Chapter 24: Q11RQ (page 1355)
Explain the difference between a lag indicator and a lead indicator.
Answer
A lag indicator measures past performance while a lead indicator forecasts future performance.
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Sheffield Company manufactures power tools. The Electric Drill Division (an investment center) can purchase the motors for the drills from the Motor Division (another investment center) or from an outside vendor. The cost to purchase from the outside vendor is \(20. The Motor Division also sells to outside customers. The motor needed by the Electric Drill Division sells for \)25 to outside customers and has a variable cost of $15. The Motor Division has excess capacity.
21. If Sheffield Company allows division managers to negotiate transfer prices, what is the minimum amount the manager of the Motor Division should consider?
22. What is the maximum transfer price the manager of the Electric Drill Division should consider?
Well-designed performance evaluation systems accomplish many goals. Consider the following actions, and state which goal is being achieved by the action:
a. Comparing targets to actual results
b. Providing subunit managers with performance targets
c. Comparing actual results with industry standards
d. Providing bonuses to subunit managers who achieve performance targets
e. Aligning subunit performance targets with company strategy
f. Comparing actual results of competitors
g. Taking corrective actions
h. Using the adage “you get what you measure” when designing the performance evaluation system
One subunit of Track Sports Company had the following financial results last month:
Subunit X Actual Results Flexible Budget Flexible Budget % Variance
Variance (F or U) (F or U)
Net Sales
Revenue \( 474,000 \) 455,000
Variable
Expenses 261,000 255,000
Contribution
Margin 213,000 200,000
Traceable
Fixed Expenses 38,000 29,000
Divisional
Segment Margin \( 175,000 \) 171,000
Requirements
1. Complete the performance evaluation report for this subunit (round to two decimal places).
2. Based on the data presented and your knowledge of the company, what type of responsibility center is this subunit?
3. Which items should be investigated if part of management’s decision criteria is to investigate all variances equal to or exceeding \(8,000 andexceeding 10% (both criteria must be met)?
4. Should only unfavorable variances be investigated? Explain.
5. Is it possible that the variances are due to a higher-than-expected sales volume? Explain.
6. Will management place equal weight on each of the variances exceeding \)8,000? Explain.
7. Which balanced scorecard perspective is being addressed through this performance report? In your opinion, is this performance report a lead or a lag indicator? Explain.
8. List one key performance indicator for the three other balanced scorecard perspectives. Make sure to indicate which perspective is being addressed by the indicators you list.
Fill in the blanks with the phrase that best completes the sentence.Some phrases may be used more than once and some not at all.
Phrases:
1. The maintenance department at the local zoo is a(n)___________
2. The gift shop at the local zoo is a(n)____________
3. The menswear department of a department store, which is responsible forbuying and selling merchandise, is a(n)_______________
4. The production line at a manufacturing plant is a(n)
5. A( n)________________is any segment of the business whose manager isaccountable for specific activities.
6. A division of a beverage manufacturing company responsible for aparticular brand of soft drink is a(n)_______________
7. The sales manager in charge of a shoe company’s northwest sales territoryoversees a(n)
8. Managers of cost and revenue centers are at_____________ levels of theorganization than are managers of profit and investment centers.______
Zims, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year:
Net Sales Revenue Operating Income Average Total Assets
Residential \( 550,000 \) 65,280 $ 192,000
Professional 1,090,000 164,820 402,000
Management has a 26% target rate of return for each division.
Requirements
1. Calculate each division’s ROI. Round all of your answers to four decimal places.
2. Calculate each division’s profit margin ratio. Interpret your results.
3. Calculate each division’s asset turnover ratio. Interpret your results.
4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude?
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