lead time has decreased by one half. Materials purchases are arriving in
less time, a likely result of JIT purchasing. However, scrap as a percentage of cost is increasing.

b. Areas of deterioration:

In the area of material control, the scrap as a percentage of total cost has quadrupled, probably due to the poor machine performance. The
area of machine performance was negative. Machine downtime has tripled, probably due to the increased setup time. The increased setup
time is a great concern. Use of the machines as a percentage of availability is also declining rapidly, perhaps because of the increased setup
time. All delivery performance measures are moving in the wrong direction—throughput time and delivery cycle time are both increasing,
and the manufacturing cycle efficiency and on-time deliveries are decreasing. It appears that the company is performing poorer customer
service.
89. Marshek Industries has the theoretical capability to produce 119,000 units per month but currently produces
102,000 units. The conversion cost for the month is $3,750,000. There are 8,500 production hours available
within the plant per month. In addition to processing time, to produce a unit takes 15 minutes of move time and
10 minutes of wait time.

Required:

1. Compute the theoretical and actual velocities per hour

2. Compute the theoretical and actual cycle times (minutes per unit produced)
3. Compute the MCE

1. Theoretical velocity
= Theoretical
capability /
Production hours
available
119,000 / 8,500 = 14 units per hour
Actual velocity =
Actual production /
Production hours
available
102,000 / 8,500 = 12 units per hour
2. Theoretical cycle
time = 60 minutes /
Theoretical velocity
60 / 14 = 4.29 minutes per copier
Actual cycle time = 60 minutes/ Actual velocity
60 / 12 = 5 minutes per copier
3. MCE = Processing
Time / (Processing
Time + Move Time +
Inspection Time +
Waiting Time +
Other non-value
added time)
4.29 / (4.29 + 15 + 10) = .1465

90. How does the Balanced Scorecard communicate strategy to the organization? How is strategy translated into
performance measures?

Balanced scorecard operationalizes strategy by setting operational objectives and performance measures for
these objectives. The scorecard defines management's desired relationships among the financial, customer,
process, and learning and growth perspectives. The scorecard establishes causal links between the perspectives
by establishing objectives, measures, targets, and initiatives for each perspective. Each strategy is testable.
91. The Sun and Surf scuba resort recently changed owners. The new owners planned to upgrade the resort into
to a destination vacation resort by improving the lodging and the restaurant. Currently, the restaurant has a
limited menu of sandwiches and little competition because of its location. The current staff has been retained
and the new management held a meeting with the employees to develop a balanced scorecard that would guide
operations. All were enthusiastic about creating the scorecard and the new management’s plans for the resort.

The following measures were developed for an initiative that would improve the restaurant:

a. Resort sales
b Resort return on investment
c. Number of menu items
d. Dining area cleanliness
e. Customer satisfaction with menu choices through satisfaction surveys
f. Customer satisfaction with service through satisfaction surveys
g. Average time to take an order
h. Average time to prepare an order
i Percentage of the cooking staff completing a basic cooking course at the
community college
j. Percentage of restaurant staff completing a hospitality course at the
community college
Required:

1. For each measure, create a balanced scorecard (show the perspective, measure and measure)
indicate whether the performance measure should increase ( +) or decrease
(-).
2. Create a strategy map that links the performance measures.
3. What are the hypotheses built into the scorecard? Through if/then statements show how performance
will be improved.
4. How will management know if one of the hypotheses is false?

1.

Perspective Objective Measure Change

Financial
Revenue growth Resort sales +
Asset utilization Resort return on investment +
Customer
Improve product functionality Customer satisfaction with menu choices +
Improve product delivery Customer satisfaction with service +
Process
Improve process quality Dining area cleanliness +
Increase process efficiency Average time to take an order -
Decrease process time Average time to prepare an order -
Increase number of offerings Number of menu items +
Learning
Increase employee capability % of cooking staff completing a cooking class +
Increase employee capability % of restaurant staff completing a hospitality +
class
2.
Financial
return on investment

resort sales
Customer
Customer satisfaction with service Customer satisfaction with
menu choices

Internal Business Processes

Dining area cleanliness Number of menu items
Average time to take an order Average time to prepare an order

Learning and Growth

Percentage of restaurant staff completing hospitality course
Percentage of cooking staff completing cooking course

3. The hypotheses underlying the balanced scorecard are indicated by the arrows in the diagram. Reading from the bottom of the balanced
scorecard, the hypotheses are:
a If the percentage of dining room staff who complete the basic hospitality course increases, then the average time to take an order will decrease.
b If the percentage of dining room staff who complete the basic hospitality course increases, then dining room cleanliness will improve.
c If the percentage of kitchen staff who complete the basic cooking course increases, then the average time to prepare an order will decrease.
d If the percentage of kitchen staff who complete the basic cooking course increases, then the number of menu items will increase.
e If the dining room cleanliness improves, then customer satisfaction with service will increase.
f If the average time to take an order decreases, then customer satisfaction with service will increase.
g If the average time to prepare an order decreases, then customer satisfaction with service will increase.
h If the number of menu items increases, then customer satisfaction with menu choices will increase.
i If customer satisfaction with service increases, resort sales will increase.
j If customer satisfaction with menu choices increases, resort sales will increase.
k If sales increase, weekly return on investment for the resort will increase.

4. Management will be able to tell if a hypothesis is false if a corresponding linkage for an improvement in a performance measure (if statement)
does not, in fact, lead to improvement in the performance outcome measure (then statement). For example, if the number of menu items is increased,
but customer satisfaction with the menu choices does not increase, management will immediately know that something was wrong with that
particular hypothesis.
92. Clotheshound is a local clothing store in New England. Clotheshound has been experiencing increased
competition from the national clothing chains. In an effort to improve performance, management intends to
create a Balanced Scorecard. In a meeting, several measures were suggested by various managers.

Management has identified a key problem. Customers are taking too long to pay their department store's charge
card bills, and the company has an abnormal amount of bad debts. If this problem were solved, the company
would have far more cash to invest in store improvements. Investigation has revealed that much of the problem
with late payments and unpaid bills is apparently due to disputes about incorrect charges on the customer bills.
Incorrect charges usually occur because sales clerks enter data incorrectly on the charge account slip.

The performance measures suggested by the managers are given below:

Total sales revenue

Sales per square foot of floor space
Sales to inventory ratio
Sales per employee
Sales to total assets
Customer satisfaction with accuracy of charge account bills from monthly customer survey
Customer wait time for service
Travel expenses for buyers' trips
Average age of accounts receivable
Courtesy shown by junior staff members based on surveys of senior staff
Unsold inventory at the end of the season as a percentage of total cost of sales
Percentage of suppliers making just-in-time deliveries
Quality of food in the staff cafeteria based on staff surveys
Written-off accounts receivable as a percentage of sales
Percentage of charge account bills containing errors
Percentage of employees who have attended the city's cultural diversity workshop
Total profit
Profit per employee
Percentage of salesclerks trained to correctly enter data on charge account slips

Required:

a. Build an integrated Balanced Scorecard using only performance measures suggested by the managers. You do not have to use all the
measures, but build a Balanced Scorecard that reveals a strategy for dealing with the problems with accounts receivable and unsold
merchandise.

b. Construct a testable strategy by showing the causal links (with arrows) between measures in the different perspectives, and show whether
the performance measure should show an increase or decrease.

c. Assume that the company adopts the Balanced Scorecard. After operating for a year, there are improvements in some performance
measures but not in others. What should management do next?

a. Financial:
Total profit
Average age of accounts receivable

Customer:
Customer satisfaction with accuracy of charge account bills

Internal Processes:
Percentage of charge account bills containing errors

Learning and Growth:

Percentage of sales clerks trained to correctly enter data on charge
c. The results can be explored for information about the company's strategic assumptions. Each link in the Balanced Scorecard is considered
a causal link. Mixed results would present evidence that might challenge the causal assumptions. Management should try to figure out
where the links break down. The answer may suggest a shift in strategy. Breakdowns in the causal links underlying the company's strategy
and provides invaluable feedback that can lead to modification of the strategy.

93. Puma Manufacturing has a theoretical capability to produce 20,250 copiers per quarter but currently
produces 10,125 copiers. The conversion cost per quarter is $4,860,000. There are 6,750 production hours
available within the plant per quarter. In addition to the processing minutes per unit used, the production of
copiers uses 12 minutes of move time, 8 minutes of wait time, and 10 minutes of rework time. (All work is done
by cell workers.)

Required:

a. Compute the theoretical and actual velocities per hour and the theoretical and actual cycle times
(minutes per unit produced).
b. Compute the ideal and actual amounts of conversion cost assigned to each printer.
c. Calculate the MCE.
d. If poor employee training is the root cause of wait time and move time, develop an improvement
strategy as a series of if-then statements that will reduce the conversion cost per printer.

a. Theoretical velocity = 20,250/6,750 = 3 copiers per hour

Actual velocity = 10,125/6,750 = 1.5 copiers per hour

Theoretical cycle time = 60 min/3 copiers = 20 minutes per copier.

Actual cycle time = 60 min/ 1.5 copiers = 40 minutes per copier

b. Conversion cost rate = $4,860,000/ (6,750 ´ 60) = $12 per minute

Ideal assignment per unit = $12 ´ 20 = $240
Actual assignment per unit = $12 ´ 40 = $480

c. MCE = processing time/(processing time + wait time + move time + rework time) =
20/(20 + 12 + 8 + 10) = 0.40

d. If training is improved, then the wait time, move time, and rework time will be
decreased, thereby increasing the MCE. The conversion cost per unit will also
decrease.
94. Why does the Balanced Scorecard differ from company to company? Whose responsibility is the
implementation?

A company's Balanced Scorecard should be derived from and support its strategy. Since different companies
have different strategies, their Balanced Scorecards should be different. Successful implementation requires the
commitment of the entire organization.

95. How can management communicate strategy? What are three methods for achieving strategic alignment?
What management failure can keep strategy from being actionable?

Strategy can be communicated to employees and lower level managers through the Balanced Scorecard. The
Balanced Scorecard shows objectives, measures, targets, and initiatives focusing attention. The linked
objectives serve to illustrate the logic of strategy. To bring about alignment, employees must be fully informed
of the strategy, employees must share ownership of objectives and targets and initiatives, and incentives must
support the strategy. For strategy to become actionable or implemented, resources must be allocated to support
the strategy.