Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

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

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Consider the following data, and determine which of the corporate divisions is more profitable. Explain your reasoning.

Domestic International

Operating income \( 10,000,000 \) 11,000,000

Average total assets 24,000,000 32,000,000

The Trolley Toy Company manufactures toy building block sets for children. Trolley is planning for 2019 by developing a master budget by quarters. Trolley’s balance sheet for December 31, 2018, follows:

TROLLEY TOY COMPANY
Balance Sheet
December 31, 2018
Assets

Current assets:

Cash

\(58,000

Accounts receivables

22,000

Raw material inventory

1,200

Finished goods inventory

5,400

Total current assets

\)86,600

Property, Plant and Equipment

Equipment

142,000

Less: Accumulated depreciation

(47,000)

95,000

Total assets

\(181,600

Liabilities

Current liabilities

Account payable

\)8,000

Stockholders equity

Common stock, no par

120,000

Retained earnings

53,600

Total stockholders equity

173,600

Total liabilities and stockholders equity

\(181,600

Other budget data for Trolley Toy Company:

a. Budgeted sales are 1,400 sets for the first quarter and expected to increase by 150 sets per quarter. Cash sales are expected to be 30% of total sales, with the remaining 70% of sales on account. Sets are budgeted to sell for \)90 per set.

b. Finished Goods Inventory on December 31, 2018, consists of 200 sets at \(27 each.

c. Desired ending Finished Goods Inventory is 40% of the next quarter’s sales; first quarter sales for 2020 are expected to be 2,000 sets. FIFO inventory costing method is used.

d. Raw Materials Inventory on December 31, 2018, consists of 600 pounds. Direct materials requirement is 3 pounds per set. The cost is \)2 per pound.

e. Desired ending Raw Materials Inventory is 10% of the next quarter’s direct materials needed for production; desired ending inventory for December 31, 2019, is 600 pounds; indirect materials are insignificant and not considered for budgeting purposes.

f. Each set requires 0.30 hours of direct labor; direct labor costs average \(12 per hour.

g. Variable manufacturing overhead is \)3.60 per set.

h. Fixed manufacturing overhead includes \(7,000 per quarter in depreciation and \)2,585 per quarter for other costs, such as utilities, insurance, and property taxes.

i. Fixed selling and administrative expenses include \(11,000 per quarter for salaries; \)1,500 per quarter for rent; \(1,350 per quarter for insurance; and \)1,500 per quarter for depreciation.

j. Variable selling and administrative expenses include supplies at 2% of sales.

k. Capital expenditures include \(45,000 for new manufacturing equipment, to be purchased and paid for in the first quarter.

l. Cash receipts for sales on account are 40% in the quarter of the sale and 60% in the quarter following the sale; Accounts Receivable balance on December 31, 2018, is expected to be received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered for budgeting purposes.

m. Direct materials purchases are paid 90% in the quarter purchased and 10% in the following quarter; Accounts Payable balance on December 31, 2018, is expected to be paid in the first quarter of 2019.

n. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

o. Income tax expense is projected at \)3,500 per quarter and is paid in the quarter incurred.

p. Trolley desires to maintain a minimum cash balance of \(55,000 and borrows from the local bank as needed in increments of \)1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of \(1,000; interest is 10% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.

Requirements

1. Prepare Trolley’s operating budget and cash budget for 2019 by quarter. Required schedules and budgets include: sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, selling and administrative expense budget, schedule of cash receipts, schedule of cash payments, and cash budget. Manufacturing overhead costs are allocated based on direct labor hours.

2. Prepare Trolley’s annual financial budget for 2019, including budgeted income statement and budgeted balance sheet.

3. Trolley sold 7,000 sets in 2019, and its actual operating income was as follows:

TROLLEY TOY COMPANY
Income Statement
For the Year Ended December 31, 2019

Net sales revenue

\)630,000

Cost of goods sold:

Variable

\(94,890

Fixed

36,540

131,430

Gross profit

498,570

Selling and administrative expenses:

Variable

12,600

Fixed

61,400

74,000

Operating income

424,570

Other income and (expenses):

Interest expenses

(425)

Income before income tax

424,145

Income tax expenses

(22,000)

Net income

402,145

Prepare a flexible budget performance report through operating income for 2019. Show product costs separately from selling and administrative costs. To simplify the calculations due to sets in beginning inventory having a different cost than those produced and sold in 2019, assume the following product costs:

Variable

Fixed

Total

Static budget

\)84,240

\(38,340

\)122,580

Flexible budget

93,940

38,340

132,280

4. What was the effect on Trolley’s operating income of selling 500 sets more than the static budget level of sales?

5. What is Trolley’s static budget variance for operating income?

6. Explain why the flexible budget performance report provides more useful information to Trolley’s managers than the static budget performance report. What insights can Trolley’s managers draw from this performance report?

7. During 2019, Trolley recorded the following cost data:

Standard Cost Information

Quantity

Cost

Direct materials

3 pounds per set

\(2.00 per pound

Direct labor

0.30 hours per set

\)12.00 per hour

Variable manufacturing overhead

0.30 hours per set

\(12.00 per hour

Fixed manufacturing overhead Static budget amount: \)38,340

0.30 hours per set

\(21.00 per hour

Actual Cost Information

Direct materials

(20,700 pounds @ \)2.50 per pound)

\( 51,750

Direct labor

(2,060 hours @ \)12.40 per hour)

25,544

Variable manufacturing overhead

(2,060 hours @ $11.60 per hour)

23,896

Fixed manufacturing overhead

36,540

Compute the cost and efficiency variances for direct materials and direct labor.

8. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

9. Prepare the standard cost income statement for 2019.

10. Calculate Trolley’s ROI for 2019. To calculate average total assets, use the December 31, 2018, balance sheet for the beginning balance and the budgeted balance sheet for December 31, 2019, for the ending balance. Round all of your answers to four decimal places.

11. Calculate Trolley’s profit margin ratio for 2019. Interpret your results.

12. Calculate Trolley’s asset turnover ratio for 2019. Interpret your results.

13. Use the expanded ROI formula to confirm your results from Requirement 10. Interpret your results.

14. Trolley’s management has specified a 30% target rate of return. Calculate Trolley’s RI for 2019. Interpret your results.

What is the typical focus of responsibility reports for cost centers, revenue centers, and profit centres?

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.

Padgett Company has compiled the following data:

Net sales revenue $1,000,000

Operating income 60,000

Average total assets 400,000

Management’s target rate of return 12%

Compute the following amounts for Padgett:

  1. Profit margin ratio
  2. Asset turnover ratio
  3. Return on investment
  4. Residual income
See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free