# Cornerstones of Cost Management Study Set 4

## Quiz 13 :The Balanced Scorecard: Strategic-Based Control

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Cycle Time and Velocity, MCE Computador has a manufacturing plant in Des Moines that has the theoretical capability to produce 243,000 laptops per quarter but currently produces 91,125 units. The conversion cost per quarter is $7,290,000. There are 60,750 production hours available within the plant per quarter. In addition to the processing minutes per unit used, the production of the laptops uses 10 minutes of move time, 20minutes of wait time, and 5minutes of rework time. (All work is done by cell workers.) Required: 1. Compute the theoretical and actual velocities (per hour) and the theoretical and actual cycle times (minutes per unit produced). 2. Compute the ideal and actual amounts of conversion cost assigned per laptop. 3. Calculate MCE. How does MCE relate to the conversion cost per laptop? Free Essay Answer: Answer: Cycle time: Cycle time is the time it takes to produce a unit of output from the time the materials are received till the finished goods are produces. The data of the production of the Company in the manufacturing plant in Des Moines is given in the question. Given information: The move time, wait time, and the rework time is 10 minutes, 20 minutes, and 5 minutes respectively. 1.Calculate Theoretical velocity: The actual velocity is calculated as: Theoretical cycle time is calculated as Actual cycle time is calculated as 2.Calculate Conversion cost: Assignment per unit (theoretical): Assignment per unit (actual): 3.Manufacturing cycle efficiency: MCE (manufacturing cycle efficiency) is another time-based operational measure. The information of one of its products for each hour of production is given in the question. The MCE is calculated as: Increasing MCE will reduce the actual process time by reducing non-value-added time. This would in turn reduce conversion cost. Tags Choose question tag Balanced Scorecard, Perspectives, Classification of Performance Measures Consider the following list of scorecard measures: a. Product profitability b. Ratings from customer surveys c. Number of patents pending d. Strategic job coverage ratio e. Revenue per employee f. Quality costs g. Percentage of market h. Employee turnover percentages i. First-pass yields j. On-time delivery percentage k. Percentage of revenues from new sources l. Economic value added Required: Classify each measure according to the following: perspective, financial or nonfinancial, subjective or objective, and external or internal. When the perspective is process, identify which type of process: innovation, operations, or post-sales service. Free Essay Answer: Answer: Balanced scorecard: Balanced scorecard is a model of lead and lag indicator of performance that includes the financial and non-financial performance measures. Balanced scorecard is a very effective tool in matching your mission and vision with the objectives. It tells you how you can reach your goals by effectively utilizing all your resources and manpower. It shows how you can improve the customer satisfaction, if you do that your business can grow. Learning and innovation are major tools for increasing the efficiency in the organization. It helps in creating a product that delivers value to the customers which ultimately benefits the customers. The four chief perspectives of a balanced scorecard are given below. • The growth and learning perception. • The internal business perspective. • The customer perspective. • The financial perspective. Objective measures: These are readily quantified and verified. Subjective measures: These are less quantifiable and more judgmental. These are the factors that are useful in future performances. Financial measures: These are expressed in monetary terms (cost per unit). Non-Financial measures: These use non-monetary units like number of dissatisfied customers. External measures: These are related to customer versus shareholders. Internal measures: These measures are related to processes and capabilities. Classify each measure according to the following perspectives as shown below: Tags Choose question tag Explain what is meant by the long wave and the short wave of value creation. Free Essay Answer: Answer: The long-wave of value creation: The long-wave of value creation is defined as process of monitoring the emerging needs of customers and thereby producing new and technically upgraded products in order to meet the new and potential needs of customers. In a real sense we can say that under the long wave of value creation the company considers the new and innovative products on priority basis. Therefore company is always busy in research and development in order to produce new and innovative product to customers. As to days customers are only looking for new and technologically updated products. The short-wave of value creation: U nder the short wave of value creation, companies do not think of innovation and emerging needs of customers. However they continue manufacturing and delivering of existing goods to market and customers. They try to upgrade their existing product line but do not take in account the production of new and innovative products. Hence we can say under this practice the vision of organization is limited to existing products running in the market. Tags Choose question tag Cycle Time and Velocity Norton Company has the following data for one of its production departments: Theoretical velocity: 300 units per hour Productive minutes available per year: 10,000,000 Annual conversion costs:$60,000,000 Actual velocity: 160 units per hour Required: 1. Calculate the actual conversion cost per unit using actual cycle time and the standard cost per minute. 2. Calculate the ideal conversion cost per unit using theoretical cycle time and the standard cost per minute. What incentive exists for managers when cycle time costing is used? 3. What if the actual velocity is 220 units per hour? What is the conversion cost per unit? What effect will this improvement have on delivery performance?
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Identify the five core objectives of the customer perspective.
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What is a lag measure? A lead measure?
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Activity-Based Responsibility Accounting versus Strategic-Based Responsibility Accounting The Balanced Scorecard is an approach that has the objective of driving change. Performance evaluation is an integral part of this effort. Performance evaluation within the Balanced Scorecard framework is also concerned with the effectiveness and viability of the organization's strategy. Required: 1. Describe how the Balanced Scorecard is used to drive organizational change. 2. Explain how performance evaluation is used to assess the effectiveness and viability of an organization's strategy.
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Activity-Based Responsibility Accounting versus Strategic-Based Responsibility Accounting "A Balanced Scorecard expresses the complete story of a company's strategy through an integrated set of financial and nonfinancial measures that are both predictive and historical and that may be measured subjectively or objectively." Required: 1. Using the above statement about scorecard measures, explain how scorecard measurement differs from that of an activity-based management system. 2. Explain what is meant by historical and predictive measures. Why are both types important for describing a company's strategy?
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Activity-Based Responsibility Accounting versus Strategic-Based Responsibility Accounting The following comment was made by the CEO of a company that recently implemented the Balanced Scorecard: "Responsibility in a strategic-based performance management system differs on the three D's: Direction, Dimension, and Diffusion." Required: Explain how this comment describes differences in responsibility between an activity-based and a strategic-based performance management system.
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MCE Craig, Inc., has provided the following information for one of its products for each hour of production: Actual velocity: 100 units (per hour) Move time: 20 minutes Inspection time: 18 minutes Rework time: 12 minutes Required: 1. Calculate MCE. Comment on its significance. 2. What is the theoretical cycle time? Calculate MCE using actual and theoretical cycle times. 3. What if waste is reduced by 40 percent? What is the new MCE? New cycle time?
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What are stretch targets? What is their strategic purpose?
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Cycle Time and Velocity, MCE Refer to Exercise 13.9. Assume that the company identifies poor plant layout as the root cause of wait time and move time. Required: 1. Express an improvement strategy as a series of if-then statements that will reduce the conversion cost per laptop. 2. Assume that you set an MCE target of 75 percent, based on the improvement strategy described in Requirement 1. What is the expected conversion cost per unit? Explain how you can use these targets to test the viability of your quality improvement strategy.
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What is the difference between an objective measure and a subjective measure?
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What is a Balanced Scorecard?
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Strategy Map Harmon Community Hospital developed the following series of if-then statements for its Balanced Scorecard strategy: • If employee turnover rate decreases and employee satisfaction increases, then the quality of health care service will improve. • If the quality of health care service improves, then operating efficiency will increase and patient satisfaction will increase. • If operating efficiency increases, then operating costs will decrease. • If patient satisfaction increases, then market share will increase. • If market share increases, then revenues will increase. • If revenues increase and costs decrease, then profits will increase. Required: 1. Prepare a strategy map for Harmon's strategy as described by the series of cause-and-effect relationships. 2. Explain how a performance measure can act as both a lag variable and a lead indicator. 3. What if profits did not increase to the targeted level? Explain how this result could be attributable to either an implementation problem or an invalid strategy. What actions would likely be taken for each case?

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What are the three strategic themes of the financial perspective?
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What is meant by balanced measures?
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How does the reward system for a strategic-based system differ from the traditional approach?
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