Exam 12: Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Crimson Industries is in the process of evaluating allocation bases so that selected costs can be charged to responsibility centers. Would the number of employees likely be a good base for allocating the costs of Human Resources, Building and Grounds, and Repairs and Maintenance to user centers?

Inventory control is important in achieving the benefits of a just-in-time (JIT) philosophy.

Startup, Inc. provides a variety of telecommunications services to residential and commercial customers from its massive campus-like headquarters in suburban Tampa. For a number of years the firm's maintenance group has been organized as a cost center, rendering services free of charge to the company's user departments (sales, billing, accounting, marketing, research, and so forth). Requests for maintenance have grown considerably, and demand is approaching the point where quality and timeliness of services provided are becoming an issue. As a result, management is studying whether the maintenance operation should be converted from a cost center to a profit center, with users to be billed for services performed. Required: A. Differentiate between a cost center and a profit center. How is each of these centers evaluated? B. What will likely happen to the number of user service requests if the company makes the switch to a profit-center form of organization? Why? C. Assume that a user department has requested a particular service, one that is time consuming and costly to perform. The maintenance group's actual cost incurred in providing this service is $17,800, and the user has agreed to pay $20,800 if the switch to a profit center is made. If this case is fairly typical within the firm, which of the two forms of organization (cost center or profit center) will result in a more responsive, service-oriented maintenance group for Startup? Why?

Parson, Inc. operates a chain of 80 retail stores throughout the Southeast that specializes in the sale of sports equipment. The following costs relate to store no. 19 in Atlanta, Georgia: 1. Salary of store manager: $58,000 2. Allocated corporate overhead: $55,000 3. Cost of goods sold: $2,560,000 4. Landscaping and grounds costs (yearly contract): $6,800 5. Hourly wages of sales clerks: $343,000 6. Local advertising (negotiated by store manager): $76,000 7. Property taxes: $25,800 8. Sales commissions: $221,000 Required: A. Store no. 19's segment contribution margin? B. Store no. 19's controllable profit margin? C. Store no. 19's segment profit margin? D. The net income of Parson, Inc.?

The concepts and tools used to measure the performance of people and departments are known as:

Phyllis' Philly Steaks, a national fast-food chain, has experienced a number of problems in the past few years, and management is considering the adoption of a balanced scorecard as part of a turnaround effort. Required: A. Briefly explain the concept of a balanced scorecard. What general factors are included in a typical balanced scorecard? B. Independent of your answer in requirement "A," assume that Phyllis' is very concerned about customer satisfaction. List four different (and specific) customer-satisfaction measures that may be appropriate for the firm (and for other fast-food providers). C. Independent of requirement "A," assume that Phyllis' wants to return to former levels of profitability. List several financial measures that would allow management to assess success or failure with respect to the following goals: (1) pay creditors on a timely basis, (2) keep shareholders happy, and (3) improve profitability over time at stores that have been open at least one year.

Segmented income statements are used to show revenues, expenses, and income for major parts of an organization. Required: A. Consider a regional chain of department stores that has two or three stores in each of several cities. One way to segment this business is geographically. Describe another way of segmenting the firm. B. Segmented income statements often distinguish between "fixed expenses controllable by the segment manager" and "fixed expenses traceable to the segment, but controllable by others." Assume that the Cleveland district has three retail stores. Give two examples of each type of fixed cost. C. Common costs create difficulties when preparing segmented income statements. Define "common costs," give an example for the regional chain of department stores, and explain in general terms why such costs create a problem.

Halpern Corporation is in the process of overhauling the performance evaluation system for its San Diego manufacturing division, which produces and sells parts that are popular in the aerospace industry. Which of the following is least likely to be chosen to evaluate the overall operations of the San Diego division?

An increasingly popular approach that integrates financial and customer performance measures with measures in the areas of internal operations and learning and growth is known as:

Which of the following would not be considered a proper financial perspective measure?

The following data relate to Department no. 3 of Winslett Corporation: On the basis of this information, Department no. 3's variable operating expenses are:

Swift Software operates stores within five regions. Regional managers are held accountable for marketing, advertising, and sales decisions, and all costs incurred within their region. In addition, regional managers decide whether new stores will open, where the stores will be located, and whether the stores will lease or purchase the facilities. Store managers, in contrast, are accountable for marketing, advertising, sales decisions, and costs incurred within their stores. Ideally, on the basis of this information, what type of responsibility center should the software company use to evaluate its regions and stores?

The allocation of costs gives rise to several unique terms. Briefly discuss the following: cost object, cost allocation base, and cost allocation.

On a segmented income statement, common fixed expenses will have an effect on a company's:

A cost center manager:

Consider the following situation: The marketing manager of Gramblin, Inc. accepted a rush order for a nonstock item from a valued customer. The manager filed the necessary paperwork with the production department, and a production manager did the same with purchasing for needed raw materials. Unfortunately, a purchasing clerk temporarily lost the paperwork; by the time it was found, it was too late to order from Gramblin's regular supplier. A new supplier was located that quoted a very attractive price. The materials soon arrived and were found to be of poor quality, thus giving rise to a favorable materials price variance, an unfavorable materials quantity variance, and an unfavorable labor efficiency variance. These latter two variances, based on normal practice, appeared on the production manager's performance report for the period just ended. Required: A. Given that the company uses a responsibility accounting system, should the production manager be penalized for poor performance? Briefly discuss, keeping in mind that a production manager is generally in a very good position to control material usage and labor efficiency. B. Should anything be done to correct the situation? If "yes," briefly explain.

Cost pools should be charged to responsibility centers by using:

Balanced scorecards contain a number of factors that are important to the success of a business. These factors are often divided into four categories: financial, internal operations, customer, and learning and growth? Consider the twelve factors that follow. 1. Market share 2. Earnings per share 3. Manufacturing cycle efficiency 4. Machine downtime 5. Number of patents held 6. Employee suggestions 7. Number of repeat sales 8. Levels of inventories held 9. Number of vendors used 10. Cash flow from operations 11. Employee training hours 12. Gross margin Required: Determine the proper classification (financial, internal operations, customer, and learning and growth?) for each of the twelve factors listed.

The profit margin controllable by the segment manager would not include:

Common costs: