Chapter 24: Q24-11RQ (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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What is the typical focus of responsibility reports for cost centers, revenue centers, and profit centres?
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
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?
What is goal congruence?
What are the goals of a performance evaluation system?
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