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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

Short Answer

Expert verified

Answer

a

Providing feedback

b

communicating expectations

c

Benchmarking

d

motivating segment managers

e

Promoting goal congruence and coordination.

f

Benchmarking

g

Providing feedback

h

motivating segment managers

Step by step solution

01

Comparing targets to actual results

Comparing targets to actual results will be classified as providing feedback. In this, the performance evaluation is done to provide the information to the upper management as the management has already decentralized day-to-day operations.

02

Providing subunit managers with performance targets

Providing subunit managers with performance targets will be communicating expectations. This is done to make decisions that are consistent with the targets and goals of the company, the managers of the segment must know their targets and the role they have to play to achieve that.

03

Comparing actual results with industry standards

Comparing actual results with the industry standards will be benchmarking. In this companies use their evaluation results to compare them with the best in the industry to set the benchmark.

04

Providing bonuses to subunit managers who achieve performance targets

Providing bonuses to the subunit managers who achieve performance targets will be motivating segment managers, they work to achieve the targets assigned by the top-level management. The bonuses will keep them motivated to achieve the targets.

05

Aligning subunit performance targets with company strategy

The alignment of subunit performance targets with the strategies of the company will be promoting goal congruence and coordination. This company makes sure that the goals of the organization are achieved in a synchronized manner.

06

Comparing actual results of competitors

Comparing actual results of competitors will be benchmarking as the comparison of the results of the company with the competitor company to set the benchmark.

07

Taking corrective actions

Taking corrective action will be providing feedback. In this, the company will take corrective measures to correct the mistakes done by the company.

08

Using the adage “you get what you measure” when designing the performance evaluation system

This will come under motivating segment managers. In this, every segment manager will be awarded bonuses for how many targets the managers will achieve. So, in this way, the segment managers will stay motivated to achieve the organizational targets

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Most popular questions from this chapter

What is the biggest disadvantage of using ROI to evaluate investment centers?

Consider the following key performance indicators, and classify each according to the balanced scorecard perspective it addresses. Choose from financial perspective, customer perspective, internal business perspective, or learning and growth perspective.

a. Number of employee suggestions implemented

b. Revenue growth

c. Number of on-time deliveries

d. Percentage of sales force with access to real-time inventory levels

e. Customer satisfaction ratings

f. Number of defects found during manufacturing

g. Number of warranty claims

h. Return on investment

i. Variable cost per unit

j. Percentage of market share

k. Number of hours of employee training

l. Number of new products developed

m. Yield rate (number of units produced per hour)

n. Average repair time

o. Employee satisfaction

p. Number of repeat customers

Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is \(5. The transfer price to purchase from the Battery Division is \)6. The Battery Division also sells to outside customers. The sales price is \(6, and the variable cost is \)3. The Battery Division has excess capacity.

Requirements

1. Should the Calculator Division purchase from the Battery Division or the outside vendor?

2. If Henderson Company allows division managers to negotiate transfer prices, what is the maximum transfer price the manager of the Calculator Division should consider?

3. What is the minimum transfer price the manager of the Battery Division should consider?

4. Does your answer to Requirement 3 change if the Battery Division is operating at capacity?

Preparing a financial budget—budgeted income statement and balance sheet

Bradley Company has the following post-closing trial balance on December 31, 2018:

The company’s accounting department has gathered the following budgeting information for the first quarter of 2019:

Budgeted total sales, all on account $ 305,000 Budgeted direct materials to be purchased and used 32,000 Budgeted direct labor cost 12,500 Budgeted manufacturing overhead costs:

Variable manufacturing overhead 2,100 Depreciation 1,300 Insurance and property taxes 1,350 Budgeted cost of goods sold 72,000 Budgeted selling and administrative expenses:

Salaries expense 7,000 Rent expense 2,000 Insurance expense 1,100 Depreciation expense 550 Supplies expense 15,250 Budgeted cash receipts from customers 263,500 Budgeted income tax expense 41,000 Budgeted purchase and payment for capital expenditures (additional equipment) 43,000

Additional information:

a. Direct materials purchases are paid 70% in the quarter purchased and 30% in the next quarter.

b. Direct labor, manufacturing overhead, selling and administrative costs, and income tax expense are paid in the quarter incurred.

c. Accounts payable at December 31, 2018 are paid in the first quarter of 2019. Requirements

1. Prepare Bradley Company’s budgeted income statement for the first quarter of 2019.

2. Prepare Bradley Company’s budgeted balance sheet as of March 31, 2019

Wolf Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint Stores (branded retail locations), Consumer (paint sold through home improvement stores), Automotive (sales to auto manufacturers), International, and Administration. The following is selected divisional information for its two largest divisions: Paint Stores and Consumer.

Net Sales Operating Average

Revenue Income Total Assets

Paint Stores \( 3,980,000 \) 476,000 $ 1,380,000

Consumer 1,315,000 195,000 1,600,000

Management has specified a 21% target rate of return.

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. Interpret your results.

5. Calculate each division’s RI. Interpret your results, and offer a recommendation for any division with negative RI.

6. Describe some of the factors that management considers when setting its minimum target rate of return.

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