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Explain the difference between a lag indicator and a lead indicator.

Short Answer

Expert verified

Answer

A lag indicator measures past performance while a lead indicator forecasts future performance.

Step by step solution

01

Meaning of Lag indicator

For instance, the frequency of accidents on a construction site is a lagging safety indicator. Lagging indicators are output measurements in this case.

02

Difference between a lag indicator and a lead indicator

The distinction between the two is that a leading indicator may affect change, but a trailing indicator can only reflect what has already occurred.

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Most popular questions from this chapter

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 managementโ€™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.

Explain the difference between market-based transfer prices and cost-based transfer prices.

What are two key performance indicators used to evaluate investment centers?

Refer to the information in Short Exercise S24-7.

Requirements

1. Compute each divisionโ€™s asset turnover ratio (round to two decimal places). Interpret your results.

2. Use your answers to Requirement 1, along with the profit margin ratio, to recalculate ROI using the expanded formula. Do your answers agree with the basic ROI in Short Exercise S24-7?

What does ROI measure?

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